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Exhibit 10.61
September 2, 1997
Xx. Xxxxxx X. Xxxxx
0000 X.X. 000xx Xxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxx 00000
Dear Xx. Xxxxx:
The purpose of this letter is to acknowledge, and set forth
the terms of, our agreement with regard to your continued service on the Board
of Directors (the "Board") of Mego Mortgage Corporation (the "Company") as
Chairman and your retention by the Company as a consultant (whether or not you
continue as Chairman of the Board or otherwise continue as a director of the
Company).
1. This Agreement shall be for a term (the "Term") commencing on September
1, 1997 and terminating upon the earlier of: (i) December 31, 2002, (ii) your
death, (iii) your Disability (within the meaning of Section 72(m)(7) of the
Internal Revenue Code of 1986, as amended (the "Code")), or (iv) the date of
termination of your consultancy by the Company for "Cause" in accordance with
Section 7 herein.
2. During the period of the Term which you are serving as Chairman of the
Board, you shall receive an annual Chairman's fee of at least Thirty Thousand
Dollars ($30,000) (the "Annual Chairman's Fee") and no other retainer fee as a
member of the Board. Such Annual Chairman's Fee shall be payable in monthly
installments and shall be prorated for any partial calendar years for which you
serve as Chairman of the Board during the Term. During the Term, while serving
as Chairman of the Board you shall continue to perform the duties and functions
required of, and commensurate with, your status as Chairman of the Board and as
provided in the Company's by-laws and you shall continue to perform services
with regard to matters you are involved with as Chairman as of the date hereof.
3. If you cease to be Chairman of the Board during the Term, but continue
to serve as a director of the Company, while you are serving as a director of
the Company, you will receive compensation for your services as a director of
the Company in accordance with the Company's then current practice. This
Agreement does not impose any obligations on the Company to retain you as
Chairman or a director nor shall it impose an obligation on you to remain
Chairman or a director of the Company.
4. During the Term (whether or not you continue to serve as Chairman of the
Board or otherwise continue to serve as a director of the Company), you shall
serve as a consultant to the Company as reasonably requested by the Company. For
your services as a consultant to the Company, the Company shall pay you (i) an
annual consulting fee (the "Annual Consultant's Fee") of One Hundred Twenty
Thousand Dollars ($120,000) payable in monthly installments and prorated for any
partial calendar years during the Term and (ii) on
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the fifteenth business day of the month of March from March 15, 1998 through
March 15, 2003 (provided that the financial statements for the year prior to
payment have been completed but in no event later than March 31), the Company
shall pay to you an amount (the "Incentive Bonus") equal to one and one-quarter
percent (1.25%) of the Company's pre Federal-tax (and after state and local tax)
income for the prior calendar year computed and based on the financial
statements of the Company for such calendar year prepared in accordance with
generally accepted accounting principles consistently applied ("GAAP"); provided
that the Incentive Bonus payable in March 1998 shall be based solely on the
Company's pre Federal-tax (and after state and local tax) income for the period
commencing September 1, 1997 and ending December 31, 1997. The Incentive Bonus
and any Incentive Bonus payments hereunder shall be subject to stockholder
approval at such time or times as required under Code Section 162(m) and the
Treasury regulations thereunder (collectively referred herein as "Code Section
162(m)") and the Incentive Bonus shall be administered by the Code Section
162(m) Subcommittee of the Compensation Committee of the Board. The Incentive
Bonus is intended to comply with the exemption for performance based
compensation under Code Section 162(m) and any provision required thereunder
shall be deemed part of the Incentive Bonus and the provisions of the Incentive
Bonus shall be interpreted and construed in accordance therewith.
5. As a consultant, you will be an independent contractor of the Company
and, as such, will have no authority to bind the Company. In your capacity as a
consultant, subject to coordination with the Chief Executive Officer and the
Board, you shall continue to perform the services you are involved with as
Chairman as of the date hereof and you shall devote such time as necessary to be
materially involved in the Company's financial matters, specifically, in
furthering and developing the financial relationships of the Company. The
Company shall indemnify you and hold you harmless, to the fullest extent
permitted by law as, to and from any and all costs, expenses or damages incurred
by you as a result of any claim, suit, action or judgment arising out of your
activities as a consultant to or a director of the Company, and this right to
indemnification shall survive the termination of this Letter Agreement.
6. In the event of your Disability or death prior to December 31, 2002, the
Company shall pay you or your designated beneficiary (or, if none, your estate),
as the case may be, in a lump sum: (i) the Annual Consultant's Fees you would
have received during the period commencing on the date of your Disability or
death and ending on December 31, 2002 and any unpaid Annual Consultant's Fees
accrued prior to your Disability or death; (ii) any unpaid Incentive Bonus for
the preceding calendar year; and (iii) the full Incentive Bonus for the calendar
year in which you become disabled or die (calculated in accordance with Section
4 herein). Upon payment of such amounts the Company shall have no further
obligation to you hereunder.
7. If the Board shall determine that there are grounds for discharging you
from your consultancy for "Cause" (as hereinafter defined), the Company may, at
its election at any time within six (6) months after the Company shall obtain
knowledge of the grounds for termination, give you notice of its intention to
terminate you for Cause, stating the grounds for termination and specifying a
reasonable date (the "Meeting Date") on which you (or your duly authorized
representative) shall be given an opportunity if you desire to discuss such
grounds for termination at a meeting of the Board. The Company may suspend your
service relationship
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without pay during the period following notice to you of the Company's intention
to terminate you for Cause, provided that if the Company does not terminate your
consultancy for Cause hereunder, the Company shall pay you any amounts owed to
you with regard to the period of suspension.
(a) If the grounds for termination are those specified in
clause (iii) of paragraph (c) below, you shall have a period of ten (10)
business days from the Meeting Date (the "Cure Period") to cure the breach,
provided that if similar grounds arise again within one (1) year of such cure,
no new notice need be given and the Company, at its option, may immediately
terminate you for Cause.
(b) If, following discussion with you (or your duly
authorized representative) of the grounds for your termination at the Board
meeting (and the expiration of the Cure Period, if any) or, if you (or your duly
authorized representative) do not appear, following the Board meeting, the
Company shall continue its intent on discharging you for Cause, the Company
shall so notify you, and such termination shall be effective immediately.
(c) For purposes of this Agreement, the term "Cause" shall
mean: (i) conviction of a felony, whether or not such conviction is appealed;
(ii) deliberate and premeditated acts which are proven to be dishonest or
malfeasant and involve the funds or other assets of the Company; (iii) material
breach of the terms of this Agreement, as determined in good faith by at least
two-thirds ( ) of the Board (excluding you with regard to both voting and
calculating the aggregate number of Board members, if you are then serving on
the Board); (iv) you are found guilty of or are enjoined from a violation of any
state or federal securities laws, state or federal laws governing the business
of the Company, or rules and regulations of any state or federal agency
regulating any of the business of the Company; or (v) habitual use of alcohol or
drugs to a degree that such use substantially interferes with your performance
of your duties, provided the Company has given you written notice and a
reasonable opportunity to appear before the Board.
(d) If the Company terminates your consultancy for Cause
pursuant to this Section 7, it shall have no further liability or obligation
hereunder except the Company shall promptly pay you your then current Annual
Consultant's Fee owed to you through the effective date of such termination and
you shall not receive any other amounts for your services hereunder including,
without limitation, any Incentive Bonus.
8. Notwithstanding anything else herein, in the event of a Change in
Control of the Company (as defined in Exhibit A hereto) during the Term, the
Company may, in its sole and absolute discretion, pay you in a lump sum within
ten (10) days of the date of the Change in Control, in lieu of any other
amounts due hereunder, the following amounts:
(i) The Annual Consultant's Fees you would have received
during the period commencing on the date of the Change in
Control and ending on December 31, 2002 (the "Remainder
of the Term"); and
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(ii) The Incentive Bonuses you would have received during the
Remainder of the Term (the "Remaining Bonus"), discounted
to present value as set forth below. For purposes of
determining the Remaining Bonus, each applicable annual
Incentive Bonus for the Remainder of the Term will be
determined by using the Company's pre Federal-tax income
(as determined in accordance with Section 4 herein) for
the full calendar year immediately preceding the year of
the Change in Control, increased by an assumed compounded
growth in such pre Federal-tax income of twenty percent
(20%) per annum.
For purposes of the present value calculations hereunder, the
discount rate shall be deemed to be the prime lending rate charged by Citibank
on the date of the Change in Control. Notwithstanding anything herein to the
contrary, you shall have no obligation to mitigate with respect to the payments
under this Section 8. Upon payment of the amounts specified in this Section 8
(and, if applicable, Section 9), the parties hereto will have no further rights
or obligations under this Agreement.
9. If the payment made to you under Section 8 plus the value (determined
in accordance with Proposed Treasury Regulation Section 1.280G-1, Q & A 24)
of any accelerated vesting of the stock appreciation right granted pursuant to
the Stock Appreciation Right Agreement entered into between the Company and you,
dated August 20, 1997 (the "280G Amounts") taken together, and without regard to
any other benefits or amounts paid or payable to you, cause you to be subject to
any excise tax liability (the "Excise Tax") pursuant to Code Section 4999, the
Company shall pay to you an amount (the "Excise Tax Reimbursement Payment"), as
determined by the Board in its sole and absolute discretion, sufficient to
reimburse you for payment of a portion of the Excise Tax as set forth below and
not the Excise Tax or any other tax on the Excise Tax Reimbursement Payment. The
amount of the Excise Tax Reimbursement Payment payable under this Section 9
shall be an amount equal to (i) the Excise Tax, if any, due on the 280G Amounts
(calculated in accordance with Code Section 280G), multiplied by (ii) a
fraction, the numerator of which is the payment under Section 8 and the
denominator of which is the 280G Amounts. Notwithstanding the foregoing, the
amount payable to you under this Section 9 shall be limited to the then rate of
Excise Tax multiplied by the payment made to you pursuant to Section 8.
10. During the Term, you shall not enter into Competition with the Company
or any of its subsidiaries (within the meaning of Code Section 424(f)) (the
"Control Group"). For purposes of this Agreement, "Competition" shall mean the:
(i) participating, directly or indirectly, as an
individual proprietor, stockholder, officer, employee, director, joint venturer,
investor, lender, or in any capacity whatsoever (within the United States of
America, or in any country where the Control Group does business) in any (A)
activity with respect to conventional home improvement loans, debt consolidation
loans, FHA Title I loans and non-conforming mortgage loans or (B) any other
business or activity which competes with or is engaged in the same business or
activity as the Company, provided, however, that such participation shall not
include (C) the mere ownership of
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not more than five percent (5%) of the total outstanding stock of a publicly
held company; or (D) any activity engaged in with the prior written approval of
the Board; or
(ii) recruiting, soliciting or inducing, of any employee
or employees of the Control Group to terminate their employment with, or
otherwise cease their relationship with, the Control Group.
You agree that the provisions of this Section 10 are necessary
and reasonable to protect the Control Group in the conduct of its business and
to protect confidential information. If any restriction set forth with regard to
Competition is found by any court of competent jurisdiction, or an arbitrator,
to be unenforceable because it extends for too long a period of time or over too
great a range of activities or in too broad a geographic area, it shall be
interpreted to extend over the maximum period of time, range of activities or
geographic area as to which it may be enforceable and in its reduced form such
restriction shall then be enforceable in the manner contemplated hereby.
11. You undertake and agree that during the Term and thereafter you shall
hold in a fiduciary capacity for the benefit of the Control Group all secret or
confidential information, knowledge or data relating to the Control Group or
its business (which shall be defined as all such information, knowledge and
data coming to your attention by virtue of your service with the Company except
that which is otherwise public knowledge or known within the Company's
industry). During such period, you shall not, without prior written consent of
the Company, unless compelled pursuant to the order of a court or other body
having jurisdiction over such matter or unless required by lawful process or
subpoena, communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. The foregoing shall
not limit the disclosure by you of such information in the course of the
performance of your duties as Chairman, director or consultant to the Company
so long as such disclosure is in good faith. In the event you are compelled by
order of a court or other governmental or legal body to communicate or divulge
any such information, knowledge or data to anyone other than the Company and
those designated by it, you shall promptly notify the Company of any such order
and shall cooperate fully with the Company at the Company's request and expense
in seeking a protective order.
12. During the Term and thereafter, you shall not make any statements or
comments (i) to any form of media of a negative nature that reasonably could be
considered to have an adverse impact on the business or reputation of the
Control Group or the Board, or (ii) to any employee of the Control Group or to
any customer of the Control Group of a negative nature that reasonably could be
considered to have an adverse impact on the business or reputation of the
Control Group or the Board, provided that in no event shall the foregoing
limitation apply to (i) compliance with legal process or subpoena, (ii)
statements in response to inquiry from a court or regulatory body, (iii) a
possible future employer in connection with employment discussions, (iv)
statements which are generally available public knowledge or which are known to
the person to whom the statement is made (other than due to acts by you which
are in violation of this Agreement), or (v) in response to inquiry from the
Board.
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13. Notwithstanding any other provision of this Agreement, in the event of
a breach or threatened breach by you of any provision of Sections 10, 11 or 12,
you and the Company agree that the Company shall be entitled to injunctive and
declaratory relief from a court of competent jurisdiction to restrain you from
committing such breach of the Agreement. Nothing in this Agreement shall be
construed as prohibiting the Company from pursuing any other remedy or remedies
including, without limitation, the recovery of damages.
The provisions of Sections 11, 12 and this Section 13 shall survive the
expiration of this Agreement or the termination of the Agreement for any reason.
14. Notwithstanding anything else herein, you and the Company hereby agree
that the calculations of any amounts payable pursuant to Sections 4 and 8 shall
be performed by the Company's then certified independent public accountants and
that such determination shall be final and binding on the parties hereto and
their respective, successors, heirs (in your case) and permitted assigns. The
calculations of any amounts payable pursuant to Sections 4 and 8 shall be based
on the financial statements of the Company for the applicable period in
accordance with GAAP.
15. All amounts payable under this Agreement are, to the extent legally
required, subject to withholding and deductions. Subject to and in accordance
with the Company's normal practices and policies, you will be entitled to
receive reimbursement for any reasonable business expenses related to the
Company incurred during the Term.
16. You acknowledge that during the Term you will not be an employee of the
Company and you will not be eligible to participate in, or receive benefits
under, any benefit plans or arrangements maintained, or contributed to, by the
Company, including without limitation, any fringe, welfare, retirement, sick
leave, vacation or incentive plans or arrangements, except in your capacity as
a director. This Section 16 will not apply to any stock options or stock
appreciation rights granted to you in your capacity as a director of the
Company.
17. This Agreement sets forth the parties' entire agreement, and supersedes
any and all prior understandings, with respect to its subject matter. This
Agreement can be amended only by a writing signed by both you and the Company.
18. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors, heirs (in your case) and
permitted assigns. This Agreement is personal to you and neither this Agreement
nor any rights hereunder may be assigned by you. No rights or obligations of
the Company under this Agreement may be assigned or transferred by the Company
except that such rights or obligations may be assigned or transferred pursuant
to a merger or consolidation in which the Company is not the continuing entity,
or pursuant to a sale of all or substantially all of the assets of the Company,
provided that the assignee or transferee is the successor to all or
substantially all of the assets of the Company and such assignee or transferee
assumes the liabilities, obligations and duties of the Company, as contained in
this Agreement, either contractually or as a matter of law. The Company further
agrees that, in the event of a sale as described in the preceding sentence, it
shall use its best efforts to cause such assignee or transferee to expressly
assume the liabilities, obligations and
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duties of the Company hereunder. If the assignee or transferee does not
expressly assume the liabilities, obligations and duties of the Company
hereunder, the Company shall pay you in a lump sum within ten (10) days
following the closing of the sale of all or substantially all of the assets of
the Company the amount set forth in Section 8(i), Section 8(ii) and Section 9.
19. All notices under this Agreement shall be given in writing and shall be
either delivered personally or sent by certified or registered mail, return
receipt requested, addressed to the other party at the appropriate address
first set forth above, or to such other address as such party shall designate
by written notice as aforesaid. Notices shall be deemed given when received or
two (2) days after mailing, whichever is earlier.
20. This Agreement shall be governed by, and construed under and in
accordance with, the internal laws of the State of Delaware, without reference
to rules relating to conflicts of laws.
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Please execute a copy of this Agreement and return it to me to
acknowledge your agreement to the foregoing.
MEGO MORTGAGE CORPORATION
---------------------------------
By:
Title:
Agreed:
-----------------------------
Xxxxxx X. Xxxxx
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EXHIBIT A
A "Change in Control" shall be deemed to have occurred upon:
(a) any "person" as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under any
employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of Common Stock of the Company), is or becomes
the owner (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the combined voting power of the Company's then outstanding securities;
(b) during any period of two consecutive years (not
including any period prior to the commencement of the Term), individuals who at
the beginning of such period constitute the Board, and any new director (other
than a director designated by a person who has entered into an agreement with
the Company to effect a transaction described in paragraph (a), (c) or (d) of
this Exhibit A) whose election by the Board or nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of the
two-year period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority of the Board,
provided that a Change in Control shall not occur pursuant to this subsection
(b) if Xxxxxx Xxxxxxxxxxx, Xxxxxx X. Xxxxx, Xxx X. Xxxxxxxx, Growth Realty, Inc.
and Xxxxxxx X. Xxxxxx or any of them own, either directly or indirectly
(indirect ownership shall be determined in accordance with the constructive
ownership rules under Code Section 318 and amounts indirectly owned shall also
include any stock contributed by any of the foregoing to a private foundation
and/or trust), more than ten percent (10%) of the voting stock of the Company;
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) more than fifty percent (50%) of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that a merger
or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no person acquires more than thirty-three percent
(33%) of the combined voting power of the Company's then outstanding securities
shall not constitute a Change in Control of the Company; or
(d) the stockholders of the Company approve a plan of
complete liquidation of the Company or the closing of a sale or disposition by
the Company of all or substantially all of the assets of the Company other than
a sale of all substantially all of the assets of the Company (other than in the
ordinary course of business) to a person or persons who beneficially own,
directly or indirectly, at least fifty percent (50%) or more of the combined
voting power of the Company's then outstanding securities.
