EXHIBIT 10.1


 





 


May 15, 2014


 


Mr. Varun Nagaraj


19020 Portos Dr,


Saratoga, CA 95070-5121


 


Dear Varun:


 


On behalf of the Board
of Directors I am pleased to offer you a position with Sierra Monitor Corporation (“SMC” or the “Company”)
as its President and Chief Executive Officer, starting on or before July 7, 2014 (your actual start date is referred to herein
as the “Employment Commencement Date”). While employed hereunder, you agree to devote your full business efforts and
time to the Company provided, however, that you may engage in civic and not-for-profit activities, serve on the boards of directors
or serve as an advisor to non-competitive private or public companies, and, to the extent provided for below, participate in the
Program (as defined below), so long as such activities do not materially interfere with the performance of your duties to the
Company.


 


Your starting base salary
will be $25,000.00 per month, which over a full year would equal $300,000.00 (the “Base Salary”), less payroll deductions
and all required withholdings. Commencing in January, 2015, your Base Salary will be reviewed by the Board of Directors at least
annually for possible increases. Commencing in January, 2015 you will also be eligible to receive an annual bonus of up to seventy-five
percent (75%) of your Base Salary in 2015, based upon achieving goals to be mutually agreed upon between you and the Board; provided,
however, that the Company agrees that your annual bonus in 2015 will be no less than twenty five percent (25%) of your Base Salary.
In 2016 and, in the Board’s discretion, subsequent years, you will be eligible to receive an annual bonus of up to one hundred
percent (100%) of your Base Salary, based upon achieving goals to be mutually agreed upon between you and the Board. Any such annual
bonuses will be paid to you no later than March 15 following the year to which it relates, provided you must be an employee of
the Company at the time such annual bonus is paid. In the six month period from July through December, 2014 you will be paid a
fixed bonus of $50,000.00 in lieu of a performance based schedule.


 


You will also be eligible
for SMC’s standard benefits package on terms comparable to those provided to the Company’s executive officers. During
your term of employment with the Company, you shall be entitled to paid vacation in accordance with the Company’s vacation
accrual policies for its executive officers.


 


We note that you intend
to pursue a Doctor of Management (DM) program at Case Western Reserve University commencing in the fall of 2015 and ending in the
spring of 2018 (the “Program”). Your attendance at that program is expected to benefit the Company and your ability
to provide vision and focus. Subject to the conditions set forth in this Agreement, you are authorized to attend the three year
program and the Company will pay the related fees up to $50,000 per year and any normal and customary travel and board expenses.
Fees will be paid directly to the University contingent upon your continued progress and passing grades. Your authorization to
attend the Program, and the Company’s agreement to pay fees and expenses as provided for above, is further contingent on
your attendance and participation in the Program not materially interfering with the performance of your duties to the Company,
which the Board may reassess from time to time after the completion of the first year of the program and on not less than an annual
basis.


 



    	 



    	 



    

 





Within thirty (30) days
following the Employment Commencement Date, SMC will grant you a stock option covering 600,000 shares of Company common stock (the
“Equity Award”). The Equity Award will be an incentive stock option to the maximum extent possible under the Internal
Revenue Code, and the remaining portion of the Equity Award shall be a nonqualified stock option. Subject to your continued service
with SMC, and further subject to accelerated vesting as specified herein, your Equity Award will vest as to 1/4th of the covered
shares on the first anniversary of the Employment Commencement Date, and the remaining unvested covered shares shall vest in 36
equal monthly installments thereafter, so that the Equity Award will be 100% vested on the fourth anniversary of the Employment
Commencement Date. Your Equity Award will otherwise have the standard terms and conditions of our stock option agreement under
our 2006 Stock Plan, except as specified herein. Your stock option will be priced at 100% of the fair market value of the underlying
shares of common stock on the grant date.








 


Subject to your executing and not revoking a release of claims
in favor of SMC in substantially the form attached hereto as Exhibit A (a “Release”), in the event your employment
is terminated by SMC without Cause (as defined below) or in the event you resign for Good Reason outside of the “Change
in Control Period,” then (A) you shall receive severance payments of six (6) months’ Base Salary and six (6) months’
annual target bonus, paid in a lump sum (B) you shall receive six (6) monthly payments of $3,500 in lieu of Company-subsidized
COBRA, payable whether or not you or your covered dependents elect COBRA continuation benefits, and (C) fifty percent (50%) of
your then outstanding equity to acquire shares of the Company’s common stock or other equity awards shall immediately vest
and become exercisable (the “Termination Release Payment”).


 


Subject to your executing
and not revoking a Release, in the event your employment is terminated by SMC other than for “Cause” within the period
beginning on the date three (3) months prior to, and ending on the date that is twelve (12) months following the date upon which
a “Change in Control” occurs (the “Change in Control Period”), or in the event that within the Change in
Control Period you voluntarily terminate your employment for Good Reason, then (A) you shall receive severance payments of twelve
(12) months’ Base Salary and twelve (12) months’ annual target bonus, paid in a lump-sum, (B) you shall receive twelve
(12) monthly payments of $3,500 in lieu of Company-subsidized COBRA, payable whether or not you or your covered dependents elect
COBRA continuation benefits, and (C) all of your then outstanding equity to acquire shares of the Company’s common stock
or other equity awards shall immediately vest and become exercisable (the “Change in Control Release Payment”). For
the avoidance of doubt, under no circumstances will you be entitled to receive both the Termination Release Payment and the Change
in Control Release Payment.


 



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For the purposes of this offer letter
agreement, “Cause” means (A) your continued failure to perform your employment duties and responsibilities, other
than a failure resulting from your complete or partial incapacity due to physical or mental illness or impairment after you have
received a written demand of performance from the Company which describes the factual basis for the Company’s belief that
you have not substantially performed your duties and responsibilities and provides you with thirty (30) calendar days to cure
such non-performance to the Company’s satisfaction, (B) any material act of personal dishonesty taken by you in connection
with your duties and responsibilities as an employee, (C) your commission of an act of fraud resulting in material economic or
financial injury to the Company, (D) your conviction of, or plea of nolo contendere to, a felony or any crime involving
fraud, embezzlement or any other act of moral turpitude or that the Company reasonably believes has had or will have a material
detrimental effect on the Company’s reputation or business, (E) your willful breach of any fiduciary duty owed by you to
the Company that the Company reasonably believes has had or will have a material detrimental effect on the Company’s reputation
or business, (F) you being found liable in any Securities and Exchange Commission or other civil or criminal securities law action
or any cease and desist order is entered with respect to any such action (regardless of whether or not you admit or deny liability
in such action), (G) you obstructing or impeding, endeavoring to influence, obstruct or impede, or failing to materially cooperate
with, any investigation authorized by the Company, its Board of Directors or any governmental or self-regulatory organization,
or (H) your material breach of this Agreement or the Proprietary Information Agreement (as defined herein).


  


For the purposes of this
offer letter agreement, “Change in Control” shall have the meaning ascribed to such term in the 2006 Stock Plan. Notwithstanding
the foregoing, a Company transaction that does not constitute a change in control event under Treasury Regulation Section 1.409A-3(i)(5)(v)
or Treasury Regulation Section 1.409A-3(i)(5)(vii) shall not be considered a Change in Control for purposes of this Agreement.


 


For the purposes of this
offer letter agreement, “Good Reason” means that your employment terminates pursuant to your resignation within 180
days after any of the following is undertaken by the Company (or its acquirer) without your consent: (i) a reduction of your Base
Salary or target annual bonus, (ii) a material reduction in your duties, authority or responsibilities; (iii) your office is relocated
to a location more than thirty (30) miles from your then current office location; provided, however, that Good Reason shall not
exist unless you have provided written notice to the Board of the purported grounds for the Good Reason within ninety (90) days
of its initial existence and the Company has been provided at least thirty (30) days to remedy the condition.


 


If any payment or benefit
you would receive pursuant to this offer letter agreement or otherwise, including accelerated vesting of any equity compensation
(“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Internal
Revenue Code of 1986, as amended (the “Code”), and (ii) but for this sentence, be subject to the excise tax imposed
by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount. The
“Reduced Amount” shall be either (x) the largest portion of the Payment that would result in no portion of the Payment
being subject to the Excise Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount, after
taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at
the highest applicable marginal rate), results in your receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding
that all or some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute
payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: (A) cash
payments shall be reduced first and in reverse chronological order such that the cash payment owed on the latest date following
the occurrence of the event triggering such excise tax will be the first cash payment to be reduced; and (B) accelerated vesting
of the equity compensation awards shall be cancelled/reduced next, with full-value awards reduced/cancelled prior to stock option/stock
appreciation awards. The Company shall appoint a nationally recognized accounting firm to make the determinations required hereunder
and perform the foregoing calculations. The Company shall bear all expenses with respect to the determinations by such accounting
firm required to be made hereunder.


 




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The severance benefits
described herein are, as noted herein, subject to your execution of a Release, and such Release becoming effective in accordance
with its terms within twenty-eight (28) days following the termination date. No vesting acceleration or severance benefits pursuant
to such section shall be paid or provided unless and until the Release becomes effective. Any severance payment or benefit to which
you would otherwise be entitled during such twenty-eight (28) day period shall be paid or provided by the Company in full arrears
on the twenty-ninth (29th) day following your employment termination date or such later date as is required to avoid the imposition
of additional taxes under Internal Revenue Code Section 409A (“Section 409A”).


 


Notwithstanding any provision
to the contrary herein, no Deferred Compensation Separation Payments (as defined below) that become payable under this offer letter
agreement by reason of a termination of your employment with the Company (or any successor entity thereto) will be made unless
such termination of employment constitutes a “separation from service” within the meaning of Section 409A. Further,
if you are a “specified employee” of the Company (or any successor entity thereto) within the meaning of Section 409A
on the date of your termination of employment (other than a termination of employment due to death), then the severance payable
to you, if any, under this letter, when considered together with any other severance payments or separation benefits that are in
each case considered deferred compensation under Section 409A (together the “Deferred Compensation Separation Payments”)
that are payable within the first six (6) months following your termination of employment, shall be delayed until the first payroll
date that occurs on or after the date that is six (6) months and one (1) day after the date of your termination of employment,
when they shall be paid in full arrears. All subsequent Deferred Compensation Separation Payments, if any, will be paid in accordance
with the payment schedule applicable to each payment or benefit. Notwithstanding anything herein to the contrary, if you die following
your employment termination but prior to the six (6) month anniversary of your employment 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 death
and all other Deferred Compensation Separation Payments will be payable in accordance with the payment schedule applicable to each
payment or benefit. Each payment and benefit payable under this offer letter agreement is intended to constitute a separate payment
for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.


 


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 you agree to work together in good faith to consider amendments to this offer letter 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 you under Section 409A.


 




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Enclosed is a copy of
our Employment, Confidential Information, Invention Assignment and Arbitration Agreement (the “Proprietary Information Agreement”).
This document assigns rights to all inventions to SMC and requires you to keep confidential all matters regarding SMC technology
and business relationships until SMC has made such information public. Please read, sign, and return this agreement on your first
day of work.


 


You agree that any information that constitutes
“Company Confidential Information” under your Proprietary Information Agreement shall be subject to the terms thereof,
including, without limitation, the restrictions concerning nondisclosure and non-use of Company Confidential Information set forth
therein, regardless of whether such information was disclosed to you in connection with your participation in the Program. You
further agree that any material, notes, records, drawings, designs, logos, inventions, improvements, developments, discoveries,
ideas and trade secrets conceived, discovered, authored, invented, developed or reduced to practice by you, solely or in collaboration
with others, during the course of your participation in the Program shall constitute “Inventions” under your Proprietary
Information Agreement shall be subject to the terms thereof, including, without limitation, those related to the ownership and
assignment thereof to the Company and waiver of any rights related thereto. You agree to enter into such further agreements and
instruments, and to take such further actions, as the Company may reasonable request to secure its rights described in this paragraph,
including, without limitation, using your reasonable best efforts to cause Case Western University to enter into such agreements
and instruments, and to take such further actions, as the Company may reasonably request in connection therewith.


 


You and SMC understand
and acknowledge that your employment with SMC constitutes “at-will” employment. Subject to the provision of any severance
benefits required above, you and SMC acknowledge that this employment relationship may be terminated at any time, with or without
good cause or notice or for any or no cause, at the option of either you or SMC.


 


You represent that you
(a) are not a party to an employment agreement or other contract or arrangement which prohibits your full time employment with
SMC, and (b) do not know of any conflict which would restrict your employment with SMC.


 


This offer letter agreement,
the agreement relating to the Equity Award referenced herein and the Proprietary Information Agreement are the entire agreement
and understanding between you and SMC as to the subject matter hereof, and supersede all prior or contemporaneous agreements, whether
written or oral. No waiver, alteration, or modification, if any, of the provisions of this offer letter agreement shall be binding
unless in writing and signed by duly authorized representatives of you and SMC.


 


This offer letter agreement
shall be governed by and construed in accordance with the internal substantive laws, but not the choice of law rules, of the State
of California. You hereby consent to the personal jurisdiction of the state and federal courts located in California for any action
or proceeding arising from or relating to this offer letter agreement.


 


Federal legislation requires
all employers to verify the authorization to work of all employees. Under this law, you will be required to furnish documentation
within 72 hours of starting work.


 




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If you wish to accept
employment at SMC under the terms set out above, please sign and date this offer letter agreement and return it to me no later
than the end of the day on May 10, 2014.


 


	 	 	Sincerely,
	 	 	 
	 	 	Gordon R. Arnold
	 	 	CEO
	I have read and accept the above:	 	 
	 	 	 
	 	 	 	, 2014
	Varun Nagaraj	 	Date Signed


 




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EXHIBIT A


  


SMC/VARUN NAGARAJ


 


RELEASE OF CLAIMS


 


This Release of Claims
(“Agreement”) is made by and between SMC (the “Company”) and Varun Nagaraj (“Employee”).


 


WHEREAS, Employee has
agreed to enter into a release of claims in favor of the Company upon certain events specified in the offer letter agreement by
and between Company and Employee (the “Employment Agreement”).


 


NOW THEREFORE, in consideration
of the mutual promises made herein, the Parties hereby agree as follows:


 


1.          Termination.
Employee’s employment from the Company terminated on __/___/__ (the “Termination Date”).


 


2.          Confidential
Information. Employee shall continue to maintain the confidentiality of all confidential and proprietary information of the
Company and shall continue to comply with the terms and conditions of the Proprietary Information Agreement between Employee and
the Company. Employee shall return all the Company property and confidential and proprietary information in his possession to the
Company on the Effective Date of this Agreement.


 


3.          Payment
of Salary. Employee acknowledges and represents that the Company has paid all salary, wages, bonuses, accrued vacation, commissions
and any and all other benefits due to Employee, except for the consideration set forth in the Employment Agreement, defined as
the Termination Release Payment or the Change in Control Release Payment, payable following the execution of this Agreement.


 


4.          Release
of Claims. Employee agrees that the foregoing consideration represents settlement in full of all outstanding obligations owed
to Employee by the Company. Employee, on behalf of himself, and his respective heirs, family members, executors and assigns, hereby
fully and forever releases the Company and its past, present and future officers, agents, directors, employees, investors, shareholders,
administrators, affiliates, divisions, subsidiaries, parents, predecessor and successor corporations, and assigns, from, and agrees
not to sue or otherwise institute or cause to be instituted any legal or administrative proceedings concerning any claim, duty,
obligation or cause of action relating to any matters of any kind, whether presently known or unknown, suspected or unsuspected,
that he may possess arising from any omissions, acts or facts that have occurred up until and including the Effective Date of this
Agreement including, without limitation,


 


(a)          any
and all claims relating to or arising from Employee’s employment relationship with the Company and the termination of that
relationship;


 




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(b)          any
and all claims relating to, or arising from, Employee’s right to purchase, or actual purchase of shares of stock of the Company,
including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty, breach of duty under applicable
state corporate law, and securities fraud under any state or federal law;


 


(c)          any
and all claims for wrongful discharge of employment; termination in violation of public policy; discrimination; breach of contract,
both express and implied; breach of a covenant of good faith and fair dealing, both express and implied; promissory estoppel; negligent
or intentional infliction of emotional distress; negligent or intentional misrepresentation; negligent or intentional interference
with contract or prospective economic advantage; unfair business practices; defamation; libel; slander; negligence; personal injury;
assault; battery; invasion of privacy; false imprisonment; and conversion;


 


(d)          any
and all claims for violation of any federal, state or municipal statute, including, but not limited to, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities
Act of 1990, the Fair Labor Standards Act, the Employee Retirement Income Security Act of 1974, The Worker Adjustment and Retraining
Notification Act;


 


(e)          any
and all claims for violation of the federal, or any state, constitution;


 


(f)          any
and all claims arising out of any other laws and regulations relating to employment or employment discrimination; and


 


(g)          any
and all claims for attorneys’ fees and costs.


 


Employee agrees that the release set forth
in this section shall be and remain in effect in all respects as a complete general release as to the matters released. This release
does not extend to any severance obligations due Employee under the Employment Agreement. Nothing in this Agreement waives Employee’s
rights to indemnification or any payments under any insurance policy, if any, provided by any act or agreement of the Company,
state or federal law or policy of insurance.


 


5.          Acknowledgment
of Waiver of Claims under ADEA. Employee acknowledges that he is waiving and releasing any rights he may have under the Age
Discrimination in Employment Act of 1967 (“ADEA”) and that this waiver and release is knowing and voluntary. Employee
and the Company agree that this waiver and release does not apply to any rights or claims that may arise under the ADEA after the
Effective Date of this Agreement. Employee acknowledges that the consideration given for this waiver and release Agreement is in
addition to anything of value to which Employee was already entitled. Employee further acknowledges that he has been advised by
this writing that (a) he should consult with an attorney prior to executing this Agreement; (b) he has at least twenty-one
(21) days within which to consider this Agreement; (c) he has seven (7) days following the execution of this Agreement by the parties
to revoke the Agreement; (d) this Agreement shall not be effective until the revocation period has expired; and (e) nothing in
this Agreement prevents or precludes Employee from challenging or seeking a determination in good faith of the validity of this
waiver under the ADEA, nor does it impose any condition precedent, penalties or costs for doing so, unless specifically authorized
by federal law. Any revocation should be in writing and delivered to the Vice-President of Human Resources at the Company by close
of business on the seventh day from the date that Employee signs this Agreement.


 




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6.          No
Pending or Future Lawsuits. Employee represents that he has no lawsuits, claims, or actions pending in his name, or on behalf
of any other person or entity, against the Company or any other person or entity referred to herein. Employee also represents that
he does not intend to bring any claims on his own behalf or on behalf of any other person or entity against the Company
or any other person or entity referred to herein.


 


7.          Application
for Employment. Employee understands and agrees that, as a condition of this Agreement, he shall not be entitled to any employment
with the Company, its subsidiaries, or any successor, and he hereby waives any right, or alleged right, of employment or re-employment
with the Company.


 


8.          No
Cooperation. Employee agrees that he will not counsel or assist any attorneys or their clients in the presentation or prosecution
of any disputes, differences, grievances, claims, charges, or complaints by any third party against the Company and/or any officer,
director, employee, agent, representative, shareholder or attorney of the Company, unless under a subpoena or other court order
to do so.


 


9.          No
Admission of Liability. Employee understands and acknowledges that this Agreement constitutes a compromise and settlement of
disputed claims. No action taken by the Company, either previously or in connection with this Agreement shall be deemed or construed
to be (a) an admission of the truth or falsity of any claims heretofore made or (b) an acknowledgment or admission by the Company
of any fault or liability whatsoever to the Employee or to any third party.


 


10.         Costs.
The Parties shall each bear their own costs, expert fees, attorneys’ fees and other fees incurred in connection with this
Agreement.


 


11.         Authority.
Employee represents and warrants that he has the capacity to act on his own behalf and on behalf of all who might claim through
him to bind them to the terms and conditions of this Agreement.


 


12.         No
Representations. Employee represents that he has had the opportunity to consult with an attorney, and has carefully read and
understands the scope and effect of the provisions of this Agreement. Neither party has relied upon any representations or statements
made by the other party hereto which are not specifically set forth in this Agreement.


 


13.         Severability.
In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable
or void, this Agreement shall continue in full force and effect without said provision.


 


14.         Entire
Agreement. This Agreement, along with the Proprietary Information Agreement and Employee’s written equity compensation
agreements with the Company, represents the entire agreement and understanding between the Company and Employee concerning Employee’s
separation from the Company.


 




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15.         No
Oral Modification. This Agreement may only be amended in writing signed by Employee and a duly authorized representative of
the Company.


 


16.         Governing
Law. This Agreement shall be governed by the internal substantive laws, but not the choice of law rules, of the State of California.


 


17.         Effective
Date. This Agreement is effective eight (8) days after it has been signed by both Parties.


 


18.         Counterparts.
This Agreement may be executed in counterparts, and each counterpart shall have the same force and effect as an original and shall
constitute an effective, binding agreement on the part of each of the undersigned.


 


19.         Voluntary
Execution of Agreement. This Agreement is executed voluntarily and without any duress or undue influence on the part or behalf
of the Parties hereto, with the full intent of releasing all claims. The Parties acknowledge that:


 


(a)          They
have read this Agreement;


 


(b)          They
have been represented in the preparation, negotiation, and execution of this Agreement by legal counsel of their own choice or
that they have voluntarily declined to seek such counsel;


 


(c)          They
understand the terms and consequences of this Agreement and of the releases it contains;


 


(d)          They
are fully aware of the legal and binding effect of this Agreement.


 


[Signature
page follows]


 




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IN
WITNESS WHEREOF, the Parties have executed this Agreement on the respective dates set forth below.


 


	 	 	 	SMC
	 	 	 	 	 
	Dated:	 	 	By	 
	 	 	 	 	 
	 	 	 	Varun Nagaraj, 

an individual
	 	 	 	 	 
	Dated:	 	 	 	 


 




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