Document:

exv10w1

Exhibit 10.1

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 Steven D.
Fredrickson (“Employee”).

WITNESSETH:

     WHEREAS, the Employee is employed by the Company as its President and Chief Executive Officer;
and

     WHEREAS, the Company desires that the Employee continue to serve as its President and Chief
Executive Officer; and

     WHEREAS, Employee desires to continue such an employment relationship 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 the
President and Chief Executive Officer of the Company on the terms set forth herein. Employee
shall perform such duties and exercise such powers as directed by the Board of Directors of the
Company (the “Board”). Employee hereby accepts the Employment and agrees to (i) continue to 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 his business time and attention to the business
and affairs of the Company consistent with his executive position with the Company, except as
permitted for Paid Time Off, pursuant to Section 4 herein, 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 his passive investments, provided that such activities do not interfere with the
regular performance of his 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 his 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 $500,000, 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 and an Immediate Vesting Award, as hereinafter defined.

          1. Long Term Incentive Award. The 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 $560,000, 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 $420,000, 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

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Ownership equal to no less than 115,000 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 Portion. 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 $250,000 shall be paid to him (the
“Individual Portion” of the Management Bonus).

     2. Financial Achievement Portion. 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 $550,000 shall be paid to him (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.

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       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 his Employment hereunder consistent with the
Company’s PTO policies then in effect and his 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 his 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 by him in connection with or arising out of any action, suit or
proceeding (each, a “Claim”) in which he may be involved by reason of his having been a director,
officer, employee, agent or fiduciary of any Indemnitor (whether or not he 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,

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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 his 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 his 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.

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          b) Date of Termination. “Date of Termination” shall mean (a) if Employee’s Employment
is terminated by his 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 his 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 his 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 his 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

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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, whether
pursuant to Section 4(c) or otherwise, 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. Notwithstanding the foregoing, under no
circumstances shall Employee’s refusal or unwillingness to make any of the certifications required
of him as Chief Executive Officer of the Company pursuant to Section 302 or Section 906 of the
Sarbanes-Oxley Act of 2002, or any rules or regulations promulgated thereunder, or any similar
requirements of any federal, state, local or foreign governmental authority or agency, or of any
national securities exchange or quotation system on which any class or series of the Company’s
capital stock is then traded or listed for quotation, constitute or give rise to a basis for
termination for “Cause.”

               (ii) The Board of Directors 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 his 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 his 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 his
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 by the Employee at any time and for any
reason or upon the expiration of the Term.

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               (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),
other than as a termination by Employee or as a result of death or Disability of Employee or for
Cause, the following shall apply:

                    A) the Company shall pay to Employee (w) his Base Salary and accrued PTO through the Date of
Termination, plus a pro rata portion of the target Bonus Compensation (the total of the Individual
Portion and Financial Achievement Portion of the Employee’s 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 two 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
two 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, President and Chief Executive Officer of the Company, (ii) Employee is
not elected or nominated by the Nominating and Corporate Governance Committee to serve as a
director of the Company or is removed from the Board other than for cause (other than as a result
of a change in the law preventing Employee from serving as a director), (iii) any material
diminution in the nature or scope of the authorities, powers, functions, duties or responsibilities
attached to such positions, (iv) the relocation of the Company’s principal executive offices to a

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location more than 50 miles from Norfolk, Virginia, or (v) the material breach by the Company
of this Agreement and, in the case of clauses (i)-(iv) 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 or director of the Company) and elects to terminate his 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 two 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

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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 he 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.

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     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

11

 

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 two years 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: General Counsel
	 

	 	Fax: 757-321-2518
	 
	 	 
	If to Employee, to:

	 	Steven D. Fredrickson
	 

	 	                                        
	 
	 

	 	                                        
	 
	 	 
	 

	 	Fax: 757-554-0586

12

 

     14. 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.

     15. 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.

     16. No Assignment. Except as contemplated by Section 15 above, this Agreement shall
not be assignable or otherwise transferable by either party.

     17. Withholding. All payments hereunder shall be subject to any required withholding
of federal, state and local taxes pursuant to any applicable law or regulation.

     18. 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.

     19. 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.

     20. 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.

     21. 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.

     22. Counterparts. This Agreement may be executed in one or more counterparts, which
together shall constitute one agreement. It shall not be necessary for

13

 

each party to sign each counterpart so long as each party has signed at least one counterpart.

     23. 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/ Judith S. Scott
 	 
	 	 	Name:  	Judith S. Scott 	 
	 	 	Position:         General Counsel and Secretary 	 
	 
	 	By:  	/s/ Steven D. Fredrickson 	 
	 	 	Steven D. Fredrickson 	 
	 	 	 	 
	 

14exv10w2

Exhibit 10.2

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 Kevin P. Stevenson
(“Employee”).

WITNESSETH:

WHEREAS, the Employee is employed by the Company as its Executive Vice President and Chief
Financial and Administrative Officer; and

WHEREAS, the Company desires that the Employee continue to serve as its Executive Vice President
and Chief Financial and Administrative Officer; and

WHEREAS, the Employee desires to continue such employment relationship 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 the
Executive Vice President and Chief Financial and Administrative Officer of the Company. 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) continue to 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 his business time and attention to the
business and affairs of the Company consistent with his executive position with the Company, except
as permitted for Paid Time Off 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 his passive
investments, provided that such activities do not interfere with the regular performance of his
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 his 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 $300,000, 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 $220,000,
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 $165,000, 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 50,000 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 Achievement 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 $150,000 shall be paid to him (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 $350,000 shall be paid to him (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 his Employment hereunder consistent with the
Company’s PTO policies then in effect and his 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 his 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 by him in
connection with or arising out of any action, suit or proceeding (each, a “Claim”) in which he may
be involved by reason of his having been a director, officer, employee, agent or fiduciary of any
Indemnitor (whether or not he 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 his 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 his
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 his 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 his 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 his 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 his 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, whether pursuant to Section 4(c) or otherwise, 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.
Notwithstanding the foregoing, under no circumstances shall Employee’s refusal or unwillingness to
make any of the certifications required of him as Chief Financial Officer of the Company pursuant
to Section 302 or Section 906 of the Sarbanes-Oxley Act of 2002, or any rules or regulations
promulgated thereunder, or any similar requirements of any federal, state, local or foreign
governmental authority or agency, or of any national securities exchange or quotation system on
which any class or series of the Company’s capital stock is then traded or listed for quotation,
constitute or give rise to a basis for termination for “Cause.”

                         (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 his
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 his
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 his 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),
other than as a termination by the Employee, or as a result of death or Disability of Employee, or
for Cause, the following shall apply:

                    A) the Company shall pay to Employee (w) his Base Salary and accrued PTO through the Date of
Termination, plus a pro rata portion of the target Bonus Compensation (the total of the Individual
Portion and Financial Achievement Portion of the Employee’s 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 two 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
two 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, Chief Financial and Administrative Officer of
the Company, (iii) any material diminution in the nature or scope of the authorities, powers,
functions, duties or responsibilities attached to such positions, (iv) the relocation of the
Company’s principal executive offices to a location more than 50 miles from Norfolk, Virginia, or
(v) the material breach by the Company of this Agreement and, in the case of clauses (i)-(iv)
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 or director of the Company) and
elects to terminate his 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 two 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 he 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 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 two years 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: General Counsel
	 

	 	Fax: 757-321-2518
	 
	 	 
	If to Employee, to:

	 	Kevin P. Stevenson
	 

	 	                                        
	 
	 

	 	                                        
	 
	 	 
	 

	 	Fax: 757-554-0586

     14. 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.

     15. 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.

     16. No Assignment. Except as contemplated by Section 15 above, this Agreement
shall not be assignable or otherwise transferable by either party.

     17. Withholding. All payments hereunder shall be subject to any required
withholding of federal, state and local taxes pursuant to any applicable law or regulation.

     18. 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.

     19. 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.

     20. 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.

     21. 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.

     22. 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.

     23. 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/
Judith S. Scott
 	 
	 	 	Name:  	Judith S. Scott 	 
	 	 	Position: General Counsel and Secretary 	 
	 
	 	By:  	/s/ Kevin P. Stevenson 	 
	 	 	Kevin P. Stevenson

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