Exhibit 10.4
EMPLOYMENT AGREEMENT
               This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of
November 14, 2008, by and between PORTFOLIO RECOVERY ASSOCIATES, INC., a
Delaware corporation (the “Company”), and Judith S. Scott (“Employee”).
WITNESSETH :
     WHEREAS, Employee is employed by the Company as its Executive Vice
President, General Counsel and Secretary; and
     WHEREAS, the Company desires that Employee continue to serve as its
Executive Vice President, General Counsel and Secretary; and
     WHEREAS, the Employee desires to continue such employment relationship with
the Company upon the terms set forth in this Agreement.
     NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein and for other good and valuable consideration, the adequacy and
receipt of which are hereby acknowledged, the parties agree as follows:
     1. Employment.
               a) The Company hereby extends the employment (the “Employment”)
of the Employee as its Executive Vice President, General Counsel and Secretary.
Employee shall perform such duties and exercise such powers as directed by the
President and Chief Executive Officer, subject to the general supervision,
control and guidance of the Board of Directors of the Company (the “Board”).
Employee hereby accepts the Employment and agrees to (i) render such executive
services, (ii) perform such executive duties and (iii) exercise such executive
supervision and powers to, for and with respect to the Company, as may be
established, for the period and upon the terms set forth in this Agreement.
               b) Employee shall devote substantially all of Employee’s business
time and attention to the business and affairs of the Company consistent with
Employee’s executive position with the Company, except as permitted for Paid
Time Off, pursuant to Section 4(d) and for Disability (as defined in
Section 8(b)). This Agreement shall not be construed as preventing Employee from
serving on the Boards of Directors of other companies, engaging in charitable
and community affairs, or giving attention to her passive investments, provided
that such activities do not interfere with the regular performance of her duties
and responsibilities under this Agreement or violate any other provision of this
Agreement.
     2. Place of Performance. The principal place of employment of Employee
shall be at the Company’s principal executive offices in Norfolk, Virginia or,
if such offices are relocated, within a 50 mile radius of Norfolk, Virginia (the
“Metropolitan Area”). Notwithstanding the foregoing, Employee may be required to
travel beyond the Metropolitan Area as reasonably required to perform her duties
hereunder.

 

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

 

     3. Term. Except as otherwise specifically provided in Section 8 below, this
Agreement shall commence on January 1, 2009 (the “Commencement Date”), and shall
continue until December 31, 2011, subject to the terms and conditions of this
Agreement. The Term may be terminated at an earlier date in accordance with
Section 8 hereof.
     4. Compensation.
               a) Base Salary. Employee shall be paid a base salary (the “Base
Salary”) at an annual rate of $245,000, payable at such intervals as the other
executive officers of the Company are paid, but in any event at least on a
monthly basis. On each January 1 following the Commencement Date, commencing
January 1, 2010, Base Salary shall be increased annually by no less than 4% over
the immediately preceding year’s Base Salary.
               b) Bonus Compensation. Employee shall receive bonus compensation
(“Bonus Compensation”) in accordance with paragraph (e) of this Section 4.
Employee shall not be entitled to participate in any incentive bonus program for
non-management level employees during the time the Management Bonus is in
effect.
               c) Equity Award. The Employee’s Equity Award shall consist of a
Long Term Incentive Award ( the “LTI Award”) and an Immediate Vesting Award, as
hereinafter defined.
          1. Long Term Incentive Award. The LTI Award shall be granted to
Employee, pursuant to the Company’s Amended and Restated 2002 Stock Option Plan
and 2004 Restricted Stock Plan, and shall consist of a number of shares of the
Company’s common stock having a total value of $40,000, based on the closing
price of a share of the Company’s common stock as reported on NASDAQ-GS as of
the date of the award. The Employee’s LTI Award shall be earned only to the
extent that certain pre-determined financial performance metrics are achieved,
and shall be subject to the terms and conditions of the 2009 Executive LTI Plan.
          2. Immediate Vesting Award. Additionally, the Company shall grant to
Employee a number of fully vested shares of the Company’s common stock (the
“Immediate Vesting Award”) having a total value equal to $30,000, the actual
number of shares to be determined based on the closing price of a share of the
Company’s common stock as reported on NASDAQ-GS as of the date of this
Agreement. The Immediate Vesting Award shall be earned only if the Employee is a
full-time employee of the Company on January 1, 2009.
             All Equity Awards shall be subject to agreed upon restrictions
incorporated in the Company’s Insider Trading Policy and the trading
restrictions incorporated in a restricted stock agreement between the Employee
and the Company.
               d) Target Stock Ownership. In accordance with the Company’s
Target Executive Share Ownership program, the Company has established the
Employee’s Target Share Ownership of the Company’s common stock (“Target Share
Ownership”). During the Term of this Agreement, the Employee shall maintain
Target Share Ownership equal to no less than 10,000 shares. As provided below,
if the Employee’s Target Share Ownership levels are not met

 

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

 

by the end of the business year, the Employee’s Management Bonus earned, if any,
may be paid in shares of the Company’s stock.
               e) Management Bonus. The Employee’s total Management Bonus shall
consist of an Individual Portion and a Financial Achievement Portion, as
hereinafter defined, which, taken together, constitute the Management Bonus or
target Management Bonus.
          1. Individual Achievement. The Employee’s performance and the
performance of the business shall be reviewed at the end of each operating year
and compared to such goals as are set forth in the business plan for that year
as approved by the Board (the “Business Plan”). If the Employee’s personal
performance is in conformance with Company policy and with the Employee’s past
levels of performance, and if Employee has met the expectations of the
Compensation Committee of the Board of Directors, a bonus equal to no less than
$90,000 shall be paid (the “Individual Portion” of the Management Bonus).
          2. Financial Achievement. If the results of operations for the year
achieve the net profitability goals for the year specified in the approved
Business Plan, an additional bonus equal to no less than $140,000 shall be paid
(the “Financial Achievement of the Management Bonus”).
          If (i) the results of operations for the year exceed the net
profitability goals of the approved Business Plan and (ii) the Employee’s
performance is determined in conformance with Company policy to have exceeded
expectations, the amount of the Employee’s Management Bonus may be increased in
recognition of the degree to which results exceeded such goals, and the degree
to which the Employee contributed to the Company’s superior performance results
as determined in the sole discretion of the Compensation Committee of the Board
(the “Committee”). If (i) the results of operations for the year fail to achieve
such net profitability goals specified in the approved Business Plan or (ii),
the Employee’s performance is determined in conformance with Company policy not
to have met expectations, then the amount, if any of the Employee’s Management
Bonus shall be within the absolute discretion of the Committee, provided that
the Committee shall give reasonable consideration to any intervening or
extraordinary events or circumstances that might have given rise to such
shortfall. Further, if pursuant to the Company’s senior executive target equity
ownership policies, the Employee’s targeted equity ownership levels have not
been met, the Employee’s Management Bonus may be paid, in whole or in part, in
shares of the Company’s common stock. In the event that the Management Bonus is
not in effect, in addition to the Base Salary, Employee shall be entitled to
such bonus compensation as may be determined from time to time by the Committee,
in its sole discretion. The Committee shall base its decision on a review of the
performance of the Company and the Employee’s performance at the end of each
year.
               f) Employee Benefits. In addition to the Base Salary and the
Bonus Compensation, and subject to the limitations imposed herein, Employee
shall be entitled to (i) receive any fringe benefits provided by the Company to
its executive officers, including, but not limited to, life, hospitalization,
surgical, major medical and disability insurance and sick leave, (ii) such
employee benefit programs as may be offered by the Company to other employees
and (iii) be a full participant in all of the Company’s other benefit plans,
pension plans, retirement

 

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

 

plans and profit-sharing plans which may be in effect from time to time or may
hereafter be adopted by the Company.
               g) Paid Time Off. During the Term, Employee shall be entitled to
such paid time off (“PTO”) during each calendar year of her Employment hereunder
consistent with the Company’s PTO policies then in effect and her position as an
executive officer of the Company, but in no event less than twenty-five PTO days
in any such calendar year (pro-rated as necessary for partial calendar years
during the Term). Such PTO may be taken, in Employee’s discretion, at such time
or times as are not inconsistent with the reasonable business needs of the
Company. At the end of the calendar year, Employee shall be entitled to carry
over up to five days of unused PTO into the next calendar year, but shall not be
entitled to any additional compensation in the event that Employee, for whatever
reason, fails to take such vacation during any year of her Employment hereunder.
Employee shall also be entitled to all paid holidays given by the Company to its
executive officers.
          5. Indemnification. Employee shall be entitled at all times to the
benefit of the maximum indemnification and advancement of expenses available
from time to time under the laws of the State of Delaware, and such benefit
shall not be less than any other officer or director entitled to indemnification
by the Company. Without limiting the foregoing, Employee shall also be entitled
to the benefit of the following provisions:
               a) D&O Insurance. Employee shall be covered under any directors’
and officers’ liability insurance policy then in effect for the Company or any
of its affiliates as to which Employee is serving as a director or officer. The
failure to have an insurance policy in effect at all times shall not allow
Employee to assert a Constructive Termination of this Agreement, other than to
the extent such failure constitutes a breach of the immediately preceding
sentence.
               b) Scope of Indemnification. In addition to the insurance
coverage provided for in Section 5(a), the Company and any of the Company’s
affiliates as to which Employee has at any time served as a director, officer,
employee, agent or fiduciary (collectively, the “Indemnitors”) shall jointly and
severally hold harmless and indemnify Employee (and his heirs, executors and
administrators) to the fullest extent permitted under applicable law against all
expenses and liabilities reasonably incurred in connection with or arising out
of any action, suit or proceeding (each, a “Claim”) in which she may be involved
by reason of having been a director, officer, employee, agent or fiduciary of
any Indemnitor (whether or not she continues to be a director, officer,
employee, agent or fiduciary thereof at the time of incurring such expenses or
liabilities), or by reason of any action or inaction on Employee’s part while
serving in any such capacity, such expenses and liabilities to include, but not
be limited to, losses, damages, judgments, investigation costs, court costs and
attorneys’ fees and the cost of reasonable settlements.
               c) Selection of Counsel. In the event the Indemnitors shall be
obligated hereunder to pay any Expenses with respect to a Claim, the Indemnitors
shall be entitled to assume the defense of such Claim upon the delivery to
Employee of written notice of its election to do so. After delivery of such
notice and the retention of such counsel by the Indemnitors, the Indemnitors
will not be liable to Employee under this Agreement for any fees of counsel

 

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

 

subsequently incurred by Employee with respect to the same Claim; provided that,
(i) Employee shall have the right to employ counsel in any such Claim at her
expense; and (ii) if (A) the employment of counsel by Employee has been
previously authorized by the Indemnitors, (B) counsel for Employee shall have
provided the Indemnitors with written advice that there is a conflict of
interest between the Indemnitors and Employee in the conduct of any such
defense, or (C) the Indemnitors shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Employee’s counsel shall be at
the expense of the Indemnitors.
               d) Nonexclusivity. The indemnification rights set for in this
Section 5 shall be in addition to any rights to which Employee may be entitled
under any of the Indemnitors’ charter documents, bylaws or agreements, any vote
of stockholders or disinterested directors, the laws of the various Indemnitors’
jurisdictions of formation or incorporation. The indemnification rights set
forth in this Section 5 shall continue as to Employee for any action Employee
took or did not take while serving in an indemnified capacity even though
Employee may have ceased to serve in such capacity.
               e) Survival. The indemnification and contribution provided for in
this Section 5 will remain in full force and effect after any termination of
Employee’s employment and without regard to any investigation made by or on
behalf of Employee or any agent or representative of Employee.
          6. Expenses. During the Term, the Company shall reimburse Employee
upon presentation of appropriate vouchers or receipts in accordance with the
Company’s expense reimbursement policies for executive officers, for all
out-of-pocket business travel and entertainment expenses incurred or expended by
Employee in connection with the performance of the duties under this Agreement
in accordance with the Company’s expense reimbursement policies for executive
officers.
          7. Termination Procedure.
               a) Notice of Termination. Any termination of Employee’s
Employment by the Company or by Employee during the Term (other than termination
pursuant to Section 8(a) of this Agreement) shall be communicated by written
notice (“Notice of Termination”) to the other party hereto in accordance with
Section 13 herein. For purposes of this Agreement, a Notice of Termination shall
mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of Employee’s
Employment under the provision so indicated.
               b). Date of Termination. “Date of Termination” shall mean (a) if
Employee’s Employment is terminated by death, the date of death, (b) if
Employee’s Employment is terminated pursuant to Section 8(b) herein, 30 days
after Notice of Termination (provided that Employee shall not have returned to
the substantial performance of her duties on a full-time basis during such 30
day period), (c) if Employee’s Employment terminates upon the expiration of the
Term and Employee’s Employment is not renewed, the date of expiration of the
Term, and (d) if Employee’s Employment is terminated for any other reason, the
date on which Notice of Termination is given or any later date (within 30 days
after the giving of such notice) set forth in such Notice of Termination.

 

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

 

          8. Termination of Employment.
               a) Death. In the event of the death of Employee during the Term,
Employee’s Employment hereunder shall be terminated as of the date of her death
and Employee’s designated beneficiary, or, in the absence of such designation,
the estate or other legal representative of Employee (collectively, the
“Estate”), shall be paid Employee’s unpaid Base Salary through the month in
which the death occurs and any unpaid Bonus Compensation for any fiscal year
which has ended as of the date of such termination or which was at least fifty
percent (50%) completed as of the date of death. In the case of such incomplete
fiscal year, the Bonus Compensation shall be determined based upon the
assumption that Employee would have earned the target Bonus Compensation in
accordance with Section 4(b) and pro-rated, and all such Bonus Compensation, if
any, payable as a result of this Section 8(a) shall be payable at the same time
as bonuses would be payable to other executive officers (regardless of whether
such other officers earned any such bonus). The Estate shall be entitled to all
other death benefits in accordance with the terms of the Company’s benefit
programs and plans.
               b) Disability. In the event Employee shall be unable to render
the services or perform her duties hereunder by reason of illness, injury or
incapacity (whether physical, mental, emotional or psychological) (any of the
foregoing shall be referred to herein as a “Disability”) for a period of either
(i) 180 consecutive days or (ii) 270 days in any consecutive 365-day period, the
Company shall have the right to terminate this Agreement by giving Employee
30 days’ prior written notice. Any determination of Disability shall be made by
the Board in its reasonable good faith discretion. If Employee’s Employment
hereunder is so terminated, Employee shall be paid, offset by payments under any
disability insurance policy in effect, Employee’s unpaid Base Salary through the
month in which the termination occurs, plus Bonus Compensation on the same basis
as is set forth in Section 8(a) above. The Employee shall be entitled to receive
all benefits in accordance with the terms of this Agreement and of the Company’s
benefit programs and plans.
               c) Termination of Employment by the Company for Cause.
                    (i) Nothing herein shall prevent the Company from
terminating Employee’s Employment for Cause (as hereinafter defined). From and
after the Date of Termination, Employee shall no longer be entitled to receive
Base Salary and Bonus Compensation and the Company shall no longer be required
to pay premiums on any life insurance or disability policy for Employee. Any
rights and benefits which Employee may have in respect of any other compensation
or any employee benefit plans or programs of the Company shall be determined in
accordance with the terms of such other compensation arrangements or plans or
programs. The term “Cause,” as used herein, shall mean: Employee’s: (A)
fraudulent or unethical conduct, conviction or guilty plea to a crime involving
moral turpitude; (B) conduct that is detrimental or economically injurious to
the Company or its subsidiaries, violation of the Company’s policies, violation
of Sections 10 or 11 of this Agreement, embezzlement of funds or misuse or
misappropriation of any of the Company’s property or its confidential or
proprietary information; (C) insubordination or unwillingness or inability to
adequately perform the Employee’s job duties, including uncorrected failure to
satisfy written directives or performance material, or (D) and any other conduct
that may be detrimental to the Company, its reputation, its operations or
activities.

 

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

 

                    (ii) The Company shall provide Employee with Notice of
Termination stating that it intends to terminate Employee’s Employment for Cause
under this Section 8(c) and specifying the particular act or acts on the basis
of which the Board intends to terminate Employee’s Employment. Employee shall
then be given the opportunity, within 15 days of his receipt of such notice, to
have a meeting with the Board to discuss such act or acts (other than with
respect to an action described in Sections 8(c)(i)(A), (B) or (D) above as to
which the Board may immediately terminate Employee’s Employment for Cause).
Other than with respect to an action described in Sections 8(c)(i)(A) (B) or D
above, Employee shall be given seven days after meeting with the Board to take
reasonable steps to cease or correct the performance (or nonperformance) giving
rise to such Notice of Termination. In the event the Board determines that
Employee has failed within such seven-day period to take reasonable steps to
cease or correct such performance (or nonperformance), Employee shall be given
the opportunity, within 10 days of her receipt of written notice to such effect,
to have a meeting with the Board to discuss such determination. Following that
meeting, if the Board believes that Employee has failed to take reasonable steps
to cease or correct her performance (or nonperformance) as above described, the
Board may thereupon terminate the Employment of Employee for Cause.
               d) Termination Other than for Cause, Death or Disability.
                    (i) Termination. This Agreement may be terminated by the
Company (in addition to termination pursuant to Sections 8(a), (b) or (c) above)
or Employee at any time and for any reason or upon the expiration of the Term.
                    (ii) Severance and Non-Competition Payments. If the
Employee’s employment is terminated under this Section 8(d), including a
Constructive Termination (as hereinafter defined), or other than as a
termination by the Employee, or as a result of the death or Disability of
Employee, or for Cause, the following shall apply:
                         A). The Company shall pay to Employee (w) Base Salary
and accrued PTO through the Date of Termination, plus a pro rata portion of the
Target Bonus Compensation (the total of the Personal and Financial Achievement
Bonus Targets) for the year in which the Termination occurs (whether or not such
target is actually met) determined based upon the days elapsed in the year
divided by 365, as soon as practicable following the Date of Termination,
(x) the greater of a lump-sum payment equal to one times Employee’s then current
Base Salary or the minimum Base Salary due under the remaining Term and (y) a
lump-sum payment equal to the greater of one times the amount of the Bonus
Compensation, if any, paid to Employee in the year immediately prior to the year
in which the Date of Termination occurs or the target Bonus Compensation due
under the remaining Term (whether or not such target is actually met). Such
payment under clauses (x) and (y) hereof shall be made as soon as
administratively feasible following the Date of Termination and the execution of
a valid Release (as hereinafter defined), but in no event more than 45 days
following the execution of such Release;
                         B). The Company shall continue to provide Employee with
the same level of medical benefits upon substantially the same terms and
conditions (including contributions required by Employee for such benefits) as
existed immediately prior to Employee’s termination for the longer of the
maximum period of time provided under federal law or the remainder of the Term;
provided that the Company shall bear the costs of such

 

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

 

benefits for the longer of 12 months or the remainder of the Term and, provided
further, if Employee cannot continue to participate in the Company’s plans
providing such benefits, the Company shall reimburse Employee the cost of
obtaining such benefits as if continued participation had been permitted.
Notwithstanding the foregoing, in the event Employee obtains employment with
another employer and becomes eligible to receive comparable benefits from such
employer, the benefits described in this clause (B) shall cease; and
                         C). Employee shall be entitled to any other rights,
compensation and/or benefits as may be due to Employee in accordance with the
terms and provisions of any agreements, plans or programs of the Company.
                    (iii). Constructive Termination. For purposes of this
Agreement, “Constructive Termination” shall be deemed to have occurred upon
(i) the removal of Employee from, or a failure of Employee to continue as
Executive Vice President, General Counsel and Secretary of the Company, (ii) any
material diminution in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to such position, (iii) the
relocation of the Company’s principal executive offices to a location more than
50 miles from Norfolk, Virginia, or (iv) the material breach by the Company of
this Agreement and, in the case of clauses (i)-(iii) above, Employee does not
agree to such change (which decision is personal in nature and not subject to
any fiduciary responsibilities Employee may have as an officer of the Company)
and elects to terminate her Employment.
                    (iv). Severance and Non-Competition Payments Following
Non-Renewal of this Agreement. If this Agreement is not renewed beyond the Term
by the parties hereto, the Company shall pay Employee a severance and
non-competition payment equal to: (w) his Base Salary and accrued PTO through
the Date of Termination, as soon as practicable following the Date of
Termination, plus a pro rata portion of the target Bonus Compensation for the
year in which the Termination occurs (whether or not such target is actually
met) determined based upon the days elapsed in the year divided by 365, (x) a
lump-sum payment equal to one times Employee’s then current Base Salary and
(y) the benefits set forth in Sections 8(d)(ii)(B) and (C). Such payment under
clause (x) hereof shall be made as soon as administratively feasible following
the Date of Termination and the execution of a valid Release, but in no event
more than 45 days following the execution of such Release.
                    (v). No Mitigation. Employee shall not be required to
mitigate the amount of any severance and non-competition payment provided for
under this Agreement by seeking other employment or otherwise.
                    (vi). Excise Tax. In the event that Employee becomes
entitled to any payments or benefits under this Agreement and any portion of
such payments or benefits, when combined with any other payments or benefits
provided to Employee (including, without limiting the generality of the
foregoing, by reason of the exercise of any stock options or the receipt of any
shares of stock of the Company), which in the absence of this Section 8(d) would
be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”), then the amount payable to
Employee under this Agreement shall be reduced to the largest amount or greatest
right (for example, by deferring the vesting date of Employee’s options) such
that none of the amounts payable to Employee under this

 

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

 

Agreement and any other payments or benefits received or to be received by
Employee as a result of, or in connection with, an event constituting a change
in the ownership or effective control of the Company or in the ownership of a
substantial portion of the assets of the Company (within the meaning of
Section 280G(b)(2)(A) of the Code) or the termination of Employment (including a
Constructive Termination, shall be treated as “parachute payments” within the
meaning of Section 280G(b)(2) of the Code. The Company shall cooperate in good
faith with Employee in making such determination. In the event that the vesting
date of any option is deferred hereunder, the term during which such option may
be exercised shall be extended until the ninetieth (90th) day following the full
vesting thereof.
          9. Release. Employee acknowledges and agrees that the payments set
forth in Section 8 of this Agreement constitute liquidated damages for any claim
of breach of contract under this Agreement as it relates to termination of
Employee’s employment. In order to receive any of the payments set forth above,
prior to the payment of such amounts, Employee shall execute and agree to be
bound by an agreement relating to the waiver and general release of any and all
claims (other than claims for the compensation and benefits payable under
Section 8 hereof) arising out of or relating to Employee’s employment and
termination of employment (the “Release”), which Release shall be in such form
as counsel to the Company may reasonably require.
          10. Confidential Information.
               a). Employee covenants and agrees that she will not at any time,
either during the Term or thereafter, use, disclose or make accessible to any
other person, firm, partnership, corporation or any other entity any
Confidential Information (as defined below) pertaining to the business of the
Company or any of its subsidiaries except (i) while employed by the Company, in
the business of and for the benefit of the Company or (ii) when required to do
so by a court of competent jurisdiction, by any governmental agency having
supervisory authority over the business of the Company, or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to
order the Company to divulge, disclose or make accessible such information. For
purposes of this Agreement, “Confidential Information” shall mean non-public
information concerning the Company’s or any of its subsidiaries’ financial data,
statistical data, strategic business plans, product development (or other
proprietary product data), customer and supplier lists, customer and supplier
information, information relating to practices, processes, methods, trade
secrets, marketing plans and other non-public, proprietary and confidential
information of the Company or any of its subsidiaries; provided, however, that
Confidential Information shall not include any information which (x) is known
generally to the public other than as a result of unauthorized disclosure by
Employee, (y) becomes available to the Employee on a non-confidential basis from
a source other than the Company or any of its subsidiaries or (z) was available
to Employee on a non-confidential basis prior to its disclosure to Employee by
the Company or any of its subsidiaries. It is specifically understood and agreed
by Employee that any Confidential Information received by Employee during his
Employment by the Company is deemed Confidential Information for purposes of
this Agreement. In the event Employee’s Employment is terminated hereunder for
any reason, he immediately shall return to the Company all tangible Confidential
Information in his possession.

 

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

 

               b) Employee and the Company agree that this covenant regarding
Confidential Information is a reasonable covenant under the circumstances, and
further agree that if, in the opinion of any court of competent jurisdiction,
such covenant is not reasonable in any respect, such court shall have the right,
power and authority to excise or modify such provision or provisions of this
covenant as to the court shall appear not reasonable and to enforce the
remainder of the covenant as so amended. Employee agrees that any breach of the
covenant contained in this Section 10 would irreparably injure the Company.
Accordingly, Employee agrees that the Company, in addition to pursuing any other
remedies it may have in law or in equity, may obtain an injunction against
Employee from any court having jurisdiction over the matter, restraining any
further violation of this Section 10.
          11. Non-Competition; Non-Solicitation.
               a) Employee agrees that during the Non-Competition Period (as
defined in Section 11(d) below), without the prior written consent of the
Company: (i) he shall not be a principal, manager, agent, consultant, officer,
director or employee of, or, directly or indirectly, own more than 1% percent of
any class or series of equity securities in, any partnership, corporation or
other entity, which, now or at such time, has material operations which are
engaged in any business activity competitive (directly or indirectly) with the
Business of the Company (a “Competing Entity”); and (ii) he shall not, on behalf
of any Competing Entity, directly or indirectly, have any dealings or contact
with any suppliers or customers of the Company or any or its subsidiaries. As
used in this Agreement, the term “Business” means the means government revenue
administration; the administration, auditing and collection of taxes; skip
tracing and asset location; and the purchase, collection and management of
portfolios of defaulted and bankrupt consumer receivables, but shall not include
such collection and management activities to the extent they are incidental to a
business primarily engaged in loan origination or servicing. Notwithstanding the
foregoing, an entity will not be deemed to be a Competing Entity, and Employee
will not be deemed to be engaged in the Business, if (i) Employee is employed by
an entity that is engaged in any meaningful way in one or more businesses other
than the Business (the “Non-Competing Businesses”), (ii) such entity’s
relationship with Employee relates solely to the Non-Competing Businesses, and
(iii) if requested by the Company, such entity and Employee shall provide the
Company with reasonable assurances that Employee will have no direct or indirect
involvement in the Business on behalf of such entity.
               b) During the Non-Competition Period, Employee agrees that,
without the prior written consent of the Company (and other than on behalf of
the Company), Employee shall not, on his own behalf or on behalf of any person
or entity, directly or indirectly, (i) solicit the customers or suppliers of the
Company or any of its subsidiaries to terminate their relationship with the
Company or any of its subsidiaries (or to modify such relationship in a manner
that is adverse to the interests of the Company) or (ii) hire or solicit the
employment of any employee who has been employed by the Company or any of its
subsidiaries at the time of Employee’s termination or at any time during the six
months immediately preceding such date of hiring or solicitation. This provision
does not prohibit the solicitation of employees by means of a general
advertisement.

 

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

 

               c) Employee and the Company agree that the covenants of
non-competition and non-solicitation are reasonable covenants under the
circumstances, in order to protect the Company’s goodwill and other legitimate
business interests, such as business opportunities, customer and client
contacts, prospects, contracts, lists and leads, and to ensure that former
employees do not disclose the Company’s trade secrets and its proprietary and
confidential information to its competitors. Employee and the Company further
agree that if, in the opinion of any court of competent jurisdiction such
covenants are not reasonable in any respect, such court shall have the right,
power and authority to excise or modify such provision or provisions of these
covenants as to the court shall appear not reasonable and to enforce the
remainder of these covenants as so amended. Employee agrees that any breach of
the covenants contained in this Section 11 would irreparably injure the Company.
Accordingly, Employee agrees that the Company, in addition to pursuing any other
remedies it may have in law or in equity, may obtain an injunction against
Employee from any court having jurisdiction over the matter, restraining any
further violation of this Section 11.
               d) The provisions of this Section 11 shall extend for the Term
and survive the termination of this Agreement for one year from the date of such
termination (herein referred to as the “Non-Competition Period”).
               e) The provisions of this Section 11 shall terminate if this
Agreement is terminated by the Company other than for Cause, or in the event of
a Constructive Termination of this Agreement or if the Company defaults on any
of its payment obligations set forth in this Agreement, which payment default is
not cured within fifteen (15) days after notice.
          12. Limitation of Liability and Indemnity. The limitation of liability
and indemnity provisions of Section 8.1 of the Amended and Restated By-Laws of
the Company and Article 9 of the Amended and Restated Certificate of
Incorporation of the Company are a contractual benefit to Employee and are a
material consideration for Employee’s employment.
          13. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered personally or
sent by facsimile transmission, overnight courier, or certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally or sent by facsimile transmission (provided that a
confirmation copy is sent by overnight courier), one day after deposit with an
overnight courier, or if mailed, five days after the date of deposit in the
United States mails, as follows (or to another address specified in writing by
the recipient prior to the sending of such notice or communication):

     
If to the Company, to:
  Portfolio Recovery Associates, Inc.
 
  120 Corporate Boulevard
 
  Norfolk, Virginia 23502
 
  Attn: President and Chief Executive Officer
 
  Fax: 757-554-0586
 
   
If to Employee, to:
  Judith Scott
 
       
Fax: 757-321-2518

 

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

 

          15. Entire Agreement. This Agreement contains the entire agreement
between the parties hereto with respect to the matters contemplated herein and
supersede all prior agreements or understandings among the parties related to
such matters.
          16. Successors; Binding Effect. Except as otherwise provided herein,
this Agreement shall be binding upon, and inure to the benefit of, the Company
and its successors and assigns and upon Employee. “Successors and assigns” shall
mean, in the case of the Company, any successor pursuant to a merger,
consolidation, or sale, or other transfer of all or substantially all of the
assets or Common Stock of the Company, provided that, should the Company assign
or transfer this Agreement, the Company will require any successor to 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 assignment or transfer
had taken place.
          17. No Assignment. Except as contemplated by Section 15 above, this
Agreement shall not be assignable or otherwise transferable by either party.
          18. Withholding. All payments hereunder shall be subject to any
required withholding of federal, state and local taxes pursuant to any
applicable law or regulation.
          19. Amendment or Modification; Waiver. No provision of this Agreement
may be amended or waived unless such amendment or waiver is authorized by the
Board and is agreed to in writing, signed by Employee and by a duly authorized
officer of the Company (other than Employee). Except as otherwise specifically
provided in this Agreement, no waiver by either party hereto of any breach by
the other party hereto of any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of a similar or
dissimilar provision or condition at the same or at any prior or subsequent
time.
          20. Fees and Expenses. If either party institutes any action or
proceedings to enforce any rights the party has under this Agreement, or for
damages by reason of any alleged breach of any provision of this Agreement, or
for a declaration of each party’s rights or obligations hereunder or to set
aside any provision hereof, or for any other judicial remedy, the prevailing
party shall be entitled to reimbursement from the other party for its costs and
expenses incurred thereby, including but not limited to, reasonable attorneys’
fees and disbursements.
          21. Governing Law. The validity, interpretation, construction,
performance and enforcement of this Agreement shall be governed by the internal
laws of the Commonwealth of Virginia, without regard to its conflicts of law
rules.
          22. Titles. Titles to the Sections in this Agreement are intended
solely for convenience and no provision of this Agreement is to be construed by
reference to the title of any Section.
          23. Counterparts. This Agreement may be executed in one or more
counterparts, which together shall constitute one agreement. It shall not be
necessary for each party to sign each counterpart so long as each party has
signed at least one counterpart.
          24. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such

 

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

 

invalidity or unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement or affecting the validity or
enforceability of any of the terms and provisions of this Agreement in any other
jurisdiction.
               IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first set forth above.

            PORTFOLIO RECOVERY ASSOCIATES, INC.
      By:   /s/ Steven D. Fredrickson         Name:   Steven D. Fredrickson     
  Position: President, CEO and Chairman of the Board        By:   /s/ Judith S.
Scott        Judith S. Scott