EMPLOYMENT AGREEMENT
THIS
EMPLOYMENT AGREEMENT (“Agreement”) is made and entered into as of the 8th day of
August, 2007, by and between Neah Power Systems, Inc., a Nevada corporation
(“Employer”), and Xxxx Xxxxxxxxxx, an individual (“Employee”).
RECITALS
A. WHEREAS,
Employer has agreed to employ Employee and Employee has agreed to enter into
employment as the Chief Executive Officer (“CEO”) of Employer, on the terms set
forth in this Agreement.
B. WHEREAS,
Employer acknowledges that Employee desires definition of his compensation
and
benefits, and other terms of his employment.
NOW,
THEREFORE, in consideration thereof and of the covenants and conditions
contained herein, the parties agree as follows:
AGREEMENT
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1.
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TERM
OF AGREEMENT
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1.1
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Initial
Term.
The initial term of this Agreement shall begin on August 1, 2007
(“Commencement Date”) and shall continue until the earlier of:
(a) the date on which it is terminated pursuant to Section 5; or
(b) December 31, 2008. At the conclusion of the Initial Term, and
each successive term thereafter, the Agreement shall be automatically
renewed for an additional two-year term, unless either party gives
written
notice of its intention to terminate the Agreement at least six months
prior to the automatic renewal date.
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2.
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EMPLOYMENT
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| 2.1 |
Employment
of Employee.
Employer agrees to employ Employee to render services on the terms
set
forth herein. Employee hereby accepts such employment on the terms
and
conditions of this Agreement.
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| 2.2 |
Position
and Duties.
Employee shall serve as Employer’s CEO, reporting directly to Employer’s
Board of Directors (“Board”), and shall have the general powers, duties
and responsibilities of management usually vested in that office
in a
corporation and such other additional powers and duties as may be
prescribed from time to time by the Board. In the event that
Employee’s duties and responsibilities shall be significantly diminished
or there shall be assigned to him duties and responsibilities materially
inconsistent with his position and either situation continues for
thirty
(30) days after notice of either such situation is given such
occurrence shall constitute a termination without Good Cause under
Section 5.3.
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| 2.3 |
Board
Membership.
Employer acknowledges that Employee is currently a member of the
Board,
and subject to the Board’s fiduciary obligations will take all reasonable
action necessary to assure that Employee remains a member of the
Board
throughout the term of this Agreement. The Employee shall, to the
extent
appointed or elected, serve as a member of any committee of the Board,
or
the equivalent bodies in a subsidiary or affiliate, in all cases,
without
additional compensation or benefits and any compensation paid to
the
Employee, or benefits provided to the Employee, in such capacities
shall
be a credit with regard to the amounts due hereunder from the Employer.
Employee shall, however, be entitled to retain any compensation,
including
the grant of stock options or other forms of non-cash consideration,
payable generally to Board members for their services as members
of Neah’s
Board of Directors.
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| 2.4 |
Other
Services.
Employer acknowledges Xx. Xxxxxxxxxx serves from time to time as
an
advisor, investor, consultant, trustee for companies unrelated to
Neah. In
addition, Employer acknowledges that Employee may do charity work
and
conduct other business as long as such activities do not materially
interfere with the Employee’s duties hereunder.
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| 2.5 |
Relocation
or Change of Duties.
Employer shall not, without Employee’s consent, require Employee to
permanently relocate.
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3.
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COMPENSATION
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| 3.1 |
Compensation.
During the term of this Agreement, Employer shall pay the amounts
and
provide the benefits described in this Section 3, and Employee agrees
to accept such amounts and benefits in full payment for Employee’s
services under this Agreement.
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| 3.2 |
Base
Salary.
Employer shall pay to Employee a base annual salary of $275,000,
subject
to increases under Section 3.4. In no event shall Employee’s base
annual salary be reduced below $275,000.
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| 3.3 |
Bonus
Plan.
Employee is eligible to receive an annual bonus in the reasonable
discretion of the Board. The bonus will be based on a calendar year
and
paid no later than April 15th
of
the following year.
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| 3.4 |
Upon
the first day of each calendar year, Employee’s base salary and bonus
target shall be reevaluated and adjusted by the Compensation Committee
to
ensure appropriate compensation in the competitive marketplace.
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| 3.5 |
Equity
Incentive Plan.
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| (a) |
Employee
shall be entitled to participate in any stock option, stock bonus,
phantom
stock right, equity pool, or other such plans or arrangements, which
may
exist during the term of his employment, provided that Employee’s
entitlement is not inconsistent with the terms of any such arrangement
or
plan.
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| (b) |
Except
as otherwise set forth herein, vesting of options will cease upon
the
termination of Employee’s employment with Employer.
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| 3.6 |
Fringe
Benefits.
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(a)
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Employer
shall provide to Employee, at Employer’s cost, all perquisites to which
other senior executives of the Employer are generally entitled and
such
other perquisites which are suitable to the character of the Employee’s
position with the Employer and adequate for the performance of his
duties
hereunder in accordance with Employer’s
policy.
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(b)
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Employee
shall be provided with group medical and dental insurance yes through
Employer’s plan[s], as well as any fringe benefit plan(s) as Employer may
offer from time to time to its personnel. Employee’s spouse and any
dependent children of Employee shall be covered under the Employer’s
health care and dental plan[s] at employer’s
cost.
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(c)
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To
the extent legally permissible, the Employer shall not treat such
amounts
as income to the Employee.
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3.7
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Deduction
from Compensation.
Employer shall deduct and withhold from all compensation payable
to
Employee all amounts required to be deducted or withheld pursuant
to any
present or future law, ordinance, regulation, order, writ, judgment,
or
decree requiring such deduction and withholding.
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4.
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REIMBURSEMENT
OF EXPENSES
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4.1
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Travel
and Other Expenses.
Employer shall pay to or reimburse Employee for reasonable and necessary
business, travel, promotional and similar expenditures incurred by
Employee, inclusive of travel costs to and from Los Angele.
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| 4.2 |
Liability
Insurance.
Employer shall provide Employee with officers and directors’ insurance,
consistent with usual business practices and acceptable to Employee.
Employer shall also provide Employee with coverage for other forms
of
liability and property damage insurance (including, but not limited
to,
and by way of example only, automobile and travel accident), to cover
Employee against all insurable events related to his employment with
Employer.
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| 4.3 |
Indemnification.
Promptly upon written request from Employee, Employer shall indemnify,
defend and hold harmless Employee pursuant to the indemnification
agreement previously approved by the Board and attached as Exhibit
__.
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| 5. |
TERMINATION
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5.1
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Termination
With Good Cause; Resignation Without Good Reason.
Employer may terminate Employee’s employment at any time, with or without
notice or Good Cause (as defined below). If Employer terminates Employee’s
employment with Good Cause, or if Employee resigns without Good Reason
(as
defined below), Employer shall pay Employee his salary prorated through
the date of termination, at the rate in effect at the time notice
of
termination is given, together with any benefits accrued through
the date
of termination. Employer shall have no further obligations to Employee
under this Agreement or any other agreement, and all unvested options
will
terminate. To the extent legally permissible under the Plan, all
vested
options shall be exercisable until the end of their original
term.
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5.2
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Termination
Without Good Cause; Resignation with Good Reason.
Employee shall have the right to terminate his employment with notice
and
Good Reason. If Employer terminates Employee’s employment without Good
Cause, or Employee resigns for Good Reason:
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| (a) |
Employer
shall pay Employee his salary prorated through the date of termination,
at
the rate in effect at the time notice of termination is given, together
with any benefits accrued through the date of termination;
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| (b) |
Employer
shall pay Employee in a lump sum an amount equal to one year of additional
(i) salary (at the rate in effect at the time of
termination)
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| (c) |
All
of Employee’s unvested stock options will vest immediately; and
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| (d) |
In
addition to any rights under COBRA, all fringe benefits under
Section 3.6 shall continue for a period of two (2) years from
the date of termination, provided that medical insurance coverage
will
terminate sooner if Employee becomes eligible for coverage under
another
employer’s plan.
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To
be
eligible for the compensation provided for in Section 5.2(b), (c) and
(d) above, Employee must execute a full and complete release of any and all
claims against Employer in the standard form then used by Employer (“Release”).
Employer shall have no further obligations to Employee under this Agreement
or
any other agreement.
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5.3
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Good
Cause.
For purposes of this Agreement, a termination shall be for “Good Cause” if
Employee shall willfully:
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| (a) |
Commit
an act of fraud, moral turpitude, misappropriation of funds or
embezzlement in connection with his duties;
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| (b) |
Violate
a material provision of the Employer’s written Codes of Ethics as adopted
by the Board, or any applicable state or federal law or regulation;
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| (c) |
Fail
or refuse to comply with a relevant and material obligation assumable
and
chargeable to an executive of his corporate rank and responsibilities
under the Xxxxxxxx-Xxxxx Act and the regulations of the Securities
and
Exchange Commission promulgated thereunder; or
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| (d) |
Be
convicted of, or enter a plea of guilty or no contest to, a felony
under
state or federal law, other than a traffic violation or offense not
involving dishonesty or moral turpitude.
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| 5.4 |
Good
Reason.
For purposes of this Agreement, a resignation shall be with “Good Reason”
following:
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| (a) |
The
assignment to Employee of duties materially inconsistent with Employee’s
status as CEO, the removal of Employee as CEO, or a substantial reduction
in the nature or status of Employee’s responsibilities;
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| (b) |
Employer
requiring Employee to be primarily based anywhere other than Employer’s
principal executive offices (other than required periodic travel
for
Employer’s business);
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| (c) |
Employer’s
failure to cause any acquiring or successor entity following a Change
in
Control to assume Employer’s obligations under this Agreement, unless such
assumption occurs by operation of law; or
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| (d) |
Material
breach of this Agreement by Employer, or failure to timely pay to
Employee
any amount due under Section 3 which continues after written notice
and reasonable opportunity to cure (not to exceed 10 business days
after the date of receipt by Employer of such notice).
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| 5.5 |
Effects
of Change in Control.
Immediately upon a Change in Control (as defined below) all of Employee’s
unvested options shall vest immediately, and remain exercisable for
a
period of three (3) years thereafter.
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| 5.6 |
Change
in Control.
For purposes of this Agreement, a “Change in Control” shall be defined as:
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| (a) |
The
acquisition of Employer by another entity by means of a transaction
or
series of related transactions (including, without limitation, any
reorganization, merger, stock purchase or consolidation); or
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| (b) |
The
sale, transfer or other disposition of all or substantially all of
the
Employer’s assets.
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| 5.7 |
No
Change in Control.
Notwithstanding the provisions of Section 5.6, the following shall
not constitute a Change in Control:
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| (a) |
If
the sole purpose of the transaction is to change the state of the
Employer’s incorporation or to create or eliminate a holding company that
will be owned in substantially the same proportions by the same beneficial
owners as before the transaction;
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| (b) |
If
Employer’s stockholders of record as constituted immediately prior to the
transaction will, immediately after the transaction (by virtue of
securities issued as a consideration for Employer’s capital stock or
assets or otherwise), hold more than 50% of the combined voting power
of
the surviving or acquiring entity’s outstanding securities;
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| (c) |
An
underwritten public offering of Employer’s common stock, if Employer’s
stockholders of record as constituted immediately prior to the offering
will, immediately after the offering, continue to hold more than
50% of
the combined voting power of Employer’s outstanding securities;
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| (d) |
The
private placement of preferred or common stock, or the issuance of
debt
instruments convertible into preferred or common stock, for fair
market
value as determined by the Board, provided the acquiring person does
not
as a result of the transaction own more than 50% of the outstanding
capital stock of Employer, have the right to vote more than 50% of
the
outstanding voting stock of Employer, or have the right to elect
a
majority of the Board; or
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| (e) |
If
Employee is a member of a group that acquires control of Employer
in an
event that would otherwise be a Change in Control, such event shall
not be
deemed a Change in Control and Employee shall have no right to benefits
hereunder as a result of such event; provided, however, that Employee
shall not be deemed a member of any acquiring group solely by virtue
of
his continued employment or ownership of stock or stock options following
a Change in Control.
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| 5.8 |
Gross-Up
Payment.
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| (a) |
Notwithstanding
the above, if any of the compensation payable upon termination of
Employee’s employment as provided for above (the “Payments”) triggers the
application of Internal Revenue Code Section 280G, or makes Employee
liable for payment of the excise tax (the “Excise Tax”) provided for under
Section 4999 of the Code, or any other statute or regulation under
which Employee may be penalized as a result of the nature or amount
of
such compensation, then Employer or the acquiring or successor entity
of
Employer shall pay to Employee an additional amount (the “Gross-Up”) such
that the net after-tax amount retained by the Employee, after deduction
of
(X) any Excise Tax on the Payments, and (Y) any federal, state, local
or foreign income, employment or other tax and Excise Tax upon any
payment
provided for by this Section 2(h), shall be equal to the Payments,
reduced by the amount of any United States federal, state and local
income
or employment tax liability of the Employee calculated as if the
Payments
were not subject to the Excise Tax. The determination of whether
any of
the Payments will be subject to the Excise Tax and the amount of
such
Excise Tax will be made by Employer’s regular independent public
accounting firm.
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| (b) |
In
the event that the Excise Tax is subsequently determined to be less
than
the amount taken into account under this Section 2(h), Employee shall
repay to Employer at the time that the amount of such reduction of
Excise
Tax is finally determined, an amount equal to the sum of the following:
(i) the amount of the reduction of the Excise Tax, (ii) the
amount of the reduction in all other taxes generated by the reduction
in
the Excise Tax, and (iii) interest on the amount of the sum of
(i) and (ii) at the rate provided in Section 1274(b)(2)(B)
of the Code.
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| (c) |
In
the event that the Excise Tax is determined to exceed the amount
previously taken into account under the Section 2(h) (including by
reason
of any payment the existence or amount of which cannot be determined
at
the time of the Gross-Up),
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Employer
shall make an additional Gross-Up payment in respect to such excess (plus any
interest payable with respect to such excess) at the time that the amount of
such excess is finally determined in accordance with the principles set forth
above.
| 5.9 |
Death
or Disability.
To the extent consistent with federal and state law, Employee’s employment
shall terminate on his death or Disability. “Disability” means any health
condition, physical or mental, or other cause beyond Employee’s control
that prevents him from performing his duties, even after reasonable
accommodation is made by Employer, for a period of 180 consecutive
days
within an annual period of the Term. In the event of termination
due to
death or Disability, Employer shall pay Employee (or his legal
representative) his salary prorated through the date of termination,
at
the rate in effect at the time of termination and continue to provide
insurance and other fringe benefits to Employee and Employee’s spouse and
dependent children for a period of one year from Employee’s termination
date. In the event of a termination due to death or disability, in
addition to all options already vested, 100% of the options set to
vest in
the year that death or disability occurs shall vest and Employee
(or his
legal representative) shall have until the end of the option term
to
exercise all options. Employer shall have no further obligations
to
Employee (or his legal representative) under this Agreement, except
for
those created under any stock option agreements executed prior to
the
effective date of termination, and any other vested rights under
the
employee benefit plans and programs and the right to receive reimbursement
for business expenses (as defined in Section 4).
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| 5.10 |
Return
of Employer Property.
Within fifteen (15) days after the Termination Date, Employee shall
return to Employer all products, books, records, forms, specifications,
formulae, data processes, designs, papers and writings relating to
the
business of Employer including without limitation proprietary or
licensed
computer programs, customer lists and customer data, and/or copies
or
duplicates thereof in Employee’s possession or under Employee’s control.
Employee shall not retain any copies or duplicates of such property
and
all licenses granted to him by Employer to use computer programs
or
software shall be revoked on the Termination
Date.
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6.
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DUTY
OF LOYALTY
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During
the term of this Agreement, Employee shall not, without the prior written
consent of Employer, engage in any activity directly competitive with the
business or welfare of Employer, whether alone, as a partner, or as an officer,
director, employee, consultant, or holder of more than 1 % of the capital
interests of any other corporation or entity. Otherwise, Employee may make
personal investments in any other business. The parties agree that the
activities provided for in Section 2.4 are not directly competitive with the
business or welfare of Employer.
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7.
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NO
DISPARAGEMENT
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During
Employee’s employment with Employer, and at all times thereafter, the parties
agree that they will not disparage each other in any fashion.
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8.
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CONFIDENTIAL
INFORMATION AND INTELLECTUAL PROPERTIES.
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Employee
shall sign the Employer’s standard Employee Innovation, Proprietary Information
and Confidentiality Agreement (“Confidentiality Agreement”).
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9.
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CURE
PERIOD.
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In
the
event that Employee or Employer breaches this Agreement, the breaching party
shall have thirty (30) calendar days within which to cure such breach,
after receiving written notice from the other party specifying in reasonable
detail the basis for the claimed breach (“Cure Period”). No breach of the
Agreement shall be actionable if the breaching party is able to cure the breach
within the Cure Period.
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10.
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OTHER
PROVISIONS
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| 10.1 |
Compliance
With Other Agreements.
Employee represents to Employer that, to his knowledge and belief,
the
execution, delivery and performance of this Agreement will not
conflict
with or result in the violation or breach of any term or provision
of any
order, judgment, injunction, contract, agreement, commitment or
other
arrangement to which Employee is a party or by which he is bound.
Should
claims, demands, causes of action, costs or expenses (including
attorneys’
fees) arise from any alleged breach of contract as a result of
accepting
employment with Employer, Employer will indemnify Employee for
reasonable
legal fees, provided that Employee did not knowingly or willfully
breach
such agreement. Employer acknowledges that Employee is subject
to a
Confidentiality and Non-Disparagement agreement with Clearant.
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| 10.2 |
Counsel.
The parties acknowledge and represent that, prior to the execution
of this
Agreement, they have had an opportunity to consult with their respective
counsel concerning the terms and conditions set forth herein.
Additionally, Employee represents that he has had an opportunity
to
receive independent legal advice concerning the taxability of any
consideration received under this Agreement. Employee has not relied
upon
any advice from Employer and/or its attorneys with respect to the
taxability of any consideration received under this Agreement. Employee
further acknowledges that Employer has not made any representations
to him
with respect to tax issues.
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| 10.3 |
Nondelegable
Duties.
This is a contract for Employee’s personal services. The duties of
Employee under this Agreement are personal and may not be delegated
or
transferred in any manner whatsoever, and shall not be subject to
involuntary alienation, assignment or transfer by Employee during
his
life.
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| 10.4 |
Governing
Law.
The validity, construction and performance of this Agreement shall
be
governed by the laws, without regard to the laws as to choice or
conflict
of laws, of the State of Washington.
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| 10.5 |
Venue.
If any dispute arises regarding the application, interpretation or
enforcement of any provision of this Agreement, including fraud in
the
inducement, such dispute shall be resolved either in federal or state
court in Seattle, Washington.
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| 10.6 |
Severability.
The invalidity or unenforceability of any particular provision of
this
Agreement shall not affect the other provisions, and this Agreement
shall
be construed in all respects as if any invalid or unenforceable provision
were omitted.
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| 10.7 |
Binding
Effect.
The provisions of this Agreement shall bind and inure to the benefit
of
the parties and their respective successors and permitted assigns.
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| 10.8 |
Notice.
Any notices or communications required or permitted by this Agreement
shall be deemed sufficiently given if in writing and when delivered
personally or four (4) business days after deposit with the United
States Postal Service as registered or certified mail, postage prepaid
and
addressed as follows:
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(a)
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If
to Employer, to the principal office of Employer in the State of
Washington, marked “Attention: Compensation Committee,” with a copy to the
Employer’s Chairman of its Board of Directors; or
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(b)
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If
to Employee, to the most recent address for Employee appearing in
Employer’s records, with a copy to the person of choice to receive such
notices designated by Employee in writing to Employer.
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| 10.9 |
Arbitration.
Any disputes, controversies or claims arising out of or relating
to this
Agreement, not otherwise addressed in Section 10.5 above, shall be
resolved by binding arbitration before a retired judge at JAMS in
Santa
Monica, California, in accordance with its Employment Arbitration
Rules
and Procedures. The prevailing party shall be awarded its reasonable
attorney’s fees, costs and expenses.
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| 10.10 |
Headings.
The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning
or
interpretation of this Agreement.
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| 10.11 |
Amendment
and Waiver.
This Agreement may be amended, modified or supplemented only by a
writing
executed by each of the parties. Either party may in writing waive
any
provision of this Agreement to the extent such provision is for the
benefit of the waiving party. No waiver by either party of a breach
of any
provision of this Agreement shall be construed as a waiver of any
subsequent or different breach, and no forbearance by a party to
seek a
remedy for noncompliance or breach by the other party shall be construed
as a waiver of any right or remedy with respect to such noncompliance
or
breach.
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| 10.12 |
Entire
Agreement.
This Agreement is the only agreement and understanding between the
parties
pertaining to the subject matter of this Agreement, and supersedes
all
prior agreements, summaries of agreements, descriptions of compensation
packages, discussions, negotiations, understandings, representations
or
warranties, whether verbal or written, between the parties pertaining
to
such subject matter.
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IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
EMPLOYEE:
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Xxxx
Xxxxxxxxxx
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EMPLOYER:
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By
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By
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Xxxxxx
Xxxxx
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Xxxxxxx
X. Xxxxxxx
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Chairman
of its Compensation
Committee
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Compensation
Committee
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