Exhibit 10.1

 

Employment Agreement

 

This Employment Agreement (the “Agreement”), dated as of October 28, 2005 (the
“Commencement Date”), by and between Sunset Financial Resources, Inc., a
Maryland real estate investment trust (the “Company”), and Stacy Riffe, an
individual (the “Executive”).

 

WHEREAS, the Executive and the Company deem it in their respective best
interests to enter into an employment agreement for the Executive to serve as
the Executive Vice President and Chief Financial Officer of the Company on the
terms and subject to the conditions set forth herein.

 

NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:

 

1. Definitions. For purposes of this Agreement, the following terms shall have
the following definitions:

 

(a) “Business” shall mean the acquisition and management of portfolios of
residential and commercial mortgage loans in the United States.

 

(b) “Cause” shall mean any one or more of the following:

 

(i) the continued and intentional failure by the Executive to substantially
perform her duties with the Company, other than any such failure resulting from
the Executive’s Disability; provided, however, that no termination of the
Executive’s employment shall be for Cause as set forth in this clause (i) until
there shall have been delivered to the Executive written notice setting forth
that the Executive committed the conduct set forth in this clause (i) and
specifying the particulars thereof in reasonable detail;

 

(ii) a breach by the Executive of her fiduciary duties as an officer of the
Company, or a material breach by the Executive of any written rule, regulation,
policy or procedure of the Company;

 

(iii) the Executive’s excessive absenteeism not related to illness;

 

(iv) the Executive’s conviction of or plea of nolo contendere to a felony or
final non-appealable conviction of any other crime that incarcerates the
Executive for a period of one year or longer; or

 

(v) the Executive’s commission of a fraudulent act, embezzlement, theft or
felony, in any case, whether or not involving the Company or the Executive’s
performance of her duties under this Agreement, that, in the reasonable opinion
of the Board, renders the Executive’s continued employment harmful to the
Company.

 

Notwithstanding the foregoing, no failure to perform by the Executive after a
Notice of Termination is given by the Executive shall constitute Cause for
purposes of this Agreement.

--------------------------------------------------------------------------------

(c) “Change of Control” shall mean any one or more of the following:

 

(i) at any time during any 12-month period, the Board of Directors of the
Company (the “Board”) in office at the beginning of such period shall have
ceased to constitute a majority of the Board without the approval of the
nomination of such directors by a majority of the Board consisting of directors
who were serving at the beginning of such period;

 

(ii) any person (as defined in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act) (other than the Company, any of its subsidiaries or any trustee,
fiduciary or other person holding securities under any employee share ownership
plan or any other employee benefit plan of the Company or any of its
subsidiaries), together with its affiliates and associates (as such terms are
defined in Rule 12b-2 under the Exchange Act) shall have become the beneficial
owner (as defined in Rule 13d-3 of the Exchange Act) of securities representing
25% or more of the combined voting power of the Voting Shares;

 

(iii) the Company shall have filed a schedule, report or proxy statement with
the Securities and Exchange Commission pursuant to the Exchange Act disclosing
that a change in control of the Company has occurred;

 

(iv) a merger or consolidation of the Company shall have been consummated, other
than (x) a merger or consolidation that would result in the Voting Shares
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 50% of the combined voting power of the voting
securities of the surviving entity or (y) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
person acquires more than 50% of the Voting Shares;

 

(v) any person, other than a subsidiary of the Company, shall have acquired more
than 50% of the combined assets of the Company and its subsidiaries; or

 

(vi) the shareholders of the Company shall have approved the complete
liquidation or dissolution of the Company.

 

(d) “Confidential Information” shall mean all confidential information of the
Company and/or its subsidiaries, excluding any information that is available in
the public domain and including trade secrets and, by way of illustration,
whether or not labeled or otherwise identified as “confidential,” the Company’s:

 

(i) acquisition, expansion, marketing, financial and other business strategies,
information and plans;

 

(ii) compilations of data;

 

(iii) computer programs and/or records;

 

2

--------------------------------------------------------------------------------

(iv) confidential information developed by consultants and contractors;

 

(v) employee information; and

 

(vi) manuals, memoranda, projections and minutes.

 

(e) “Disability” shall mean the physical or mental incapacity of the Executive
that, even with reasonable accommodation, has prevented the execution of the
duties of her office, as outlined in Section 2, for three consecutive months or
for more than 180 business days in the aggregate in any 18-month period and
that, in either case, in the determination of the Board after consultation with
a medical doctor licensed to practice medicine in the State of Florida appointed
by the Board and the Executive, may be expected to prevent the Executive for any
period of time thereafter from devoting substantial time and energies to the
duties of her office, as outlined in Section 2. The Executive agrees to submit
to reasonable requests for medical examinations to determine whether a
Disability exists.

 

(f) “Employee Benefits” shall mean the perquisites, benefits and service credit
for benefits as provided under any and all employee retirement income and
welfare benefit policies, plans, programs or arrangements in which the Executive
is entitled to participate, including, without limitation, any share option,
share purchase, share appreciation, dividend equivalent rights, savings,
pension, supplemental executive retirement or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or other life,
health, medical/hospital or other insurance (whether funded by actual insurance
or self-insured by the Company), disability, salary continuation, expense
reimbursement, and other employee benefit policies, plans, programs or
arrangements that may now exist or any equivalent successor policies, plans,
programs or arrangements that may be adopted hereafter by the Company, providing
perquisites, benefits and service credit for benefits at least as great in the
aggregate as are payable thereunder prior to a Termination Date or Change of
Control Date, as the case may be.

 

(g) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

 

(h) “Good Reason” shall mean any one or more of the following:

 

(i) a reduction by the Company without the Executive’s consent in the
Executive’s position, duties, responsibilities or status with the Company that
represents a substantial adverse change from her position, duties,
responsibilities or status, or a removal of the Executive from or any failure to
reelect the Executive to any of the positions referred to in Section 2, but
specifically excluding any action in connection with the termination of the
Executive’s employment for death, Disability, Cause, or by the Executive for
normal retirement;

 

(ii) a reduction by the Company without the Executive’s consent of the Base
Salary;

 

3

--------------------------------------------------------------------------------

(iii) a relocation of the Executive by the Company without the Executive’s
consent to a location more than 25 miles from the Jacksonville, Florida
metropolitan area, other than for travel reasonably required in the performance
of the Executive’s responsibilities;

 

(iv) any material breach by the Company of any provision of this Agreement or
any other agreement between the Company or any of its subsidiaries and the
Executive that, in any case, is not cured within 14 days of written notice to
the Company of such breach;

 

(v) the insolvency of or the filing (by any party, including the Company, but
excluding the Executive) of a petition for bankruptcy of the Company, which
petition is not dismissed within 60 days; or

 

(vi) the failure by the Company to obtain the assumption of this Agreement by
any successor or assign of the Company.

 

(i) “Severance Period” shall mean the period of time commencing on the Change of
Control Date or the Termination Date, as the case may be, and ending on the
first anniversary thereof.

 

(j) “Termination Date” shall mean (i) in the case of the Executive’s death, her
date of death; (ii) in the case of a termination by the Executive for Good
Reason, the last day of her employment; and (iii) in all other cases, the date
specified in the Notice of Termination (as defined below) or, if no Notice of
Termination is sent, the last day of her employment; provided, however, that if
the Executive’s employment is terminated by the Company due to Disability, the
date specified in the Notice of Termination shall be the 30th day after receipt
of the Notice of Termination by the Executive, provided that the Executive shall
not have returned to the full-time performance of her duties within 30 days
after such receipt.

 

(k) “Voting Shares” shall mean the securities of the Company entitled to vote
generally in the election of directors of the Company.

 

2. Employment and Duties.

 

(a) Employment. Pursuant to the terms and subject to the conditions of this
Agreement, the Company agrees to employ the Executive during the Employment Term
(as defined below) as Executive Vice President and Chief Financial Officer of
the Company, and the Executive accepts such employment.

 

(b) Duties. During the Employment Term, the Executive will perform the executive
and managerial duties customarily associated with the office set forth in
Section 2(a) under the control and at the direction of the Chief Executive
Officer and the Board and other such executive and managerial duties as may,
from time to time, reasonably be assigned to her by the Chief Executive Officer
or the Board that are consistent with such position. During the Employment Term,
the Executive may also be required to perform services for one or more

 

4

--------------------------------------------------------------------------------

affiliates of the Company. During the Employment Term, the Executive shall be
located in or about Jacksonville, Florida and shall travel to such geographical
locations as may be appropriate from time to time to carry out the duties of the
office as outlined in this Section 2.

 

(c) Scope of Employment. During the Employment Term, the Executive will devote
such time, energy, skill and knowledge to the performance of her duties for the
Company and for the benefit of the Company as may be necessary or required for
the effective conduct and operation of the Business. Furthermore, the Executive
shall exercise due diligence and care in the performance of her duties to the
Company under this Agreement. Notwithstanding the foregoing, during the
Employment Term, the Executive may serve on civic or charitable boards and may
serve as an officer, director, shareholder, or limited partner in any business
venture so long as such activities do not interfere with the performance of the
Executive’s duties under this Agreement and do not directly compete with the
Business.

 

3. Employment Term. The term of employment shall begin on the Commencement Date.
Unless earlier terminated pursuant to Section 4, this Agreement will expire on
October 28, 2007 (the “Expiration Date”); provided, however, that on the
Expiration Date and each subsequent anniversary of the Expiration Date, the
Expiration Date shall automatically be extended by one additional year unless
either the Executive or the Company shall have given written notice of
expiration of this Agreement to the other party at least 180 days prior to the
date of automatic renewal of this Agreement. The Commencement Date through and
including the Expiration Date (as so extended) is hereinafter referred to as the
“Employment Term.”

 

4. Termination.

 

(a) Death. The Executive’s employment will terminate automatically upon the
Executive’s death.

 

(b) Disability. Upon the good faith determination by the Company that the
Disability of the Executive has occurred, the Company may terminate the
Executive’s employment under this Agreement by notice pursuant to Section 4(e).
During the period of incapacitation, the salary otherwise payable to the
Executive may, at the absolute discretion of the Board, be reduced by the amount
of any disability benefits or payments received by the Executive, excluding
health insurance benefits or other reimbursement of medical expenses for the
Executive.

 

(c) By the Company. The Company may terminate the Executive’s employment under
this Agreement for Cause, or without Cause, by notice pursuant to Section 4(e),
subject to the severance obligations set forth in Section 8.

 

(d) By the Executive. The Executive may terminate her employment under this
Agreement for Good Reason, or without Good Reason, by notice pursuant to
Section 4(e).

 

(e) Notice of Termination. Any termination of the Executive’s employment by the
Company or by the Executive (other than a termination upon the Executive’s
death, which does not require notice) must be communicated by written notice
(the “Notice of Termination”)

 

5

--------------------------------------------------------------------------------

to the other party given in accordance with the notice provisions of this
Agreement. The Notice of Termination must (i) indicate the specific termination
provision of this Agreement relied upon; (ii) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive’s employment under the provisions so indicated; and (iii) if the
Termination Date is other than the date of receipt of such Notice of
Termination, specify the Termination Date (which date shall be not more than 30
days after the date of giving of such Notice of Termination). The failure by the
Company or the Executive to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of the basis for termination will not
waive any right of such party hereunder or preclude such party from asserting
such fact or circumstance in enforcing her or its rights hereunder.

 

5. Compensation. During the Employment Term, for all services rendered by the
Executive to the Company, the Company shall pay to the Executive:

 

(a) Base Salary. For services rendered, the Company shall pay the Executive a
salary of $200,000 per calendar year (such annual salary, as adjusted from time
to time pursuant to this Section 5(a), the “Base Salary”), payable in accordance
with the Company’s normal payroll practices. The Board shall conduct an annual
review of the Executive’s Base Salary. The Executive shall be entitled to
receive increases in the Base Salary, if any, that may be determined by the
Board or an authorized committee thereof in its sole discretion. Any increases
to the Base Salary shall be effective January 1 for each calendar year of the
Employment Term. In no event shall the Executive’s Base Salary be reduced
without the Executive’s consent, except as provided in Section 4(c).

 

(b) Annual Bonus. In further consideration of the Executive’s service, the
Executive shall be eligible to receive an annual bonus award in an amount to be
determined by the Board or an authorized committee thereof in its sole
discretion.

 

(c) Taxes. All compensation paid to the Executive shall be subject to applicable
employment, payroll and withholding taxes, including taxes resulting from a
determination that any portion of any benefits supplied to the Executive may be
reimbursing personal as well as business expenses.

 

(d) Stock Grant. On the date of the Agreement, or as soon as practical
thereafter, Executive shall receive, a restricted share grant of 10,000 shares
of common stock pursuant to the Company’s 2003 Share Incentive Plan (the
“Plan”), subject to the terms and conditions of the Plan. The shares shall vest
at a rate of 1/36 each month over a period of thirty-six (36) months following
the grant date.

 

(e) Relocation Expenses. In order to assist Executive in her relocation to the
Jacksonville area, Sunset agrees to pay to Executive or the corresponding
provider of services the following expenses and related amounts incurred by
Executive in connection with her relocation. Such amounts shall be paid to
Executive within three (3) days of submission of the respective amounts.

 

6

--------------------------------------------------------------------------------

  (i) The packing, transportation and unpacking of Executive’s household items
to Jacksonville;

 

  (ii) Temporary housing for up to 90 days, at an approved location;

 

  (iii) The brokerage fee (up to 6.0% of selling price) for selling Executive’s
primary residence in connection with her relocation to Jacksonville;

 

  (iv) The closing costs associated with the purchase of Executive’s primary
residence in the Jacksonville area;

 

  (v) Provide dual living expenses to Executive of $100 per week for up to
twelve (12) weeks;

 

  (vi) Final transportation expenses for a personal vehicle from Dallas to
Jacksonville;

 

  (vii) A one-time relocation expense grant to Executive of $2,500 to cover any
miscellaneous relocation-related expenses, deposits or other relocation items
not otherwise anticipated in this Agreement. This grant is considered taxable
income by the Internal Revenue Service; and

 

  (viii) Provide a tax gross-up in an amount necessary to make the after tax
benefit received in respect of these relocation benefits equal to the pre-tax
benefit of the payments.

 

In the event Executive terminates this Agreement without Good Reason within
twelve (12) months from the Commencement Date, Executive agrees to reimburse
Sunset, within fourteen (14) days of the date of termination, for all relocation
expenses and payments listed above paid by Sunset directly to Executive or paid
by Sunset directly to a third party on behalf of Executive.

 

6. Employee Benefits.

 

(a) Benefits. The Executive shall receive group health/dental insurance, life
insurance, disability insurance and other similar benefits available to the
Company’s executive officers. Benefits may be changed, modified or revoked at
the sole discretion of the Company. The Executive shall not be deemed to have a
vested interest in any of the Company’s plans or programs. The Executive may
receive benefits not generally provided to Company employees from time to time
at the sole discretion of the Board or an authorized committee thereof.

 

(b) Vacation. The Executive is entitled to receive 20 business days paid
vacation annually for each calendar year of the Employment Term. Such vacation
shall be taken at such times that are consistent with the reasonable business
needs of the Company. All vacation shall be subject to the policies and
procedures of the Company.

 

7

--------------------------------------------------------------------------------

(c) Fringe Benefits. The Executive shall receive fringe benefits as such
benefits may exist from time to time at the sole discretion of the Board or any
committee thereof.

 

7. Business Expenses. The Executive is authorized to incur reasonable, ordinary
and necessary business expenses in the performance of the duties outlined above
during the Employment Term in accordance with policies established by the
Company. The Executive shall account to the Company for all such expenses. The
Company shall reimburse the Executive or pay the expenses in accordance with the
policies established by the Company.

 

8. Compensation Upon Termination or Change of Control. In all events, the
Company will pay to the Executive all Base Salary and benefits accrued to the
Executive through and including the Termination Date.

 

(a) Termination Without Cause, For Good Reason or Upon a Change of Control. Upon
(i) the occurrence of the first event constituting a Change of Control (the
“Change of Control Date”) and the termination or non-renewal of Executive’s
employment during the Severance Period (other than for Cause) or (ii) if the
Executive’s employment is terminated (x) by the Company without Cause, (y) by
reason of Disability or (z) by the Executive for Good Reason (any event
specified in the foregoing clauses (i) or (ii), a “Severance Event”), the
Company shall pay or provide to the Executive the following:

 

(i) The Company shall pay to the Executive as severance pay and in lieu of any
further compensation for periods subsequent to the Termination Date or the
Change of Control Date, as the case may be, an amount in cash (the “Severance
Benefit”) equal to the product of 2.0 times the amount of the Base Salary.

 

(ii) During the Severance Period, the Company will provide or arrange to provide
the Executive with Employee Benefits that are welfare benefits (but not share
options, share purchase, share appreciation, dividend equivalent rights or
similar compensatory benefits) substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Change of Control
Date or the Termination Date, as the case may be. The Severance Period will be
considered service with the Company for the purpose of determining service
credits and benefits due and payable to the Executive under the Company’s
retirement income, supplemental executive retirement, and other benefit plans
applicable to the Executive, the Executive’s dependents or the Executive’s
beneficiaries immediately prior to the Change of Control Date or the Termination
Date, as the case may be. If and to the extent that any benefit described in the
immediately preceding sentence is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company, then the Company will
itself pay or provide for the payment of such Employee Benefits to the
Executive, and, if applicable, the Executive’s dependents and beneficiaries.
Employee Benefits otherwise receivable by the Executive pursuant to this
Section 8(a)(ii) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the Severance
Period.

 

(iii) Vesting of benefits shall be treated as described in Section 8(d)(i).

 

8

--------------------------------------------------------------------------------

(b) Termination By Reason of Disability. If the Employment Term is terminated by
reason of Disability, the Company shall pay to the Executive as severance pay
and in lieu of any further compensation for periods subsequent to the
Termination Date an amount in cash equal to the Severance Benefit. Vesting of
benefits shall be treated as described in Section 8(d)(i). The Executive shall
continue to receive, so long as the Disability continues, all benefits provided
under any long-term disability program(s) of the Company in effect at the time
of such termination, subject to the terms and conditions of any such program(s),
as may be amended, changed, modified or terminated for all employees of the
Company.

 

(c) Payment of the Severance Benefit. The Company shall pay the Severance
Benefit to the Executive (i) in a single lump sum in immediately available
funds, in United States Dollars, within five business days after the Change of
Control Date; or (ii) in all other circumstances, in 12 equal monthly
installments following the Termination Date.

 

(d) Treatment of Award Grants.

 

(i) Vesting of Benefits. Notwithstanding any other provision of this Agreement,
the Company’s employee benefit plans, any agreement entered into under such
plans, or any retirement, pension, profit sharing or other similar plan
(collectively, the “Plans”), upon the occurrence of a Severance Event, all
deferred or unvested portions of any award made to the Executive under any of
the Plans shall automatically become fully vested as of the Termination Date or
the Change of Control Date, as the case may be, and shall be in effect and
redeemable by or payable to the Executive, or the Executive’s designated
beneficiary or estate, on the same conditions (other than vesting) as would have
applied had the Severance Event not occurred.

 

(ii) Clarification Regarding Treatment of Award Grants. The Plans may contain
language regarding the effects of certain changes of control of the Company or
certain terminations of the Executive’s employment. Notwithstanding such
language in the Plans, for so long as this Agreement is in effect, the Company
will be obligated, if the terms of this Agreement are more favorable in this
regard than the terms of the Plans, to take the actions required under
Section 8(d)(i) upon the happening of the circumstances described therein.
Notwithstanding the definition of “Change of Control,” “Cause” or any other term
relating to the vesting or exercise of awards made under any Plan that may
appear in such Plan, for so long as this Agreement is in effect, the definitions
and other provisions set forth in this Agreement relating thereto shall control
and be binding on the Company and its affiliates.

 

(e) Additional Payments.

 

(i) Notwithstanding anything in this Agreement to the contrary, in the event it
is determined (as hereafter provided) that any right or interest that vests in
the Executive, or any payment or distribution made by the Company to or for the
benefit of the Executive, whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise pursuant to
or by reason of any other agreement, policy, Plan, program or arrangement,
including without limitation any share option,

 

9

--------------------------------------------------------------------------------

share appreciation right, dividend equivalent right, restricted shares of
similar right, the lapse or termination of any restriction on or the vesting or
exerciseability of any of the foregoing (any such right, interest, payment or
distribution, a “Payment”), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”) (or
any successor provision thereto), by reason of being considered an “excess
parachute payment,” within the meaning of Section 280G of the Code (or any
successor provision thereto) or to any similar tax imposed by state or local
law, or any interest or penalties with respect to such tax (such tax or taxes,
together with any such interest and penalties, being hereafter collectively
referred to as the “Excise Tax”), then the Executive will be entitled to receive
an additional payment or payments from the Company (collectively, a “Gross-Up
Payment”). The Gross-Up Payment will be in an amount such that, after payment by
the Executive of all taxes (including any interest or penalties imposed with
respect to such taxes), including any Excise Tax imposed upon the Gross-Up
Payment, the Executive will have received an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.

 

(ii) Subject to the provisions of Section 8(e)(vi), all determinations required
to be made under this Section 8(e), including whether an Excise Tax is payable
by the Executive and the amount of such Excise Tax and whether a Gross-Up
Payment is required to be paid by the Company to the Executive and the amount of
such Gross-Up Payment, if any, will be made by a nationally recognized
accounting firm (the “Accounting Firm”) selected by the mutual written agreement
of the Executive and the Company. The parties hereto will direct the Accounting
Firm to submit its determination and detailed supporting calculations to both
the Company and the Executive within 30 calendar days after the Executive’s
termination date, and any such other time or times as may be requested by the
Company or the Executive. If the Accounting Firm determines that any Excise Tax
is payable by the Executive, the Company will pay the required Gross-Up Payment
to the Executive within five business days after receipt of such determination
and calculations with respect to any payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it will, at the
same time as it makes such determination, furnish the Company and the Executive
an opinion that the Executive has substantial authority not to report any Excise
Tax on the Executive’s federal, state or local income or other tax return. As a
result of the uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) and the possibility of similar uncertainty
regarding applicable state or local tax law at the time of any determination by
the Accounting Firm hereunder, it is possible that Gross-Up Payments which will
not have been made by the Company should have been made (an “Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to
Section 8(e)(vi) and the Executive thereafter is required to make a payment of
any Excise Tax, the parties will direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment will be promptly paid by the Company
to, or for the benefit of,

 

10

--------------------------------------------------------------------------------

the Executive within five business days after receipt of such determination and
calculations.

 

(iii) The Company and the Executive will each provide the Accounting Firm access
to and copies of any books, records and documents in the possession of the
Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation of and issuance of the determinations and calculations
contemplated by Section 8(e)(ii). Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment will be binding upon the Company and the
Executive.

 

(iv) The federal, state and local income or other tax returns filed by the
Executive will be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive will make proper payment of the amount of any
Excise Payment and, at the request of the Company, provide to the Company true
and correct copies (with any amendments) of the Executive’s federal tax return
as filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company evidencing such payment. If,
prior to the filing of the Executive’s federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive will within five business days pay to the Company the amount of such
reduction.

 

(v) The fees and expenses of the Accounting Firm for its services in connection
with the determinations and calculations contemplated herein will be borne by
the Company. If such fees and expenses are initially paid by the Executive, the
Company will reimburse the Executive the full amount of such fees and expenses
within five business days after receipt from the Executive of a statement
therefor and reasonable evidence of the Executive’s payment thereof.

 

(vi) The Executive will notify the Company in writing of any claim by the
Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment. Such
notification will be given as promptly as practicable but no later than 10
business days after the Executive actually receives notice of such claim and the
Executive will further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the Executive). The Executive will not pay such claim prior to the
earlier of (x) the expiration of the 30-calendar day period following the date
on which the Executive gives such notice to the Company and (y) the date that
any payment of amount with respect to such claim is due. If the Company notifies
the Executive in writing prior to the expiration of such period that it desires
to contest such claim, the Executive will:

 

  (A)

provide the Company with any written records or documents in the

 

11

--------------------------------------------------------------------------------

 

Executive’s possession relating to such claim reasonably requested by the
Company;

 

  (B) take such action in connection with contesting such claim as the Company
may reasonably request in writing from time to time, including without
limitation accepting legal representation with respect to such claim by an
attorney competent in respect of the subject matter and reasonably selected by
the Company;

 

  (C) cooperate with the Company in good faith in order effectively to contest
such claim; and

 

  (D) permit the Company to participate in any proceedings relating to such
claims;

 

provided, however, that the Company will bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and will indemnify and hold harmless the Executive, on an after-tax
basis, from and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limiting the foregoing provisions of this
Section 8(e), the Company will control all proceedings taken in connection with
the contest of any claim contemplated by this Section 8(e)(vi) and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
(provided, however, that the Executive may participate therein at the
Executive’s own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive will prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction, and in one or more appellate courts, as the Company may determine;
provided, however, that if the Company directs the Executive to pay the tax
claimed and sue for a refund, the Company will advance the amount of such
payment to the Executive on an interest-free basis and will indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income or
other tax, including interest or penalties with respect thereto, imposed with
respect to such advance; provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which the contested amount if claimed to be due is limited
solely to such contested amount. The Company’s control of any such contested
claim will be limited to issues with respect to which a Gross-Up Payment would
be payable hereunder and the Executive will be entitled to settle or contest, as
the case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.

 

(vii) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 8(e)(vi), the Executive receives any refund with
respect to such claim, the Executive will (subject to the Company’s complying
with the requirements of Section 8(e)(vi)) pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto) within 30 calendar days after such receipt and the Company’s
satisfaction of all accrued

 

12

--------------------------------------------------------------------------------

obligations under this Agreement. If, after the receipt by the Executive of any
amount advanced by the Company pursuant to Section 8(e)(vi), a determination is
made that the Executive will not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such determination prior to the expiration of 30 calendar days after
such determination, then such advance will be forgiven and will not be required
to be repaid and the amount of any such advance will offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid by the Company to
the Executive pursuant to this Section 8(e).

 

(viii) Notwithstanding any other provision of this Agreement, the Company shall
pay to the Executive an amount equal to the Base Salary upon the occurrence of:
(x) the Expiration Date; and (y) any failure for any reason of the Expiration
Date to be automatically extended by one additional year as prescribed by
Section 3 of this Agreement.

 

(f) Nature of Payments. The amounts due under this Section 8 are in the nature
of severance payments considered to be reasonable by the Company and are not in
the nature of a penalty. Such amounts are in full satisfaction of all claims
that the Executive may have in respect of her employment by the Company or its
affiliates and are provided as the sole and exclusive benefits to be provided to
the Executive in respect of her termination of Employment from the Company.
Notwithstanding any other provisions herein, it shall be a condition precedent
to the Company making any payments pursuant to this Section 8 that the Executive
has executed and delivered to the Company the release contemplated pursuant to
Section 12.

 

(g) No Mitigation or Set-Off. The Executive will not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment. There will be no right of set-off or counterclaim in respect of any
claim, debt of obligation against any payment to or benefit for the Executive
provided for in this Agreement, except as expressly provided herein.

 

9. Confidentiality and Non-Competition.

 

(a) Confidentiality.

 

(i) During the Employment Term, the Company agrees to provide the Executive with
access to Confidential Information.

 

(ii) The Executive acknowledges that the Confidential Information is valuable
and proprietary to the Company or to third parties that have entrusted the
Company and/or its subsidiaries with such Confidential Information. The
Executive agrees, except as required for the Executive to fulfill her duties
hereunder, that the Executive shall not use, publish, disseminate or otherwise
disclose any Confidential Information, no matter when learned or accessed,
without the prior written consent of the Company.

 

13

--------------------------------------------------------------------------------

(iii) All Confidential Information shall be the exclusive property of the
Company and the Executive shall have no rights in or to the Confidential
Information upon any termination of this Agreement or her employment with the
Company. Upon the termination of the Executive’s employment or upon the demand
of the Company, the Executive shall immediately deliver to the Company all
plans, designs, drawings, specifications, listings, manuals, records, notebooks
and similar repositories of or documents containing Confidential Information,
including all copies, then in the Executive’s possession or control, whether
prepared by the Executive or others. Upon such termination, the Executive shall
retain no copies of any such documents.

 

(iv) The provisions of this Section 9(a) shall survive the termination of this
Agreement indefinitely.

 

(b) Inducement/Enticement. During the Employment Term and, in the case of (x) a
termination by the Company for Cause, (y) a termination due to Disability or
(z) a termination by the Executive other than for Good Reason, for a period of
six months from the Termination Date, the Executive shall not, directly or
indirectly:

 

(i) induce, or attempt to induce, any employees or agents of, or consultants of
or to, the Company or any subsidiary of the Company, to do anything from which
the Executive is restricted by reason of Section 9(a); or

 

(ii) offer or aid others to offer employment to or recruit or solicit or hire
anyone who is an employee or agent of, or consultant of or to, the Company or a
subsidiary of the Company at the time of termination of the Executive, unless
such person’s employment was terminated by the Company or any such subsidiary.

 

In the case of (x) a termination by the Company for Cause, (y) a termination due
to Disability or (z) a termination by the Executive other than for Good Reason,
the provisions of this Section 9(b) shall survive the termination of the
Executive’s employment.

 

(c) Injunctive Relief. The Executive acknowledges that a breach of any of the
agreements contained in this Section 9 will give rise to irreparable injury to
the Company, inadequately compensable in damages. Accordingly, the Company shall
be entitled to injunctive relief to prevent or cure breaches or threatened
breaches of the provisions of this Section 9 and to enforce specific performance
of the terms and provisions hereof in any court of competent jurisdiction, in
addition to any other legal or equitable remedies that may be available. The
Executive further acknowledges and agrees that in the event of the termination
of this Agreement, her experience and capabilities are such that she can obtain
employment in business activities that are of a different or noncompeting nature
with her activities as an employee of the Company and that the enforcement of a
remedy hereunder by way of injunction shall not prevent the Executive from
earning a reasonable livelihood. The Executive further acknowledges and agrees
that the covenants contained herein are necessary for the protection of the
Company’s legitimate business interests and are reasonable in scope and content.
The Executive also acknowledges that the Company would not enter into this
Agreement or agree to provide her

 

14

--------------------------------------------------------------------------------

with access to its Confidential Information without the Executive’s promises
contained in this Section 9.

 

10. Remedies for the Company. The termination of this Agreement by the Company
for Cause shall not be deemed to be a waiver by the Company of any breach by the
Executive of this Agreement or any other obligation owed the Company, and,
notwithstanding such a termination, the Executive shall be liable for all
damages attributable to such a breach.

 

11. Remedies for the Executive.

 

(a) The termination of this Agreement by the Executive for Good Reason shall not
be deemed to be a waiver by the Executive of any breach by the Company of this
Agreement or any other obligation owed the Executive, and, notwithstanding such
a termination, the Company shall be liable for all damages attributable to such
a breach.

 

(b) In the event that the Executive is terminated for Cause and it is ultimately
determined that the Company lacked Cause, (i) the termination shall be treated
as a termination other than for Cause; (ii) the Executive shall have the right
to seek remedy for a breach of this Agreement by the Company, including, but not
limited to, any other such damages as may be suffered and/or incurred by the
Executive, the Executive’s costs incurred during the dispute and reasonable
attorneys’ fees in connection with such dispute; and (iii) the Executive shall
receive all Severance Benefits.

 

12. Full Satisfaction; Waiver and Release. As a condition to receiving the
payments and benefits described in Section 8, the Executive and the Company
shall execute a document in form reasonably acceptable to them, releasing and
waiving any and all claims, causes of actions and the like against the other
party and its respective successors, subsidiaries, affiliates, shareholders,
officers, directors, managers, agents and employees, regarding all matters
relating to the Executive’s service as an employee of the Company, its
subsidiaries or any of their affiliates and the termination of such
relationship. Such claims include, without limitation, any claims arising under
the Age Discrimination in Employment Act of 1967, as amended; Title VII of the
Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991, as amended;
the Equal Pay Act of 1962; the Americans with Disabilities Act of 1990; the
Family and Medical Leave Act, as amended; the Employee Retirement Income
Security Act of 1974, as amended; the Sarbanes-Oxley Act, or any other federal,
state or local statute or ordinance, but exclude any claims that arise out of an
asserted breach of the terms of this Agreement and any benefits payable to the
Executive under the Company’s benefit plans, practices and programs in which she
participates.

 

13. No Waiver. No waiver or non-action by either party with respect to any
breach by the other party of any provision of this Agreement, nor the waiver or
non-action with respect to the provisions of any similar agreement with other
employees or the breach thereof, shall be deemed or construed to be a waiver of
any succeeding breach of such provision, or as a waiver of the provision itself.

 

15

--------------------------------------------------------------------------------

14. Invalid Provisions. Should any portion of this Agreement be adjusted or held
invalid, unenforceable or void, such holding shall not have the effect of
invalidating or voiding the remainder of this Agreement and the parties hereby
agree that the portion so held invalid, unenforceable, or void shall, if
possible, be deemed amended or reduced in scope, or otherwise be stricken from
this Agreement, to the extent required for the purposes of validity and
enforcement thereof.

 

15. Successor and Assigns. Neither the Executive nor the Company may assign its
rights, duties, or obligations hereunder without consent of the other.

 

16. Survival. The provisions of Sections 9 and 21 of this Agreement shall
survive the Executive’s termination of employment. Other provisions of this
Agreement shall survive any termination of the Executive’s employment to the
extent necessary to ensure the preservation of each party’s respective rights
and obligations.

 

17. Governing Law. This Agreement shall be governed by, and interpreted in
accordance with the internal substantive laws of the State of Florida, without
giving effect to the principles of conflicts of law. Each party hereto hereby
irrevocably submits itself to the exclusive personal jurisdiction of the Federal
and State courts sitting in the State of Florida, and hereby waives any claims
it may have as to inconvenient forum.

 

18. No Oral Modifications. This Agreement may not be changed or terminated
orally, and no change, termination or waiver of this Agreement or of any of the
provisions herein contained shall be binding unless made in writing and signed
by both parties, and, in the case of the Company, by a person designated by the
Board or any committee thereof. Without limiting the foregoing, any change or
changes, from time to time, in the Executive’s salary or duties or both shall
not be, nor be deemed to be, a change, termination or waiver of this Agreement
or of any of the provisions herein contained.

 

19. Notices. All notices and other communications required or permitted
hereunder shall be made in writing, and shall be deemed properly given if
delivered personally, mailed by certified mail, postage prepaid and return
receipt requested, sent by facsimile, or sent by Express Mail or Federal Express
or other nationally recognized express delivery service, as follows:

 

If to the Company:

 

Sunset Financial Resources, Inc.

10245 Centurion Parkway, Suite 305

Jacksonville, Florida 32256

Attention: Chairman of the Board

 

If to the Executive:

 

Stacy Riffe

939 West Greenbriar Lane

Dallas, Texas 75208

 

16

--------------------------------------------------------------------------------

Notice given by hand, Express Mail, Federal Express, or other such express
delivery service shall be effective upon actual receipt. Notice given by
facsimile transmission shall be effective upon actual receipt during the
recipient’s customary business hours, or at the beginning of the recipient’s
next business day after receipt if not received during the recipient’s customary
business hours. All notices sent by facsimile transmission shall be confirmed
promptly after transmission in writing by certified mail or personal delivery.

 

Any party may change any address to which notice shall be given to it by giving
notice as provided above of such change in address.

 

20. Executive’s Representation and Warranties. The Executive represents and
warrants that she is legally free to make and perform this Agreement, that she
has no obligation to any other person or entity that would affect or conflict
with any of her obligations hereunder, and that the complete performance of her
obligations hereunder will not violate any law, regulation, order, or decree of
any governmental or jurisdictional body or contract by which she is bound.

 

21. Entire Agreement. The parties expressly agree that this Agreement is
contractual in nature and not a mere recital, and that it contains all the terms
and conditions of the agreement between the parties with respect to the matters
set forth herein. All prior negotiations, agreements, arrangements,
understandings and statements between the parties relating to the matters set
forth herein that have occurred at any time or contemporaneously with the
execution of this Agreement are superseded and merged into this completely
integrated Agreement. The Recitals set forth above shall be deemed to be part of
this Agreement.

 

[The remainder of this page is intentionally left blank.]

 

17

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.

 

THE COMPANY:

 

SUNSET FINANCIAL RESOURCES, INC.,

a Maryland corporation

By:   /s/ George Deehan Its:   Chief Executive Officer and President

 

 

THE EXECUTIVE:

 

STACY RIFFE

/s/ Stacy Riffe

 

18