EXHIBIT 10.36
INCENTIVE AGREEMENT
This agreement is dated and executed on April 20, 2004 (the "Effective Date"),
between Sanjeev Deshpande, an individual of 2018 Timberview Drive, Okemos,
Michigan 48864 (hereafter "Deshpande"), and Maxco, Inc., a Corporation of 1118
Centennial Way, Lansing, Michigan 48917 (hereafter "Maxco ").
1. BACKGROUND OF AGREEMENT
a. Deshpande is the President and Chief Operating Officer of Atmosphere
Annealing, Inc., a Michigan corporation (the "Atmosphere") which is
wholly owned by Maxco.
b. Maxco wants to provide additional incentive to Deshpande to increase
the value of Atmosphere.
2. TERM OF AGREEMENT. This Agreement shall begin on the date of execution set
forth above and continue in effect until March 31, 2006 unless terminated
as provide herein.
3. GENERAL STATEMENT OF INTENTION. Maxco agrees to pay Deshpande an incentive
bonus based on either (i) the sale price of the prior to March 31, 2006
(the "Termination Date"), or (ii) if Atmosphere is not sold by March 31,
2006, and Deshpande is still an employee of Atmosphere, an incentive bonus
will be recorded as of that date and paid based as an EBITDA formula as
set forth herein.
4. INCENTIVE BONUS UPON THE SALE OF ATMOSPHERE. In the event of the sale of
substantially all Atmosphere to a third party on or before March 31, 2006,
Maxco will pay, or cause to be paid, to Deshpande an incentive bonus based
on the Sale Price (as hereinafter defined) paid by the third party for
Atmosphere. Sale of Atmosphere will be deemed to have occurred whether the
sale takes the form of a sale of stock or assets or merger. The "Sale
Price" shall be defined as the gross value paid for Atmosphere before the
payment of any interest bearing debt. In the event of a sale for something
other than for cash, notes or marketable securities, the Sale Price will
be as outlined in the Sales Agreement.
a. SALE INCENTIVE BONUS AMOUNT. The "Sale Incentive Bonus Amount" will
be equal to 1% of the final actual Sale Price up to and including
$25,000,000 plus 10% of the final actual Sale Price over
$25,000,000.
b. PAYMENT OF SALE INCENTIVE BONUS AMOUNT. Payment of the Sale
Incentive Bonus Amount will be made to Deshpande in the same form
and according to the same terms as payment is made to Maxco by the
third party purchaser of Atmosphere.
c. DESHPANDE COOPERATION. It is understood and agreed that this
Agreement will not in any manner give Deshpande the right to object
to any decision as to
whether to sell Atmosphere or to the terms of any such sale.
Deshpande agrees to fully cooperate in any sale of Atmosphere.
5. PAYMENT UPON THE DEATH OF DESHPANDE. Maxco agrees to cause Atmosphere to
obtain life insurance on the life of Deshpande in the amount of
$2,000,000. In the event of the death of Deshpande during the his
employment by Atmosphere, Maxco will cause Atmosphere to pay all or a
portion of the proceeds of such policy as follows:
a. One million ($1,000,000) of such policy will be paid to
Deshpande's designated beneficiary.
b. Dephpande's estate will be paid an EBITDA Incentive
Bonus Amount (as defined below) at the fiscal year end
immediately preceding the date of death.
6. PAYMENT UPON TERMINATION OF EMPLOYMENT.
a. Upon the termination of the employment of Deshpande by Atmosphere
either because (A) Deshpande voluntarily terminates his employment
or (B) For Cause, there shall be no EBITDA Incentive Bonus Amount
due and this Agreement will be terminated. "For cause" is defined
for purposes of this Agreement to include a termination of Deshpande
for any one of the following reasons: Conviction of a felony
offense, or the commission of theft, fraud, embezzlement or other
crime of moral turpitude by Deshpande, or if he does not work in the
best interest of Atmosphere.
b. If Deshpande employment is terminated for any other reason during
the term of this Agreement, an EBITDA Incentive Bonus Amount (as
defined below) at the fiscal year end immediately preceding the date
of termination will be paid within 90 days following the date of
termination.
7. PAYMENT IF ATMOSPHERE NOT SOLD BY MARCH 31, 2006 If Atmosphere has not
been sold to a third party by March 31, 2006 and Deshpande is still
employed by Atmosphere, an EBITDA Incentive Bonus Amount (as defined
below) based upon the March 31, 2006 financial statements will be due by
July 1, 2006.
8. EBITDA INCENTIVE BONUS AMOUNT.
a. EBITDA for any fiscal year of Atmosphere shall equal the net income
of Atmosphere, as reflected in its regularly-prepared annual
financial statements for such fiscal year, plus interest, taxes,
depreciation and amortization expense used in the determination of
net income for that period.
b. The EBITDA Incentive Bonus Plan is equal to:
i. one (1%) percent of the Enterprise Value (as defined below) up
to $25,000,000, and
ii. ten (10%) percent of the amount that the Enterprise Value (as
defined below) exceeds $25,000,000.
c. The Enterprise Value is defined as the EBITDA of Atmosphere for the
year ending immediately preceding the triggering event, multiplied
by 5.
d. It is agreed between the parties that the EBITDA figure for the year
ending March 31, 2003 was $5,047,483 and that all future accounting
for EBITDA shall be consistent with the accounting done for such
base year. The parties have agreed for purposes of determining the
EBITDA Incentive Bonus Amount, that the base year will have a EBITDA
of $5,000,000 which would imply an Enterprise Value for such year of
$25,000,000. The parties have received copies Atmosphere's financial
statements for the base year. Exhibit A is the calculation of EBITDA
for the base year. Exhibit B is a estimation of what the Enterprise
Value in the future could be.
e. The EBITDA Incentive Bonus Amount will be paid to Deshpande by Maxco
in the form of cash or stock of Atmosphere in the sole discretion of
Maxco. The actual number of shares to be received by be determined
as follows:
i. The "Net Enterprise Value" will be determined. The Net
Enterprise Value is determined by subtracting the debt other
than accounts payable and other non-interest bearing debt of
Atmosphere from the Enterprise Value. (See Exhibit A for an
example of this calculation as of March 31, 2003.)
ii. The Net Enterprise Value of Atmosphere is divided by the
number of outstanding shares of Atmosphere to arrive at a per
share Net Enterprise Value.
iii. The amount of the EBITDA Incentive Bonus Amount is then
divided by the per share Net Enterprise Value to arrive at the
number of shares Deshpande would receive.
9. NON-ASSIGNABILITY. Neither this agreement nor any part of it shall be
assigned by either party without the prior written consent of the other
party. The consent shall not be unreasonably withheld.
10. ARBITRATION. Any dispute arising under this agreement shall be promptly
submitted to and heard and determined by the American Arbitration
Association pursuant to its commercial arbitration rules in effect at the
time of any dispute. The determination of the arbitrator shall be binding
on the parties, shall not be appealable, and judgment on the award
rendered may be entered in any court having jurisdiction on the matter.
The prevailing party (as determined by the arbitrator) shall be entitled
to recover from the other party all costs and expenses (including but not
limited to attorney fees) incurred in enforcing its rights under the
arbitration process.
11. GOVERNING LAW AND VENUE. This Agreement shall be governed by and construed
in accordance with the substantive laws of the United States of America
and the State of Michigan, without regard to conflict of laws provisions
and shall be subject to the jurisdiction of the state and federal courts
of Ingham, County, Michigan, and each party hereto waives any objection to
venue and hereby submits to the personal jurisdiction of such courts.
12. ENTIRE AGREEMENT. This agreement constitutes the entire agreement between
the parties and shall be deemed to supersede and cancel any other
agreement between the parties relating to the transactions contemplated in
this agreement. This agreement may be amended or terminated only by a
written instrument executed by the parties involved. There are no
agreements, restrictions, promises, warranties, covenants, or other
undertakings other than those expressly set forth in this agreement.
13. BINDING EFFECT. The terms and provisions of this agreement are binding on
and shall inure to the benefit of the parties and their respective heirs,
representatives, successors, and permitted assigns.
14. NOTICES. All notices and other communications required or permitted under
this agreement shall be in writing and, if mailed, be effective three days
after being sent by certified or registered mail, postage prepaid,
addressed to the other party as follows or at any other address that the
other party provides in writing:
Deshpande: Sanjeev Deshpande, 2018 Timberview Dr. , Okemos Michigan 48864
Maxco: Maxco, Inc., 1118 Centennial Way, Lansing Michigan 48917
15. SEVERABILITY. If any provision in this agreement is held to be invalid or
unenforceable, it shall be ineffective only to the extent of the
invalidity, without affecting or impairing the validity and enforceability
of the remainder of the provision or the remaining provisions of this
agreement.
16. TIME IS OF THE ESSENCE. Time is of the essence of this Agreement.
17. COUNTERPART EXECUTION. This agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all
counterparts, when taken together, will constitute one and the same
agreement.
18. FACSIMILE EXECUTION. The parties agree that signatures on this Agreement,
as well as any other documents to be executed under this agreement, may be
delivered by facsimile in lieu of an original signature, and the parties
agree to treat facsimile signatures as original signatures and agree to be
bound by this provision.
In the presence of the undersigned witnesses, the parties have executed this
agreement as of the Effective Date.
Sanjeev Deshpande
/S/ SANJEEV DESHPANDE Dated: 4/20/04
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By: Sanjeev Deshpande
Maxco, Inc.
/S/ MAX A. COON Dated: 4/20/04
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By: Max Coon
Its: President