Exhibit 10.4
MEC LETTERHEAD
As of [September
•], 2007
Mr. Thomas
Hodgson
Senior Partner &
Chairman
Greenbrook Capital
Partners Inc.
20 Eglinton
Ave. West, Suite 1400
Toronto,
Ontario
P.O. Box
2003
M4R
1K8
Dear Tom:
Consulting Agreement with
Magna Entertainment Corp. (“MEC”)
Further to our
discussions, MEC wishes to retain Greenbrook Capital Partners Inc.
(together with its employees, the “Consultant”) to
provide consulting services to assist MEC and its subsidiaries with
the adoption and implementation of a restructuring plan (the
“Project”). The overall objective of the Project
is to eliminate the MEC debt and underperforming / loss
operations. The terms and conditions of the consulting
arrangement would be as follows:
1.
Consultant . The Consultant will provide its Senior
Partner & Chairman, Mr. Thomas Hodgson (the “Designated
Consultant”), to carry out the Consultant’s obligations
under this agreement. The Consultant’s use of any other
employee or consultant other than the Designated Consultant to
perform the consulting services in respect of the Project is
subject to the prior written authorization of MEC. The
Consultant acknowledges that due to the nature of the Project, the
Designated Consultant will be expected to engage in extensive
business travel.
2.
Fees . MEC will pay the Consultant an annual fee of
US$500,000 per annum, exclusive of GST (“Base Fee”),
payable in monthly instalments. Invoices should be rendered
on a monthly basis in arrears and include GST and provincial taxes
where applicable.
In addition to the Base
Fee set out above, and provided that the Consultant has complied
with its obligations hereunder, the Consultant will be entitled to
receive performance fees, calculated and payable as
follows:
·
following the receipt by MEC of an aggregate minimum of US$250
million of
proceeds (net of all
third-party commissions, selling expenses and other costs,
“Proceeds”) from asset sales and/or equity raises
conducted in accordance with the Project, the Consultant will be
entitled to receive US$125,000 (being 0.05% of US$250 million),
payable within 30 days of the date on which the Consultant has
delivered an invoice therefor following MEC’s receipt of such
aggregate Proceeds;
·
on the next US$250 million of Proceeds (or part thereof) received
by MEC from asset sales and/or equity raises conducted in
accordance with the Project, the Consultant will be entitled to
receive 0.1% of such incremental amount, payable within 30 days of
the date on which the Consultant has delivered an invoice therefor
following MEC’s receipt of such incremental Proceeds;
·
on any further incremental Proceeds above US$500 million received
by MEC from asset sales and/or equity raises conducted in
accordance with the Project, the Consultant will be entitled to
receive 0.2% of such incremental amount (for certainty, that amount
above US$500 million), payable within 30 days of the date on which
the Consultant has delivered an invoice therefor following
MEC’s receipt of such further incremental Proceeds;
·
provided, however, that for the purposes of these calculations of
the performance fees, the Proceeds received by MEC from any equity
issued to MI Developments Inc. or Fair Enterprise Limited will be
deemed to be reduced by 60%.
For greater certainty,
provided that this agreement is in effect at the time that MEC
enters into any transaction that results in MEC receiving the
Proceeds referred to above, the Consultant will be entitled to
receive the relevant performance fees (with such performance fees
being paid at the time specified above) regardless of whether this
agreement is in effect at the time that MEC receives the
Proceeds.
3.
Stock Options . Subject to the express approval of the
Board of Directors of MEC and any regulatory bodies having
jurisdiction (including the consent of the Toronto Stock Exchange
to the listing of the underlying shares), and subject to the
Designated Consultant entering into a stock option agreement with
MEC in the standard form contemplated by the Corporation’s
2003 Incentive Stock Option Plan, MEC will grant the Designated
Consultant options to purchase 250,000 Class A Subordinate Voting
Shares of MEC (each an “MEC Share”) at an exercise
price per MEC Share which is equal to one hundred per cent (100%)
of the last sale price of an MEC Share on the Toronto Stock
Exchange on the trading day prior to the date of MEC Board approval
of the stock option grant; provided, however, that the Designated
Consultant acknowledges and agrees that the timing and pricing of
the grant of its options will be subject to all applicable
securities law restrictions. Such options will be exercisable
by the Designated Consultant only in accordance with the terms and
conditions set forth in the stock option agreement referred to
above. Upon receipt of an executed copy of this agreement,
MEC will place this matter
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before the MEC Board
for review pursuant to the terms of this paragraph 3.
4.
Expenses . MEC will reimburse the Consultant for all
reasonable business expenses actually and properly incurred in
carrying out the Project to the extent specifically required by MEC
under this agreement and in accordance with MEC’s expense
reimbursement guidelines. If the Consultant travels outside
of Canada on MEC business, it will be the Consultant’s
responsibility to maintain adequate medical coverage. The
Consultant will supply original vouchers and receipts to support
all expenses, will itemize such expenses on a standard MEC expense
report, and will obtain advance approval from MEC’s Chief
Financial Officer for any individual expense in excess of
US$2,500.
5.
Coordination of Services . The Consultant will carry
out those services needed to complete the Project with the
assistance and under the direction of the MEC Board of Directors
(the “Board”). The Consultant will liaise with
members of MEC management and those other employees and consultants
of MEC and will provide written and verbal reports as requested by
the Board from time to time. For greater certainty, the
Consultant acknowledges and agrees that MEC will make its own
determination of whether to pursue or consummate any transaction
that the Consultant may suggest or recommend.
6.
Term . This agreement will commence effective
[September] •, 2007 and terminate on [December 12,
2008] , unless terminated earlier in accordance with this
paragraph. This agreement may be immediately terminated by
(i) mutual agreement of the parties or (ii) MEC at any time in the
event the Consultant is in material breach of the provisions of
this agreement, or the Designated Consultant dies or becomes
disabled to such an extent that he is unable to perform services
for the Consultant as provided for in this agreement in any
material way. In addition, MEC may terminate this agreement
at any time by giving the Consultant [thirty (30)] days
prior written notice.
7.
Independent Contractors . The Consultant is an
independent contractor and in no way will the Consultant be
considered as an employee, agent or joint venturer of MEC.
Subject to coordination with the persons described in paragraph 5,
the Consultant will determine how, where and when it will carry out
its consulting services and other obligations under this
agreement. The Consultant will have no authority to represent
MEC except as a consultant nor to bind it in any way and agrees
that it will not hold itself out as having authority to act for MEC
or its affiliates.
As an independent
contractor, the Consultant will not be entitled to any employment
related benefits, including without limitation, any payments under
the Employment Standards Act, 2000 (Ontario). Upon
termination of this agreement, MEC will only be responsible for
paying those fees associated with the Project up to and including
the termination date. With the exception of such amounts, the
Consultant will have no further claim or cause of action against
MEC for any cause, matter or thing relating to an alleged
employment relationship between the Consultant and MEC,
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including, without
limitation, any claim for reasonable notice of termination, pay in
lieu of notice, termination, severance or vacation pay, expenses,
bonus or incentive plan payments, profit sharing, stock options,
overtime pay, or pension entitlements other than the
performance fees and stock options specifically provided for in
this agreement.
8.
Licenses and Taxes, etc . As an independent
contractor, the Consultant will obtain all necessary licenses for
the operation of its consulting business, including a GST
registration number and workers’ compensation number.
The Consultant will also be responsible for all applicable
remittances including, but not limited to, federal and provincial
taxes on its business income, employment insurance, Canada Pension
Plan, workers’ compensation or income tax source deductions
for it and its employees. MEC will not be responsible for any
of the foregoing.
9.
Compliance with Privacy Laws : The Consultant,
including specifically its Senior Partner & Chairman, agrees to
comply with the Canadian Personal Information and Protection of
Electronic Documents Act (“PIPEDA”) and such other
Legislation and Regulations pertaining to privacy of personal
information (“Privacy Laws”) with respect to the
receipt and use of personal information relating to MEC’s
customers and employees. The Consultant further acknowledges
that Privacy Law requirements include the need to:
(a)
properly secure such information;
(b)
use such information only for the purpose it was made
available;
(c)
co-operate with access requests; and
(d)
either return or destroy such information once it is no longer
needed for the Project.
10.
Conflict of Interest . The Consultant may perform
other services for third parties during the term of this agreement,
provided that such activity does not interfere with the efficient
and timely performance of the Project and is not otherwise in
competition with, or being performed on behalf of (directly or
indirectly) any person, firm or corporation operating a similar or
competing business to that of MEC and its affiliates.
11.
Competition . In the course of providing services to
MEC, the Consultant will maintain close working relationships with
customers, clients, suppliers, agents and employees of MEC and its
affiliates. Due to the sensitive nature of the
Consultant’s work and the special access the Consultant will
have to MEC and its affiliates’ confidential information, the
Consultant will be in a position to irreparably harm MEC should the
Consultant enter into competition with MEC or its affiliates
(directly or indirectly) or otherwise make use of the specialized
knowledge, contacts and connections obtained while working on the
Project. Accordingly, during the term of this agreement and
for six (6) months following its expiry or termination it is
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understood that the
Consultant will not engage in, directly or indirectly, or perform
services for any businesses competitive with or affiliated with a
business competitive with MEC and its affiliates without
MEC’s prior written consent.
The Consultant and the
Designated Consultant each agrees that the covenants and
restrictions contained in the preceding paragraph are reasonable
and valid in terms of time, scope of activities and geographic
limitations and understands that they are vital consideration for
the purposes of MEC entering into this agreement.
12.
Confidentiality . The Consultant and its employees
will treat as confidential and will not disclose directly or
indirectly at any time during or subsequent to the conclusion of
the Project any secret or confidential business, financial or other
information belonging or relating to MEC or its affiliates or their
customers and suppliers. If requested by MEC, the Consultant
will execute a separate Confidentiality Agreement.
13.
Indemnity . MEC will indemnify the Consultant for any
costs, expenses or damages arising from actions undertaken by the
Consultant in good faith in connection with the Project and in
accordance with this agreement pursuant to the terms and conditions
of the indemnity agreement to be entered into by MEC and the
Consultant concurrent herewith in the form attached hereto as
Exhibit A . The Consultant will indemnify MEC for any
costs, expenses or damages arising from the Consultant’s
failure to comply in all material respects with the provisions of
paragraphs 7, 8, 9, 10, 11 and 12 of this agreement.
14.
Assignment . The Consultant will not assign, transfer,
subcontract its rights, obligations or interest in this agreement
to any party without the prior written consent of MEC.
15.
Severability . In the event that any covenant,
provision or restriction contained in this Agreement is found to be
void or unenforceable (in whole or in part) by a court of competent
jurisdiction, it will not affect or impair the validity of any
other covenant, provisions or restrictions contained herein, nor
will it affect the validity or enforceability of such provisions in
any other jurisdiction or in regard to other circumstances.
Any covenants, provisions or restrictions found to be void or
unenforceable are declared to be separate and distinct, and the
remaining covenants, provisions and restrictions will remain in
full force and effect.
16.
Miscellaneous . This agreement will be governed by the
laws of the Province of Ontario including all federal laws
applicable therein. The provisions of paragraphs 2, 3, 4, 7,
8, 9, 11, 13, 14, 15 and 16 of this agreement will survive the
termination of the agreement.
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If the terms of the
consulting agreement set out in this letter are acceptable to the
Consultant, please sign and date three (3) copies of this letter
and return two copies to me.
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Yours very truly,
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/s/ Frank
Stronach
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/s/ Jerry
Campbell
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Frank Stronach
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Jerry
Campbell
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Chairman
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Lead
Director
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The undersigned agrees
to the terms and conditions contained in this letter on the
day of [September] , 2007, effective as
of the date specified above.
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Greenbrook Capital
Partners Inc.
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/s/ Thomas
Hodgson
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Thomas
Hodgson
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Senior Partner &
Chairman
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6
EXHIBIT A
FORM OF
INDEMNITY
AGREEMENT
This Indemnity
Agreement (“Agreement”) is made as of
by and between Magna Entertainment Corp., a Delaware corporation
(the “Company”), and
(the “Indemnitee”), a consultant to the
Company.
RECITALS
WHEREAS , the Indemnitee has agreed to serve
as a consultant to the Company and in such capacity will render
valuable services to the Company; and
WHEREAS , the Company has investigated the
availability and sufficiency of liability insurance and Delaware
statutory indemnification provisions to provide its directors and
officers of, and consultants to, the Company or its subsidiaries
with adequate protection and has concluded that such insurance and
statutory provisions may provide inadequate and unacceptable
protection to certain individuals requested to serve as its
directors, officers or consultants; and
WHEREAS , in order to induce and encourage
highly experienced and capable persons such as the Indemnitee to
serve as officers or directors of, or consultants to, the Company
or a subsidiary of the Company, the Board of Directors has
determined, after due consideration and investigation of the terms
and provisions of this Agreement and the various other options
available to the Company and the Indemnitee in lieu hereof, that
this Agreement is not only reasonable and prudent but also
necessary to promote and ensure the best interests of the Company
and its stockholders; and
WHEREAS , in recognition of the services of
the Indemnitee, and in order to provide the Indemnitee with
specific contractual assurances that indemnification
