Exhibit 10.6

 

Great Elm Capital Management, Inc.

Performance Bonus Plan

September 18, 2017

1.

Effective Date and Purpose. Great Elm Capital Management, Inc., a Delaware
corporation (“GECM”), adopts this Great Elm Capital Management Performance Bonus
Plan effective September 18, 2017. The purpose of the Plan is to motivate
Eligible Employees to achieve GECM’s objectives. This Plan and each Award
Opportunity granted hereunder shall be subject to the terms and conditions set
forth below. Capitalized terms used herein without definition shall have the
respective meanings given to them in Section 22.

2.

Plan Administration. The board of directors of GECM (the “Board”), in
consultation with the Compensation Committee (the “Compensation Committee”) of
the board of directors of Great Elm Capital Group, Inc. and its counsel and
compensation consultants (if any), shall be responsible for administration of
the Plan. Subject to approval and authorization by the stockholders of GECM, the
Board is authorized to interpret the Plan, to prescribe, amend and rescind
regulations relating to the Plan, and to make all other determinations necessary
or advisable for the administration of the Plan, but only to the extent not
contrary to the express provisions of the Plan. Determinations, interpretations
or other actions made or taken by the Board pursuant to the provisions of the
Plan shall be final, binding and conclusive for all purposes and upon all
Eligible Employees, Beneficiaries and all other persons who have or claim an
interest herein.

3.

Performance Award Pool.

3.1

EBITDA Target.  The annual EBITDA Target is $4,500,000 for the Initial
Performance Period.  The Board shall determine the EBITDA Target, which may be
zero, for subsequent Performance Periods in its sole and absolute
discretion.  Any calculation of adjustments of the EBITDA Target by the Board in
accordance with the terms hereof shall be final, binding and conclusive.  The
EBITDA Target shall be pro-rated for any partial years.

3.2

Minimum Achievement.  If EBITDA for a Performance Period is less than eighty
percent of the EBITDA Target for such Performance Period, no amounts shall be
payable hereunder.  If EBITDA for a Performance Period is eighty percent of the
EBITDA Target for such Performance Period, then thirty three and one third
percent of the Target Award shall be payable under this Plan with respect to
each Award Opportunity for such Performance Period.

3.3

Less Than Target Achievement.  If EBITDA for a Performance Period is greater
than eighty percent of the EBITDA Target for such Performance Period but less
than the EBITDA Target for such Performance Period, then the Percentage
Achievement multiplied by the Target Award shall be payable under this Plan with
respect to each Award Opportunity for such Performance Period.

3.4

Target Achievement.  If EBITDA for a Performance Period is equal to the EBITDA
Target for such Performance Period, then the Target Award shall be payable under
this Plan with respect to each Award Opportunity for such Performance Period.

3.5

Upside Achievement.  If EBITDA for a Performance Period is greater than the
EBITDA Target for such Performance Period, then the Percentage Achievement
multiplied by the Target Award shall be payable under this Plan with respect to
each Award Opportunity for such Performance Period.

3.6

Maximum Achievement. If EBITDA for a Performance Period is greater than 175% of
the EBITDA Target for such Performance Period, then each Award Opportunity shall
be limited to the Cap specified in the applicable Award Notice.

4.

Eligibility. The Board shall designate the Eligible Employees, if any, for each
Performance Period. An Employee who is designated as an Eligible Employee for a
given Performance Period is not guaranteed of being selected as an Eligible
Employee for any other Performance Period.

 

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5.

Establishment of Award Opportunities. Not later than the ninetieth day of each
Performance Period following the Initial Performance Period, the Board shall
establish the Target Award of each Eligible Employee assuming the EBITDA Target
is achieved for such Performance Period, which may be zero. GECM shall provide a
Notice of Award to each Eligible Employee as soon as practical following the
establishment of the Eligible Employee’s Target Award.

6.

Determination of Amount Payable Under Award Opportunities. Following the end of
each Performance Period, the Board shall certify in writing (a) the level of
achievement of EBITDA for the Performance Period, (b) the Percentage Achievement
applicable to each Eligible Employee for the Performance Period, and (c) the
amount of the Award Opportunity, if any, earned by each Eligible Employee for
the Performance Period pursuant to Section 3 and the applicable Award Notice.

7.

Payment of Awards. Except as otherwise provided in this Plan, GECM shall make a
cash payment to each Eligible Employee equal to the amount payable under this
Plan, if any, as certified by the Committee pursuant to Section 6. The cash
payment shall be made following the end of the Performance Period and the
certifications by the Committee pursuant to Section 6, but not later than two
and one-half months following the end of the applicable Performance Period.
Notwithstanding the foregoing, payment of an Eligible Employee’s Award
Opportunity under this Plan may be deferred (i) with respect to any outstanding
receivable included in the calculation of EBITDA for purposes hereof that has
not been paid to GECM in cash (the “Non-Cash Amount”), in an amount equal to the
portion of such Award Opportunity relating to the Non-Cash Amount; provided that
any such deferred amount shall be paid to each such Eligible Employee within
thirty days of the end of the quarter during which the Company’s received cash
in respect of such Non-Cash Amount or (ii) pursuant to a valid election by the
Eligible Employee in her or his sole discretion under the terms and conditions
of deferral arrangements, if any, as may be established from time to time by
GECM in its sole discretion.  Payments under this Plan shall be subject to
applicable withholding and other payroll deductions.

8.

Terminations, Promotions and New Hires.

8.1

Terminations. If an Eligible Employee’s employment is terminated for any reason
or no reason during a Performance Period, the Eligible Employee shall not be
entitled to receive any payment under this Plan with respect to that Performance
Period. Eligible Employees whose employment terminates following conclusion of
any applicable Performance Period but prior to payment of the Award Opportunity
therefor shall be entitled to receive such payment together with any deferred
payments with respect to prior periods, in each case, when otherwise paid to
other Eligible Employees.

8.2

Promotions and New Hires. With respect to an Eligible Employee who is newly
hired or is promoted by GECM during a Performance Period, the Board may grant an
Award Opportunity, or adjust an Award Opportunity previously granted, to such
Eligible Employee for such Performance Period in the Board’s discretion;
provided, however, that no Award Opportunity shall be granted or adjusted in
such a manner as to cause any amount payable under this Plan to fail to qualify
as “performance-based compensation” within the meaning of section 162(m)(4)(C)
of the Code and Section 1.162-27 of the Treasury Regulations promulgated
thereunder.

9.

Tax Withholding. GECM and its Affiliates shall have the right to deduct from all
payments made to or for the benefit of an Eligible Employee any federal, state,
local, foreign or other taxes which, in the reasonable opinion of GECM, are
required to be withheld with respect to any Short-Term Incentive Bonus payable
under the Plan.

10.

Source of Payment. Each amount that may become payable under the Plan shall be
paid solely from the general assets of GECM. Nothing in this Plan shall be
construed to create a trust or to establish or evidence any Eligible Employee’s
claim of any right to payment of other than as an unsecured general creditor
with respect to any payment to which he or she may be entitled.

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11.

Rights of Employer. Nothing contained in this Plan nor any action taken under
this Plan shall be construed as a contract of employment or as giving any
Eligible Employee any right to continued employment with GECM or any Affiliate.

12.

Nontransferability. Except as otherwise provided in this Plan, the benefits
provided under the Plan may not be alienated, assigned, transferred, pledged or
hypothecated by or to any person or entity, and these benefits shall be exempt
from the claims of creditors of any Eligible Employee or other claimants and
from all orders, decrees, levies, garnishment or executions against any Eligible
Executive to the fullest extent allowed by law. Notwithstanding the foregoing,
an Eligible Employee may designate a Beneficiary or Beneficiaries (both primary
and contingent) to receive, in the event of the Eligible Employee’s death, any
amounts remaining to be paid with respect to the Eligible Employee under the
Plan. The Eligible Employee shall have the right to revoke any such designation
and to re-designate a Beneficiary or Beneficiaries. To be effective, any such
designation, revocation, or re-designation must be in such written form as the
Company may prescribe and must be received and accepted by GECM prior to the
Eligible Employee’s death. Any finalized divorce or marriage of an Eligible
Employee subsequent to the date of a Beneficiary designation shall revoke such
designation, unless in the case of divorce the previous spouse was not
designated as a Beneficiary and unless in the case of marriage the Eligible
Employee’s new spouse has previously been designated as a Beneficiary. The
spouse of a married Eligible Employee shall consent to any designation of a
Beneficiary other than the spouse, and the spouse’s consent shall be witnessed
by a notary public. If an Eligible Employee dies without effectively designating
a Beneficiary, or if either all designated Beneficiaries predecease the Eligible
Employee or the Eligible Employee and all designated Beneficiaries die prior to
any payment yet to be made under the Plan, any amounts remaining to be paid with
respect to the Eligible Employee under the Plan shall be paid to the estate of
the Eligible Employee.

13.

Successors. The rights and obligations of GECM under the Plan shall inure to the
benefit of, and shall be binding upon, the successors and assigns of GECM.

14.

Governing Law. The Plan and all Award Opportunities shall be construed in
accordance with and governed by the laws of the State of Delaware, but without
regard to its conflict of law provisions.

15.

Amendment or Termination. The Board reserves the right, at any time, without
either the consent of, or any prior notification to, any Eligible Employee or
other person, to amend, suspend, supplement or terminate the Plan or any Award
Opportunity granted thereunder on a prospective basis, in whole or in part, in
any manner, and for any reason; provided that any such amendment shall be
subject to approval by GECM’s stockholders to satisfy the requirements of
Section 162(m) of the Code and the Treasury Regulations promulgated thereunder,
and provided further that any such amendment shall not cause the amount payable
under an Award Opportunity to be increased as compared to the amount that would
have been paid in accordance with the terms established as of the end of such
period. Notwithstanding the foregoing, no adverse amendment, suspension,
supplement or termination may be made to any outstanding Award Opportunity held
by an Eligible Employee without such Eligible Employee’s express prior written
consent.

16.

Claw-back Policy. If Great Elm Capital Group Inc.’s financial statements are
restated (a “Restatement”) or as otherwise required by applicable law or listing
requirement, each Award Opportunity granted, and each amount, if any, paid
pursuant to this Plan (net of taxes) shall be subject to the terms and
conditions of the Great Elm Capital Group Inc.’s claw back policy in effect from
time to time; provided that, in the event of a claw-back because of a
Restatement, (a) GECM may only claw-back payments of any Award Opportunity
earned in the period to which the Restatement applies and (b) except as mandated
by applicable law or listing requirement, in no event may GECM claw back any
payments of any Award Opportunity earned in periods occurring more than three
years prior to such Restatement.

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17.

Section 409A of the Code. GECM intends that, except as otherwise provided
pursuant to a deferral election described in Section 7, each amount payable
under this Plan shall be exempt from the requirements of Section 409A of the
Code under the “short-term deferral” exception set out in Section 1.409A-1(b)(4)
of the Treasury Regulations. The Plan shall be interpreted and administered in a
manner consistent with such intent.

18.

Plan Terms Control. If there is a conflict or ambiguity between the terms and
conditions of any Notice of Award and the terms and conditions of the Plan, the
terms and conditions of the Plan shall prevail, unless such term or condition is
expressly addressed in the applicable Notice of Award. In the event of a
conflict or ambiguity between the terms and conditions of any Notice of Award or
of this Plan, the terms and conditions of the Plan shall prevail to the extent
necessary for amounts paid under this Plan to qualify as “performance-based
compensation” for purposes of Section 162(m) of the Code and Section 1.162-27 of
the Treasury Regulations promulgated thereunder.

19.

Severability. If any provision of the Plan is held invalid, void or
unenforceable, the same shall not affect, in any respect whatsoever, the
validity of any other provisions of the Plan.

20.

Waiver. The waiver by the Board or GECM of any breach of any provision of the
Plan by an Eligible Employee shall not operate or be construed as a waiver of
any subsequent breach or a similar or other breach by or condition with respect
to any other Eligible Employee.

21.

Captions. The captions of the sections of the Plan are for convenience only and
shall not control or affect the meaning or construction of any of its
provisions.

22.

Definitions. The following capitalized words as used in this Plan shall have the
following meanings:

22.1

“Affiliate” means any corporation or other entity (including, but not limited
to, partnerships, limited liability companies and joint ventures) controlled by
GECM or under common control with GECM or its parent. Control means ownership of
a majority of the equity interests, the right to elect a majority of the board
of directors, managing member or other governing body or the right to control
(by contract or otherwise) the affairs of such entity.

22.2

“Award Opportunity” means an opportunity granted by the Board under the Plan to
an Eligible Employee to earn a bonus under this Plan with respect to a
Performance Period, payable in cash and subject to the terms and conditions of
this Plan and the applicable Notice of Award.

22.3

“Beneficiary” means a person designated by an Eligible Employee in accordance
with Section 12 to receive, in the event of the Eligible Employee’s death, any
amounts remaining to be paid with respect to the Eligible Employee under the
Plan.

22.4

“Board” means the Board of Directors of GECM. It is expected that the Board will
consult with the Compensation Committee before taking significant actions under
the Plan and actions by the Board hereunder shall be subject to approval by the
stockholders of GECM.

22.5

“Cap” means the maximum payout under any Award Opportunity.  In no event may a
Cap be greater than 200% provided that any deferred payments to an Eligible
Employee of an Award Opportunity in respect of a prior Performance Period shall
not count toward such Cap or the foregoing 200% limitation.

22.6

“Cause” means: (a) Eligible Employee’s theft, dishonesty, misconduct, or
falsification of any employment or GECM’s or an Affiliate’s records; (b) any
action by Eligible Employee outside of the scope of Eligible Employee’s
employment with GECM or an Affiliate that has a material detrimental effect on
GECM’s or an Affiliate’s reputation or business as reasonably determined by the
Board; (c) Eligible Employee’s substantial failure or inability to perform any
reasonably assigned duties within the scope of Eligible Employee’s employment
agreement with GECM that has not been cured within thirty business days of
written notice from GECM to Eligible Employee, in each case, as determined by
the Board in its sole discretion; (d) Eligible Employee’s violation of any GECM
policy;

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(e) Eligible Employee’s conviction (including any plea of guilty or no contest)
of any criminal act (other than traffic violations); or (f) Eligible Employee’s
material breach of any written agreement with GECM or an Affiliate which has not
been cured within ten business days’ written notice from GECM to the Eligible
Employee thereof.

22.7

“Code” means the Internal Revenue Code of 1986, as amended.

22.8

“EBITDA” means, with respect to any Performance Period, net income or net loss
of GECM (combined with any affiliate of GECM which receives revenue from any
fund or account managed by GECM) plus (a) depreciation of fixed assets,
amortization of intangible assets (but not amortization of right to use assets)
and impairment charges, (b) provision for income taxes, (c) interest expense and
debt related charges (e.g. extinguishment of debt and amortization of financing
costs), (d) stock-based compensation, (e) amounts payable under this Plan and
(f) any fees, costs or expenses incurred by GECM or its affiliates in connection
with the dispute with MAST Capital Management, LLC, (“MAST”) including, without
limitation, any indemnification of legal expenses of employees of GECM or any
contractual termination payments or other liabilities assumed by GECM in
connection therewith that were deducted in the calculation of net income or net
loss of GECM.

22.9

“EBITDA Target” means the EBITDA target, which may be zero, determined by the
Board for any Performance Period following the Initial Performance Period in its
sole and absolute discretion.

22.10

“Eligible Employee” means any Employee who is designated as such by the Board
for a Performance Period pursuant to Section 4.

22.11

“Employee” means any person employed by GECM or an Affiliate, whether such
Employee is so employed at the time the Plan is adopted or becomes so employed
subsequent to the adoption of the Plan.

22.12

“Initial Performance Period” means the period commencing October 1, 2017 and
ending September 30, 2018.

22.13

“Interim Performance Period” means the period commencing October 1, 2018 and
ending December 31, 2018.

22.14

“Notice of Award” means a written or electronic communication to an Eligible
Employee with respect to a Performance Period, which provides notice of the
Eligible Employee’s Target Award and Cap for such Performance Period, subject to
the terms and conditions of the Plan. In the discretion of the Board, a Notice
of Award may contain conditions not specified herein.

22.15

“Percentage Achievement” means, with respect to any Performance Period, (a)
EBITDA for such Performance Period divided by (b) the EBITDA Target for such
Performance Period.

22.16

“Performance Period” means, (i) the Initial Performance Period, (ii) the Interim
Performance Period, if any, and (iii) beginning with the fiscal year commencing
January 1, 2019, each subsequent fiscal year of GECM ending December 31 of such
year. If GECM changes its fiscal year after January 1, 2019, the Performance
Period including such partial fiscal year shall be pro-rated and a new
Performance Period shall commence on the beginning of the next fiscal year.

22.17

“Plan” means this Great Elm Capital Management Performance Bonus Plan, as
amended from time to time in accordance with the terms hereof.

22.18

“Target Award” means the amount payable under an Award Opportunity assuming that
the EBITDA Target is achieved in the applicable Performance Period.

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