EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of the 5th day of October,
1998 between ENERGY RESEARCH CORPORATION, a New York corporation (the
"Company"), and JOSEPH G. MAHLER, an individual with a current mailing address
at 2 Queens Peak Road, Canton, Connecticut 06019, (the "the Employee"). Unless
the context otherwise requires, the term "Company", shall include the Company
and each of its subsidiaries.
W I T N E S E T H
WHEREAS, the Company desires to employ the Employee as its Chief
Financial Officer and Corporate Secretary and the Employee desires to be
employed in such capacities in accordance with the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the covenants, conditions,
undertakings and premises contained herein, the sufficiency which is hereby
acknowledged, the Company and the Employee agree follows:
ARTICLE 1
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EMPLOYMENT AND DUTIES
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1.1 Employment; Duties
------------------
Subject to the terms and conditions set forth herein, commencing
October 5, 1998 (the "Commencement Date") the Company agrees to employ the
Employee and the Employee agrees to be employed as Chief Financial Officer,
Treasurer and Corporate Secretary of the Company. In such position, the Employee
shall perform such duties as are or may be assigned to the Employee by the Chief
Executive Officer and Board of Directors of the Company (the "Board of
Directors") from time to time. In connection therewith, the Employee shall
report to and be subject to the supervision of the Chief Executive Officer. In
the course of the performance of his duties hereunder, Employee shall comply in
all material respects with the Company's regular employment policies and
procedures as they may be modified from time to time.
1.2. Full Time
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The Employee shall devote his full working time, attention, energies,
skills and best efforts exclusively to the performance of his duties hereunder.
The Employee shall not during the term of this Agreement engage in any other
business activity whether or not such activity is pursued for gain, profit or
other pecuniary advantage, except that the Employee, on his own time, (a) may
manage his own investments, and those of his immediate family, and (b) may serve
as a member of the board of directors of other corporations subject to the
restrictions set forth in Section 5.1, so long as such activity (as described in
either clause (a) or (b) above), does not, in the reasonable judgment of the
Company's Board of Directors, adversely affect the performance of his duties
hereunder.
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ARTICLE 2
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2.1 Term
----
The term of the Employee's employment by the Company hereunder shall
commence on the Commencement Date and, except as otherwise provided in this
Agreement with respect to earlier termination, shall continue until terminated
by either party pursuant to Article 7.
ARTICLE 3
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COMPENSATION
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3.1 Base Salary
-----------
For all service to be rendered by the Employee under this Agreement,
and such other duties as the Chief Executive Officer and the Board of Directors
may assign to him in accordance with Section 1.1 hereof, the Company agrees to
pay the Employee a base salary of $185,000 per annum. The Employee's base salary
shall be subject to periodic review and adjustment by the Chief Executive
Officer and the Board of Directors in their sole discretion, provided that the
base salary may not be reduced below $185,000 per year. The base salary shall be
payable at such times as is customary for employees of the Company and in
accordance with the normal payroll practices of the Company.
3.2. Incentive Compensation
----------------------
Commencing with the Company's fiscal year beginning November 1, 1998,
the Employee shall be a participant in the Company's incentive compensation plan
generally made available to executive officers as it may be in effect and
revised from time to time. Employee's target bonus under such plan will be
thirty percent (30%) of his base salary with a maximum bonus of 150% of the
target bonus. The Employee understands and agrees that the implementation of an
incentive compensation plan for the Employee and other executive officers will
be subject to the review and approval of the Compensation Committee of the Board
of Directors.
3.3. Expenses
--------
(a) General. In addition to base salary and incentive compensation, the
Company shall reimburse the Employee for all reasonable and necessary business
expenses actually incurred by him in the performance of his duties, including,
without limitation, expenses for travel, meals, entertainment and other
miscellaneous business expenses, in accordance with the Company's policies and
practices as may be in effect from time to time.
(b) Moving Expenses. The Employee agrees to relocate to the vicinity of
the Company's executive offices in Danbury, Connecticut (the "Company Location")
as soon as practicable following his commencement of employment hereunder. In
connection with that relocation, the Company agrees to pay for or reimburse the
Employee for all reasonable out-of-pocket expenses incurred by him in connection
with his relocation from his current residence in Canton, Connecticut to the
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Company Location during a two year period following the execution of this
Agreement, including, without limitation, (i) reasonable moving company expenses
and storage fees, (ii) reasonable fees and expenses incurred in connection with
the sale of his current residence, including reasonable brokerage commissions
(iii) reasonable fees and expenses incurred in connection with his purchase of a
home in the vicinity of the Company Location, not including any brokerage
commissions (iv) reasonable expenses associated with commuting to work (for a
maximum period of six months following the execution of this Agreement) and to
search for a new residence.
(c) Documentation. Reimbursement or payment by the Company of the
Employee's expenses as set forth in this Section 3.3 shall be subject to the
Employee's submission of written, itemized expense accounts and such additional
substantiation and justification as the Company may reasonably request
consistent with the Company's reimbursement policies generally applicable for
its salaried employees.
ARTICLE 4
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COMPANY BENEFITS
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4.1 Vacation
--------
The Employee shall be entitled to receive four weeks of paid vacation
per calendar year (pro rated for any partial year), which shall be taken at such
time or times as will not unreasonably hinder or interfere with the Company's
business or operations.
4.2. Severance Benefit
-----------------
If during the Employee's employment pursuant to this Agreement, the
Employee ceases to be employed by the Company as a result of the Company's
termination of the Employee without cause pursuant to Section 7.4 (which shall
not include any termination that is otherwise within Article 6) or the
Employee's termination of his employment for good reason pursuant to Section
7.1, the Company shall pay the Employee as a severance benefit, (a) his then
base salary plus (b) an amount equal to the Employee's bonus from the Company,
if any, for the immediately preceding year. This severance benefit shall be
payable by the Company through (i) the continuation of the Employee's base
salary for a period of one year and (ii) the payment of the balance in four
equal quarterly installments, with the first such payment due three months after
the termination and the final payment due one year after the termination. The
severance obligation set forth in this Section 4.2 shall be in lieu of and not
in addition to any other severance benefits made available to other employees of
the Company.
4.3. Stock Options
-------------
(a) Effective on the execution of this Agreement, the Company shall
issue to the Employee an option to purchase 50,000 shares of the Company's
Common Stock with an exercise price equal to the closing price of the Company's
Common Stock on the American Stock Exchange on the date hereof, pursuant to the
Company's standard form of Option Agreement, subject to the following
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provisions. The option shall vest over a four year period at 25% per year
(12,500 shares) on each anniversary date of the Commencement Date; provided
however, if the Employee's employment hereunder is terminated without cause by
the Company or for good reason by the Employee prior to the first anniversary
date of the Commencement Date, the options to purchase the first 12,500 shares
of the Company's Common Stock will automatically vest. The options will also
fully vest upon a change of control of the Company.
(b) The Employee understands that the Company is considering a
so-called spin-off of its Battery business. In the event of such spin-off, if it
occurs within the initial one year term of this Agreement, if at all, the
Company will cause the spun-off company (the "Battery Company") to either grant
the Employee an option to purchase 50,000 shares of its Common Stock or provide
the Employee with the right to purchase 50,000 shares of restricted stock. The
exercise or purchase price of such stock will be the fair market value of the
stock, as determined by the Board of Directors on the date of grant. Such
options or stock will vest at 25% per year from the date of their grant or
purchase. The Employee understands and agrees that following the spin-off of the
Battery Company, if it occurs, his employment may include acting as Chief
Financial Officer of the Battery Company during an indefinite period.
4.4. Other Benefit Plans
-------------------
The Employee shall further be entitled to participate in and receive
benefits under any retirement, life insurance, accident, disability, health and
dental insurance, profit sharing, or similar plans generally made available to
its employees.
4.5. Indemnification
---------------
The Company agrees to defend and shall indemnify and hold the Employee
harmless to the fullest extent permitted by law from any and all liability,
costs, and expenses which may be assessed against the Employee by reason of the
performance of his responsibilities and duties under the terms of this
Agreement, provided such liability does not result from willful misconduct or
gross negligence of the Employee.
ARTICLE 5
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RESTRICTIONS
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5.1 Non-Competition
---------------
(a) So long as the Employee is employed by the Company and for a period
of two years thereafter (the "Noncompetition Period"), the Employee shall not,
directly or indirectly, whether as owner, partner, shareholder, director,
consultant, agent, employee, guarantor, surety or otherwise, or through any
person, consult with or in any way aid or assist any competitor of the Company
or engage or attempt to engage in any employment, consulting or other activity
which directly or indirectly competes with the Business of the Company. For
purposes of this Agreement, the term "employment" shall include the performance
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of services by Employee as an employee, consultant, agent, independent
contractor or otherwise and the term "Business" shall mean the research,
development, manufacture, sale or distribution of fuel cells, batteries or
related products and any other business engaged in, planned or under development
by the Company with respect to which the Employee has had access to Company
confidential information during the Noncompetition Period. The Employee
acknowledges that his participation in the conduct of any such Business alone or
with any person other than the Company will materially impair the Business and
prospects of the Company.
(b) In addition to and without limiting the foregoing, during the
Noncompetition Period, Employee shall not knowingly do, attempt to or assist any
other person in doing or attempting to do any of the following: (i) hire any
director, officer, employee, or agent of the Company (a "Company Employee") or
encourage any such person to terminate such relationship with the Company, as
the case may be (for purposes hereof, the Employee shall be deemed to have so
encouraged a Company Employee to terminate such relationship with the Company if
the Employee hires or otherwise assists any person in hiring any such Company
Employee within six months after the Company Employee terminates his or her
relationship with the Company), (ii) encourage any customer, client, supplier or
other business relationship of the Company to terminate or alter such
relationship, whether contractual or otherwise, to the disadvantage of the
Company; (iii) encourage any prospective customer or supplier not to enter into
a business relationship with the Company; (iv) impair or attempt to impair any
relationship, contractual or otherwise, written or oral, between the Company and
any customer, supplier or other business relationship of the Company; or (v)
sell or offer to sell or assist in or in connection with the sale to any
customer or prospective customer of the Company any products of the type sold or
rendered by the Company.
(c) Nothing in this Agreement shall preclude Employee from making
passive investments of not more than 2% of a class of securities of any business
enterprise registered under the Securities Exchange Act of 1934.
5.2. Intellectual Property
---------------------
Upon execution of this Agreement, the Employee shall execute the Energy
Research Corporation Agreement for Assignment, Confidentiality and
Nonsolicitation, which agreement is hereby incorporated herein by reference.
5.3. Injunctive Relief
-----------------
The Employee acknowledges that the restrictions contained in this
Article are reasonable in view of the nature of the business in which the
Company is engaged and his position with the Company which will provide him with
extensive knowledge of the business.
The Company and the Employee mutually agree that the Employee's
obligations under this Article are of a special and unique character which gives
them a peculiar value, and the Company cannot be reasonably or adequately be
compensated in damages in an action at law in the event the Employee breaches
such obligations. The Employee therefore expressly agrees that, in addition to
any other rights or remedies which the Company may possess, the Company shall be
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entitled to injunctive and other equitable relief to prevent a breach of this
Article by the Employee, including a temporary restraining order or temporary
injunction from any court of competent jurisdiction restraining any threatened
or actual violation, and each party hereby consents to the entry of such order
and injunctive relief and waives the making of a bond as a condition for
obtaining such relief. Such rights shall be cumulative and in addition to any
other legal or equitable rights and remedies the Company may have.
5.4. Survival Enforceability
-----------------------
It is expressly agreed by the parties hereto that the provisions of
this Article shall survive the termination of this Agreement.
If any one or more of the provisions contained in this Article shall
for any reason in any jurisdiction be held to be excessively broad as to the
time, duration, geographical scope, activity or subject, it shall be construed
with respect to such jurisdiction, by limiting or reducing it, so as to be
enforceable to the extent compatible with the applicable law of such
jurisdiction as it shall then appear.
ARTICLE 6
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DEATH; DISABILITY
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6.1 Death
-----
If the Employee dies while employed under this Agreement, this
Agreement shall terminate immediately. The Company will pay to the Employee's
estate his base salary under Section 3.1 through the last day of the calendar
month in which he dies, plus any incentive compensation awarded to the Employee
under the Incentive Compensation Plan, but not yet paid, and such death benefits
as may be provided pursuant to Section 4.4.
6.2. Disability
----------
If the Employee fails to perform his duties under this Agreement due to
"Disability", as defined below, the Company may terminate this Agreement upon 30
days written notice to him. In that event, the Company shall pay the Employee
his base salary under Section 3.1 through the date of termination; provided,
however, that to the extent the Employee is receiving disability benefits
pursuant to the Company's disability insurance policy, the amount of such
benefits shall be credited against the Employee's base salary during the period
prior to the date of termination. In addition, upon any termination based upon
Disability, the Company shall pay to the Employee any incentive compensation
awarded to the Employee under the Incentive Compensation Plan but not yet paid.
The term "Disability" shall mean the inability of the Employee to perform for
the Company the duties specified in Section 1.1 by reason of any medically
determinable physical or mental impairment for (i) a period of four consecutive
months, (ii) for shorter periods aggregating five months in any 12-month period
or (iii) if the Board of Directors determines that it is probable that the
Disability will continue for a length of time so as to constitute a Disability
under clauses (i) or (ii) above. The determination of whether the Employee is
Disabled shall be made by the Board of Directors on the basis of written medical
evidence reasonably satisfactory to it. Notwithstanding anything to the contrary
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in the foregoing, in the event of a termination of the Employee pursuant to
clause (iii), the Company will pay the Employee a minimum of four months base
salary following such termination; provided, however, that to the extent the
Employee is receiving disability benefits pursuant to the Company's disability
insurance policy, the amount of such benefits shall be credited against the
Employee's base salary.
ARTICLE 7
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TERMINATION
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7.1 Termination by the Employee for Good Reason
-------------------------------------------
The Employee may terminate this Agreement for good reason upon ninety
(90) days written notice to the Company setting forth with specificity the
grounds for termination upon the occurrence of any of the following: (a) the
failure of the Company to observe or comply with any of its material obligations
under this Agreement, if such failure has not been cured within 30 days after
written notice thereof has been given by the Employee to the Company; (b) the
dissolution of the Company; or (c) any merger in which the Company is not the
surviving corporation and in which the stockholders of the Company own less than
50% of the voting securities of the merged entity upon the effectiveness of the
merger, or any consolidation, sale of substantially all of the assets of the
Company or change of control of the Company, provided the Employee has not
approved the transaction by voting for it either as a director or shareholder.
For purposes of clause (a) a material breach by the Company shall include a
material change in the reporting responsibilities of the Employee such that the
Employee is no longer effectively serving as the Chief Financial Officer of the
Company, a material reduction in benefits or other perquisites of office such
that the Employee is not receiving the benefits set forth herein or the benefits
and other perquisites generally granted for executive positions within the
Company. For purposes of clause (c) above, a "change of control" shall be
presumed to have occurred if within any 12-month period a single person or
entity, or related group of persons or entities, acquires 50% or more of the
outstanding voting stock of the Company. In the event of a termination for good
reason under this Section, the Company shall pay the Employee (i) his base
salary as then in effect under Section 3.1 through the date of termination, (ii)
any incentive compensation awarded to the Employee under the Incentive
Compensation Plan, but not yet paid, and (iii) the severance benefit set forth
in Section 4.2.
7.2. Termination by the Company for Cause
------------------------------------
The Company may terminate this Agreement for cause in the manner set
forth below. For purposes of this Section, "cause" shall mean (a) a material
breach by the Employee of the terms of this Agreement, including without
limitation failure by the Employee to perform a material portion of his duties
hereunder (not otherwise excused by the disability of the Employee) (b) criminal
misconduct or unethical conduct, whether or not in relation to the Company's
affairs or business, which reflects adversely upon Employee's honesty or
integrity in the performance of his duties as an employee of the Company, or
which otherwise is materially detrimental to the interests of the Company; (c)
if the Employee is found guilty or pleads nolo contendere to the commission of a
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crime classified as a felony under any Federal, state or local law; and (d)
commission by the Employee of an act of gross incompetence in the course of his
employment hereunder. The term "cause" as used in the preceding sentence does
not include the Employee's erroneous judgment or judgments of a technical,
scientific, financial, legal and/or environmental nature which were, although
erroneous, nevertheless reasonable at the time and under the circumstances in
which they were made. In the event of termination under this Section, the
Company shall pay to the Employee his base salary under Section 3.1 through the
date of termination stated in the notice plus any incentive compensation awarded
to the Employee under the Incentive Compensation Plan but not yet paid, and the
Employee shall, if so requested by the Chief Executive Officer, perform his
duties under Article 1 through the date of termination stated in the notice.
7.3. Termination by the Company for Cause-Procedure
----------------------------------------------
Notwithstanding anything to the contrary set forth herein, the Employee
shall not be deemed to be have been terminated for cause without (i) delivery to
the Employee of written notice setting forth the reasons for the Company's
intention to terminate for cause, and (ii) an opportunity for the Employee to be
heard before the Chief Executive Officer within five business days thereafter.
7.4. Termination by the Company or the Employee Without Cause
--------------------------------------------------------
Either the Company or the Employee may terminate this Agreement for
reasons other than as set forth above in Section 7.1 or Section 7.2 and which
are not otherwise within Article 6 upon 30 days written notice. Upon such
termination, the Company shall pay the Employee his base salary under Section
3.1 through the date of termination (provided, however, that the Employee
continues to be available to perform the services required under Section 1.1
through the date of termination), plus any incentive compensation awarded to the
Employee under the Incentive Compensation Plan, but not yet paid, and any
accrued vacation. In addition, upon the Company's termination of the Employee
without cause, the Company shall be required to pay the Employee the severance
benefit set forth in Section 4.2. Nothing herein shall prohibit the Company from
relieving the Employee of any or all of his duties hereunder pending the
expiration of the 30-day notice period.
7.5. Termination of Duties
---------------------
Notwithstanding anything to the contrary set forth herein, at any time
on or after delivery of written notice to the Employee, the Company may relieve
the Employee of all of his duties and responsibilities hereunder and may relieve
the Employee of authority to act on behalf of, or legally bind, the Company;
provided, however, that any such action by the Company shall not relieve the
Company of its obligation to pay to the Employee all compensation and benefits
otherwise provided for in this Agreement.
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ARTICLE 8
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MISCELLANEOUS
-------------
8.1 No Conflicting Agreements.
--------------------------
The Employee represents and warrants to the Company, that the Employee
is not under any obligation to any person or entity which is inconsistent with
or in conflict with any of the terms of this Agreement or which would prevent,
limit or impair in any way the Employee's performance of all the terms of this
Agreement and the Employee agrees not to enter into any agreement, either
written or oral, in conflict herewith.
8.2. Entire Agreement
----------------
This Agreement contains the entire understanding and agreement between
the Company and the Employee and cannot be amended, modified, or supplemented in
any respect except by subsequent written agreement entered into by both parties.
8.3. Successors of the Company
-------------------------
This Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including, without limitation, any person,
firm, corporation or other entity which may acquire all or substantially all of
the Company's assets and business, or with or into which the Company may be
consolidated or merged, and this provision shall apply in the event of any
subsequent merger, consolidation or transfer. In every respect, this Agreement
shall inure to the benefit of and be binding upon the Employee, his heirs,
executors and personal representatives and, being personal in nature, shall not
be assignable by the Employee.
8.4. Effect of Waiver
----------------
The waiver by either party of a breach of any provision of this
Agreement shall not operate as or be construed as a waiver of any subsequent
breach.
8.5. Notices
-------
Any notice, request, demand or other communication in connection with
this Agreement must be in writing and shall be deemed to have been given and
received three days after a certified or registered letter containing such
notice, properly addressed, with postage prepaid, is deposited in the United
States mail; and, if given otherwise than by registered or certified mail, it
shall not be deemed to have been given until actually delivered to and received
by the party to whom it is addressed.
A. Notice to the Company shall be given at its principal
mailing address, which at the time of execution of
this Agreement is 3 Great Pasture Road, Danbury,
Connecticut, 06813, Attention: Chief Executive
Officer, or at such other address as it may
designate.
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B. Notice to the Employee shall be given at his home address, which at the time
of execution of this Agreement is the address set forth in the heading of this
Agreement, or at such other address as he may designate.
8.6. Counterparts
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
8.7. Severability
------------
If, in any jurisdiction, any provision of this Agreement or its
application to any party or circumstances is restricted, prohibited or
unenforceable, such provision shall, as to such jurisdiction, be ineffective
only to the extent of such restriction, prohibition or unenforceability without
invalidating the remaining provisions hereof and without affecting the validity
or enforceability of such provision in any other jurisdiction or its application
to other parties or circumstances.
8.8. Survival
--------
Each of the terms and provision of this Agreement which are expressly
or impliedly so intended shall survive the termination of this Agreement.
8.9. Applicable Law
--------------
This Agreement shall be governed by and construed according to the laws
of the State of Connecticut.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first stated above.
ENERGY RESEARCH CORPORATION
By: /s/ Jerry D. Leitman
--------------------
Jerry Leitman
Chief Executive Officer
/s/ Joseph G. Mahler
---------------------
Joseph G. Mahler
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