Exhibit 10.7
EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this
“ Agreement ”) is entered into by and between
Basin Water, Inc., a Delaware corporation (the “
Company ”), and Peter L. Jensen (“
Executive ”), and shall be effective as of the date on
which the Company’s Registration Statement on Form S-1 filed
with respect to the Company’s initial public offering becomes
effective (the “ Effective Date ”).
WHEREAS, the Company desires to
employ Executive, and Executive desires to be employed by the
Company, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of
the mutual promises herein contained, the parties agree as
follows:
1. Definitions . As used in
this Agreement, the following terms shall have the following
meanings:
(a) Board . “
Board ” means the Board of Directors of the
Company.
(b) Bonus . “
Bonus ” means an amount equal to the greater of
(i) Executive’s target annual bonus for the fiscal year
in which the date of termination occurs, or (ii) the bonus
awarded to Executive for the fiscal year prior to the date of
termination. If any portion of the bonuses awarded to Executive
consisted of securities or other property, the fair market value
thereof shall be determined in good faith by the Board.
(c) Cause . “
Cause ” means any of the following:
(i) the commission of an act of
fraud or embezzlement by Executive involving the Company or any
successor or affiliate thereof or Executive’s commission of
any other act of dishonesty that has a material adverse impact on
the Company or any successor or affiliate thereof;
(ii) a conviction of, or plea of
“guilty” or “no contest” to, a felony by
Executive or any other crime involving moral turpitude (it being
understood that violation of the motor vehicle code does not
constitute such a crime);
(iii) any unauthorized use or
disclosure by Executive of confidential information or trade
secrets of the Company or any successor or affiliate
thereof;
(iv) Executive’s gross
negligence, insubordination or material violation of any duty of
loyalty to the Company or any successor or affiliate thereof or any
other material misconduct on the part of Executive;
(v) Executive’s ongoing and
repeated failure or refusal to perform or neglect of
Executive’s duties as required by this Agreement, which
failure, refusal or neglect continues for fifteen (15) days
following Executive’s receipt of written notice from the
Board stating with specificity the nature of such failure, refusal
or neglect; or
(vi) Executive’s breach of any
material provision of this Agreement;
provided , however , that prior to the
determination that “Cause” under clause (i), (iv),
(v) or (vi) of this Section 1(c) has occurred, the
Company shall (w) provide to Executive in writing, in
reasonable detail, the reasons for the determination that such
“Cause” exists, (x) other than with respect to
clause (v) above which specifies the applicable period of time
for Executive to remedy his or her breach, afford Executive a
reasonable opportunity to remedy any such breach, if such breach is
capable of being remedied, and (y) provide Executive an
opportunity to be heard prior to the final decision to terminate
the Executive’s employment hereunder for such
“Cause.” The Company shall make any decision that
“Cause” exists in good faith.
The foregoing definition shall not
in any way preclude or restrict the right of the Company or any
successor or affiliate thereof to discharge or dismiss Executive
for any other acts or omissions, but such other acts or omissions
shall not be deemed, for purposes of this Agreement, to constitute
grounds for termination for Cause.
(d) Change in Control .
“ Change in Control ” means and includes each of
the following:
(i) the acquisition, directly or
indirectly, by any “person” or “group” (as
those terms are defined in Sections 3(a)(9), 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the “
Exchange Act ”), and the rules thereunder) of
“beneficial ownership” (as determined pursuant to
Rule 13d-3 under the Exchange Act) of securities entitled to
vote generally in the election of directors (“ voting
securities ”) of the Company that represent fifty percent
(50%) or more of the combined voting power of the
Company’s then outstanding voting securities, other
than:
(A) an acquisition by a trustee or
other fiduciary holding securities under any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
person controlled by the Company or by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
person controlled by the Company,
(B) an acquisition of voting
securities by the Company or a corporation owned, directly or
indirectly by the stockholders of the Company in substantially the
same proportions as their ownership of the stock of the
Company,
(C) an acquisition of voting
securities pursuant to a transaction described in subsection
(iii) below that would not be a Change in Control under
subsection (iii), or
(D) an acquisition of voting
securities pursuant to the Company’s initial public offering
of the Stock;
Notwithstanding the foregoing, the
following event shall not constitute an “acquisition”
by any person or group for purposes of this Section 1(d): an
acquisition of the Company’s securities by the Company which
causes the Company’s voting securities
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beneficially owned by a person or
group to represent fifty percent (50%) or more of the combined
voting power of the Company’s then outstanding voting
securities; or
(ii) during any period of two
(2) consecutive years, individuals who, at the beginning of
such period, constitute the Board together with any new director(s)
(other than a director designated by a person who shall have
entered into an agreement with the Company to effect a transaction
described in clauses (i) or (iii) of this
Section 1(d)) whose election by the Board or nomination for
election by the Company’s stockholders was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the two
(2) year period or whose election or nomination for election
was previously so approved, cease for any reason to constitute a
majority thereof; or
(iii) the consummation by the
Company (whether directly involving the Company or indirectly
involving the Company through one or more intermediaries) of
(x) a merger, consolidation, reorganization, or business
combination or (y) a sale or other disposition of all or
substantially all of the Company’s assets or (z) the
acquisition of assets or stock of another entity, in each case
other than a transaction:
(A) which results in the
Company’s voting securities outstanding immediately before
the transaction continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
Company or the person that, as a result of the transaction,
controls, directly or indirectly, the Company or owns, directly or
indirectly, all or substantially all of the Company’s assets
or otherwise succeeds to the business of the Company (the Company
or such person, the “ Successor Entity ”)),
directly or indirectly, at least a majority of the combined voting
power of the Successor Entity’s outstanding voting securities
immediately after the transaction, and
(B) after which no person or group
beneficially owns voting securities representing fifty percent
(50%) or more of the combined voting power of the Successor
Entity; provided , however , that no person or group
shall be treated for purposes of this clause (B) as
beneficially owning fifty percent (50%) or more of combined
voting power of the Successor Entity solely as a result of the
voting power held in the Company prior to the consummation of the
transaction; or
(iv) the Company’s
stockholders approve a liquidation or dissolution of the
Company.
(e) Code . “
Code ” means the Internal Revenue Code of 1986, as
amended from time to time, and the Treasury Regulations and other
interpretive guidance issued thereunder.
(f) Excise Tax . “
Excise Tax ” means the excise tax imposed by
Section 4999 of the Code, together with any interest or
penalties imposed with respect to such excise tax.
(g) Good Reason . “
Good Reason ” means Executive’s voluntary
resignation following any one or more of the following that is
effected without Executive’s written consent:
(i) the relocation of the office of
Executive more than fifty (50) miles from Executive’s
principal place of employment as of the Effective Date;
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(ii) a material reduction in the
nature or scope of Executive’s responsibilities, or the
assignment to Executive of duties that are materially inconsistent
with Executive’s position (in each case as compared to
Executive’s responsibilities, duties or position on the
Effective Date) (provided that the fact that the Company becomes a
subsidiary of an acquirer or a division of an acquirer shall not in
and of itself by considered a material reduction or change to
Executive’s responsibilities, duties or position);
(iii) a reduction in
Executive’s base salary or target bonus as an employee of the
Company, other than pursuant to a Company-wide reduction of base
salaries and target bonuses for employees of the Company
generally;
(iv) the Company’s failure to
continue in effect compensation and benefit plans which provide
Executive with benefits which are no less favorable on an aggregate
basis, both in terms of the amount of benefits provided and the
level of Executive’s participation relative to other
participants, to the benefits provided to Executive under the
Company’s compensation and benefit plans and practices on the
Effective Date;
(v) any failure by the Company to
obtain the assumption of this Agreement by any successor or assign
of the Company as contemplated by Section 9(b);
(vi) any change in Executive’s
reporting relationship such that Executive no longer reports
directly to the Board; or
(vii) the Company’s breach of
any material provision of this Agreement; provided , that
Executive shall (w) provide to the Company in writing, in
reasonable detail, notice of such breach and (x) afford the
Company a reasonable opportunity to remedy any such breach, if such
breach is capable of being remedied.
(h) Payment . “
Payment ” means any payment or distribution in the
nature of compensation (within the meaning of
Section 280G(b)(2) of the Code) to or for the benefit of the
Executive, whether paid or payable pursuant to this Agreement or
otherwise.
(i) Permanent Disability .
Executive’s “ Permanent Disability ” shall
be deemed to have occurred if Executive shall become physically or
mentally incapacitated or disabled or otherwise unable fully to
discharge his or her duties hereunder for a period of ninety
(90) consecutive calendar days or for one hundred twenty
(120) calendar days in any one hundred eighty
(180) calendar-day period. The existence of Executive’s
Permanent Disability shall be determined by the Company on the
advice of a physician chosen by the Company and the Company
reserves the right to have the Executive examined by a physician
chosen by the Company at the Company’s expense.
(j) Stock Awards . “
Stock Awards ” means all stock options, restricted
stock and such other awards granted pursuant to the Company’s
stock option and equity incentive award plans or agreements and any
shares of stock issued upon exercise thereof.
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2. Term of Agreement .
Executive’s employment under this Agreement shall be for a
term of three (3) years from the Effective Date (the “
Employment Term ”).
3. Services to Be
Rendered.
(a) Duties and
Responsibilities . Executive shall serve as President and Chief
Executive Officer of the Company. In the performance of such
duties, Executive shall report directly to the Board and shall be
subject to the direction of the Board and to such limits upon
Executive’s authority as the Board may from time to time
impose. Executive hereby consents to serve as an officer and/or
director of the Company or any subsidiary or affiliate thereof
without any additional salary or compensation, if so requested by
the Board. Executive shall be employed by the Company on a full
time basis. Executive’s primary place of work shall be the
Company’s facility in Rancho Cucamonga, California, or such
other location within San Diego County as may be designated by the
Board from time to time. Executive shall also render services at
such other places within or outside the United States as the Board
may direct from time to time, however, Executive’s primary
place of work shall not be relocated more than fifty
(50) miles from his or her primary place of work as of the
Effective Date without Executive’s prior consent. Executive
shall be subject to and comply with the policies and procedures
generally applicable to senior executives of the Company to the
extent the same are not inconsistent with any term of this
Agreement.
(b) Exclusive Services .
Executive shall at all times faithfully, industriously and to the
best of his or her ability, experience and talent perform to the
satisfaction of the Board all of the duties that may be assigned to
Executive hereunder and shall devote substantially all of his or
her productive time and efforts to the performance of such duties.
Subject to the terms of Section 6, this shall not preclude
Executive from devoting time to personal and family investments or
serving on community and civic boards, or participating in industry
associations, provided such activities do not interfere with his or
her duties to the Company, as determined in good faith by the
Board. Executive agrees that he or she will not join any boards,
other than community and civic boards (which do not interfere with
his or her duties to the Company), without the prior approval of
the Board.
4. Compensation and Benefits
. The Company shall pay or provide, as the case may be, to the
Executive the compensation and other benefits and rights set forth
in this Section 4.
(a) Base Salary . The Company
shall pay to Executive a base salary of $168,750 per year, payable
in accordance with the Company’s usual pay practices (and in
any event no less frequently than monthly). Executive’s base
salary shall be subject to review annually by and at the sole
discretion of the Compensation Committee of the Board.
(b) Bonus . Executive shall
participate in any management incentive compensation plan adopted
by the Company or in such other bonus plan as the Board may approve
for the senior executives of the Company.
(c) Benefits . Executive
shall be entitled to participate in benefits under the
Company’s benefit plans and arrangements, including, without
limitation, any employee benefit
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plan or arrangement made available
in the future by the Company to its senior executives, subject to
and on a basis consistent with the terms, conditions and overall
administration of such plans and arrangements. The Company shall
have the right to amend or delete any such benefit plan or
arrangement made available by the Company to its senior executives
and not otherwise specifically provided for herein.
(d) Expenses . The Company
shall reimburse Executive for reasonable out-of-pocket expenses
incurred in connection with the performance of his or her duties
hereunder, subject to (i) such policies as the Company may
from time to time establish, and (ii) Executive furnishing the
Company with evidence in the form of receipts satisfactory to the
Company substantiating the claimed expenditures.
(e) Paid Time Off . Executive
shall be entitled to such periods of paid time off (“
PTO ”) each year as provided under the Company’s
PTO policy and as otherwise provided for senior executive officers,
but in no event shall Executive be entitled to less than four (4)
weeks of PTO.
(f) Equity Plans .
(i) Executive shall be entitled to
participate in any equity or other employee benefit plan that is
generally available to senior executive officers, as distinguished
from general management, of the Company. Except as otherwise
provided in this Agreement, Executive’s participation in and
benefits under any such plan shall be on the terms and subject to
the conditions specified in the governing document of the
particular plan.
(ii) On the Effective Date,
Executive shall be granted a restricted stock award of 8,125 shares
of the Company’s common stock (the “ Restricted
Stock ”) under the Company’s 2006 Equity Incentive
Award Plan. The shares of Restricted Stock will be subject to
forfeiture in the event Executive’s employment with or
service to the Company terminates prior to the vesting of the
shares in accordance with the terms of this Agreement. The
restrictions on such Restricted Stock shall lapse in three
(3) equal annual installments commencing on the first
anniversary of the Effective Date, subject to Executive’s
continued employment or service with the Company on each such date.
Subject to Sections 4(g) and 5, such Restricted Stock shall be
subject to the terms and conditions of the Company’s 2006
Equity Incentive Award Plan and the restricted stock award
agreement pursuant to which such Restricted Stock is granted to the
extent such provisions are not less favorable to Executive than the
applicable provisions of this Agreement.
(g) Accelerated Vesting of Stock
Awards .
(i) In the event of a Change in
Control, the vesting and/or exercisability of one hundred percent
(100%) of Executive’s outstanding Stock Awards shall be
automatically accelerated immediately prior to the Change in
Control.
(ii) If Executive’s employment
is terminated by the Company without Cause or by Executive for Good
Reason, the vesting and/or exercisability of one hundred percent
(100%) of Executive’s outstanding Stock Awards shall be
automatically accelerated as of the date of termination.
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(iii) The vesting pursuant to
clauses (i) and (ii) of this Section 4(g) shall be
cumulative. The foregoing provisions are hereby deemed to be a part
of each Stock Award and to supersede any less favorable provision
in any agreement or plan regarding such Stock Award.
5. Termination and Severance
. Executive shall be entitled to receive benefits upon termination
of employment only as set forth in this Section 5:
(a) At-Will Employment;
Termination . The Company and Executive acknowledge that
Executive’s employment is and shall continue to be at-will,
as defined under applicable law, and that Executive’s
employment with the Company may be terminated by either party at
any time for any or no reason, with or without notice. If
Executive’s employment terminates for any reason, Executive
shall not be entitled to any payments, benefits, damages, award or
compensation other than as provided in this Agreement.
Executive’s employment under this Agreement shall be
terminated immediately on the death of Executive.
(b) Termination without Cause or
for Good Reason .
(i) Termination Apart From Change
in Control . If Executive’s employment is terminated by
the Company without Cause or by Executive for Good Reason prior to
a Change in Control or more than twenty-four (24) months
following a Change in Control, Executive shall be entitled to
receive, in lieu of any severance benefits to which Executive may
otherwise be entitled under any severance plan or program of the
Company, the benefits provided below:
(A) the Company shall pay to
Executive his or her fully earned but unpaid base salary, when due,
through the date of termination at the rate then in effect, plus
all other amounts to which Executive is entitled under any
compensation plan or practice of the Company at the time of
termination;
(B) subject to Executive’s
continued compliance with the provisions of Section 6,
Executive shall be entitled to receive severance pay in an amount
equal to the sum of:
(1) Executive’s base salary as
in effect immediately prior to the date of termination for the
twelve (12) month period following the date of termination,
payable in a lump sum as soon as administratively practicable but
in any event no later than two and one-half (2
1
/ 2 ) months following the date of
termination, plus
(2) an amount equal to
Executive’s Bonus for the year in which the date of
termination occurs, payable in a lump sum as soon as
administratively practicable but in any event no later than two and
one-half (2 1 / 2
) months following the
date of termination;
(C) subject to Executive’s
continued compliance with the provisions of Section 6, for the
period beginning on the date of termination and ending
on
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the date which is twelve
(12) full months following the date of termination (or, if
earlier, the date on which Executive accepts employment with
another employer that provides comparable benefits in terms of cost
and scope of coverage), the Company shall pay for and provide
Executive and his or her dependents with healthcare benefits which
are substantially the same as the benefits provided to Executive
immediately prior to the date of termination, including, if
necessary, paying the costs associated with continuation coverage
pursuant to the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended (“ COBRA ”); and
(D) subject to Executive’s
continued compliance with the provisions of Section 6,
Executive shall be entitled to executive-level outplacement
services at the Company’s expense, not to exceed $15,000.
Such services shall be provided by a firm selected by Executive
from a list compiled by the Company.
(ii) Termination In Connection
With Change in Control . If Executive’s employment is
terminated by the Company without Cause or by Executive for Good
Reason within twenty-four (24) months following a Change in
Control, Executive shall be entitled to receive, in lieu of any
severance benefits to which Executive may otherwise be entitled
under any severance plan or program of the Company, the benefits
provided below:
(A) the Company shall pay to
Executive his or her fully earned but unpaid base salary, when due,
through the date of termination at the rate then in effect, plus
all other amounts to which Executive is entitled under any
compensation plan or practice of the Company at the time of
termination;
(B) subject to Executive’s
continued compliance with the provisions of Section 6,
Executive shall be entitled to receive severance pay in an amount
equal to the sum of:
(1) Executive’s base salary as
in effect immediately prior to date of termination for a period
equal to the greater of (x) the remaining portion of the
Employment Term or (y) twelve (12) months, payable in a
lump sum as soon as administratively practicable but in any event
no later than two and one-half (2 1 / 2
) months following the
date of termination, plus
(2) an amount equal to
Executive’s Bonus for the year in which the date of
termination occurs, payable in a lump sum as soon as
administratively practicable but in any event no later than two and
one-half (2 1 / 2
) months following the
date of termination;
(C) subject to Executive’s
continued compliance with the provisions of Section 6, for the
period beginning on the date of termination and ending on the date
which is twelve (12) full months following the date of
termination (or, if earlier, the date on which Executive accepts
employment with another employer that provides comparable benefits
in terms of cost and scope of coverage), the Company shall pay for
and provide Executive and his or her dependents with healthcare
benefits which are substantially the same as the benefits provided
to Executive immediately
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prior to the date of termination,
including, if necessary, paying the costs associated with
continuation coverage pursuant to COBRA;
(D) subject to Executive’s
continued compliance with the provisions of Section 6,
Executive shall be entitled to executive-level outplacement
services at the Company’s expense, not to exceed $15,000.
Such services shall be provided by a firm selected by Executive
from a list compiled by the Company; and
(E) The payments and benefits
provided for in this Section 5(b)(ii) shall only be payable in
the event Executive’s employment is terminated by the Company
without Cause or by Executive for Good Reason within twenty-four
(24) months following a Change in Control. If
Executive’s employment is terminated by the Company without
Cause or by Executive for Good Reason prior to a Change in Control
or more than twenty-four (24) months following a Change in
Control, then Executive shall receive the payments and benefits
described in Section 5(b)(i) and shall not be eligible to
receive any of the payments and benefits described in this
Section 5(b)(ii).
(c) Termination for Cause or
Permanent Disability, Voluntary Resignation Without Good Reason or
Death . If Executive’s employment is terminated by the
Company for Cause or as a result of Executive’s Permanent
Disability, by Executi
