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Under the 1996 agreement, Quest was to be compensated as
follows:
a) During the term of this Agreement, a yearly fee
will be paid equal to approximately 10% of the
gross profit of * * * [Norcom] based on internally
prepared financial statements. Pursuant to the
terms and conditions of * * * [Norcom's] loan
agreement with LaSalle National Bank, payments
approximating 25% of the total fee will be made on
October 10th of each year with the remaining 75%
of the estimated fee paid during the last week of
the fiscal year of * * * [Norcom]. No payment
will be made under this agreement if it were to
cause an event of default under any covenant in
the LaSalle National Bank Loan Agreement. In
addition, management of * * * [Norcom] and the
Board of Directors will decide each year what
additional fees, if any, will be payable to Quest
based on the services rendered and the amount of
time involved by Quest personnel.
For the months of September through December 1996, Quest
also issued invoices at the monthly rate of $10,000. Norcom
promptly paid the amounts invoiced. Respondent did not challenge
the deductibility of these payments.
During the fall of 1996, Messrs. Rahn and Espy commenced
discussions concerning the amount of compensation to be paid to
Quest during 1996. They relied on the same considerations
underlying the 1995 payment. Mr. Espy, with input from Messrs.
Arnold and Rahn, then drafted the following resolution for
Norcom’s board of directors:
WHEREAS, certain employees of Quest Capital
Corp. have conducted meetings with and given
consultations to * * * [Norcom's] management,
provided advisory services in marketing, strategic
planning, systems, and technical operations,
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