EMPLOYMENT
AGREEMENT
This EMPLOYMENT AGREEMENT (this
“Agreement”), made in New York, New York as of the 15th
day of September 2008 (the “Effective Date”), between
Nephros, Inc., a Delaware corporation having its executive offices
and principal place of business at 3960 Broadway, New York, New
York 10032 (the “Company”), and Ernest A. Elgin III
(“Executive”).
RECITALS
WHEREAS, the Company desires to employ
Executive, and Executive desires to accept such employment on the
terms and conditions hereinafter set forth:
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter set forth, the Company and
Executive agree as follows:
1. Term .
The term of this Agreement shall be the period commencing on the
Effective Date and ending on September 14, 2011 (the
“Expiration Date,” and collectively, the
“Term”).
2.1 Employment by the Company; Duties
. Executive agrees to be employed by
the Company during the Term upon the terms and subject to the
conditions set forth in this Agreement. Executive shall serve as
President and Chief Executive Officer (“CEO”),
reporting to the Board of Directors of the Company (the
"Board”), and shall have such duties as may be prescribed by
the Board from time to time and which are commonly performed by
presidents and chief executive officer’s of similar sized
companies conducting similar business, such as, but not limited to,
corporate planning and oversight of the financial, marketing,
research and other functions of the organization.
2.2 Performance of Duties . Throughout the Term, Executive shall
faithfully and diligently perform Executive's duties in conformity
with the directions of the Board and serve the Company to the best
of Executive's ability. Executive shall devote Executive's entire
working time to the business and affairs of the Company, subject to
vacations and sick leave in accordance with Company policy and as
otherwise permitted herein and will not engage in any other
employment, occupation or consulting for any direct or indirect
remuneration, nor engage in any other activities that conflict with
his obligations to the Company without the prior written approval
of the Board.
2.3 Place of Performance . During his employment with the Company,
Executive will work at the Company's offices in New York, New York,
as necessary or appropriate, or at such other location in the
greater New York City area as the Company may determine. Throughout
the Term, Executive agrees to maintain Executive's personal
residence within reasonable access to Executive's place of
employment. Executive recognizes that his duties will require, from
time to time and at the Company's expense (subject to Section 3.6
below), travel to domestic and international locations.
2.4 At -
Will Employment . The parties agree that Executive’s
employment shall be on an “at-will” basis, subject to
the terms of this Agreement, and may be terminated at any time,
with or without good cause or for any or no cause, at the option of
either the Company or Executive with or without notice. Executive
understands and agrees that neither his job performance nor
promotions, commendations, bonuses or the like from the Company
give rise to or in any way serve as the basis for modification,
amendment, or extension, by implication or otherwise, of his
employment with the Company.
3. Compensation and Benefits
.
3.1 Base Salary . The Company agrees to pay to Executive a base
salary ("Base Salary") at the annual rate of $240,000, payable in
equal installments consistent with the Company's payroll
practices.
3.2
Performance Bonus . The
Company shall establish for Executive a target discretionary bonus
of 30% of annual base salary. The bonus amount, if any, will
be determined by the Compensation Committee of the Board (or the
independent members of the Board, if there is no Compensation
Committee) (the “Compensation Committee”) in its sole
discretion, based in part on attainment of personal objectives as
determined by Executive and Compensation Committee, and based in
part on the Company achieving overall corporate targets. The
Company will provide a guaranteed bonus of $35,000 for the period
beginning on Executive’s start date and ending on December
31, 2008.
3.3
Grant of Options and Terms
Thereof . Upon
execution of this Agreement, the Company shall grant to Executive
options to purchase 750,000 shares of the Company's common stock
("Options") pursuant to the Company’s 2004 Stock Incentive
Plan or successor plans, if applicable, subject to exercise price,
vesting and forfeiture as described in the Schedule A
.
3.4
Change of Control . In
the event of a Change of Control (as defined below), all unvested
Options shall vest and become exercisable immediately and, unless
all such options are cashed-out in the Change of Control
transaction, shall remain exercisable for a period of not less than
360 days, regardless of whether Executive’s employment is
terminated.
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(i)
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For
purposes of this Agreement, a “Change of Control” shall
mean (A) the acquisition, directly or indirectly, following the
date hereof by any person (as such term is defined in Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934, as amended),
in one transaction or a series of related transactions, of
securities of the Company representing fifty percent (50%) or more
of the combined voting power of the Company’s then
outstanding securities if such person or his or its affiliate(s) do
not own in excess of 50% of such voting power on the date of this
Agreement, or (B) the disposition by the Company (whether direct or
indirect, by sale of assets or stock, merger, consolidation or
otherwise) of all or substantially all of its business and/or
assets in one transaction or series of related transactions (other
than a merger effected exclusively for the purpose of changing the
domicile of the Company).
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(ii)
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Notwithstanding Section 3.4(i) above, no
transaction shall be considered a Change of Control under this
Agreement, and no Options shall vest, pursuant to this Section
3.4:
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if the
Company’s stockholders existing prior to such transaction(s)
hold in the aggregate more than fifty percent (50%) of the
securities or assets of the surviving or resulting company;
or
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in
connection with a private placement of equity securities of the
Company in connection with a financing of the Company’s
on-going operations; or
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for
any transaction ascribing a valuation to the Company of less than
Seventy Five Million Dollars ($75,000,000); provided, however, that
such a transaction may be considered as part of a series of
transactions that gives rise to a Change of Control pursuant to
Section 3.4.
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3.5
Benefits and Perquisites
. Executive shall be entitled to participate in,
to the extent Executive is otherwise eligible under the terms
thereof, the benefit plans and programs, and receive the benefits
and perquisites, generally provided to the Company’s eligible
employees. Executive shall be entitled to receive four weeks of
annual paid vacation in accordance with the Company’s
vacation policy, with the timing and duration of specific vacations
mutually and reasonably agreed to by the parties hereto. The
Company reserves the right to cancel or change the benefit plans
and programs it offers to its employees at any
time.
3.6
Travel and Business Expenses
. Upon submission of itemized expense statements
in the manner specified by the Company, Executive shall be entitled
to reimbursement for reasonable travel and other reasonable
business expenses duly incurred by Executive in the performance of
Executive's duties under this Agreement in accordance with the
policies and procedures established by the Company from time to
time for executives of the same level and responsibility as
Executive.
3.7
No Other Compensation or Benefits;
Payment . The
compensation and benefits specified in this Section 3 and in
Section 4 of this Agreement shall be in lieu of any and all other
compensation and benefits. Payment of all compensation and benefits
to Executive hereunder shall be made in accordance with the
relevant Company policies in effect from time to time to the extent
the same are consistently applied, including normal payroll
practices, and shall be subject to all applicable employment and
withholding taxes and other withholdings.
3.8
Cessation of Employment
. In the event Executive shall cease to be
employed by the Company for any reason, then Executive's
compensation and benefits shall cease on the date of such event,
except as otherwise provided herein or in any applicable employee
benefit plan or program.
4.
Termination of Employment
.
4.1
Termination . The
Company may terminate Executive's employment for Cause (as defined
below), in which case the provisions of Section 4.2 of this
Agreement shall apply. The Company may also terminate Executive's
employment in the event of Executive's Disability (as defined
below), in which case the provisions of Section 4.4 of this
Agreement shall apply. The Company may also terminate Executive's
employment for any other reason by written notice to Executive, in
which case the provisions of Section 4.5 of this Agreement shall
apply. If Executive's employment is terminated by reason of
Executive's death, retirement or voluntary resignation, the
provisions of Section 4.3 of this Agreement shall
apply.
4.2
Termination for Cause
. In the event that Executive's employment
hereunder is terminated during the Term by the Company for Cause
(as defined below), then the Company shall pay to Executive only
the earned but unpaid Base Salary for services rendered through the
date of termination, and any and all unvested Options shall
automatically be cancelled and forfeited by Executive as of the
date of termination. Executive shall have the right to exercise any
and all vested Options within the period commencing on the date of
termination and ending ninety days after the date of such
termination (the “Options Exercise Period”). Any
Options not exercised by Executive within the Options Exercise
Period shall be cancelled. In all other respects, all such Options
shall be governed by the plans, programs, agreements, and other
documents pursuant to which such Options were granted. For purposes
of this Agreement, "Cause" shall mean (i) an indictment,
conviction, or plea of nolo contendere to, any felony or a
misdemeanor involving fraud or dishonesty (whether or not involving
the Company); (ii) engaging in any act which, in each case,
subjects, or if generally known would subject, the Company to
public ridicule or embarrassment; (iii) gross neglect or misconduct
in the performance of Executive's duties hereunder; or (iv)
material breach of any provision of this Agreement by Executive;
provided, however, that with respect to clauses (iii) or (iv),
Executive shall have received written notice from the Company
setting forth the alleged act or failure to act constituting
"Cause" hereunder, and Executive shall not have cured such act or
refusal to act within 10 business days of his actual receipt of
notice.
4.3
Termination by Reason of Death or Retirement or
Voluntary Resignation . In
the event that Executive's employment hereunder is terminated
during the Term (x) by reason of Executive's death, or (y) by
reason of Executive's voluntary resignation or retirement, then the
Company shall pay to Executive only the earned but unpaid Base
Salary for services rendered through the date of termination. Any
and all unvested Options shall automatically be cancelled and
forfeited by Executive as of the date of Executive's death or
Executive's voluntary resignation or retirement, except upon
exercise of Executive’s Change of Control Termination Option
(as defined in Section 4.6). Executive or Executive’s estate
shall have the right to exercise any and all vested Options within
the Options Exercise Period. Any Options not exercised by Executive
within the Options Exercise Period shall be cancelled. In all other
respects, all such Options shall be governed by the plans,
programs, agreements, and other documents pursuant to which such
Options were granted.
4.4
Disability . If,
as a result of Executive's incapacity due to physical or mental
illness, the Company determines that Executive has failed to
perform Executive's duties hereunder on a full time basis for
either (i) ninety (90) days within any three hundred sixty-five
(365) day period, or (ii) sixty (60) consecutive days, the Company
may terminate Executive's employment hereunder for "Disability". In
that event, the Company shall pay to Executive only the earned but
unpaid, Base Salary for services rendered through such date of
termination. Any and all unvested Options shall be cancelled as of
the date of termination. During any period that Executive fails to
perform Executive's duties hereunder as a result of incapacity due
to physical or mental illness (a "Disability Period"), Executive
shall continue to receive the compensation and benefits provided by
Section 3 of this Agreement until Executive's employment hereunder
is terminated; provided, however, that the amount of compensation
and benefits received by Executive during the Disability Period
shall be reduced by the aggregate amounts, if any, payable to
Executive under disability benefit plans and programs of the
Company or under the Social Security disability insurance program.
Additionally, the vesting of Executive’s Options shall be
tolled during the Disability Period and in the event of a
termination of this Agreement as a result of Executive’s
Disability, any and all unvested Options shall automatically be
cancelled and forfeited by Executive as of the date of such
termination. Executive (or as applicable, his spouse or estate)
shall have the right to exercise any and all vested Options within
the Options Exercise Period. Any Options not exercised by Executive
within the Options Exercise Period shall be cancelled. In all other
respects, all such Options shall be governed by the plans,
programs, agreements, and other documents pursuant to which such
Options were granted.
4.5
Termination by Company for Any Other
Reason . In
the event that Executive's employment hereunder is terminated by
the Company prior to the expiration of the Term for any reason
other than as provided in Sections 4.2, 4.3 or 4.4 of this
Agreement, any and all unvested Options shall automatically be
cancelled and forfeited by Executive as of the date of such
termination and the Company shall pay to
Executive:
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any
earned but unpaid Base Salary for services rendered through such
date of termination; and
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continuing payments of severance pay (less
applicable withholding taxes) at a rate equal to his Base Salary
rate, as then in effect, for a period equal to the lesser of (i)
Maximum Severance Period (as defined below), and (ii) the remaining
Term from the date of such termination (herein after the “
Severance Term ”), to be paid periodically in
accordance with the Company's normal payroll policies);
provided that if Executive continues to be employed in any
capacity by a successor entity following a Change of Control, the
severance pay that would otherwise be payable under this Section
4.5 shall be reduced by the amount of base compensation and
guaranteed bonus (if any) Executive receives in such capacity
during or attributable to the Severance Term.
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As
used herein, the “Maximum Severance Period” shall mean
three months, until Executive has been employed hereunder for at
least one year, and, thereafter, shall mean six
months.
Notwithstanding anything to the contrary
contained herein, in the event that Executive shall breach Sections
5, 6 or 7 of this Agreement at any time, in addition to any other
remedies the Company may have in the event Executive breaches this
Agreement, the Company's obligation under clauses (i) and (ii) of
this Section 4.5 shall cease and Executive's rights thereto shall
terminate and shall be forfeited.
4.6
Change of Control Termination
. As soon as reasonable prior any event
constituting a Change of Control, but no later than thirty one (31)
days prior thereto, the Company shall advise Executive of this
pending occurrence (the “Change of Control Notice”).
Executive shall then have thirty one (31) days from the date of the
Change of Control Notice to discuss, negotiate and confer with any
successor entity regarding the terms and conditions of Executive's
continued employment with the successor Company following a Change
of Control. If Executive, acting reasonably, is unable to reach an
agreement through good faith negotiations with any successor to the
Company during such 31 day period, then Executive may elect (the
“Change of Control Termination Option”) to terminate
his employment with the Company and receive the payments outlined
in Section 4.5 hereof.
4.7
Release .
Except for any accrued obligations, the severance payments
described in Section 4.5 will be provided to Executive only if the
following conditions are satisfied: (i) Executive agrees to
continue to be bound by and complies with all surviving provisions
of the confidentiality and/or non-compete provisions of this
Agreement; and (ii) Executive executes and delivers to the Company,
and does not revoke, a full general release, in a form acceptable
to the Company, releasing all claims, known or unknown, that
Executive may have against the Company, and any subsidiary or
related entity, their officers, directors, employees and agents,
arising out of or any way related to Executive’s employment
or termination of employment with the Company.
4.8
Section 409A .
Notwithstanding the due date of any post-employment payments, if at
the time of the termination of employment Executive is a
“specified employee” (as defined in Section 409A of the
Internal Revenue Code of 1986, as amended (“Section
409A”)) as determined by the Compensation Committee of the
Board, Executive will not be entitled to any payments upon
termination of employment until the earlier of (i) the date which
is six (6) months after the termination of employment for any
reason other than death or (ii) the date of Executive’s
death. The provisions of this paragraph will only apply if and to
the extent required to avoid any “additional tax” under
Section 409A.
5.
Exclusive Employment;
Noncompetition .
5.1
No Conflict; No Other
Employment .
During the period of Executive's employment with the Company,
Executive shall not: (i) engage in any activity which conflicts or
interferes with or derogates from the performance of Executive's
duties hereunder nor shall Executive engage in any other business
activity, whether or not such business activity is pursued for gain
or profit, except as approved in advance in writing by the Board;
provided, however, that Executive shall be entitled to manage his
personal investments and otherwise attend to personal affairs,
including charitable activities, in a manner that does not
unreasonably interfere with his responsibilities hereunder, or (ii)
accept any other employment, whether as an executive or consultant
or in any other capacity, and whether or not compensated therefor,
unless Executive receives the prior written approval of the
Board.
5.2
No Competition .
(a)
Executive acknowledges and recognizes the highly
competitive nature of the Company’s business and that access
to the Company’s confidential records and proprietary
information renders him special and unique within the
Company’s industry. In consideration of the payment by the
Company to Executive of amounts that may hereafter be paid to
Executive pursuant to this Agreement (including, without
limitation, pursuant to Sections 3 and 4 hereof) and other
obligations undertaken by the Company hereunder, Executive agrees
that during (i) his employment with the Company and (ii) the period
beginning on the date of termination of employment for any reason
and ending on the last day of the Severance Term as defined in
Section 4.5(ii) (the “Post-Employment Period”),
Executive shall not, directly or indirectly, for himself or any
third party, engage without the prior consent of the Company as
owner, investor, financier, partner, stockholder, employer,
employee, consultant, advisor, director, officer or otherwise in
any firm, partnership, corporation, entity, or business that
engages or participates in a business that offers any product or
service that competes in any material respect with a product or
service (i) provided b
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