Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made and entered into effective
as of the Effective Date (as defined in Section 4 below) (the “Effective Date”),
by and between Greg Welsh (the “Employee”) and TranS1 Inc., a Delaware
Corporation (the “Company”).

 

Employee has been employed by Baxano, Inc., (Baxano”) on an at-will basis.
Pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as
of March 25, 2013, and entered into by and among the Company, RacerX Acquisition
Corp., a wholly owned subsidiary of the Company, Baxano, and certain
Securityholder Representative(s), the Company will acquire all of the
outstanding stock of Baxano, and Employee will become employed by the Company
following the Closing of such transaction. Unless otherwise defined herein,
capitalized terms used in this Agreement are defined in the Merger Agreement.

 

The Company desires to employ Employee as a Vice President of Operations and
provide Employee with benefits to which he or she would not otherwise be
entitled, and Employee desires to accept such employment on the terms set forth
below.

 

WHEREAS, in consideration of the mutual promises set forth below and other good
and valuable consideration, the receipt and sufficiency of which the parties
acknowledge, the Company and Employee agree as follows:

 

1.          Employment. The Company will continue to employ Employee and
Employee accepts employment on the terms and conditions set forth in this
Agreement. Employee shall execute, as a condition of employment, the Company’s
Employee Confidential and Proprietary Information Agreement.

 

2.          Nature of Employment. Employee shall serve as Vice President of
Operations and have such responsibilities and authority as the Company may
assign from time to time. Additionally, Employee agrees to perform such other
duties consonant with those of an executive at his/her level as the Company may
set from time to time. Initially, Employee shall report to the President and CEO
of the company.

 

2.1           Employee shall perform all duties and exercise all authority in
accordance with, and otherwise comply with, all Company policies, procedures,
practices and directions.

 

2.2           Employee shall devote all working time, best efforts, knowledge
and experience to perform successfully his/her duties and advance the Company’s
and/or its Affiliates’ interests. During his/her employment, Employee shall not
engage in any other business activities of any nature whatsoever (including
board memberships) for which he/she receives compensation without the Company’s
prior written consent; provided, however, this provision does not prohibit
him/her from personally owning and trading in stocks, bonds, securities, real
estate, commodities or other investment properties for his/her own benefit which
do not create actual or potential conflicts of interest with the Company and/or
its Affiliates. As used in this Agreement, “Affiliates” shall mean: (i) any
Company’s parent, subsidiary or related entity; and/or (ii) any entity directly
or indirectly controlled or beneficially owned in whole or part by the Company
or Company’s parent, subsidiary or related entity.

  

 

 

 

2.3           Employee’s base of operation shall be San Jose, California,
subject to business travel as may be necessary in the performance of Employee’s
duties.

 

2.4           Change of Control Severance Agreement with Baxano. The Change of
Control Severance Agreement, executed by Employee and Baxano, and dated as of
August 1, 2011, is hereby terminated and extinguished, and the Company shall
have no further obligations and Employee shall have no further rights
thereunder.

 

3.           Compensation.

 

3.1           Base Salary. Employee’s annual rate of salary for all services
rendered shall be $215,000 (less applicable withholdings), payable in accordance
with the Company’s policies, procedures and practices as they may exist from
time to time. Employee’s salary shall be reviewed in accordance with the
Company’s policies, procedures and practices as they may exist from time to
time.

 

3.2           Bonus. Employee will be eligible to earn a target bonus of up to
30% of his Base Salary, based upon achievement of Company and individual goals
that will be determined by the Company, and subject to the other terms specified
by the Company, including in any written bonus plan. Bonuses will be paid on or
before March 15 of the year following the year during which performance is
measured, except as otherwise provided in Section 5.2 of this Agreement. To be
eligible for a bonus for performance in any calendar year, except as otherwise
provided in Section 5.2 of this Agreement Employee must be employed on the date
the bonus is paid in the subsequent year. Employee shall be eligible for a full
bonus for calendar year 2013, even though his/her employment did not commence
hereunder until after 2013 began. Subject to Section 5.2, Employee shall be
eligible for a full bonus for calendar year 2014, even though his/her employment
may terminate prior to the end of such year.

 

3.3           Other Benefits. Employee may participate in all medical, dental
and disability insurance, 401(k), pension, personal leave and other employee
benefit plans and programs for which Employee is eligible, provided, however,
that Employee’s participation in benefit plans and programs is subject to the
applicable terms, conditions and eligibility requirements of these plans and
programs, some of which are within the plan administrator’s discretion, as they
may exist from time to time.

 

3.4         Stock Options.

 

3.4.1           Grant. Subject to the approval by the Company’s Board of
Directors of the terms described herein, and subject to shareholder approval of
any amendment that may be necessary or appropriate to the Company’s 2005 Stock
Plan, as amended (the “Plan”) to allow for such grant, Employee will be granted
an option to purchase 60,000 shares of the Company’s Common Stock at an exercise
price equal to the fair market value per share of such stock on the date the
Board of Directors approves the option grant (the “Option Grant”). The Option
Grant shall be made in the form of an incentive stock option, to the maximum
extent permitted by law, with the remainder of the grant automatically made in
the form of nonqualified stock options.

 

2

 

 

3.4.2           Vesting Schedule; Exercise Terms. One-fourth (1/4th) of the
shares subject to the Option Grant will vest on the first anniversary of the
Effective Date and an additional one-thirty-sixth (1/36th) of the remaining
number of such unvested shares will vest on the last day of each month
thereafter, subject to Employee’s continued employment with the Company on each
such vesting date. In addition, as provided in Section 5.2, and conditioned upon
compliance with Section 5.4, of this Agreement, the vesting of all unvested
stock options shall accelerate in the event the Company terminates Employee’s
employment pursuant to Section 4.1, the Company terminates under Section 4.2
(without Cause) or if Employee terminates his employment pursuant to Section
4.3.2 (Good Reason). The Option Grant shall be exercisable at any time up to the
number of vested shares according to the vesting schedule set forth in the
preceding sentence. The term of the Option grant will be ten (10) years from the
date of grant. Notwithstanding the foregoing, the Option Grant provided for
herein shall be contingent upon Employee’s execution of a standard incentive
stock option award agreement and shall in all respects be subject to, and
governed by, the provisions of such award agreement and the Plan.

 

3.5           Business Expenses. Employee shall be reimbursed for reasonable and
necessary expenses actually incurred by him/her in performing services under
this Agreement in accordance with and subject to the terms and conditions of the
applicable Company reimbursement policies, procedures and practices as they may
exist from time to time. Expenses covered by this provision include but are not
limited to travel, entertainment, professional dues, subscriptions and dues,
fees and expenses associated with membership in various professional, business,
and civic associations of which Employee’s participation is in the Company’s
best interest. All such reimbursements shall be made no later than March 15 of
the year following the year in which the expenses were incurred.

 

3.6           Nothing in this Agreement shall require the Company to create,
continue or refrain from amending, modifying, revising or revoking any of the
plans, programs or benefits set forth in Sections 3.2 through 3.4. Any
amendments, modifications, revisions and revocations of these plans, programs or
benefits shall apply to Employee.

 

3.7           If, at any time during which Employee is receiving salary or
post-termination payments from the Company, he/she receives payments on account
of mental or physical disability from any source, then the Company, at its
discretion, may reduce his/her salary or post-termination payments by the amount
of such disability payments.

 

4.          Term of Employment. The term of employment shall commence on the
closing of the transaction contemplated by the Merger Agreement (the “Effective
Date”) and continue until terminated as set forth herein:

 

3

 

 

4.1           The term of employment will expire on the eighteenth (18th)
monthly anniversary of the Effective Date, unless thirty (30) days prior to such
date, the Company provides Employee with written notice that the term will be
renewed for a period of time to be mutually agreed upon. The first eighteen (18)
months of employment hereunder shall be referred to for purposes of Section 5.2
as the Initial Term.

 

4.2           The Company may terminate the employment relationship without
Cause (as defined below), at any time upon giving the Employee thirty (30) days
written notice. Similarly, the Employee may terminate the employment
relationship without Good Reason (as defined below), at any time upon giving the
Company thirty (30) days written notice.

4.3           Employee’s employment may also be terminated as follows:

 

4.3.1           The Company shall have the right to terminate Employee’s
employment immediately by written notice for Cause (as defined below). As used
in this Agreement, Cause shall mean: (i) Employee’s performance of Employee’s
job in an unsatisfactory manner, as determined by the Company; (ii) Employee’s
material breach of any of the terms of this Agreement, including but not limited
to Section 2, or Employee’s material breach of any other agreement between
Employee and the Company, including but not limited to the Company’s Employee
Confidential and Proprietary Information Agreement; (iii) Employee’s failure to
comply with Company policy, procedure, practice or direction by the Company; or
(iv) Employee’s misconduct, gross negligence, dishonesty, fraud,
misappropriation, embezzlement, criminal behavior or conflict of interest or
commission of a crime.

 

4.3.2           Employee may terminate Employee’s employment for “Good Reason,”
which shall mean the occurrence of one or more of the following events, without
Employee’s express written consent: (i) a material diminution in Employee’s
position or responsibilities with the Company in effect immediately prior to
such assignment, (ii) a substantial reduction in Employee's compensation
(including benefits) other than as part of a Company-wide reduction in
compensation or benefits, (iii) the relocation of the Employee to a facility or
a location more than 30 miles from the Employee’s then present location, (iv)
failure of the company to obtain the assumption of this Agreement by any
successor, or (v) the material breach by the Company of any material provision
of this Agreement. Provided, however, that in order to terminate for Good Reason
under this section, the Employee must provide the Company with written notice of
the grounds constituting Good Reason within thirty (30) days of the initial
actions or inactions of the Company giving rise to such Good Reason; and the
Employee must terminate his or her employment within thirty (30) days of the
Company’s failure to cure such grounds. Employee acknowledges and agrees that
his or her employment under this Agreement, and the terms herein, do not
constitute Good Cause under the Change of Control Severance Agreement between
Employee and Baxano, dated as of August 1, 2011.

 

4.4           This Agreement shall terminate upon the termination of the
employment relationship. Regardless of the reason for the termination of this
Agreement or of Employee’s employment, Employee shall continue to be bound by
the Company’s Employee Confidential and Proprietary Information Agreement.

 

4

 

 

5.           Compensation and Benefits Upon a Termination.

 

5.1           The Company’s obligation to compensate Employee ceases on the
effective termination date except as to: (i) amounts due at that time; and (ii)
any compensation and/or benefits to which he/she may be entitled to receive
pursuant to Sections 5.2 and 5.4.

 

5.2           In the event that the Company terminates Employee’s employment as
the result of the Company failing to give notice of renewal under Section 4.1,
if the Company terminates Employee’s employment pursuant to Section 4.2 (without
Cause) or if Employee terminates his or her employment pursuant to Section 4.3.2
(Good Reason), then the Company shall: (a) pay Employee amounts due on the
effective termination date; and (b) subject to Employee’s compliance with the
Company’s Employee Confidential and Proprietary Information Agreement, and
subject to Section 5.4, (i) pay Employee severance pay (“Severance Pay”) in an
amount equal to twelve (12) months of his/her then current monthly Base Salary,
or the Base Salary that would have been due Employee had he remained employed
until the end of the Initial Term under Section 4.1 of this Agreement, whichever
amount is greater (the number of months used to calculate Severance Pay shall be
referred to herein as the “Severance Period”), (ii) reimburse Employee for the
actual additional costs incurred by Employee (“Benefit Continuation”) for
continued coverage for the Severance Period under the Company’s group health,
medical and dental benefit plans under COBRA (if available), at the same level
as Employee participated as of termination date, (iii) accelerate the vesting of
any unvested stock options granted pursuant to Section 3.4 of this Agreement or
any other unvested stock options granted at a later date (unless such
acceleration is prohibited by the terms of such later stock option grant or
agreement or under the terms of the Plan in existence at the time such grant is
made), and ,pay Employee the Bonus that Employee would have earned for the full
2014 calendar year, had he remained employed through the payment date, with the
Company having the discretion to determine the amount of such Bonus. Severance
Pay under Section 5.2 (b)(i) shall be payable in a lump sum (less applicable
withholdings) within twenty (20) days following the date on which the release of
claims executed by Employee pursuant to Section 5.4 of this Agreement becomes
effective and non-revocable, but in no event later than ninety (90) days
following termination from employment; provided, however, that if the 90th day
falls in the calendar year following the year during which the termination
occurred, then the lump sum payment will be paid in such subsequent calendar
year. Reimbursements for Benefit Continuation under Section 5.2(b)(ii) shall be
made on a monthly basis, but in no event later than sixty (60) days after such
expenses are incurred. The Bonus, if any, due Employee under Section 5.2 (b)(iv)
for the 2014 performance year shall be paid in lump sum (less applicable
withholdings) on the date when other employees are paid their bonuses for such
performance year, but not later than March 31, 2015. Employee shall not be
entitled to a cash payment or other benefit in lieu of reimbursements for the
actual additional costs of COBRA premiums. The amount of expenses eligible for
reimbursement during any year shall not be affected by the amount of expenses
eligible for reimbursement in any other year. Employee shall bear full
responsibility for applying for, paying for, and submitting reimbursement
requests for COBRA coverage and nothing herein shall constitute a guarantee of
COBRA continuation coverage or benefits or a guarantee of eligibility for health
or dental insurance coverage.

 

5.3           If the Company terminates Employee’s employment as provided in
Section 4.3.1 (for Cause) or if the Employee terminates his/her employment after
the Company has provided notice of renewal pursuant to Section 4.1, or Employee
terminates his/her employment pursuant to Section 4.2 (without Good Reason),
then the Company’s sole obligation shall be to pay Employee amounts due on the
effective termination date and any other obligations due under Section 5.5.

  

5

 

 

5.4           Notwithstanding any provision of this Agreement to the contrary,
the Company’s obligation to provide the payments under Section 5.2 is
conditioned upon Employee’s execution of an enforceable release of claims under
this Section 5.4 and his/her compliance with the Company’s Employee Confidential
and Proprietary Information Agreement. If Employee chooses not to execute such a
release or fails to comply with these Sections, then the Company’s obligation to
compensate him/her ceases on the effective termination date except as to amounts
due at the time. The release of claims shall be provided to Employee within
fifteen (15) days of his/her separation from service and Employee must execute
it within the time period specified in the release (which shall not be longer
than forty-five (45) days from the date of receipt). Such release shall not be
effective until any applicable revocation period has expired.

 

5.5           Upon the termination of the Employee’s employment for any reason,
the Company shall (i) pay the Employee any unpaid base salary due for periods
prior to the termination date; (ii)  pay the Employee all of the Employee’s
accrued and unused vacation through the termination date; and (iii) following
submission of proper expense reports by the Employee, reimburse the Employee for
all expenses reasonably and necessarily incurred by the Employee in connection
with the business of the Company prior to the termination date. These payments
shall be made promptly upon termination and within the period of time mandated
by applicable law. Other than as set forth in this Agreement, Employee is not
entitled to receive any compensation or benefits upon his/her termination except
as otherwise required by law; or as otherwise required by any employee benefit
plan in which he/she participates. Moreover, the terms and conditions afforded
Employee under this Agreement are in lieu of any severance benefits to which
he/she otherwise might be entitled pursuant to any severance plan, policy and
practice of the Company and or its Affiliates. Nothing in this Agreement,
however, is intended to waive or supplant any death, disability, retirement,
401(k) or pension benefits to which he/she may be entitled under employee
benefit plans in which he/she participates.

 

6.          Employee Representation. Employee represents and warrants that his
or her employment and obligations under this Agreement will not: (i) breach any
duty or obligation he or she owes to another or (ii) violate any law, recognized
ethics standard or recognized business custom.

 

7.          Notice. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to the Employee at the home address that the Employee
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Chief Employee Officer or
the Director of Human Resources.

 

8.          Waiver of Breach. The Company’s or Employee’s waiver of any breach
of a provision of this Agreement shall not waive any subsequent breach by the
other party.

 

6

 

 

9.          Entire Agreement. Except as expressly provided in this Agreement,
this Agreement: (i) supersedes all other understandings and agreements, oral or
written, between the parties with respect to the subject matter of this
Agreement; and (ii) constitutes the sole agreement between the parties with
respect to this subject matter. Each party acknowledges that: (A) no
representations, inducements, promises or agreements, oral or written, have been
made by any party or by anyone acting on behalf of any party, which are not
embodied in this Agreement; and (B) no agreement, statement or promise not
contained in this Agreement shall be valid. No change or modification of this
Agreement shall be valid or binding upon the parties unless such change or
modification is in writing and is signed by the parties.

 

10.         Severability. If a court of competent jurisdiction holds that any
provision or sub-part thereof contained in this Agreement is invalid, illegal or
unenforceable, that invalidity, illegality or unenforceability shall not affect
any other provision in this Agreement.

 

11.         Parties Bound. The terms, provisions, covenants and agreements
contained in this Agreement shall apply to, be binding upon and inure to the
benefit of the Company’s successors and assigns. The Company, at its discretion,
may assign this Agreement to Affiliates or to its successors or assigns. Because
this Agreement is personal to Employee, Employee may not assign this Agreement.

 

12.          Governing Law. This Agreement and the employment relationship
created by it shall be governed by North Carolina law without giving effect to
North Carolina choice of law provisions. The parties hereby consent to
jurisdiction in North Carolina for the purpose of any litigation relating to
this Agreement and agree that any litigation by or involving them relating to
this Agreement shall be conducted in the courts of Wake County, North Carolina
or the federal courts of the United States for the Eastern District of North
Carolina.

 

13.         Section 409A of the Internal Revenue Code.

 

13.1         Notwithstanding anything to the contrary in this Agreement, if  
the Employee is a “specified employee” within the meaning of Section 409A at the
time of the Employee’s termination (other than due to death), then the severance
payable to the Employee, if any, pursuant to this Agreement, together with any
other severance payments or separation benefits that are considered deferred
compensation under Section 409A (together, the “Deferred Compensation Separation
Benefits”), that are payable within the first six (6) months following the
Employee’s termination of employment will become payable on the first payroll
date that occurs on or after the date six (6) months and one (1) day following
the date of the Employee’s termination of employment. All subsequent Deferred
Compensation Separation Benefits, if any, will be payable in accordance with the
payment schedule applicable to each payment or benefit. Notwithstanding anything
herein to the contrary, if the Employee dies following the Employee’s
termination but prior to the six (6) month anniversary of the Employee’s
termination, then any payments delayed in accordance with this paragraph will be
payable in a lump sum as soon as administratively practicable after the date of
the Employee’s death and all other Deferred Compensation Separation Benefits
will be payable in accordance with the payment schedule applicable to each
payment or benefit. Each payment and benefit payable under this Agreement is
intended to constitute separate payments for purposes of Section 1.409A-2(b)(2)
of the Treasury Regulations.

 

7

 

 

13.2         Any amount paid under this Agreement that satisfies the
requirements of the “short-term deferral” rule set forth in
Section 1.409A-1(b)(4) of the Treasury Regulations shall not constitute Deferred
Compensation Separation Benefits for purposes of clause (i) above.

 

13.3         Any amount paid under this Agreement that qualifies as a payment
made as a result of an involuntary separation from service pursuant to
Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that do not exceed the
Section 409A Limit shall not constitute Deferred Compensation Separation
Benefits for purposes of clause (i) above. For purposes of this Agreement,
“Section 409A Limit” shall mean the lesser of two (2) times: (i) the Employee’s
annualized compensation based upon the annual rate of pay paid to the Employee
during the Company’s taxable year preceding the Company’s taxable year of the
Employee’s termination of employment as determined under Treasury Regulation
1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with
respect thereto; or (ii) the maximum amount that may be taken into account under
a qualified plan pursuant to Section 401(a)(17) of the Code for the year in
which the Employee’s employment is terminated.

 

13.4         The foregoing provisions are intended to comply with the
requirements of Section 409A so that none of the severance payments and benefits
to be provided hereunder will be subject to the additional tax imposed under
Section 409A, and any ambiguities herein will be interpreted to so comply. The
Company and the Employee agree to work together in good faith to consider
amendments to this Agreement and to take such reasonable actions which are
necessary, appropriate or desirable to avoid imposition of any additional tax or
income recognition prior to actual payment to the Employee under Section 409A.
The parties intend that the provisions of this Agreement comply with Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the
regulations thereunder (collectively, “Section 409A”) and all provisions of this
Agreement shall be construed in a manner consistent with the requirements for
avoiding taxes or penalties under Section 409A. If any provision of this
Agreement (or of any award of compensation, including equity compensation or
benefits) would cause Executive to incur any additional tax or interest under
Section 409A, the Company shall, upon the specific request of Executive, use its
reasonable business efforts to in good faith reform such provision to comply
with Code Section 409A; provided, that to the maximum extent practicable, the
original intent and economic benefit to Executive and the Company of the
applicable provision shall be maintained, and the Company shall have no
obligation to make any changes that could create any additional economic cost or
loss of benefit to the Company. The Company shall timely use its reasonable
business efforts to amend any plans and programs in which Executive participates
to bring it in compliance with Section 409A. Notwithstanding the foregoing, the
Company shall have no liability with regard to any failure to comply with
Section 409A so long as it has acted in good faith with regard to compliance
therewith.

 

14.         Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, with the same effect as if the signatures affixed
thereto were upon the same instrument.

 

15.         Company Approval. This Agreement is subject to approval by the
Company and its Board of Directors, and it shall not be valid until and unless
it is so approved.

 

[Signatures on Following Page]

 

8

 

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written.

 

COMPANY: TRANS1 INC.         By: /s/ Ken Reali   Name: Ken Reali   Title:
President & CEO       Greg Welsh By: /s/ Greg Welsh   Name: Greg Welsh   Title:
VP Operations

 

 

9