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Employment Agreement - American Home Mortgage Inc. and Tom McDonagh

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                             EMPLOYMENT AGREEMENT

This Employment Agreement, dated as of June 19, 2003 (this "Agreement"), is by
and between American Home Mortgage Inc., a New York corporation having a place
of business at 520 Broadhollow Road, Melville, NY 11747 (the "Company"), and Tom
McDonagh, [address omitted] (the "Executive").

            Whereas the Company wishes to assure itself of the services of the
Executive, and the Executive desires to be employed by the Company, upon the
terms and conditions hereinafter set forth.

            Now, Therefore, the Company and the Executive hereby agree as

            1. Employment. The Company agrees to employ the Executive, and the
Executive hereby accepts such employment by the Company during the term set
forth in Section 2 and on the other terms and conditions of this Agreement.

            2. Term. The term of this Agreement shall commence on September 1,
2003, and shall continue until June 29, 2005 if not terminated earlier pursuant
to paragraph 5 of this Agreement.

            3. Position, Duties and Responsibilities, Rights.

            (a) During the term of this Agreement, the Executive shall serve as,
and be elected to and hold the office and title of Executive Vice President and
Chief Investment Officer. As such, the Executive shall have all of the powers
and duties usually incident to such office.

            (b) During the term of this Agreement, the Executive agrees to
devote substantially all the Executive's time, efforts and skills to the affairs
of the Company during the Company's normal business hours, except for vacations,
illness and incapacity, but nothing in this Agreement shall preclude the
Executive from devoting reasonable periods to (i) manage the Executive's
personal investments, (ii) participate in professional, educational, public
interest, charitable, civic or community activities, including activities
sponsored by trade organizations, (iii) serve as a director or member of an
advisory committee of any corporation not in competition with the Company or any
of its subsidiaries, or as an officer, trustee or director of any charitable,
educational, philanthropic, civic, social or industry organizations, or as a
speaker or arbitrator; provided, however, that the performance of the
Executive's duties or responsibilities in any of such capacities does not
materially interfere with the regular performance of the Executive's duties and
responsibilities hereunder.

            (c) Place of Performance. In connection with the Executive's
employment by the Company, the Executive shall be primarily based in an office
to be established in Melville, New York, shall not be required to be absent from
there on travel status or otherwise for more than a reasonable time each year as
necessary or appropriate for the performance of the Executive's duties


            4. Compensation.

            (a) During the term of this Agreement, the Company shall pay the
Executive, and the Executive agrees to accept a base salary at the rate of not
less than $650,000.00 per year (the annual base salary as increased from time to
time during the term of this Agreement being hereinafter referred to as the
"Base Salary"). The Base Salary shall be paid in installments no less frequently
than monthly. Any increase in Base Salary or other compensation shall not limit
or reduce any other obligation of the Company hereunder, and once established at
an increased specified rate, the Executive's Base Salary hereunder shall not
thereafter be reduced.

            (b) During the term of this Agreement, the Company shall pay the
Executive, a management evaluation bonus, the amount of which will be determined
by the Company's Chief Executive Officer based on his evaluation of the
Executive's overall performance during the year. The amount of the management
evaluation bonus will be between $100,000 and $400,000 of the Executives Base
Salary. The management evaluation bonus for a given year will be paid no later
than the last day of March of the succeeding year. Notwithstanding anything to
the contrary, the Executive will not be entitled to any unpaid bonuses if he is
no longer an employee of the Company.

            (c) Upon the Executive commencing employment hereunder, the
Executive will receive a sign-on bonus of $75,000. If the Executive ceases to be
employed by the Company within twelve months of the Executive commencing
employment hereunder, the Executive shall repay the $75,000 sign-on bonus to the

            (d) The Executive will be eligible to participate in the Company's
stock option and stock grant plans. Upon the Executive commencing employment
hereunder, the Executive shall receive an option award for 30,000 shares of the
existing class of the common stock of the Company. One-half of the award (15,000
shares) shall vest and be exercisable two years following the date the Executive
commences employment hereunder. The remainder of the award (15,000 shares) shall
vest and be exercisable three years following the date Executive commences
employment hereunder. The complete terms of the option award and stock grant
will be governed by the Company's omnibus stock option plan.

            (e) During the term of this Agreement, the Executive shall be
entitled to fringe benefits, in each case at least equal to and on the same
terms and conditions as those attached to the Executive's office on the date
hereof, as the same may be improved from time to time during the term of this
Agreement, as well as to reimbursement, upon proper accounting, of all
reasonable expenses and disbursements incurred by the Executive in the course of
the Executive's duties.

            (f) The Executive will receive a relocation package including the
cost of temporary housing near Melville, NY for up to four months, the cost of a
realtor commission of up to 6% to sell property at [address omitted], moving
expenses, and house-hunting trips. The Executive will also receive a no-closing
cost mortgage at a slightly discounted interest rate upon his purchasing a home
near Melville, NY.

            5. Termination of Employment. The employment created hereby is at
will. The Company may terminate this Agreement by discharging the Executive. The
Executive may terminate this Agreement by resigning with four weeks notice to
the Company. Discharge or


resignation may be for any reason or for no reason. If the Company chooses to
discharge the Executive, it will deliver a letter of discharge pursuant to the
notice provisions of section 9. If the Executive chooses to resign, the
Executive will deliver a letter of resignation pursuant to the notice provisions
of section 9. If the Company terminates this Agreement without cause prior to
its expiration, the Company will pay the Executive a severance award equal to
$1,780.82 per day for the number of days from the date of discharge to June 29,
2005. If any person or entity other than Michael Strauss obtains control of 25%
or more of the voting securities of the Company, and the Executive is discharged
as a result thereof, or the Executive's responsibilities are diminished as a
result thereof and the Executive consequently resigns, then the Company or its
successor will pay the Executive a severance award equal to $1,780.82 per day
for the number of days from the date of discharge or resignation to June 29,

            6. Non-Competition. In consideration of this Agreement, the
Executive agrees that if this Agreement is terminated prior to its expiration
the Executive will not directly or indirectly (whether as a sole proprietor,
partner or venturer, stockholder, director, officer, employee consultant or in
any other capacity as principal or agent or through any person, subsidiary or
employee acting as nominee or agent), conduct or engage in or be interested in
or associate with any person which conducts or engages in a business that
competes with the business of the Company. For purposes of this paragraph, the
business of the Company shall be managing investments in mortgage backed
securities and activities related thereto.

            7. Entire Agreement; Amendment.

            (a) This Agreement contains the entire understanding of the parties
with respect to the subject matter hereof and supersedes any and all other
agreements between the parties, their predecessors and affiliates.

            (b) Any amendment of this Agreement shall not be binding unless in
writing and signed by both (i) the Company's Chief Executive Officer and (ii)
the Executive.

            8. Enforceability. In the event that any provision of this Agreement
is determined to be invalid or unenforceable, the remaining terms and conditions
of this Agreement shall be unaffected and shall remain in full force and effect,
and any such determination of invalidity or enforceability shall not affect the
validity or enforceability of any other provision of this Agreement.

            9. Notices. All notices which may be necessary or proper for either
the Company or the Executive to give to the other shall be in writing and shall
be sent by hand delivery, registered or certified mail, return receipt requested
or overnight courier, if to the Executive, to him at [address omitted] and, if
to the Company, to it at its principal executive offices at 520 Broadhollow
Road, Melville, NY 11747, Attention: Corporate Counsel, with a copy to
Cadwalader, Wickersham & Taft, 100 Maiden Lane, New York, New York 10038,
Attention: Louis Bevilacqua, Esq. and shall be deemed given when sent. Either
party may by like notice to the other party change the address at which it is to
receive notices hereunder.

            10. Non-Disparagement, Non-Solicitation, Confidential Information.
The Company and the Executive agree that neither will disparage the other and
that their representatives will not disparage either party hereto. The Executive
agrees that for a period of one year following the termination of this
Agreement, the Executive will not solicit any employee of the Company to leave
the Company or hire any employee of the Company. The


Company and the Executive agree to keep the terms of this Agreement confidential
except that the Executive may divulge the terms of this Agreement to the
Executive's spouse, attorney, financial advisor and accountant provided they
agree to keep the terms of this Agreement confidential. The Executive agrees to
protect, not disclose, and not use for the Executive's benefit any confidential
information or trade secrets belonging to the Company, including information
regarding proprietary procedures and techniques, accounts, or personnel
(excepting information that was already disclosed by the Company or otherwise
was made public other than by breach of this Agreement by the Executive). The
preceding two sentences shall not apply to disclosures required due to the laws
or regulations of governments, or the orders of courts having jurisdiction over
the Company and the Executive. This section 9 shall survive the termination of
this Agreement.

            11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first written above.

                                        American Home Mortgage Holdings, Inc.

                                        By: /s/ Michael Strauss
                                        Name:   Michael Strauss
                                        Title:  Chief Executive Officer

                                            /s/ Tom McDonagh
                                                Tom McDonagh



                             American Home Mortgage

                           Employee Relocation Program

The following represents American Home Mortgage's Relocation Program. You will
be eligible for expense reimbursement based on the criteria specified below:

      o     Real estate broker's commissions up to 6%. (Estimated at $54,000)

      o     No fee points/Reduced interest rate mortgage. All fees/taxes
            associated with the purchase of a new home and the securing of a new
            mortgage will be waived or paid by AHM. (estimated at $20,000)

      o     We will cover temporary housing expenses for a period not to exceed
            60 days while you transition to permanent housing. We can assist
            also you in securing temporary housing in the area. (estimated at

      o     You are responsible for securing a household moving vendor. American
            Home Mortgage will cover the cost of this move (estimated at

      o     American Home will reimburse travel expenses associated with spouse
            and children trip (maximum of 4) for the purpose of finding a home
            and schools while you seek permanent housing in the area (Estimated
            at $6,000).

It is understood that failure to remain with the Company, due to a voluntary
resignation, for a period of at least one year will require the immediate
reimbursement to American Home by you for any payments made by the Company up to
that point.