President Employment Agreement

EXHIBIT 10.2


EMPLOYMENT AGREEMENT


EMPLOYMENT AGREEMENT, dated as of November 15, 1996, by and between Wilshire Financial Services Group Inc. (the "Company"), with its principal office at 1776 SW Madison Street, Portland, Oregon 97205 and Lawrence A. Mendelsohn, residing at 4428 SW Eleanor Lane, Portland, Oregon 97221 (the "Executive").


W I T N E S S E T H:
-------------------


WHEREAS, Executive is currently employed as the President of the Company and is also a director of the Company; and


WHEREAS, the Company and Executive desire to enter into this agreement (the "Agreement") to set forth terms of Executive's employment by the Company.


NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows:


1. Term of Employment. Except for earlier termination as provided in
------------------ Section 7 hereof, Executive's employment under this Agreement shall be for a three (3) year term (the "Employment Term") commencing on the closing date for the Company's initial public offering (the "Commencement Date"). Subject to Section 7 hereof, the Employment Term shall be automatically extended for additional terms of successive two (2) year periods unless the Company or Executive gives written notice of the termination of Executive's employment hereunder at least ninety (90) days prior to the expiration of the then current Employment Term.


2. Positions. (a) Executive shall serve as President of the Company. It
--------- is the intention of the parties that during the Employment Term, Executive shall also serve on the Board of Directors of the Company (the "Board") without additional compensation. During the term of this Agreement, the Company shall recommend the Executive for election as a director.


(b) Executive shall report directly to the Board or other managing body of the Company and shall have such duties and authority, consistent with his position as President of the Company, as shall be determined from time to time by the Board, provided that Executive shall have authority comparable to that of chief executive officers of United States public companies that are similar in size and business to the Company.


(c) During the Employment Term, Executive shall devote substantially all of his business time, energy, skill and efforts to the performance of his duties and responsibilities hereunder; provided, however, that Executive shall be allowed to (i) serve as a director and an employee or


consultant of privately held companies (including, but not limited to, Wilshire Credit Corporation and its privately held affiliates); (ii) serve as a director of other companies; (iii) engage in charitable activities; and (iv) manage his personal financial and legal affairs.


3. Base Salary. During the Employment Term, the Company shall pay
----------- Executive a base salary at the annual rate of not less than $300,000. Base salary shall be payable in accordance with the usual payroll practices of the Company. Executive's Base Salary shall be subject to annual review by the Board in February of each year and may be increased, but not decreased, from time to time upon recommendation of the Compensation Committee of the Board (the "Committee"). The base salary determined as aforesaid from time to time shall constitute "Base Salary" for purposes of this Agreement.


4. Incentive Compensation. (a) Bonus. For each fiscal year or portion
---------------------- ----- thereof during the Employment Term, Executive shall be entitled to receive an annual bonus (the "Bonus") as determined by the Committee from time to time; provided that such annual bonus will not exceed one-third (1/3rd) of 20% of the Company's pre-tax income (as determined in accordance with generally accepted accounting principles and reflected in the Company's audited financial statements) for the relevant calender year; provided that such Bonus shall
-------- be determined prior to subtracting any Bonus payable hereunder. Such annual bonus shall be payable in January of each year following the year for which the bonus is payable (based on interim numbers for such year) and, if necessary, shall be adjusted for any subsequent amendments to the Company's financial statements following completion of the year end audit. Following any fiscal quarter, the Company shall, at the request of the Executive, pay an advance on any such Bonus; provided that any such advance (together with any prior advances during the relevant calendar year) shall not exceed one-third (1/3rd) of 20% of the Company's pre-tax income from the beginning of the relevant calendar year through the end of such fiscal quarter (based on the Company's interim financial statements). In the event that the aggregate amount of advances made by the Company at the end of the relevant calendar year exceed the amount of the Bonus as determined by the Committee for such year, the amount in excess of the Bonus shall be treated as an interest free loan from the Company, which shall be repaid by the Executive within six (6) months of the determination by the Committee of such year's Bonus. Following the initial Employment Term, such Bonus shall be subject to shareholder approval as and to the extent required by Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").


(b) Options. The Executive shall also be entitled to participate in the
------- Company's Incentive Stock Plan (the "Incentive Stock Plan") and receive nonqualified, incentive or other options ("Options") to purchase shares of the Company's common stock (the "Common Stock") under the Incentive Stock Plan as determined by the Committee from time to time provided that the Incentive Stock Plan is approved by the shareholders of the Company to the extent required by Section 162(m) of the Code. Notwithstanding the foregoing, the Company may recommend to the Committee that the Executive be granted Options under a plan other than the Incentive Stock Plan provided that such other plan contains terms and conditions which are substantially similar to the terms and conditions of the Incentive Stock Plan, and further provided, that such other plan is approved by the shareholders of the Company to the extent required by Section 162(m) of the Code.


(c) Other Compensation. The Company may, upon recommendation of the
------------------ Committee, award to the Executive such other bonuses and compensation as it deems appropriate and reasonable.


5. Employee Benefits and Vacation. (a) During the Employment Term,
------------------------------ Executive shall be entitled to (i) participate in all pension, retirement, savings, welfare and other employee benefit plans and arrangements, including, without limitation, any nonqualified deferred compensation plans, maintained by the Company from time to time for the benefit of the senior executives of the Company in accordance with their respective terms as in effect from time to


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time, (ii) a luxury automobile reasonably satisfactory to the Executive and the Company (including, without limitation, reimbursement by the Company of the costs of maintaining and operating such automobile), (iii) reasonable use of Company-provided aircraft transportation for business-related and personal travel, and (iv) the employment of a daycare provider for Executive's dependents (with the daycare provider's salary paid by the Company directly to the daycare provider net of any applicable federal or state employment tax of which such taxes shall be withheld and remitted by the Company to the appropriate taxing authorities and which salary shall not exceed comparable salaries for such services). Executive acknowledges that the aforementioned items will be includible as compensation for income tax purposes to the extent required by applicable law. To the extent permitted under applicable law, the Company shall not treat as compensation to Executive fringes and perquisites provided to Executive or the items under Section 6 below.


(b) During the Employment Term, Executive shall be entitled to vacation each year in accordance with the Company's policies in effect from time to time, but in no event less than five (5) weeks paid vacation per calendar year. The Executive shall also be entitled to such periods of sick leave as is customarily provided by the Company for its senior executive employees.


6. Business Expenses. The Company shall also reimburse Executive for the
----------------- travel, entertainment and other business expenses incurred by Executive in the performance of his duties hereunder, in accordance with the Company's policies as in effect from time to time.


7. Termination. (a) The employment of Executive under this Agreement
----------- shall terminate upon the occurrence of any of the following events:


(i) the death of the Executive;


(ii) the termination of the Executive's employment by the
Company due to the Executive's Disability pursuant to Section 7(b)
hereof;


(iii) the termination of the Executive's employment by the
Executive for Good Reason pursuant to Section 7(c) hereof;


(iv) the termination of the Executive's employment by the
Company without Cause;


(v) the termination of employment by the Executive without
Good Reason upon sixty (60) days prior written notice;


(vi) the termination of employment by the Executive for any
reason during the period commencing on the date of a Change in Control
and ending on the day immediately prior to the second anniversary of
the Change in Control (the "Change in Control Protection Period");


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(vii) the termination of the Executive's employment by the
Company for Cause pursuant to Section 7(e); or


(viii) the retirement of the Executive by the Company at or
after his sixty-fifth birthday to the extent such termination is
specifically permitted as a stated exception from applicable federal
and state age discrimination laws based on position and retirement
benefits.


(b) Disability. If, by reason of the same or related physical or
---------- mental reasons, Executive is unable to carry out Executive's material duties pursuant to this Agreement for more than six (6) months in any twelve (12) consecutive month period (a "Disability"), the Company may terminate Executive's employment for Disability upon thirty (30) days prior written notice, by a notice of Disability termination, at any time thereafter during such twelve (12) month period in which Executive is unable to carry out his duties as a result of the same or related physical or mental illness. Such termination shall not be effective if Executive returns to the full time performance of his material duties within such thirty (30) day notice period.


(c) Termination for Good Reason. A Termination for Good Reason means
--------------------------- a termination by Executive by written notice given within sixty (60) days after the occurrence of the Good Reason event. For purposes of this Agreement, "Good Reason" shall mean the occurrence or failure to cause the occurrence, as the case may be, without Executive's express written consent, of any of the following circumstances, unless such circumstances are fully corrected prior to the date of termination specified in the Notice of Termination for Good Reason (as defined in Section 7(d) hereof): (i) any material diminution of Executive's positions, duties or responsibilities hereunder (except in each case in connection with the termination of Executive's employment for Cause or Disability or as a result of Executive's death, or temporarily as a result of Executive's illness or other absence), or the assignment to Executive of duties or responsibilities that are inconsistent with Executive's position as President; (ii) removal of the Executive from, or the non reelection of the Executive to, the positions with the Company specified herein; (iii) a relocation of the Company's principal United States executive offices to a location more than fifty (50) miles from Portland, Oregon, or a relocation of Executive away from such principal United States executive office; (iv) a failure by the Company (A) to continue any bonus plan, program or arrangement in which Executive is entitled to participate (the "Bonus Plans"), provided that any such Bonus Plans may be modified at the Company's discretion from time to time but shall be deemed terminated if (x) any such plan does not remain substantially in the form in effect prior to such modification and (y) if plans providing Executive with substantially similar benefits are not substituted therefor ("Substitute Plans"), or (B) to continue Executive as a participant in the Bonus Plans and Substitute Plans on at least the same basis as to potential amount of the bonus and substantially the same level of criteria for achievability thereof as Executive participated in immediately prior to any change in such plans or awards, in accordance with the Bonus Plans and the Substitute Plans; (v) any material breach by the Company of any material provision of this Agreement; (vi) executive's removal from or failure to be reelected to the Board; (vii) a failure of any successor to the Company to assume in a writing delivered to Executive upon the assignee becoming such, the obligations of the Company hereunder; or (viii) a failure of the Committee to grant the Executive an award of


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Options in accordance with Sections 4(b) hereof, unless the applicable circumstances under (i) through (vii) are fully corrected prior to the date of termination specified in the notice of termination for Good Reason.


(d) Notice of Termination for Good Reason. A notice of termination
------------------------------------- for Good Reason shall mean a notice that shall indicate the specific termination provision in Section 7(c) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination for Good Reason. The failure by Executive to set forth in the notice of termination for Good Reason any facts or circumstances which contribute to the showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. The notice of termination for Good Reason shall provide for a date of termination not less than fifteen (15) nor more than sixty (60) days after the date such notice of termination for Good Reason is given.


(e) Cause. Subject to the notification provisions of Section 7(f)
----- below, Executive's employment hereunder may be terminated by the Company for Cause. For purposes of this Agreement, the term "Cause" shall be limited to (i) willful misconduct by Executive with regard to the Company or its business which has a material adverse effect on the Company; (ii) the refusal of Executive to follow the proper written direction of the Board, provided that the foregoing refusal shall not be "Cause" if Executive in good faith believes that such direction is illegal, unethical or immoral and promptly so notifies the Board; (iii) the Executive being convicted of a felony (other than a felony involving a traffic offense); (iv) the breach by Executive of any fiduciary duty owed by Executive to the Company which has a material adverse effect on the Company; or (v) Executive's material fraud with regard to the Company.


(f) Notice of Termination for Cause. A notice of termination for
------------------------------- Cause shall mean a notice that shall indicate the specific termination provision in Section 7(e) relied upon and shall set forth in reasonable detail the facts and circumstances which provide a basis for termination for Cause. Further, a notice of termination for Cause shall be required to include a copy of a resolution duly adopted by at least two-thirds of the entire membership of the Board at a meeting of the Board which was called for the purpose of considering such termination and which Executive and his representative had the right to attend and address the Board, finding that, in the good faith opinion of the Board, Executive engaged in conduct set forth in the definition of Cause herein and specifying the particulars thereof in reasonable detail. The date of termination for a termination for Cause shall be the date indicated in the notice of termination. Any purported termination for Cause which is held by a court not to have been based on the grounds set forth in this Agreement or not to have followed the procedures set forth in this Agreement shall be deemed a termination by the Company without Cause.


8. Consequences of Termination of Employment. (a) Death. If
----------------------------------------- ----- Executive's employment is terminated during the Employment Term by reason of Executive's death, the employment period under this Agreement shall terminate without further obligations to the Executive's l ...