Document:

EXHIBIT 10.1

 

EMPLOYMENT
AGREEMENT

 

This Employment Agreement (this “Agreement”) is
made and entered into as of the 25th day of March, 2004, by and between Apogee
Technology, Inc., a Delaware corporation with its principal office at 129
Morgan Drive, Norwood, Massachusetts 02062 (the “Company”), and Herbert M.
Stein (the “Executive”).

 

WITNESSETH:

 

WHEREAS, the Company desires to engage the
full-time services of the Executive;

 

WHEREAS, the Executive desires to be so employed
by the Company; and

 

WHEREAS, the Company desires to be assured that
the unique and expert services of the Executive will be available solely to the
Company on such full-time basis, and that the Executive is willing and able to
render such services on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the foregoing
and of the respective covenants and agreements set forth below, the parties
hereto agree as follows:

 

Employment
and Term.  The
Company hereby agrees to employ the Executive, and the Executive hereby agrees
to accept such employment, on the terms and conditions set forth herein, for
the three year period commencing on January 1, 2004 (the “Effective
Date”), unless such employment is earlier terminated in accordance with the
terms and provisions of this Agreement. 
This Agreement shall automatically renew for successive periods of two
years (each a “Renewal Term”) unless either party notifies the other of its
intention not to renew this Agreement within one hundred twenty (120) days
prior to expiration of the Initial Term or Renewal Term, as appropriate
(collectively, the Initial Term and Renewal Term(s) are the “Term”).

 

Duties
and Restrictions.

 

Duties as
Executive of the Company. The
Executive shall, subject to the direction and supervision of the Company’s
Board of Directors, serve as the Chief Executive Officer and President of the
Company.  The Executive shall also serve
as Chairman of the Company’s Board of Directors, subject to the rights of the
Company’s shareholders to elect the Company’s directors.  In his capacity as President and Chief
Executive Officer, the Executive’s rights, duties and responsibilities shall be
as prescribed from time to time by the Board of Directors of the Company,
provided such duties are customary for a president and chief executive
officer.  The Executive shall devote his
entire working time, attention and energy to the affairs of the Company during
the Term of his employment pursuant to this Agreement.  The Executive shall perform his duties to
the best of his ability, pursuant to the policies and regulations of the
Company, and shall use his best efforts to promote the success of the present
and future businesses of the Company. 
The Executive, as Chief Executive Officer and President of the Company,
shall have primary responsibility for managing the business and financial
affairs of the Company.  Notwithstanding
anything to the contrary, the Executive shall require Board approval to hire or
fire Senior Management Employees.  For
purposes hereof, the term “Senior Management Employees” shall mean employees
who are, or shall be, compensated with an annual base salary equal to or
greater than $150,000 or such other amount as approved by the Compensation
Committee of the Board of Directors.

 

Confidentiality.  The Executive shall not,
directly or indirectly, during the Term and at any time during or following the
termination of his employment with the Company, reveal, divulge, or make known
to any person or entity, or use for the Executive’s personal benefit (including,
without limitation, for the purpose of soliciting business competitive with any
business of the Company or any of its subsidiaries or affiliates), any
information acquired during the course of employment hereunder with regard to
the financial, technical, business or other affairs of the Company or any of
its subsidiaries or affiliates (including, without limitation, any list or
record of persons or entities with which the Company or any of its subsidiaries
or affiliates has any dealings), other than (1) material already in the public
domain, (2) information of a type not considered confidential by persons
engaged in the same business or a similar business to that

 

1

 

conducted
by the Company, (3) material known by the recipients through disclosure by a
third party who has a bona fide right to make such disclosure, or (4) material
that the Executive is required to disclose under the following circumstances:
(A) in the performance by the Executive of his duties and responsibilities
hereunder, which disclosure is reasonably necessary or appropriate, to another
executive of the Company or to representatives or agents of the Company (such
as independent public accountants and legal counsel); (B) at the express direction
of any authorized governmental entity; (C) pursuant to a subpoena or other
court process; or (D) as otherwise required by laws or the rules, regulations,
or orders of any applicable regulatory body. 
The Executive shall, at any time requested by the Company (either during
or after his employment with the Company), promptly deliver to the Company all
memoranda, notes, reports, lists, and other documents (and all copies thereof)
relating to the business of the Company or any of its subsidiaries or affiliates
which he may then possess or have under his control.

 

Non-Solicitation. During the Term and Non-Solicitation Period (as defined below), the
Executive will not (i) solicit, or attempt to solicit, any officer, director,
consultant, executive or employee of the Company or any of its subsidiaries or
affiliates (each an “Employee”) to leave their employment, affiliation, or
engagement with the Company or such subsidiary or affiliate, (ii) call upon,
solicit, divert or attempt to solicit or divert from the  Company or any of its  affiliates
or subsidiaries any of their customers or suppliers, or potential customers or
suppliers, of whose names he was aware during the term of his employment with
the Company; or (iii) interfere with the business relationship or advantage
between the Company and any customer, supplier, or account of the Company, of
whose name he was aware during the term of his employment with the Company.

 

For
purposes of this Agreement, the “Non-Solicitation Period” shall mean a period
of one year following the termination of the Executive’s employment for any
reason; provided, however, that under no circumstances may the
Executive make any solicitations hereunder with respect to any former Employee
until six months has expired since such Employee’s employment, affiliation or
engagement with the Company has terminated.

 

Compensation
and Benefits.

 

Base
Salary.  During each Company Fiscal Year, the Executive shall receive a
base salary (as adjusted, the “Base Salary”), payable in accordance with the
Company’s payroll policies as in effect from time to time.  In addition, the Company’s Board of
Directors shall annually consider granting increases in the Base Salary based
on such factors as the Executive’s performance and the financial performance of
the Company, but the Company shall have no obligation to grant such increases
in compensation.  The first such review
shall take place on or around January 31, 2005.  The Executive’s initial Base Salary shall be Two Hundred
Ninety-Five Thousand Dollars ($295,000.00). 
The term “Company Fiscal Year” shall mean each one year period ending on
December 31.

 

Bonus.  Beginning with the Company
Fiscal Year ending December 31, 2004, and for each successive Company
Fiscal Year during the Term, the Executive shall be eligible to receive a bonus
(“Bonus”) at such time and in such amount as shall be determined by the
Company’s Board of Directors in its absolute and sole discretion.

 

Expenses.  During the Term, the
Executive shall be entitled to receive prompt reimbursement for all reasonable
business expenses incurred by him (in accordance with the policies and
procedures established from time to time by the Company) in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.

 

Benefits.  During the Term and subject
to any contribution generally required of employees of the Company, the
Executive shall be entitled to participate in any and all employee benefit
plans from time to time in effect for employees of the Company generally.  Such participation shall be subject to (i)
the terms of the applicable plan documents and (ii) generally applicable
Company policies. The Company may alter, modify or terminate its employee benefit
plans at any time as it, in its sole discretion, determines to be appropriate.

 

Vacations.  The Executive shall be
entitled to twenty (20) paid vacation days per Company Fiscal Year.  Vacation days shall accrue at the rate of
1.67 days per month in each fiscal year. 
If the Executive does not fully utilize his vacation in any given year,
he may roll any unused portion forward into future years except that at no time
can the total accrued and unused vacation time exceed forty (40) days.

 

Proration.  Any payments or benefits payable to the Executive
hereunder in respect of any calendar year or any fiscal year during which the
Executive is employed by the Company for less than the

 

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entire year, unless
otherwise provided in the applicable plan or arrangement, shall be prorated in
accordance with the number of days in such calendar year or fiscal year during
which he is so employed.

 

Equity
Compensation.

 

Grant.                Within 30 days
after the execution and delivery of this Agreement by each party, the Company
shall grant to Executive options for the purchase of one hundred seventy-five
thousand (175,000) shares of the common stock of the Company, at an exercise
price of the market price per share, it being acknowledged that such exercise
price represents the fair market value of the Company’s common stock.

 

General Terms; Forfeiture & Vesting.   The options shall be subject to the provisions of the Company’s
applicable stock option plan (the “Option Plan”) and shall be evidenced by each
party’s execution of a stock option agreement (the “Option Agreement”).  The Option Agreement shall incorporate each
of the following terms and concepts: 
(i) the options shall be “non-qualified” stock options (i.e. the options
will not be incentive stock options under Section 422 of the Internal
Revenue Code of 1996, as amended); (ii) the options shall be of not less than
ten (10) years duration; (iii) the options shall be exercisable (“vested”) as
follows:  35,000 options shall be
exercisable upon the one-year anniversary of the Effective Date, and 35,000
options shall thereafter be exercisable on each succeeding annual anniversary
until an aggregate of 175,000 options have vested; (iv) upon the Executive’s
termination of service with the Company in all capacities (including as an
employee, director or consultant) for other than Cause, death or disability,
the Executive may exercise vested options for a period not to exceed one
hundred eighty (180) days following such termination of service;  (v) upon the Executive’s termination of
service (whether as an employee, director or consultant) for Cause, all options
shall be forfeited (vi)  the options
shall become fully vested in the event of a Change of Control, which term shall
be defined in the Option Agreement as mutually agreed but shall include the
transfer of equity interests of the Company pursuant to a transaction or series
of transactions in which greater than twenty-five (25%) of the voting control
of the Company (directly or indirectly) shall have been assigned (but excluding
certain transfers made for estate planning purposes); and (vii) upon the death
or disability of the Executive, the options shall become fully vested and the
Executive’s legal representative shall have one year to exercise the options.

 

Termination. The
Executive’s employment hereunder may be terminated by the Company or the
Executive, as applicable, without any breach of this Agreement by the
terminating party, under the following circumstances:

 

Death.  The Executive’s employment
hereunder shall terminate upon his death. However, in lieu of any life
insurance policy, the company shall pay to the Executive’s estate a lump sum
payment equal to two (2) times the prior year’s salary.  This payment shall be made within a year of
the Executive’s death.

 

Disability.  If, as a result of the
Executive’s incapacity due to physical or mental illness (as determined in good
faith by the Company’s Board of Directors), the Executive shall have been
unable, with reasonable accommodation, to perform the essential functions of
his duties and responsibilities hereunder on a full-time basis for one hundred
and eighty (180) calendar days within any three hundred and sixty (360)
consecutive days.

 

Cause.   The Company may terminate
the Executive’s employment hereunder for Cause. For purposes of this Agreement,
the Company shall have “Cause” to terminate the Executive’s employment
hereunder upon:

 

The Executive having been convicted of, or having pleaded guilty or nolo
contendere to, any felony or any crime involving moral turpitude;

 

The Executive’s willful or intentional failure to perform the
Executive’s duties and responsibilities hereunder or failure to follow a lawful
written directive of the Board of Directors (other than any such failure
resulting from the Executive’s incapacity due to physical or mental illness),
upon thirty (30) days notice and opportunity to cure;

 

3

 

The commission by the Executive of any fraud, embezzlement or
misappropriation of funds; or

 

The breach by the Executive of any of the Executive’s material
obligations under Sections 2(b), 2(c) or 7 of this Agreement.

 

Termination
by the Company Without Cause. The
Company may terminate the Executive’s employment at any time without Cause
effective upon at least sixty (60) days prior written notice.

 

Compensation
Upon Termination or Failure to Renew.   Upon any termination of this Agreement, all payments, salary and
other benefits shall cease, except as specifically provided for in this
Section 5:

 

Death.  If the Executive’s employment
shall be terminated by reason of his death, the Company shall pay to such
person as shall have been designated in a notice filed with the Company prior
to the Executive’s death, or, if no such person shall be designated, to his
estate, as a death benefit, any payments which the Executive’s spouse,
beneficiaries, or estate may be entitled to receive pursuant to any insurance
or executive benefit plan or other arrangement or life insurance policy
maintained by the Company, the Executive’s Base Salary accrued through the Date
of Termination at the rate in effect at the time of death and any Bonus which
the Board of Directors determines is appropriate under Section 3(b).

 

Disability.  During any period that the
Executive fails to perform his duties and responsibilities hereunder as a
result of incapacity due to physical or mental illness, the Executive shall
continue to receive his Base Salary until the Executive’s employment is
terminated pursuant to Section 4(b) hereof and thereafter the Executive
shall receive the Executive’s Base Salary accrued through the Date of
Termination at the rate in effect at the time Notice of Termination is given
and any Bonus which the Board of Directors determines is appropriate under
Section 3(b) and any disability insurance benefits the Executive is
entitled to receive.

 

Cause or
Voluntary Termination.  If the Executive’s employment shall be
terminated by the Company for Cause, the Company’s sole obligation shall be to
pay the Executive his Base Salary through the Date of Termination at the rate
in effect at the time Notice of Termination is given.  If the Executive’s employment shall be terminated voluntarily by
the Executive, the Company shall pay the Executive (i) his Base Salary through
the Date of Termination at the rate in effect at the time Notice of Termination
is given; and (ii) an amount equal to the highest Bonus previously received by
the Executive, to be paid at the time such bonuses are customarily paid, and
pro-rated in accordance with Section 3(f).

 

Without
Cause. If the Company shall terminate
the Executive’s employment without Cause, then the Company shall pay the
Executive:

 

his Base Salary accrued through the Date of Termination at the rate in
effect at the time Notice of Termination is given;

 

in lieu of any further salary payments to the Executive for periods
subsequent to the Date of Termination and as severance pay to the Executive,
following the Date of Termination, Base Salary for a period equal to the
greater of twenty-four (24) months or the remaining period in the Term, at the
rate in effect at the time the Notice of Termination is given and payable in
accordance with the Company’s then-current payroll policies;

 

amounts necessary to continue the Executive’s coverage under any medical
plans in effect as of the Date of Termination for a period of twenty-four (24)
months commencing on the Date of Termination; and

 

an amount equal to the highest Bonus previously received by the
Executive, to be paid at the time such bonuses are customarily paid, and
pro-rated in accordance with Section 3(f).

 

Failure
to Renew. Notwithstanding anything
contained in this Agreement, the Executive shall not be entitled to any
compensation in the event that the Term of this Agreement is allowed to expire
at its scheduled expiration date.

 

Any
payments paid to the Executive by the Company under this Section 5
shall  (i) be conditioned on the
Executive’s compliance with his post-employment covenants, including without
limitation, sections 2(b), 2(c) and 7; (ii)

 

4

 

upon
request, be conditioned on the delivery of a release satisfactory to the
Company and (iii) be deemed liquidated damages.

 

Other
Provisions Relating to Termination.

 

Notice of
Termination.  Any termination of the Executive’s employment by the Company or
by the Executive (other than termination because of the death of the Executive)
during the Term shall be communicated by written Notice of Termination to the
other party hereto. For purposes of this Agreement, a “Notice of Termination”
shall mean a notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive’s
employment under the provision so indicated.

 

Date of
Termination.  For purposes of this Agreement, “Date of Termination” shall mean:
(1) if the Executive’s employment is terminated by his death, the date of his
death; (2) if the Executive’s employment is terminated because of a disability
pursuant to Section 4(b), then immediately after Notice of Termination is
given; (3) if the Executive’s employment is terminated by the Company for Cause
then, immediately after a Notice of Termination is given; and (4) if the
Executive’s employment is terminated by the Company without Cause, then upon
such date as is specified in the  Notice
of Termination.

 

Non-Competition.

 

Executive
hereby acknowledges that the Company has developed and will develop substantial
and valuable goodwill with its past, present and future customers as a result
of substantial investments of time, effort and capital.  Executive further acknowledges that he has
acquired, and will continue to acquire, a high level of skill and expertise in
the Company’s field(s) of business (the “Business”) as a direct result of
Executive’s employment by the Company, and that the Company will likely suffer
serious competitive damage if Executive were to utilize that skill and
expertise for the benefit of a competitor of the Company.  Accordingly, Executive hereby covenants and
agrees that, during the Term or any extension thereof and for a period of
eighteen (18) months after termination of his employment with the Company, for
any reason or from the date of any final judgment upholding the provisions of
this Section 7, whichever is later, Executive shall not, anywhere in the
world, directly or indirectly engage or invest in, own, manage, operate,
control or participate in the ownership, management, operation or control of,
lend Executive’s name or any similar name to, or render services similar to
those provided by Executive to the Business and/or the Company, or render
advice to, any person, entity or business then engaged in a business that is competitive
with any of the lines of business conducted by the Company either at the date
hereof or at the date of termination of Executive’s employment; provided,
however, that Executive may purchase or otherwise acquire five percent (5%) or
less of the capital stock of a competitive, publicly traded company.

 

Executive
acknowledges that the Business is multinational in scope and that the duration
and geographic scope of the non-competition provisions set forth in this
Section 7 are therefore reasonable. 
In the event that any court determines that the duration or the
geographic scope, or both, are unreasonable and that either such provision is
to that extent unenforceable, the parties hereto agree that the provision shall
remain in full force and effect for the greatest time period and in the
greatest area that would not render it unenforceable.  Executive expressly grants to the Company for a period of up to
eighteen (18) months, as the case may be, following the termination of this
Agreement the right to notify any person at any time of the terms of this
restrictive covenant.

 

EXECUTIVE REPRESENTS AND WARRANTS THAT THE
KNOWLEDGE, SKILLS AND ABILITIES HE POSSESSES ARE SUFFICIENT TO PERMIT HIM, IN
THE EVENT OF TERMINATION OF HIS EMPLOYMENT HEREUNDER FOR ANY REASON, TO EARN,
FOR A PERIOD OF UP TO EIGHTEEN (18) MONTHS FROM SUCH TERMINATION, A LIVELIHOOD
SATISFACTORY TO EXECUTIVE WITHOUT VIOLATING ANY PROVISIONS OF THIS SECTION.

 

Assignment.  Neither the Company nor the Executive may
make any assignment of this Agreement, or any interest in it, by operation of
law or otherwise, without the prior written consent of the other; provided,
however, that the Company may assign its rights and obligations under this
Agreement without the consent of the Executive in the event that the Company
shall effect a reorganization, consolidate with, or merge into, any other
person or transfer all or substantially all of its properties or assets to any
other person. This Agreement shall inure to the benefit of and be binding upon the
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns.

 

5

 

Enforcement
of Covenants.  The
Executive acknowledges that the Executive has carefully read and considered all
the terms and conditions of this Agreement, including the restraints imposed
upon the Executive pursuant to Sections 2(b), 2(c) and 7. The Executive agrees
that said restraints are necessary for the reasonable and proper protection of
the Company and its affiliates and that each and every one of the restraints is
reasonable in respect to subject matter, length of time and geographic area.
The Executive further acknowledges that, were the Executive to breach any of
the covenants contained in Section 2(b), 2(c) or 7, the damage to the
Company would be irreparable. The Executive therefore agrees that the Company,
in addition to any other remedies available to it, shall be entitled to
preliminary and permanent injunctive relief against any breach or threatened
breach by the Executive of any of said covenants, without having to post bond.

 

Conflicting
Agreements.  The
Executive hereby represents and warrants that the execution of this Agreement
and the performance of the Executive’s obligations hereunder will not breach or
be in conflict with any other agreement to which the Executive is a party or is
bound and that the Executive is not now subject to any covenants against
competition or similar covenants that would affect the performance of the
Executive’s obligations under this Agreement. The Executive will not disclose
to or use on behalf of the Company any proprietary information of a third party
without such party’s consent.

 

Notice.  For purposes of this Agreement, all notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when (a) delivered personally, (b)
sent by facsimile or similar electronic device and confirmed, (c) delivered by
overnight express, or (d) if sent by any other means, upon receipt.  Notices and all other communications
provided for in this Agreement shall be

 

If to the Executive:

 

Herbert M. Stein

 

 

 

 

 

If to the Company:

 

Apogee Technology, Inc.

129 Morgan Drive

Norwood, MA 
02062

Attn:   Chairman
of the Compensation Committee

 

With a copy to:

 

 

or to such other address as
either party may have furnished to the other in writing in accordance herewith.

 

Miscellaneous. No provision
of this Agreement may be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in a written instrument signed by the
Executive and the Company. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement.

 

Validity.  The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.

 

Counterparts. This
Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, but all of which together will constitute one and the
same agreement.

 

6

 

Entire
Agreement: Effectiveness. 
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any and all prior
employment agreements and/or severance protection letters, agreements, or
arrangements between the Executive, on the one hand, and the Company, or any
other predecessor in interest thereto or any of their respective subsidiaries,
on the other hand.

 

GOVERNING
LAW.  THIS AGREEMENT, INCLUDING THE
VALIDITY HEREOF AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE COMMONWEALTH OF
MASSACHUSETTS APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY IN SUCH
STATE (WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PROVISIONS THEREOF). EACH
OF THE PARTIES HERETO AGREES THAT ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE
THE RIGHTS OR OBLIGATIONS OF ANY PARTY HERETO UNDER THIS AGREEMENT MAY BE
COMMENCED AND MAINTAINED IN ANY COURT OF COMPETENT JURISDICTION LOCATED IN THE
COMMONWEALTH OF MASSACHUSETTS, AND THAT THE UNITED STATES DISTRICT COURT FOR
THE DISTRICT OF MASSACHUSETTS SHALL HAVE NON-EXCLUSIVE JURISDICTION OVER ANY
SUCH ACTION, SUIT OR PROCEEDING BROUGHT BY ANY OF THE PARTIES HERETO. EACH OF THE
PARTIES HERETO FURTHER AGREES THAT PROCESS MAY BE SERVED UPON IT BY CERTIFIED
MAIL, RETURN RECEIPT REQUESTED, ADDRESSED AS MORE GENERALLY PROVIDED IN
SECTION 11 HEREOF, AND CONSENTS TO THE EXERCISE OF JURISDICTION OVER IT
AND ITS PROPERTIES WITH RESPECT TO ANY ACTION, SUIT OR PROCEEDING ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY
OR THE ENFORCEMENT OF ANY RIGHTS UNDER THIS AGREEMENT.

 

Arbitration. Any dispute,
controversy or claim arising out of, in connection with, or in relation to this
Agreement (except for matters relating to Sections 2(b), 2(c) or 7 of this
Agreement) or any breach thereof shall be finally settled by arbitration in
Boston, Massachusetts, pursuant to the rules then in effect of the American
Arbitration Association. Any award shall be final, binding and conclusive upon
the parties and a judgment upon the award rendered thereon may be entered in
any court having jurisdiction thereof.

 

7

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.   

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  APOGEE TECHNOLOGY, INC.

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: /s/ Alan Tuck

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Alan Tuck

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: /s/ Arthur Reynolds

  	
   

  
	
   

  	
   

  	
  Name:

  	
  Arthur Reynolds

  
	
   

  	
   

  	
  Title:

  	
  Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  THE EXECUTIVE:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/
  Herbert M. Stein

  	
   

  
	
   

  	
  Herbert M. Stein

  
							

 

8Exhibit 10.7

 

	
   

  	
   

  	
  1000 Superior Blvd., Suite 201

  	
   

  	
  914 North Golden Prairie

  
	
   

  	
   

  	
   

  	
   

  	
  Burton,
  Kansas

  
	
   

  	
  U.S. ENERGY

  	
   

  	
  Wayzata, MN 55394-1873

  	
   

  	
  Office
  316 835-2399

  
	
   

  	
  SERVICES, INC.

  	
   

  	
  Office 952 473-4300

  	
   

  	
  Fax      316
  835-6507

  
	
   

  	
   

  	
  Fax   952
  473-1224

  	
   

  	
   

  

 

March 9,
2004

 

Bill
Pracht, President

Kansas
Agri-Energy

210
1⁄2 East 4th

Garnett,
KS 66032

Dear
Mr. Pracht:

 

The
purpose of this letter is to set forth the understanding and agreement between
U.S. Energy Services, Inc. (“U.S. Energy”) and East
Kansas Agri-Energy LLC (EKAE).

 

PROJECT DESCRIPTION: EKAE is developing a 25 million gallon per  year ethanol plant (“Plant”) to be
located in Garnett Kansas. The Plant will have approximately a three MW peak
usage in electricity and will consume approximately 2,500 MMBtu of natural gas
per day.

 

U.S. ENERGY  RESPONSIBILITIES:  U.S. Energy will provide consulting and
energy management services for supplies of natural gas and electricity for the
Plant.  These services will be provided
during the construction of the Plant (“Construction Period”), and after the
Construction Period when the Plant has been placed in service (“Completion
Date”).  The Completion Date shall be
determined when the Plant begins producing ethanol.  These services will include but not be limited to the following:

 

A. Energy Infrastructure Advisory Services During the
Construction Period

 

1.                                       Provide an economic comparison of receiving
natural gas distribution service.  U.S.
Energy will provide preliminary engineering cost estimates, route drawings, and
project timeline related to constructing pipeline facilities.

 

In
the event that a direct connect pipeline option is selected, U.S. Energy will
submit a tap request to the pipeline. In addition, U.S. Energy will also
attempt to negotiate an option for EKAE to minimize interconnect costs through
the purchase of firm transportation to the Plant.  Engineering and construction management services related to
constructing a pipeline may be provided by U.S. Energy’s sister company, U.S.
Energy Engineering, Inc. on a fee basis.

 

2.                                       Determine whether firm, interruptible, or a
blend of transportation entitlement will provide the lowest burnertip
cost.  Factors that will be considered
include pipeline credits for the new interconnect, cost of an alternate fuel
system, and availability of specific receipt point capacity.

 

3.                                       Provide advisory services to EKAE regarding
electric pricing and service agreements.

 

a.                                       Analyze the
electric service proposals along with primary, secondary and generation options
and recommend an electric sourcing strategy and plan.  The plan may include a combination of electric supplier agreement
and/or installation of on-site generation.

 

 

U.S. Energy Initials   /s/

 

EKAE Initials /s/

 

b.                                      Negotiate final electric service agreements
that meet the pricing and reliability requirements of EKAE, including options for third party access to electric metering.

 

c.                                       Prepare and implement a regulatory strategy,
if required and if an alternative power supplier is selected. Any attorney fees
required for the specific purpose of obtaining regulatory approval for an
alternative power supplier, if any, will be over and above U.S. Energy’s
monthly fee herein, and must be pre-approved by EKAE.

 

4.                                       Evaluate the proposed electric distribution
infrastructure (substation) for reliability, future growth potential and
determination of the division of ownership of facilities between the utility
and the Plant.

 

5.                                       Investigate economic development rates,
utility grants, equipment rebates and other utility programs that may be
available.

 

B. On-Going Energy Management Services Following the
Completion Period

 

U.S.
Energy will provide the following services at EKAE’s request:

 

Provide
natural gas supply information to minimize the cost of natural gas
purchased.  This will include acquiring
multiple supply quotes and reporting to EKAE the various supply
index and fixed prices. U.S. Energy will not take title to EKAE gas supplies, but will communicate supply
prices and potential buying strategies.

 

2.                                       Negotiate with pipelines, utilities, other shippers,
and suppliers to provide transportation, balancing, and supply agreements that
meet EKAE’s performance criteria at the lowest possible
cost.

 

3.                                       Develop and implement a price risk management
plan that is consistent with EKAE’s pricing objectives and risk profile.

 

4.                                       Provide daily nominations to the suppliers,
pipeline, and other applicable shippers for natural gas deliveries to the
Plant.  This will include daily
electronic confirmations to EKAE
of all nominations and actual
daily usage.  U.S. Energy will utilize
customer or utility supplied telemetering to obtain actual usage data.

 

5.                                       Provide a consolidated monthly invoice to
EKAE that reflects all applicable natural gas and electric energy costs. U.S.
Energy will be responsible for reviewing, reconciling and paying all shipper,
supplier and utility invoices.

 

6.                                       Provide a monthly usage report of electric
energy consumption and costs. Also, where applicable and available from the
utility, obtain monthly interval electric load data and provide monthly load
profile graphs.

 

7.                                       On going review and renegotiation of electric
service costs, as required.  This may
include:

 

 

 

a.                                            Completing and evaluating annual proposals to
identify the most reliable and economic third party electric energy supply.

 

b.                                           Identifying new service tariffs or
opportunities to renegotiate the service agreement to provide lower costs.

 

c.                                       Identifying on-site generation opportunities
as market conditions change.

 

d.                                           Provide a monthly projection of energy
(natural gas and electricity) and annual summaries.

 

8.                                       Provide natural gas and electric energy
operating budgets for the Plant.

 

9.                                       Perform initial sales tax exemption audits
for energy consumption costs as required and allowed by Kansas tax laws.

 

TERM: The initial term of this Agreement shall commence on March 10,
2004 and continue until three months after the Plant’s Completion Date.  The Agreement shall be month-to-month after
the initial term.  This Agreement may be
terminated by either party effective after the initial term upon sixty (60)
days prior written notice.

 

FEES:  U.S.
Energy’s fee for services described above during the term of this Agreement
shall be $2,700 per month, plus any travel expenses incurred by U.S. Energy
employees.  Such travel expenses shall
be limited to travel of U.S. Energy employees requested by EKAE, and must be
pre-approved by EKAE.  EKAE may defer
payment on the invoiced amounts up to $2,200 until the month in which natural
gas consumption and ethanol production begins. 
Deferred invoice amounts shall not bear interest Pre-approved travel
expenses shall not be deferred.  In the
event that plant financing is not secured, this Agreement shall become null and
void and both parties will be relieved of professional and/or financial
obligations due the other party.  If
EKAE experiences significant delays in its project timeline and it is necessary
for U.S. Energy to delay work on EKAE’s energy management activities, U.S.
Energy will suspend its activities and suspend invoicing EKAE until U.S.
Energy’s activities resume.

 

BILLING AND PAYMENT:  On the first of the month, U.S. Energy shall
invoice EKAE for the work to be completed that month and EKAE shall pay U.S.
Energy within ten (10) days of receipt of invoice.  U.S. Energy will also provide to EKAE a consolidated invoice of
the Plant’s energy costs.

 

TAXES: EKAE will be responsible for payment of all taxes including, but not
limited to, all sales, use, excise, BTU, heating value and other taxes
associated with the purchase and/or transport of natural gas or electricity and
the provision of services hereunder.

 

CONFIDENTIALITY:  U.S. Energy shall not divulge to any other
person or party any information developed by U.S. Energy hereunder or revealed
to U.S. Energy pursuant to this Agreement, unless such information is (a)
already in U.S. Energy’s possession and such information is not known by U.S.
Energy to be subject to another Confidentiality Agreement, or (b) is or becomes
generally available to the public other than as a result of an unauthorized
disclosure by U.S. Energy, its officers, employees, directors, agents or its
advisors, or (c) becomes available to U.S. Energy on a non-confidential basis
from a source which is not

 

 

known
to be prohibited from disclosing such information to U.S. Energy by legal,
contractual or fiduciary obligation to the supplier, or (d) is required by U.S.
Energy to be disclosed by court order, or (e) is permitted by EKAE.  All
such information shall be and remain the property of EKAE unless such
information is subject to another Confidentiality Agreement, and upon the
termination of this Agreement, U.S. Energy shall return all such information
upon EKAE’s request.  Notwithstanding
anything to the contrary herein, U.S. Energy shall not disclose any information
which is in any way related to this Agreement or U.S. Energy’s services
hereunder without first discussing such proposed disclosure with EKAE.

 

NOTICES:  Any
formal notice, request or demand which a party hereto may desire to give to the
other respecting this Agreement shall be in writing and shall be considered as
duly delivered as of the postmark date when mailed by ordinary, registered or
certified mail by said party to the addresses listed below, Either party may,
from time-to-time, identify alternate addresses at which they may receive
notice during the term of this Agreement by providing written notice to the
other party of such alternate addresses.

 

	
  East
  Kansas Agri-Energy:

  	
   

  	
  East
  Kansas Agri-Energy LLC

  
	
   

  	
   

  	
  Attn:
  Jill Zimmerman

  
	
   

  	
   

  	
  PO
  Box 225

  
	
   

  	
   

  	
  Garnett,
  KS 66032

  
	
   

  	
   

  	
   

  
	
  U.S.
  Energy:

  	
   

  	
  U.S.
  Energy Services, Inc.

  
	
  (Payment)

  	
   

  	
  c/o
  US Bank SDS 12-1449

  
	
   

  	
   

  	
  Account
  #: 173100561153

  
	
   

  	
   

  	
  P.O.
  Box 86

  
	
   

  	
   

  	
  Minneapolis,
  MN 55486

  
	
   

  	
   

  	
   

  
	
  (Notices):

  	
   

  	
  U.S.
  Energy Services, Inc. 1000

  
	
   

  	
   

  	
  Superior
  Blvd, Suite 201

  
	
   

  	
   

  	
  Wayzata,
  MN 55391

  
	
   

  	
   

  	
  Attn:
  Bruce L. Hoffarber

  

 

ASSIGNMENT OR AMENDMENT:  The Agreement may not be assigned or amended
without the written consent of U.S. Energy and EKAE.

 

APPLICABLE LAW:  The Agreement shall be construed in
accordance with the laws of the State of Kansas.

 

ENTIRE AGREEMENT:  This Agreement constitutes the entire
Agreement among the parties pertaining to the subject matter hereof and
supersedes all prior Agreements and understanding pertaining hereto.

 

 

If
the above correctly sets forth EKAE’s understanding of the Agreement, please so
indicate in the spaces below and return one copy to U.S. Energy, Attention:
Bruce L. Hoffarber.

 

Sincerely,

 

 

U.S. ENERGY SERVICES, INC.

 

	
  By: 

  	
        /s/
  Todd D. Overgard

  	
  (Sign)

  	
   

  
	
   

  	
   

  
	
  Name: 

  	
  Todd D. Overgard

  	
  (print)

  	
   

  
	
   

  	
   

  
	
  Title:  Chief Operating Officer

  	
   

  
	
   

  	
   

  
	
  Date:  March 15, 2004

  	
   

  
					

 

 

ACCEPTED AND DATED TO THIS

15th DAY OF MARCH, 2004.

 

EAST KANSAS AGRI-ENERGY, LLC

 

	
  By: 

  	
  /s/ William R.
  Pracht

  	
  (Sign)

  	
   

  
	
   

  	
   

  
	
  Name:  

  	
  William R. Pracht

  	
  (print)

  	
   

  
	
   

  	
   

  
	
  Title:  Chairman

  	
   

  
	
  Date:  3-9-04

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00066-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00066-of-00352.parquet"}]]