Document:

exv10w8

 

Exhibit 10.8

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of December 8,
2002 by and between PORTFOLIO RECOVERY ASSOCIATES, INC., a Delaware corporation
(the “Company”), and Steven D. Fredrickson (“Employee”).

W I T N E S S E T H :

     WHEREAS, the Company desires that Employee serve as the President and
Chief Executive Officer of the Company;

     WHEREAS, the Employee desires to enter into 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 employs (the “Employment”) Employee as the President
and Chief Executive Officer of the Company. It is the intention of the parties
to vest full authority to control the day-to-day operations of the Company with
Employee, 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 by the Board, 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 positions with the Company, except as permitted by the Nomination and
Corporate Governance Committee, for vacations permitted 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 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 will be effective upon the closing of the Company’s initial
public offering (the “Offering”) and the term of this Agreement (as may be
extended, the “Term”) shall commence on the date thereof (the “Commencement
Date”), and shall continue until December 31, 2005, subject to the terms and
conditions of this Agreement. In the event that the Offering has not occurred
as of December 31, 2002 this Agreement shall have no further effect. 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 $190,000, 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, 2003,
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 (i) of this
Section 4(b); provided,
however, that if at any time the Management Bonus (as hereinafter defined) is
not in effect, Employee shall receive bonus compensation in accordance with
paragraph (ii) of this Section 4(b). 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.

               (i)   Management Bonus. 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 results of operations for the year achieve the net
profitability goals for the year specified in the approved Business Plan, a
bonus equal to no less than 40% of the Employee’s Base Salary shall be paid to
him (the “Management Bonus”). If the results of operations for the year exceed
the net profitability goals of the approved Business Plan, the amount of the
Employee’s Management Bonus may be increased in recognition of the degree to
which performance exceeded such goals, and the Employee’s contribution to such
superior performance results as determined in the sole discretion of the
Compensation Committee of the Board (the “Committee”). If the results of
operations for the year fail to achieve such net profitability goals, 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.

               (ii)   Bonus. 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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          c)   Stock Options. The Committee has granted to Employee stock options to
purchase 190,000 shares of common stock of the Company, pursuant to a stock
option agreement in substantially the form annexed hereto as Exhibit A (the
“Option Agreement”). The stock options granted pursuant to the Option
Agreement shall vest in full on a change in control. The Company shall use
reasonable efforts to cause a Registration Statement on Form S-8 to be filed
and to be declared effective, registering the shares to be granted hereby.

          d)   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.

          e)   Vacation. During the Term, Employee shall be entitled to such vacation
with pay during each calendar year of his Employment hereunder consistent with
his position as an executive officer of the Company, but in no event less than
four weeks in any such calendar year (pro-rated as necessary for partial
calendar years during the Term). Such vacation may be taken, in Employee’s
discretion, at such time or times as are not inconsistent with the reasonable
business needs of the Company. Employee 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

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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.

     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

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(“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 pursuant to Section 3 of this
Agreement, 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.

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          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: (A) Employee’s conviction, or plea of guilty or nolo
contendere to, a felony; (B) Employee’s engaging in willful misconduct that is
economically injurious to the Company (including, but not limited to, a willful
violation of Sections 10 or 11 of this Agreement or the embezzlement of funds
or misappropriation of other property of the Company or any subsidiary); or (C)
Employee shall breach this Agreement in a material manner or engage in
fraudulent conduct as regards the Company which results either in personal
enrichment to Employee or material injury to the Company. 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 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) or (B) 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) or (B) 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.

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               (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 Employee as a result of
death or Disability of Employee or for Cause (and other than during the six
months following a “change in control” (as hereinafter defined) of the
Company), the following shall apply:

                    A)   the Company shall pay to Employee (w) his Base Salary and accrued
vacation pay through 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, 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 provide a reasonable allowance for outplacement
services, not to exceed $7,500;

                    C)   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 (C) shall cease; and

                    D)   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.

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               (iii)   Change in Control. For purposes of this Agreement, a “change in
control” of the Company shall be deemed to have occurred if any of the
following events occur:

                    (A)   an acquisition after the date of this Agreement by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifty percent (50%) or more of the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this definition, the
following transactions shall not constitute a change in control: (a) any
acquisition by the Company or by an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate, (b) any acquisition by
a lender to the Company pursuant to a debt restructuring of the Company, (c)
any acquisition by, or consummation of a Corporate Transaction with, an
affiliate of the Company, or (d) a Non-Control Transaction;

                    (B)   A change in the composition of the board of directors of the Company
such that the individuals who, as of the date hereof, constitute the board of
directors of the Company (such Board shall be hereinafter referred to as the
“Incumbent Board”) cease for any reason to constitute at least a majority of
the board of directors of the Company; provided, however, for purposes of this
clause (B), any individual who becomes a member of the board of directors of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a
majority of those individuals who are members of the board of directors of the
Company and who were also members of the Incumbent Board (or deemed to be such
pursuant to this provision) shall be considered as though such individual were
a member of the Incumbent Board; but, provided, further, that any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the board of directors of the Company shall not be so considered as
a member of the Incumbent Board; or

                    (C)   Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
“Corporate Transaction”), in each case, unless the Corporate Transaction is a
Non-Control Transaction; or

For purposes of the foregoing, “Non-Control Transaction” means a Corporate
Transaction as a result of which the Outstanding Company Voting Securities
immediately prior to such Corporate Transaction would entitle the holders
thereof immediately prior to such Corporate Transaction to exercise, directly
or indirectly, more than fifty percent (50%) of the combined voting power of
all of the shares of capital stock entitled to vote generally in election of
directors of the corporation resulting from such Corporate Transaction
immediately after such Corporate Transaction (including, without limitation,

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a corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries).

               (iv)   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 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.

               (v)   Severance and Non-Competition Payments Following a Change in Control.
In the event of a termination of employment by Employee for any reason, other
than as a result of death or Disability of Employee or for Cause, within six
months following a “change in control” of the Company, the Company shall pay
Employee (w) his Base Salary and accrued vacation pay 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) 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, (y) the greater of a lump-sum
payment equal to two times (A) the amount of the Bonus Compensation, if any,
paid to Employee in the year immediately prior to the year of termination or
(B) the target Bonus Compensation due for the year of termination (whether or
not such target is actually met) and (z) the benefits set forth in Sections
8(d)(ii)(B), (C) and (D). 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, but in no event more than 45 days
following the execution of such Release.

               (vi)   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 vacation pay 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), (C) and (D).

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     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.

               (vii)   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.

               (viii)   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)(ii)(J), 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) (collectively, a “Control Change”) or the
termination of Employment (including a Constructive Termination, and whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Control Change
or any person having such a relationship with the Company or such person as to
require attribution of stock ownership between the parties under Section 318(a)
of the Code) 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
substantially the form annexed hereto as Exhibit B (with such changes as
counsel to the Company may reasonably require as a result of changes in law
after the date hereof).

     10.   Confidential Information.

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          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 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 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; 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 (z) was
available to Employee on a non-confidential basis prior to its disclosure to
Employee by the Company. 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

11

 

suppliers or customers of the Company. As used in this Agreement, the
term “Business” means the purchase, collection and management of portfolios of
defaulted 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 and for one year thereafter (two
years after the Term), 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 to terminate their
relationship with the Company (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 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, and
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

 

     12.   Limitation of Liability and Indemnity. The limitation of liability
and indemnity provisions of Section 8.1 of the Amended and Restated ByLaws 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:
	 
	If to Employee, to:	 	
Mr. Steven D. Fredrickson

3208 Stapleford Chase

Virginia Beach, Virginia 23452

Fax:

     14.   Entire Agreement. This Agreement and the Option Agreement contain 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. In case of any conflict between the
provisions hereof and the Option Agreement, the provisions of this Agreement
shall be controlling.

     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.

13

 

     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 State of Delaware, 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.

14

 

     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:	 	 
	 	 	 	

Name: 

Position:   
	 
	 
	 	By:	 	/s/  Steven D. Fredrickson

Steven D. Fredrickson

 

 

 

 

 

15exv10w9

 

Exhibit 10.9

EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of December 8,
2002 by and between PORTFOLIO RECOVERY ASSOCIATES, INC., a Delaware corporation
(the “Company”), and Kevin P. Stevenson (“Employee”).

W I T N E S S E T H :

     WHEREAS, the Company desires that Employee serve as the Senior Vice
President and Chief Financial Officer of the Company;

     WHEREAS, the Employee desires to enter into 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 employs (the “Employment”) Employee as the Senior
Vice President and Chief Financial Officer of the Company. Employee shall
perform such duties and exercise such powers as directed by the president and
Chief Executive Officer of the Company, 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 his business time and
attention to the business and affairs of the Company consistent with his
executive positions with the Company, except as permitted by the Nomination and
Corporate Governance Committee, for vacations permitted 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 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 will be effective upon the closing of the Company’s initial
public offering (the “Offering”) and the term of this Agreement (as may be
extended, the “Term”) shall commence on the date thereof (the “Commencement
Date”), and shall continue until December 31, 2005, subject to the terms and
conditions of this Agreement. In the event that the Offering has not occurred
as of December 31, 2002 this Agreement shall have no further effect. 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 $120,000, 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, 2003,
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 (i) of this Section 4(b); provided,
however, that if at any time the Management Bonus (as hereinafter defined) is
not in effect, Employee shall receive bonus compensation in accordance with
paragraph (ii) of this Section 4(b). 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.

               (i)   Management Bonus. 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 results of operations for the year achieve the net
profitability goals for the year specified in the approved Business Plan, a
bonus equal to no less than 33% of the Employee’s Base Salary shall be paid to
him (the “Management Bonus”). If the results of operations for the year exceed
the net profitability goals of the approved Business Plan, the amount of the
Employee’s Management Bonus may be increased in recognition of the degree to
which performance exceeded such goals, and the Employee’s contribution to such
superior performance results as determined in the sole discretion of the
Compensation Committee of the Board (the “Committee”). If the results of
operations for the year fail to achieve such net profitability goals, 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.

               (ii)   Bonus. 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.

2

 

          c)   Stock Options. The Committee has granted to Employee stock options to
purchase 105,000 shares of common stock of the Company, pursuant to a stock
option agreement in substantially the form annexed hereto as Exhibit A (the
“Option Agreement”). The stock options granted pursuant to the Option
Agreement shall vest in full on a change in control. The Company shall use
reasonable efforts to cause a Registration Statement on Form S-8 to be filed
and to be declared effective, registering the shares to be granted hereby.

          d)   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.

          e)   Vacation. During the Term, Employee shall be entitled to such vacation
with pay during each calendar year of his Employment hereunder consistent with
his position as an executive officer of the Company, but in no event less than
four weeks in any such calendar year (pro-rated as necessary for partial
calendar years during the Term). Such vacation may be taken, in Employee’s
discretion, at such time or times as are not inconsistent with the reasonable
business needs of the Company. Employee 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

3

 

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.

     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

4

 

(“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 pursuant to Section 3 of this
Agreement, 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.

5

 

          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: (A) Employee’s conviction, or plea of guilty or nolo
contendere to, a felony; (B) Employee’s engaging in willful misconduct that is
economically injurious to the Company (including, but not limited to, a willful
violation of Sections 10 or 11 of this Agreement or the embezzlement of funds
or misappropriation of other property of the Company or any subsidiary); or (C)
Employee shall breach this Agreement in a material manner or engage in
fraudulent conduct as regards the Company which results either in personal
enrichment to Employee or material injury to the Company. 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 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) or (B) 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) or (B) 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.

6

 

               (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 Employee as a result of
death or Disability of Employee or for Cause (and other than during the six
months following a “change in control” (as hereinafter defined) of the
Company), the following shall apply:

                    A)   the Company shall pay to Employee (w) his Base Salary and accrued
vacation pay through 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, 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 provide a reasonable allowance for outplacement
services, not to exceed $5,000;

                    C)   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 (C) shall cease; and

                    D)   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.

7

 

               (iii)   Change in Control. For purposes of this Agreement, a “change in
control” of the Company shall be deemed to have occurred if any of the
following events occur:

                    (A)   an acquisition after the date of this Agreement by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of fifty percent (50%) or more of the combined voting power of
the then outstanding voting securities of the Company entitled to vote
generally in the election of directors (the “Outstanding Company Voting
Securities”); provided, however, that for purposes of this definition, the
following transactions shall not constitute a change in control: (a) any
acquisition by the Company or by an employee benefit plan (or related trust)
sponsored or maintained by the Company or an affiliate, (b) any acquisition by
a lender to the Company pursuant to a debt restructuring of the Company, (c)
any acquisition by, or consummation of a Corporate Transaction with, an
affiliate of the Company, or (d) a Non-Control Transaction;

                    (B)   A change in the composition of the board of directors of the Company
such that the individuals who, as of the date hereof, constitute the board of
directors of the Company (such Board shall be hereinafter referred to as the
“Incumbent Board”) cease for any reason to constitute at least a majority of
the board of directors of the Company; provided, however, for purposes of this
clause (B), any individual who becomes a member of the board of directors of
the Company subsequent to the date hereof whose election, or nomination for
election by the Company’s stockholders, was approved by a vote of at least a
majority of those individuals who are members of the board of directors of the
Company and who were also members of the Incumbent Board (or deemed to be such
pursuant to this provision) shall be considered as though such individual were
a member of the Incumbent Board; but, provided, further, that any such
individual whose initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a person
other than the board of directors of the Company shall not be so considered as
a member of the Incumbent Board; or

                    (C)   Consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
“Corporate Transaction”), in each case, unless the Corporate Transaction is a
Non-Control Transaction; or

For purposes of the foregoing, “Non-Control Transaction” means a Corporate
Transaction as a result of which the Outstanding Company Voting Securities
immediately prior to such Corporate Transaction would entitle the holders
thereof immediately prior to such Corporate Transaction to exercise, directly
or indirectly, more than fifty percent (50%) of the combined voting power of
all of the shares of capital stock entitled to vote generally in election of
directors of the corporation resulting from such Corporate Transaction
immediately after such Corporate Transaction (including, without limitation,

8

 

a corporation which as a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or through one or
more subsidiaries).

               (iv)   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, Senior Vice
President and Chief Financial Officer of the Company, (ii) any material
diminution in the nature or scope of the authorities, powers, functions, duties
or responsibilities attached to such positions, (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)-(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.

               (v)   Severance and Non-Competition Payments Following a Change in Control.
In the event of a termination of employment by Employee for any reason, other
than as a result of death or Disability of Employee or for Cause, within six
months following a “change in control” of the Company, the Company shall pay
Employee (w) his Base Salary and accrued vacation pay 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) 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, (y) the greater of a lump-sum
payment equal to two times (A) the amount of the Bonus Compensation, if any,
paid to Employee in the year immediately prior to the year of termination or
(B) the target Bonus Compensation due for the year of termination (whether or
not such target is actually met) and (z) the benefits set forth in Sections
8(d)(ii)(B), (C) and (D). 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, but in no event more than 45 days
following the execution of such Release.

               (vi)   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 vacation pay 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), (C) and (D). 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.

9

 

               (vii)   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.

               (viii)   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)(ii)(J), 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) (collectively, a “Control Change”) or the
termination of Employment (including a Constructive Termination, and whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Control Change
or any person having such a relationship with the Company or such person as to
require attribution of stock ownership between the parties under Section 318(a)
of the Code) 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
substantially the form annexed hereto as Exhibit B (with such changes as
counsel to the Company may reasonably require as a result of changes in law
after the date hereof).

     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 except
(i) while employed by the Company, in the business of and for the benefit of
the Company or (ii) when required to

10

 

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 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; 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 (z) was available to Employee on a non-confidential basis prior
to its disclosure to Employee by the Company. 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. As used in this Agreement, the term
“Business” means the purchase, collection and management of portfolios of
defaulted 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,

11

 

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 and for one year thereafter (two
years after the Term), 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 to terminate their
relationship with the Company (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 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, and
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 ByLaws 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.

12

 

     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:
	 	 	 
	If to Employee, to:	 	
Mr. Kevin P. Stevenson

2364 Kerr Dr

Virginia Beach, Virginia 23454

Fax:

     14.   Entire Agreement. This Agreement and the Option Agreement contain 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. In case of any conflict between the
provisions hereof and the Option Agreement, the provisions of this Agreement
shall be controlling.

     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

13

 

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 State of Delaware, 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.

14

 

     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:	 	

Name:

Position:

	 
	 
	 	By:	/s/ Kevin P. Stevenson
	 	 	 	

Kevin P. Stevenson

 

 

 

 

 

15

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