EMPLOYMENT
AGREEMENT
This Employment Agreement (the
“Agreement”) is entered into as of this 23rd day of
April, 2007 by and between Chembio Diagnostics, Inc., a Nevada
corporation (the “Company”), and Javan Esfandiari
(“Employee”) and to be effective as of March 5, 2007
(the “Effective Date”). Employee and the Company are
sometimes referred to individually as a “Party” and
collectively as the “Parties”.
In consideration of the mutual covenants,
promises and agreements herein contained, the Company and Employee
hereby covenant, promise and agree to and with each other as
follows:
1.
Employment
. The Company shall employ Employee
and Employee shall perform services for and on behalf of the
Company upon the terms and conditions set forth in this
Agreement.
2.
Positions and Duties of
Employment . Employee
shall be required to devote his full energy, skill and best efforts
as required to the furtherance of his managerial duties with the
Company as the Company’s Senior Vice President of Research
and Development. While serving in such capacities, Employee shall
have the responsibilities, duties, obligations, rights, benefits
and requisite authority as is customary for his position and as may
be determined by the Company’s Board of Directors (the
“Board”).
Employee understands that his employment as
Senior Vice President of Research and Development of the Company
involves a high degree of trust and confidence, that he is employed
for the purpose of furthering the Company’s reputation and
improving the Company’s operations and profitability, and
that in executing this Agreement he undertakes the obligations set
forth herein to accomplish such objectives. Employee agrees that he
shall serve the Company fully, diligently, competently and to the
best of his ability. Employee certifies that he fully understands
his right to discuss this Agreement with his attorney, that he has
availed himself of this right to the extent that he desires, that
he has carefully read and fully understands this entire Agreement,
and that he is voluntarily entering into this Agreement.
3.
Duties . Employee shall perform the following services
for the Company:
(a) Employee shall serve as Senior Vice President of
Research and Development of the Company, or in such other position
as determined by the Board, and in those capacities shall work with
the Company to pursue the Company’s plans as directed by the
Board.
(b) Employee shall perform duties with the
functions of an officer of the Company, subject to the direction of
the Board.
(c) During the Term (as defined in Section 4 below)
of this Agreement, Employee shall devote substantially all of
Employee’s business time to the performance of
Employee’s duties under this Agreement. Without limiting the
foregoing, Employee shall perform services on behalf of the Company
for at least forty hours per week, and Employee shall be reasonably
available at the request of the Company at other times, including
weekends and holidays, to meet the needs and requests of the
Company’s customers.
(d) During the Term, Employee will not engage in
any other activities or undertake any other commitments that
conflict with or take priority over Employee’s
responsibilities and obligations to the Company and the
Company’s customers, including without limitation those
responsibilities and obligations incurred pursuant to this
Agreement.
4.
Term . Unless terminated earlier as provided for in
this Agreement, the term of this Agreement shall be for three
years, commencing on the Effective Date and ending on the third
anniversary of the Effective Date (the “Term”). If the
employment relationship is terminated by either Party, Employee
agrees to cooperate with the Company and with the Company’s
new management with respect to the transition of the new management
in the operations previously performed by Employee. Upon
Employee’s termination, Employee agrees to return to the
Company all Company documents (and all copies thereof), any other
Company property in Employee’s possession or control, and any
materials of any kind that contain or embody any proprietary or
confidential material of the Company.
5.
Base Salary
. As compensation for the services
to be performed by Employee during the Term, Company shall pay
Employee a base salary payable in accordance with the
Company’s customary payroll practices (the “Base
Salary”), at the following annual rates:
(a)
For the period from the Effective
Date to the first anniversary of the Effective Date (the
“First Anniversary”), $185,000.00 per year.
(b)
For the period from the First
Anniversary of the Effective Date to the second anniversary of the
effective date (the “Second Anniversary”), $210,00.00
per year.
(c)
For the period from the Second
Anniversary of the Effective Date to the third anniversary of the
Effective Date, $235,000.00 per year.
(a) In respect to the services to be performed by
Employee hereunder, the Company shall pay to Employee additional
incentive cash compensation for calendar year 2007
(“2007”), calendar year 2008 (“2008”) and
calendar year 2009 (“2009”) up to the maximum amount of
thirty-seven and one-half (37.5%) percent of Employee’s
Calendar Year Base Salary (as hereinafter defined) for each of
2007, 2008 and 2009 (each, a “DPP Cash Bonus”) based
upon the performance of the Company’s Dual Path Platform
(“DPP”) Technology during 2007, 2008 and 2009 (the
“DPP Technology Performance”), which is directly
related to the achievement of certain DPP Technology annual revenue
targets budgeted by management of the Company for 2007, 2008 and
2009 (each a “DPP Revenue Target”). Employee
acknowledges that he is aware of the DPP Revenue Target for 2007,
and acknowledges and accepts the DPP Revenue Target for 2008 and
2009 will be solely determined by the Company subsequent to the
Effective Date. The amount of the DPP Cash Bonus, if any, to be
earned by Employee for each of 2007, 2008 and 2009 shall be
determined in the following manner:
(i)
If the Actual DPP Revenue Amount
(as defined below) exceeds the DPP Revenue Target for the year
under consideration (i.e., either 2007, 2008 or 2009), the Company
shall pay to Employee the full DPP Cash Bonus for such year, which
shall equal thirty-seven and one-half (37.5%) percent of
Employee’s Calendar Year Base Salary for such
year;
(ii)
If the Actual DPP Revenue Amount is
seventy-five (75%) percent or less than the DPP Revenue Target for
the year under consideration, Employee shall not receive any DPP
Cash Bonus for such year; provided , however , that,
notwithstanding the foregoing, if the Actual DPP Revenue Amount is
between fifty (50%) percent and seventy-five (75%) percent of the
DPP Target for the year under consideration, the Company shall pay
to Employee a DPP Cash Bonus for such year equal to $10,000, which
DPP Cash Bonus shall not reduce any Discretionary Cash Bonus (as
such term is defined in Section 7 below) that the Company may award
to Employee pursuant to Section 7 of this Agreement; and
(iii)
If the Actual DPP Revenue Amount is
between seventy-six (76%) percent and one hundred (100%) percent of
the DPP Revenue Target for the year under consideration, the
Company shall pay to Employee a DPP Cash Bonus for such year equal
to one and one-half (1.5%) percent of Employee’s Calendar
Year Base Salary for each full (and only full) one (1%) percent (up
to a maximum of twenty-five (25%) percent) by which Actual DPP
Revenue exceeds seventy-five (75%) percent of the appropriate DPP
Revenue Target. For example, if (A) Employee’s Calendar Year
Base Salary for 2007 is $180,000, the maximum DPP Cash Bonus
Employee may earn for 2007 is $67,500 (i.e., thirty-seven and
one-half (37.5%) percent multiplied by $180,000); and (B) Actual
DPP Revenue is $80 and the DPP Revenue Target for 2007 is $100, the
Company would have achieved eighty (80%) percent of the DPP Revenue
Target for 2007; then (C) Employee would be entitled to $13,500 as
his DPP Cash Bonus for 2007, or 5/25 or twenty (20%) percent, of
the maximum $67,500 DPP Cash Bonus available to be earned by
Employee for 2007.
(b) For purposes of this Agreement, the following
terms shall have the following meanings:
(i) “Calendar Year Base Salary” means,
for the year under consideration, Employee’s actual gross
base salary for such year as reported on the Internal Revenue
Service (“IRS”) Form W-2 Wage and Tax Statement
provided by the Company to Employee for such year; and
(ii) “Actual DPP Revenue” means, for the
year under consideration, the Company’s product, license and
royalty revenue for its DPP Technology as solely determined by the
Company in accordance with generally accepted accounting
principles, consistently applied.
(c) The calculation as to the amount of the DPP
Cash Bonus, if any, to be paid by the Company to Employee for 2007,
2008 and 2009 shall be completed by the Company within ten (10)
days after the filing by the Company of its Annual Report on Form
10-KSB (“10-K”) for the relevant year. The DPP Cash
Bonus, if any, shall be paid by the Company to Employee promptly
after the completion of each such calculation.
7.
Discretionary Cash
Bonus . Subject to the
recommendation of the Company’s chief executive officer, but
in the sole and absolute discretion of the Board or the
Compensation Committee of the Board, the Company may award Employee
a discretionary cash bonus of up to a maximum of twelve and
one-half (12.5%) percent of the Employee’s Calendar Year Base
Salary for each calendar year during the Term (“Discretionary
Cash Bonus”). Any Discretionary Cash Bonus awarded by the
Company to Employee hereunder shall be paid within ten (10) days
after the filing by the Company of its 10-K for the relevant
year.
8.
Base Stock Grant
. In recognition of
Employee’s importance and value to the Company and as an
inducement for Employee to enter into this Agreement, but subject
in all respects to the terms and conditions of this Agreement,
including, without limitation, the vesting schedule set forth below
and the provisions of Section 10 herein, the Company hereby grants
to Employee on the date of this Agreement (for purposes of this
Section 8, the “Stock Grant Date”), 200,000 shares (the
“Base Shares” and together with the DPP Bonus Shares
(as hereinafter defined), if any, the “Shares”) of the
Company’s common stock, $0.01 par value per share (the
“Common Stock”). The purchase price for the Base Shares
is $0. One Hundred Thousand (100,000) of the Base Shares shall vest
immediately on the Stock Grant Date. Subject to the terms and
conditions of this Agreement, the remaining One Hundred Thousand
(100,000) of the Base Shares (the “Restricted Base
Shares”) shall vest as follows:
(a)
Fifty Thousand (50,000) Shares on
the First Anniversary; and
(b)
Fifty Thousand (50,000) Shares on
the Second Anniversary.
Subject to
Section 10(i) hereof, certificates representing the Base Shares
shall be issued immediately and delivered by the Company to
Employee promptly after each vesting date. There shall be no
proportionate or partial vesting of the Base Shares between the
aforesaid vesting dates.
9.
DPP Bonus Stock Grant
.
(a)
In respect of the services to be
performed by Employee hereunder, the Company shall grant to
Employee up to the additional maximum amount of 50,000 shares of
Common Stock (the “DPP Bonus Shares”) for 2007 and 2008
based upon the DPP Technology Performance. The number of DPP Bonus
Shares, if any, to be granted to Employee for each of 2007 and 2008
shall be determined in the following manner:
(i)
If the Actual DPP Revenue Amount
exceeds the DPP Revenue Target for the year under consideration
(i.e., either 2007 or 2008), the Company shall grant to Employee
the full 50,000 DPP Bonus Shares for such year;
(ii)
If the Actual DPP Revenue is
seventy-five (75%) percent or less than the DPP Revenue Target for
the year under consideration, Employee shall not receive any DPP
Bonus Shares for such year; and
(iii)
If the Actual DPP Revenue is
between seventy-six (76%) percent and one hundred (100%) percent of
the DPP Revenue Target for the year under consideration, the
Company shall grant to Employee, 2,000 DPP Bonus Shares for each
full (and only full) one (1%) percent (up to a maximum of
twenty-five (25%) percent) by which Actual DPP Revenue exceeds
seventy-five (75%) percent of the appropriate DPP Revenue Target.
For example, if Actual DPP Revenue is $80 for 2007, and the DPP
Revenue Target is $100 for 2007, the Company would have achieved
eighty (80%) percent of the DPP Revenue Target for 2007 which would
entitle Employee to 10,000 DPP Bonus Shares, or 5/25 or twenty
(20%) percent, of the maximum 50,000 DPP Bonus Shares available to
be earned by Employee for 2007.
(b)
The calculation as to the number of
DPP Bonus Shares, if any, to be granted by the Company to Employee
for 2007 and 2008 shall be completed by the Company within ten (10)
days after the filing by the Company of its 10-K for the relevant
year. Subject to Section 10(i) hereof, certificates representing
the DPP Bonus Shares earned by Employee, if any, shall be issued
and delivered by the Company to Employee promptly after the
completion of each such calculation.
10.
Certain Provisions Relating to
the Shares and the Restricted Shares .
(a)
Restrictions on
Transfer . Employee shall
not sell, transfer, pledge, hypothecate, assign or otherwise
encumber and dispose of the Restricted Shares, except as set forth
in this Agreement. Any attempted sale, transfer, pledge,
hypothecation, assignment or other disposition of the Restricted
Shares in violation of this Agreement shall be void and of no
effect and the Company shall have the right to disregard the same
on its books and records and to issue “stop transfer”
instructions to its transfer agent. The provisions of this Section
10(a) shall cease to apply to the Restricted Shares on the date
such Shares become vested hereunder.
(b)
Forfeiture; Immediate
Vesting . If
Employee’s employment is terminated by Employee at any time
other than during the six (6) month period immediately following a
Change of Control (as such term is hereinafter defined) or by the
Company for Cause (as such term is hereinafter defined), then
Employee will forfeit, without compensation, any and all Restricted
Shares that are unvested as of the date of termination of
Employee’s employment. In the event of a Change of Control,
or in the event the Company terminates Employee’s employment
hereunder without his consent for a reason other than Cause, then
all of the Restricted Shares shall vest immediately.
(c)
Adjustments
. In the event of any stock
dividend, split up, split-off, spin-off, distribution,
recapitalization, combination or exchange of shares, merger,
consolidation, reorganization or liquidation or the like, the
Restricted Shares shall be adjusted on the same basis as other
shares of Common Stock.
(d)
Taxes; Section 83(b)
Election . Employee
acknowledges that it is Employee’s sole responsibility and
not the Company’s, to file timely and properly any election
under Section 83(b) of the Internal Revenue Code of 1986, as
amended (the “Code”), and any corresponding provisions
of the state tax laws, if Employee wishes to utilize such election.
Employee further acknowledges that (i) no later than the date on
which any Shares shall have been granted to Employee hereunder,
Employee shall pay to the Company, or make arrangements
satisfactory to the Company regarding payment of, any federal,
state or local income or other taxes of any kind required by law to
be withheld with respect to any such Shares; (ii) the Company
shall, to the extent permitted by law, have the right to deduct
from any payment of any kind otherwise due to Employee any federal,
state or local income or other taxes of any kind required by law to
be withheld with respect to any Shares which shall have been
granted by the Company hereunder, including that the Company may,
but shall not be required to, sell a number of Shares sufficient to
cover applicable withholding taxes; and (iii) in the event that
Employee does not satisfy (i) above on a timely basis, the Company
may, but shall not be required to (and shall not to the extent it
would violate the Sarbanes-Oxley Act), pay such required
withholding and treat such amount as a demand loan to Employee at
the maximum rate permitted by law, with such loan, at the
Company’s sole discretion and provided the Company so
notifies Employee within thirty (30) days of the making of the
loan, secured by the Shares and any failure by Employee to pay the
loan upon demand shall entitle the Company to all of the rights at
law of a creditor secured by the Shares. The Company may hold as
security any certificates representing any Shares and, upon demand
of the Company, Employee shall deliver to the Company any
certificates in Employee’s possession representing Shares
together with a stock power duly endorsed in blank.
(e)
Legends . All certificates representing the Shares shall
have endorsed thereon the following legends:
(i)
“THESE SECURITIES HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT
BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATE
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