EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT
(“Agreement”) is made and entered into as of
October 10, 2006 (the “Effective Date”) by and
between ECC Capital Corporation (the “Company”) and
Larry Moretti (“Executive”).
WHEREAS, Executive is currently
employed by Encore Credit Corp., a wholly owned subsidiary of the
Company (“Encore”); and
WHEREAS, the Company and Executive
desire to enter into this Agreement in order to specify the terms
of Executive’s employment by Encore.
THEREFORE, in consideration of the
foregoing, of the mutual promises contained herein and of other
good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. EMPLOYMENT
The Company hereby employs Executive
and Executive hereby accepts employment upon the terms and
conditions set forth below.
2. TERM
2.1 Term . The term of this
Agreement shall commence on October 10, 2006 the
(“Effective Date”), and shall continue on the terms and
conditions set forth below, until Executive’s employment is
terminated as provided in Section 5 (the
“Term”).
3. COMPENSATION
3.1 Base Compensation .
Executive shall be paid a salary at the annual rate of $200,000
(the “Base Compensation”). The Base Compensation shall
be reviewed at least annually, and may be increased or decreased.
In the event that the Base Compensation is increased, the new
salary shall be the Base Compensation for purposes of this
Agreement thereafter.
3.2 Bonus Compensation . The
Compensation Committee of the Board of Directors of the Company
(the “Compensation Committee”), or its designee, shall
review Executive’s performance on an annual basis and cause
the Company to award Executive a cash bonus in an amount which the
Compensation Committee or its designee determines in its sole and
absolute discretion.
3.3 Benefits . The
Executive shall be entitled to participate in all pension, 401(k)
and other employee plans and benefits in accordance with the terms
of such plans or policies as may be in effect from time to
time.
3.4 Automobile Allowance . The
Company shall provide Executive with one (1) automobile
allowance not to exceed $2000 per month during the term of
Executive’s employment hereunder.
3.6 Method of Payment . The
monetary compensation payable and any benefits due to Executive
hereunder may be paid or provided in whole or in part, from time to
time, by the Company and/or its respective parents, subsidiaries
and affiliates, but shall at all times remain the responsibility of
the Company.
4. POSITION AND DUTIES
4.1 Position or Duties .
Executive shall hold such position and have such duties as assigned
to him by the Company from time to time.
4.2 Devotion of Time and
Effort . Executive shall use Executive’s good faith best
efforts and judgment in performing Executive’s duties as
required hereunder and to act in the best interests of the Company.
Executive shall devote all of his business time, attention and
energies to the business of the Company.
4.3 Other Activities .
Executive may engage in other activities for Executive’s own
account while employed hereunder, including without limitation,
charitable, community and other business activities, provided that
in the judgment of the Board of Directors of the Company (the
“Board”) such other activities do not materially
interfere with the performance of Executive’s duties
hereunder, and do not violate Sections 6 and 7.
4.4 Vacation . Executive shall
be entitled to two (2) weeks paid vacation annually. Such
vacation shall be subject to the Company’s policies
concerning accrual, use and scheduling of vacation, as such
policies may be in effect from time to time. Executive’s
vacation pay shall be calculated based upon an annual salary of
$250,000, which was Executive’s Base Compensation for all
purposes prior to this Agreement.
4.5 Business Expenses .
Executive shall be entitled to reimbursement of reasonable business
expenses in accordance with Company policies, as they may be in
effect from time to time.
5. TERMINATION
5.1 Due to Death .
Executive’s employment shall terminate as of the date of his
death.
5.2 Due to Disability . The
Company may terminate Executive’s employment if he becomes
“disabled”, as defined below, upon written notice to
Executive. For purposes of this Agreement, the term
“Disability” shall mean a physical or mental incapacity
as a result of which Executive becomes unable to continue to
perform the essential functions of the job with or without
accommodation hereunder for six (6) consecutive calendar
months or for shorter periods aggregating 180 business days in any
12 month period, or, if this provision is inconsistent with
any applicable law, to the extent not prohibited by law.
5.3 By the Company Without
“Cause” . The Company may terminate
Executive’s employment without “Cause” as defined
in Section 5.5 below at any time following the Effective Date,
upon written notice to Executive.
5.4 By Executive Without
“Good Reason” . Executive may terminate his
employment hereunder without Good Reason, as defined in
Section 5.6 below, at any time upon written notice to the
Company.
5.5 By The Company For Cause .
The Company may terminate Executive’s employment for
“Cause” at any time, upon written notice to Executive.
For purposes of this Agreement, “Cause” shall mean:
(a) Executive’s
conviction of or plea of nolo contender to a felony or any crime
involving moral turpitude;
(b) Executive’s
commission of any act of theft, embezzlement or misappropriation
against the Company;
(c) Executive’s failure
to substantially perform Executive’s duties hereunder (other
than such failure resulting from Executive’s incapacity due
to physical or mental illness), which failure is not remedied
within thirty (30) days after written demand for substantial
performance is delivered by the Company which specifically
identifies the manner in which the Company believes that Executive
has not substantially performed Executive’s duties; or
(d) Executive’s material
breach of his obligations under this Agreement, which breach is not
remedied within thirty (30) days after written notice is
delivered by the Company which specifically identifies the breach
that the Company believes has occurred.
5.6 By Executive For Good
Reason . Executive may terminate his employment for good reason
upon at least thirty (30) days prior written notice to the
Company. For purposes of this Agreement, “Good Reason”
shall mean the Company’s material breach of the salary and
benefit obligations hereunder and either such breach is incurable
or, if curable, has not been cured within fifteen (15) days
following receipt of written notice by Executive to the Company of
such breach by the Company. Executive shall be deemed to have
waived Executive’s right to terminate for “good
reason” with respect to a breach if Executive does not notify
the Company in writing of such breach within fifteen (15) days
of such breach, or, if such breach is not immediately known to him,
and could not reasonably be expected to be know by him, within
fifteen (15) days of his discovery of such breach. Following a
Change in Control, as defined below, “Good Reason”
shall also mean: (a) a material reduction in the authority of
Executive; (b) Executive’s assignment to a position
other than an officer position with the Company and any of its
subsidiaries; or (c) a relocation of Executive’s primary
office location outside of Orange County, California, without
Executive’s prior written consent. The fact that the Company
becomes a subsidiary of another entity, or that the Company’s
status changes from publicly-traded to privately-held, as a result
of the Change in Control, shall not, by itself, constitute a
material reduction in the authority of Executive. In addition,
provided that Executive remains employed by the Company for ninety
(90) days following a Change in Control, during the thirty
(30) days following the ninety (90) day period after the
Change in Control, if Executive elects to terminate his employment
with the Company for any reason or no reason, he shall be deemed to
have “Good Reason”.
5.7 Severance Payment . Solely
for purposes of determining the Severance Amount under this
Section 5.7(a), Base Compensation shall mean $250,000, which
was Executive’s Base Compensation for all purposes prior to
this Agreement. In the event Executive’s employment
terminates pursuant to Sections 5.1 (Death), 5.4 (Without Good
Reason), or 5.5 (For Cause), Executive (or Executive’s
estate, as applicable) shall have the right to receive
Executive’s compensation as otherwise provided under this
Agreement through the effective date of termination. Executive
shall have no further right to receive compensation, benefits or
other consideration from the Company, and Executive shall not be
entitled to any severance payments or benefits, except as required
by applicable law. In the event that Executive’s employment
is terminated pursuant to Section 5.2 (Due to Disability),
Section 5.3 (Without Cause), or Section 5.6 (For Good
Reason), Executive shall continue to render services to the Company
pursuant to this Agreement until the date of termination and shall
continue to receive compensation, as provided in this Agreement,
through the termination date. Thereafter, Executive shall be
entitled to severance pay and benefits as set forth in
subparagraph (a) through (c) below, provided that
Executive executes and delivers (and does not revoke, if a
revocation period is required by law) a general release of claims
in a form acceptable to the Company in its sole and absolute
discretion, and is not in material breach of any of the provisions
of this Agreement.
(a) Amount . The
Company shall pay Executive an amount equal to 200 percent of
Executive’s Base Compensation (collectively, the
“Severance Amount”). The Severance Amount shall be
subject to withholding under applicable law. The Severance Amount
will be paid as follows: no later than the tenth (10
th ) business day after Executive delivers a signed
general release in the form acceptable to the Company and returns
all Company property as required in Section 9.9,
twenty-five (25) percent of the Severance Amount shall be paid
to Executive; the remaining seventy-five (75) percent of the
Severance Amount shall be paid in substantially equal sums over the
following twelve (12) months, in accordance with the
Company’s regular payroll practices (the “Severance
Payments”). Notwithstanding the foregoing, the Severance
Payments shall be delayed to the extent necessary to comply with
Section 409A of the Internal Revenue Code.
(b) Vesting . In
addition to the Severance Payments, any unvested stock options or
restricted stock held by Executive shall vest as follows: 1/12
th of the unvested stock options and/or restricted stock
held by Executive as of the termination date shall vest at the end
of each one-month period following the date of termination for the
twelve-month period following the date of termination (the
“Vesting”). Any stock option or restricted stock vested
in accordance with this Section 5.7(b) shall be exercisable
within ninety (90) days following the twelve-month vesting
period
(c) Benefits . In
addition to the Severance Payments and the Vesting, provided that
Executive is eligible for and timely elects COBRA healthcare
coverage continuation, the Company shall pay the portion of the
COBRA premium equal to the difference between the COBRA premium and
Executive’s monthly contribution towards health care benefits
immediately prior to the date of termination, for Executive to
continue his (and, if applicable, his family’s) health care
coverage, which was in effect as of the date of termination for up
to eighteen (18) months from the date of termination, provided
that Executive (and, if applicable, his family) remains eligible
for such coverage (the “Severance Benefits”).
Notwithstanding the foregoing, the Company’s payment of
portions of the COBRA premium shall be delayed to the extent
necessary to comply with Section 409A of the Internal Revenue
Code.
5.8 Change in Control .
For purposes of this Agreement, a
“Change in Control” shall mean the occurrence of any of
the following events:
(a) within twenty-four
(24) months of the Effective Date, the individuals
constituting the Board as of the Effective Date (the
“Incumbent Board”) cease for any reason to constitute
at least two-thirds (2/3rds) of the Board; provided, however, that
if the election, or nomination for election by the Company’s
stockholders, of any new director was approved by a vote of at
least two-thirds (2/3rds) of the Incumbent Board, such new director
shall be considered a member of the Incumbent Board; or
(b) an acquisition of any
voting securities of the Company (the “Voting
Securities”) by any “person” (as the term
“person” is used for purposes of Section 13(d) or
Section 14(d) of the Securities Exchange Act of 1934, as amended
(the “1934 Act”)) immediately after which such person
has “beneficial ownership” (within the meaning of
Rule 13d-3 promulgated under the 1934 Act) (“Beneficial
Ownership”) of 35% or more of the combined voting power of
the Company’s then outstanding Voting Securities; or
(c) approval by the
stockholders of the Company of:
(i) a merger, consolidation,
share exchange or reorganization involving the Company, unless
(A) the
stockholders of the Company, immediately before such merger,
consolidation, share exchange or reorganization, own, directly or
indirectly immediately following such merger, consolidation, share
exchange or reorganization, at least 80% of the combined voting
power of the outstanding voting securities of the corporation that
is the successor in such merger, consolidation, share exchange or
reorganization (the “Surviving Company”) in
substantially the same proportion as their ownership of the Voting
Securities immediately before such merger, consolidation, share
exchange or reorganization; provided, however, that a merger,
consolidation, share exchange or reorganization of the Company
shall not constitute a “change in control” if such
merger, consolidation, share exchange or reorganization of the
Company is approved by the Board and is recommended by Executive to
the Board for its approval; and
(B) the
individuals who were members of the Incumbent Board immediately
prior to the execution of the agreement providing for such merger,
consolidation, share exchange or reorganization constitute at least
two-thirds (2/3rds) of the members of the board of directors of the
Surviving Company; or
(ii) a complete liquidation or
dissolution of the Company; or
(iii) an agreement for the sale
or other disposition of all or substantially all of the assets of
the Company.
5.9 Certain Additional
Payments .
(a) Anything in this Agreement
to the contrary notwithstanding and except as set forth below, in
the event it shall be determined that any Payment would be subject
to the Excise Tax, then the Executive shall be entitled to receive
an additional payment (a “Gross-Up Payment”) in an
amount equal to the Excise Tax imposed upon the Payments, but not
any Excise Tax resulting from the receipt of any Gross-Up
Payment.
(b) Subject to the provisions
of Section 5.9(c), all determinations required to be made
under this Section 5.9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall
be made by the nationally recognized certified public accounting
firm used by the Company immediately prior to the Change in Control
or, if such firm declines to serve, such other nationally
recognized certified public accounting firm as may be designated by
the Executive (the “Accounting Firm”) which shall
provide detailed supporting calculations both to the Company and
the Executive within fifteen (15) business days of the receipt
of notice from the Executive that there has been a Payment, or such
earlier time as is requested by the Company. All fees and expenses
of the Accounting Firm shall be borne solely by the Company.
Subject to Section 5.9(e) below, any Gross-Up Payment, as
determined pursuant to this Section 5.9, shall be paid by the
Company to the Executive within five (
