Document:

Exhibit 10.1

July 25, 2007

 

Personal & Confidential

 

Mark D. Morelli

126 Beacon Hill Drive

West Hartford, CT 06117

 

Dear Mark:

We are pleased to confirm to you our offer of employment with Energy Conversion Devices, Inc. (the "Company") according to the terms set forth in this letter:

	
            Position; Title:
 	
            You will serve as the Company’s chief executive with the title of President and Chief Executive Officer.  
 

You will also be appointed to serve as a member of the Company's Board of Directors and will continue to hold such position during your tenure as President and Chief Executive Officer, subject to annual election by the Company’s shareholders. 

	
            Commencement Date:
 	
            We expect you to commence your employment on a mutually agreed date (the “Commencement Date”) as soon as practicable, but in no event later than September 4, 2007.
 

	
            Base Salary:
 	
            Your base salary will be $450,000 per annum, payable semi-monthly, and subject to periodic adjustment in accordance with the Company’s executive compensation program.
 

	
            Initial Equity Grants:
 	
            On the Commencement Date you will receive a combination of stock options and restricted shares (each, “Stock Awards”) determined and granted by the Compensation Committee under the Company’s 2006 Stock Incentive Plan (the “Stock Plan”) as follows:
 

75,000 Non-Qualified Stock Options (as defined in the Stock Plan”) vesting in increments over four years, subject to your continued employment, with 30,000 options vesting on the first anniversary of the date of grant and 15,000 options vesting on each of the second, third and fourth anniversaries of the date of grant. 

30,000 shares of Restricted Stock (as defined in the Stock Plan”) vesting, subject to your continued employment, on the third anniversary of the date of grant.

The foregoing Stock Awards will also vest upon either a “Change in Control” (as defined in the Stock Plan) or a “Qualifying Termination” (as defined in the Severance Plan).

 

Mark D. Morelli

July 25, 2007

Page 2

 

 

On the Commencement Date you also will receive a Stock Award of 30,000 shares of Restricted Stock granted by the Compensation Committee under the Stock Plan that will vest in full, subject to your continued employment, upon such date, if any, prior to the third anniversary of the Commencement Date, that the average closing price of the Company’s common stock on Nasdaq for twenty consecutive trading days (the “20-Day Price”) exceeds $50.  

Your Stock Awards will be evidenced by separate Award Agreements issued in accordance with the Stock Plan.

	
            Severance Plan:
 	
            The Company intends in July 2007 to adopt a new Executive Severance Plan for senior management.  The Severance Plan will provide for certain severance payments and continuation of certain benefits for a period following a participating employee’s (i) “Qualifying Termination”, including a Qualifying Termination following a “Change in Control” (as such terms are defined in the Severance Plan), and (ii) execution and delivery to the Company of a prescribed form of waiver and release.  The Severance Plan also will impose certain restrictive covenants on a participating employee, including matters pertaining to confidentiality, cooperation, non-competition, non-solicitation, and non-disparagement.  Your severance payment under the Severance Plan will equal two times the sum of your base salary and target MIP
(defined below) payment following a Qualifying Termination, or three times if such Qualifying Termination arises in connection with a Change in Control, plus in each case your pro rata target MIP payment for the year in which the Qualifying Termination occurs.  Your participation in the Severance Plan will be evidenced by a separate Participant Agreement issued under the Severance Plan.
 

	
            Transition Assistance:
 	
            Within 30 days following the Commencement Date you will receive a signing bonus of $100,000.  The Company also will reimburse you for all reasonable and necessary, documented expenses that you incur in connection with your relocation prior to December 31, 2007 from your current principal residence to a new principal residence within a 50-mile radius of the Company's headquarters, with the understanding that your relocation may involve relocation to an interim principal residence by December 31, 2007, in which case the reimburseable expenses will also include all reasonable and necessary, documented expenses you incur in connection with your relocation prior to September 1, 2008 to a permanent principal residence within this same area.  Such reimburseable expenses will include reasonable costs for (i) moving, storage and related
insurance, (ii) pre-relocation travel and lodging relating to house searches, (iii) overnight shipment coincident with family relocation of immediate necessities of family care, (iv) reasonable costs, not to exceed $6,500 per month, associated with leasing an interim principal residence for a period of up to six months or, if earlier, the date on which you sell your existing principal residence, (v) transaction closing costs (excluding purchase price) on the sale of your existing principal 
 

 

Mark D. Morelli

July 25, 2007

Page 3

 

 

residence and purchase of a new principal residence, which is expected to close on or before September 1, 2008, and (vi) similar reasonable and customary relocation reimbursements applicable to chief executive officers. 

	
            Annual Incentive Plan:
 	
            You will participate with other senior management in the Company's Annual Management Incentive Plan (the "MIP") administered by the Compensation Committee.  The amounts awarded each year will be determined by the Compensation Committee typically targeting a percentage of a participating employee’s base salary, multiplied by factors determined by reference to the level of achievement of various personal and Company performance objective(s) established by the Compensation Committee early in the fiscal year, with the resulting amount subject to reduction based on other subjective criteria at the discretion of the Committee.  Such amounts, once determined by the Committee, will be paid within six months following the end of the fiscal year.
 

For the initial year your target payout under the MIP will be 75% of your base salary, prorated for the portion of the year between the Commencement Date and the end of the fiscal year, but in all events the initial year MIP payout will not be less than $300,000, 40% of which will be paid six months following the Commencement Date.  Your participation in and rights under the MIP will be evidenced by a separate award letter pursuant to the terms of the MIP

The Company intends to seek shareholder approval of the MIP at its annual meeting in 2007 so that awards under the MIP may qualify in future years as “performance-based compensation” under Section 162(m) of the Internal Revenue Code.

	
            Other Stock Awards:
 	
            The Company currently intends to include annual Stock Awards under the Stock Plan as a component of its executive compensation program.  The amounts, terms and timing of the Stock Awards will be determined by the Compensation Committee based on various factors, including competitive market factors evaluated by the Committee’s independent consultants, but typically awards will be made in conjunction with annual MIP determinations and salary reviews.  Subject to these considerations, you will receive annual Stock Awards with an aggregate fair value on the date of grant of approximately 100% of your annual base salary for the preceding fiscal year (rounded to limit the grant to whole shares).  The valuation will be based on application of the stock-based compensation pricing model as then adopted by the Company.  Your annual
Stock Awards will be evidenced by separate Award Agreements issued in accordance with the Stock Plan.
 

	
            Other Benefit Plans:
 	
            You will be eligible for the standard retirement and other health and welfare benefit programs provided for officers of the Company, subject to the right of the Company to amend or rescind such programs in accordance with their terms.  Without limiting the generality of the foregoing, these benefits 
 

 

Mark D. Morelli

July 25, 2007

Page 4

 

 

currently include: medical, dental, life, accidental death and disability insurance and a 401(k) savings plan.

	
            Separation:
 	
            Your employment will be "at will".  Either you or the Company may terminate your employment at any time for any reason.  Upon any termination of your employment you shall resign as a member of the Company's Board of Directors.
 

	
            Representations:
 	
            You represent and warrant to the Company that there are no contractual or legal impediments that restrict your acceptance of this employment in accordance with the terms set forth herein and that you will not bring to your employment or use in connection with such employment any confidential or proprietary information or property that you used or had access to by reason of any previous employment that is the property of any previous employer.
 

	
            Assignment; Successors:
 	
            This letter agreement is personal in its nature and none of the parties hereto shall, without the consent of others, assign or transfer this letter agreement or any rights or obligations hereunder, provided that, in the event of the merger, consolidation, transfer, or sale of all or substantially all of the assets of the Company with or to any other individual or entity, this letter agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder, and all references herein to the “Company” shall refer to such successor.  
 

	
            Governing Law; Disputes
 	
            Any disputes that may arise involving the terms of this letter agreement or your employment with the Company will be resolved exclusively by final and binding arbitration before the American Arbitration Association; provided that the Company may seek equitable relief for violations of this letter agreement by you pending the outcome of arbitration proceedings.  The award of the arbitrator will be entered in any court of competent jurisdiction.  The validity, interpretation and performance of this letter agreement will be governed by the laws of Michigan, regardless of the laws that might be applied under applicable principles of conflicts of laws.
 

The obligations of the Company set forth in this letter agreement are subject to approval of this letter agreement by the Company's Board of Directors.  All cash amounts referred to herein are subject to applicable tax withholding.  This letter agreement, including the various separate agreements referred to herein, embodies our entire understanding and supersedes all prior understandings, whether oral or written, relating to this offer.  If there is any conflict between a term of this letter agreement and the applicable separate agreement referred to herein, the separate agreement will govern.  This letter agreement cannot be amended or otherwise modified except by a writing signed by you and the Company.  

 

Mark D. Morelli

July 25, 2007

Page 5

 

 

We look forward to welcoming you to the Company.

Sincerely yours,

ENERGY CONVERSION DEVICES, INC.

 

	
             
 	
            /S/ Stephen Rabinowitz
 

Stephen Rabinowitz

Lead Director

 

Accepted:

/S/ Mark D. Morelli

 

MARK D. MORELLIex10_1.htm

    EXHIBIT
      10.1

    

 

    EMPLOYMENT
      AGREEMENT

     

    THIS
      EMPLOYMENT AGREEMENT (the “Agreement”), made as of this 30th
      day of July 2007,
      is entered into by Nestor, Inc. a Delaware corporation (the
“Company”), and Clarence A. Davis (the
“Employee”).

     

    The
      Company desires to employ the Employee, and the Employee desires to be employed
      by the Company.  In consideration of the mutual covenants and promises
      contained in this Agreement, and other good and valuable consideration, the
      receipt and sufficiency of which are hereby acknowledged by the parties to
      this
      Agreement, the parties agree as follows:

     

    1.           Term
      of Employment.  The Company hereby agrees to employ the Employee,
      and the Employee hereby accepts employment with the Company, upon the terms
      set
      forth in this Agreement, for the period commencing on the date hereof (the
      “Commencement Date”) and ending on July 31, 2008 (such period,
      the “Initial Employment Period” and as it may be extended, the
“Employment Period”), unless sooner terminated in accordance
      with the provisions of Section 4.  On July 31, 2008, if not
      previously terminated, this Agreement shall automatically renew and the
      Employment Period be extended until July 31, 2009 unless the Company shall
      elect
      not to so extend the Employment Period and shall have given written notice
      to
      the Employee of such election on or before May 1, 2008.

     

    2.           Title;
      Capacity.  The Employee shall serve as Chief Executive Officer or
      in such other position as the Company’s Board of Directors (the
“Board”) may determine from time to time.  The
      Employee shall be based at the Company’s headquarters in Rhode Island or at such
      place or places in the continental United States as the Board and the Employee
      shall mutually determine.  The Employee shall be subject to the
      supervision of, and shall have such authority as is delegated to the Employee
      by, the Board or the Chief Executive Officer of the Company.

     

    The
      Employee hereby accepts such employment and agrees to undertake the duties
      and
      responsibilities inherent in such position and such other duties and
      responsibilities as the Board shall from time to time reasonably assign to
      the
      Employee, provided that such duties and responsibilities are generally
      consistent with Employee’s experience and customary duties and responsibilities
      of a chief executive officer of a similarly situated company.  The
      Employee agrees to devote such business time, attention and energies consistent
      with his past practice to the business and interests of the Company during
      the
      Employment Period as he deems reasonably necessary to the accomplishment to
      his
      duties.  The Employee agrees to abide by the reasonable rules,
      regulations, instructions, personnel practices and policies of the Company
      and
      any changes therein which may be adopted from time to time by the
      Company.

     

    3.           Compensation
      and Benefits.

     

    3.1           Salary.  The
      Company shall pay the Employee, in periodic installments in accordance with
      the
      Company’s customary payroll practices, an annual base salary
      $360,000.  Such salary shall be subject to increase but not decrease
      thereafter as determined by the Board and shall be reviewed at least annually
      by
      the Board.

     

    3.2           Bonus.  The
      Compensation Committee, in its sole discretion, may award the Employee a bonus
      or bonuses during the term hereof.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    3.3           Equity
      Incentive.

     

    (a)           The
      Company shall, upon the execution hereof, grant to the Employee an option to
      purchase 500,000 shares of the common stock of the Company (“Common
      Stock”).  To the extent permitted by the Internal Revenue
      Code, said options shall be incentive stock options.  Said options
      shall be granted at the fair market value and expire on the eighth anniversary
      of their grant.  Said options shall vest as follows:

     

    
      	
              Number
                of Shares

            	
              Vesting
                Date

            
	
              166,667

            	
              Immediate

            
	
              166,667

            	
              January
                30, 2008

            
	
              166,666

            	
              July
                30, 2008

            

    

    

     

    Such
      grants shall provide that after a Change in Control Event (as defined in
      Schedule A hereto), all restrictions on the exercise thereof shall lift and
      such options shall vest and become exercisable immediately.  In
      addition, upon (a) the termination by the Company of the Employee’s employment,
      unless such termination is for Cause (as defined in Section 4.2) or (b) the
      resignation of Employee for Good Reason (as defined in Section 4.3), all
      restrictions on the exercise shall lift and such options shall vest and become
      exercisable immediately.

     

    3.4           Fringe
      Benefits; Vacation   The Employee shall be entitled to
      participate in all bonus and benefit programs that the Company establishes
      and
      makes available to its employees, if any, to the extent that Employee’s
      position, tenure, salary, age, health and other qualifications make him eligible
      to participate.  The Employee shall be entitled to four weeks vacation
      annually, accruing in accordance with the Company’s policies and
      procedures.

     

    3.5           Reimbursement
      of Expenses.  The Company shall reimburse the Employee for all
      reasonable travel, entertainment and other expenses incurred or paid by the
      Employee in connection with, or related to, the performance of his duties,
      responsibilities or services under this Agreement, in accordance with policies
      and procedures, and subject to limitations, adopted by the Company from time
      to
      time.

     

    3.6           Withholding.  All
      salary, bonus and other compensation payable to the Employee shall be subject
      to
      applicable withholding taxes.

     

    4.           Termination
      of Employment Period.  The employment of the Employee by the
      Company pursuant to this Agreement shall terminate upon the occurrence of any
      of
      the following:

     

    4.1           Expiration
      of the Employment Period;

     

    
      
        
        

      

      
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                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    4.2           At
      the election of the Company, for Cause (as defined below), immediately upon
      written notice by the Company to the Employee, which notice shall identify
      the
      Cause upon which the termination is based.  For the purposes of this
      Section 4.2, “Cause” shall mean (a) a good faith
      finding by the Company’s Board of Directors that (i) the Employee has
      failed in any material respect to perform his reasonably assigned duties for
      the
      Company and has failed to remedy such failure within 10 days following written
      notice from the Company to the Employee notifying him of such failure, or
      (ii) the Employee has engaged in dishonesty, gross negligence or misconduct
      with respect to the Company, or (b) the conviction of the Employee of, or
      the entry of a pleading of guilty or nolo contendere by the Employee to, any
      crime involving dishonesty or any felony;

     

    4.3           At
      the election of the Employee, for Good Reason (as defined below), immediately
      upon written notice by the Employee to the Company, which notice shall identify
      the Good Reason upon which the termination is based.  For the purposes
      of this Section 4.3, “Good Reason” for termination shall mean
      (i) a material adverse change in the Employee’s authority, duties or
      compensation without the prior written consent of the Employee, (ii) a material
      breach by the Company of the terms of this Agreement, which breach is not
      remedied by the Company within 10 days following written notice from the
      Employee to the Company notifying it of such breach (iii) any requirement
      imposed by Section 307 of the Sarbanes-Oxley Act or any rule promulgated
      thereunder, or (iv) a requirement by the Company that the Employee must relocate
      his residence for any reason.

     

    4.4           Upon
      the death or disability of the Employee.  As used in this Agreement,
      the term “disability” shall mean the inability of the Employee, due to a
      physical or mental disability, for a period of 90 days, whether consecutive,
      during any 360-day period to perform the services contemplated under this
      Agreement, with or without reasonable accommodation as that term is defined
      under state or federal law.  A determination of disability shall be
      made by a physician satisfactory to both the Employee and the Company,
providedthat if the Employee and the Company do not agree on a
      physician, the Employee and the Company shall each select a physician and these
      two together shall select a third physician, whose determination as to
      disability shall be binding on all parties;

     

    4.5           At
      the election of either party, upon not less than 30 days’ prior written notice
      of termination.

     

    5.           Effect
      of Termination.

     

    5.1           At-Will
      Employment.  If the Employment Period expires pursuant to Section
      1 hereof, then, unless the Company notifies the Employee to the contrary, the
      Employee shall continue his employment on an at-will basis following the
      expiration of the Employment Period.  Such at-will employment
      relationship may be terminated by either party at any time and shall not be
      governed by the terms of this Agreement.

     

    
      
        
        

      

      
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                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    5.2           Payments
      Upon Termination.

     

    (a)           In
      the event the Employee’s employment is terminated pursuant to Section 4.1,
      Section 4.2 or by the Employee pursuant to Section 4.5, the Company shall pay
      to
      the Employee the compensation and benefits otherwise payable to him under
      Section 3 through the last day of his actual employment by the
      Company.

     

    (b)           In
      the event the Employee’s employment is terminated by the Employee pursuant to
      Section 4.3 or by the Company pursuant to Section 4.5, the Company shall
      continue to pay to the Employee his salary as in effect on the date of
      termination and continue to provide to the Employee the other benefits owed
      to
      him under Section 3.4 (to the extent such benefits can be provided to
      non-employees, or to the extent such benefits cannot be provided to
      non-employees, then the cash equivalent thereof) until the date one year after
      the date of termination and for the purposes of the vesting of options to
      purchase common stock granted to the Employee pursuant to Section 3.3, the
      Employee shall be deemed to be employed by the Company until the date three
      years after the date of termination.  The payment to the Employee of
      the amounts payable under this Section 5.2(b) (i) shall be contingent upon
      the
      execution by the Employee of a release in a form reasonably acceptable to the
      Company and (ii) shall constitute the sole remedy of the Employee in the event
      of a termination of the Employee’s employment in the circumstances set forth in
      this Section 5.2(b).

     

    (c)           In
      the event the Employee’s employment is terminated pursuant to Section 4.4, the
      Company shall continue to pay to the Employee (or his estate) his salary as
      in
      effect on the date of termination and the amount of the annual bonus paid to
      him
      for the fiscal year immediately preceding the date of termination (payable
      in
      annualized monthly installments) and, if such termination was on account of
      disability, continue to provide to the Employee the other benefits owed to
      him
      under Section 3.4 (to the extent such benefits can be provided to non-employees,
      or to the extent such benefits cannot be provided to non-employees, then the
      cash equivalent thereof) until the date one year after the date of termination
      and for the purposes of the vesting of options to purchase common stock granted
      to the Employee pursuant to Section 3.3, the Employee shall be deemed to be
      employed by the Company until the date one year after the date of
      termination.  The amounts payable to the Employee under this Section
      5.2(c) shall be reduced by the aggregate amount of all insurance proceeds paid
      to the Employee or his beneficiaries pursuant to insurance policies paid for
      by
      the Company.

     

    5.3           Survival.  The
      provisions of Sections 5.2, 6 and 7 shall survive the termination of this
      Agreement.

     

    6.           Non-Competition
      and Non-Solicitation.

     

    6.1           Restricted
      Activities.  While the Employee is employed by the Company and for
      a period of one year after the termination or cessation of such employment
      for
      any reason, the Employee will not directly or indirectly:

     

    
      
        
        

      

      
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                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    (a)           Engage
      in any business or enterprise (whether as owner, partner, officer, director,
      employee, consultant, investor, lender or otherwise, except as the holder of
      not
      more than 1% of the outstanding stock of a publicly-held company) that develops,
      manufactures, markets, licenses, sells or provides any product or service that
      competes with any product or service developed, manufactured, marketed,
      licensed, sold or provided, or planned to be developed, manufactured, marketed,
      licensed, sold or provided, by the Company while the Employee was employed
      by
      the Company; or

     

    (b)           Either
      alone or in association with others (i) solicit, or permit any organization
      directly or indirectly controlled by the Employee to solicit, any employee
      of
      the Company to leave the employ of the Company, or (ii) solicit for
      employment or permit any organization directly or indirectly controlled by
      the
      Employee to solicit for any person who was employed by the Company at any time
      during the term the Employee’s employment with the Company; provided,
      that this clause (ii) shall not apply to the solicitation, hiring or engagement
      of any individual whose employment with the Company has been terminated for
      a
      period of six months or longer.

     

    6.2           Extension.  If
      the Employee violates the provisions of Section 6.1, the Employee shall continue
      to be bound by the restrictions set forth in Section 6.1 until a period of
      two
      years has expired without any violation of such provisions.

     

    6.3           Interpretation.  If
      any restriction set forth in Section 6.1 is found by any court of competent
      jurisdiction to be unenforceable because it extends for too long a period of
      time or over too great a range of activities or in too broad a geographic area,
      it shall be interpreted to extend only over the maximum period of time, range
      of
      activities or geographic area as to which it may be enforceable.

     

    6.4           Equitable
      Remedies.  The restrictions contained in this Section 6 are
      necessary for the protection of the business and goodwill of the Company and
      are
      considered by the Employee to be reasonable for such purpose.  The
      Employee agrees that any breach of this Section 6 is likely to cause the
      Company substantial and irrevocable damage which is difficult to
      measure.  Therefore, in the event of any such breach or threatened
      breach, the Employee agrees that the Company, in addition to such other remedies
      which may be available, shall have the right to obtain an injunction from a
      court restraining such a breach or threatened breach and the right to specific
      performance of the provisions of this Section 6 and the Employee hereby waives
      the adequacy of a remedy at law as a defense to such relief.

     

    
      
        
        

      

      
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                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    7.           Proprietary
      Information and Developments.

     

    7.1           Proprietary
      Information.

     

    (a)           The
      Employee agrees that all information, whether or not in writing, of a private,
      secret or confidential nature concerning the Company’s business, business
      relationships or financial affairs (collectively, “Proprietary
      Information”) is and shall be the exclusive property of the
      Company.  By way of illustration, but not limitation, Proprietary
      Information may include inventions, products, processes, methods, techniques,
      formulas, compositions, compounds, projects, developments, plans, research
      data,
      clinical data, financial data, personnel data, computer programs, customer
      and
      supplier lists, and contacts at or knowledge of customers or prospective
      customers of the Company.  The Employee will not disclose any
      Proprietary Information to any person or entity other than employees of the
      Company or use the same for any purposes (other than in the performance of
      his
      duties as an employee of the Company) without written approval by an officer
      of
      the Company, either during or after his employment with the Company, unless
      and
      until such Proprietary Information has become public knowledge without fault
      by
      the Employee.

     

    (b)           The
      Employee agrees that all files, letters, memoranda, reports, records, data,
      sketches, drawings, laboratory notebooks, program listings, or other written,
      photographic, or other tangible material containing Proprietary Information,
      whether created by the Employee or others, which shall come into his custody
      or
      possession, shall be and are the exclusive property of the Company to be used
      by
      the Employee only in the performance of his duties for the
      Company.  All such materials or copies thereof and all tangible
      property of the Company in the custody or possession of the Employee shall
      be
      delivered to the Company, upon the earlier of (i) a request by the Company
      or (ii) termination of his employment.  After such delivery, the
      Employee shall not retain any such materials or copies thereof or any such
      tangible property.

     

    (c)           The
      Employee agrees that his obligation not to disclose or to use information and
      materials of the types set forth in paragraphs (a) and (b) above, and his
      obligation to return materials and tangible property, set forth in
      paragraph (b) above, also extends to such types of information, materials
      and tangible property of customers of the Company or suppliers to the Company
      or
      other third parties who may have disclosed or entrusted the same to the Company
      or to the Employee.

     

    7.2           Developments.

     

    (a)           The
      Employee will make full and prompt disclosure to the Company of all inventions,
      improvements, discoveries, methods, developments, software, and works of
      authorship, whether patentable or not, which are created, made, conceived or
      reduced to practice by him or under his direction or jointly with others during
      his employment by the Company, whether or not during normal working hours or
      on
      the premises of the Company (all of which are collectively referred to in this
      Agreement as “Developments”).

     

    
      
        
        

      

      
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                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    (b)           The
      Employee agrees to assign and does hereby assign to the Company (or any person
      or entity designated by the Company) all his right, title and interest in and
      to
      all Developments and all related patents, patent applications, copyrights and
      copyright applications.  However, this paragraph (b) shall not
      apply to Developments which do not relate to the business or research and
      development conducted or planned to be conducted by the Company at the time
      such
      Development is created, made, conceived or reduced to practice and which are
      made and conceived by the Employee not during normal working hours, not on
      the
      Company’s premises and not using the Company’s tools, devices, equipment or
      Proprietary Information.  The Employee understands that, to the extent
      this Agreement shall be construed in accordance with the laws of any state
      which
      precludes a requirement in an employee agreement to assign certain classes
      of
      inventions made by an employee, this paragraph (b) shall be interpreted not
      to apply to any invention which a court rules and/or the Company agrees falls
      within such classes.  The Employee also hereby waives all claims to
      moral rights in any Developments.

     

    (c)           The
      Employee agrees to cooperate fully with the Company, both during and after
      his
      employment with the Company, with respect to the procurement, maintenance and
      enforcement of copyrights, patents and other intellectual property rights (both
      in the United States and foreign countries) relating to
      Developments.  The Employee shall sign all papers, including, without
      limitation, copyright applications, patent applications, declarations, oaths,
      formal assignments, assignments of priority rights, and powers of attorney,
      which the Company may deem necessary or desirable in order to protect its rights
      and interests in any Development.  The Employee further agrees that if
      the Company is unable, after reasonable effort, to secure the signature of
      the
      Employee on any such papers, any executive officer of the Company shall be
      entitled to execute any such papers as the agent and the attorney-in-fact of
      the
      Employee, and the Employee hereby irrevocably designates and appoints each
      executive officer of the Company as his agent and attorney-in-fact to execute
      any such papers on his behalf, and to take any and all actions as the Company
      may deem necessary or desirable in order to protect its rights and interests
      in
      any Development, under the conditions described in this sentence.

     

    7.3           United
      States Government Obligations.  The Employee acknowledges that the
      Company from time to time may have agreements with other parties or with the
      United States Government, or agencies thereof, which impose obligations or
      restrictions on the Company regarding inventions made during the course of
      work
      under such agreements or regarding the confidential nature of such
      work.  The Employee agrees to be bound by all such obligations and
      restrictions which are made known to the Employee and to take all appropriate
      action necessary to discharge the obligations of the Company under such
      agreements.

     

    7.4           Equitable
      Remedies.  The restrictions contained in this Section 7 are
      necessary for the protection of the business and goodwill of the Company and
      are
      considered by the Employee to be reasonable for such purpose.  The
      Employee agrees that any breach of this Section 7 is likely to cause the
      Company substantial and irrevocable damage which is difficult to
      measure.  Therefore, in the event of any such breach or threatened
      breach, the Employee agrees that the Company, in addition to such other remedies
      which may be available, shall have the right to obtain an injunction from a
      court restraining such a breach or threatened breach and the right to specific
      performance of the provisions of this Section 7 and the Employee hereby
      waives the adequacy of a remedy at law as a defense to such relief.

     

    
      
        
        

      

      
        -7-

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    8.           Other
      Agreements.  The Employee represents that his performance of all
      the terms of this Agreement and the performance of his duties as an employee
      of
      the Company do not and will not breach any agreement with any prior employer
      or
      other party to which the Employee is a party (including without limitation
      any
      nondisclosure or non-competition agreement).  Any agreement to which
      the Employee is a party relating to nondisclosure, non-competition or
      non-solicitation of employees or customers is listed on Schedule B
      attached hereto.

     

    9.           Miscellaneous.

     

    9.1           Notices.  Any
      notices delivered under this Agreement shall be deemed duly delivered four
      business days after it is sent by registered or certified mail, return receipt
      requested, postage prepaid, or one business day after it is sent for
      next-business day delivery via a reputable nationwide overnight courier service,
      in each case to the address of the recipient set forth in the introductory
      paragraph hereto.  Either party may change the address to which
      notices are to be delivered by giving notice of such change to the other party
      in the manner set forth in this Section 9.1.

     

    9.2           Pronouns.  Whenever
      the context may require, any pronouns used in this Agreement shall include
      the
      corresponding masculine, feminine or neuter forms, and the singular forms of
      nouns and pronouns shall include the plural, and vice versa.

     

    9.3           Entire
      Agreement.  This Agreement constitutes the entire agreement
      between the parties and supersedes all prior agreements and understandings
      (including all consulting or other agreements to which the Company and the
      Employee are parties), whether written or oral, relating to the subject matter
      of this Agreement; provided, however, that it is acknowledged and agreed by
      the
      Company and the Employee that stock option grants made by the Company to the
      Employee prior to the date hereof are not superseded hereby and each such grant
      remains in full force and effect in accordance with its terms.

     

    9.4           Amendment.  This
      Agreement may be amended or modified only by a written instrument executed
      by
      both the Company and the Employee.

     

    9.5           Governing
      Law.  This Agreement shall be governed by and construed in
      accordance with the laws of the State of Rhode Island (without reference to
      the
      conflicts of laws provisions thereof).  Any action, suit or other
      legal proceeding arising under or relating to any provision of this Agreement
      shall be commenced only in a court of the State of Rhode Island (or, if
      appropriate, a federal court located within Rhode Island), and the Company
      and
      the Employee each consents to the jurisdiction of such a court.  The
      Company and the Employee each hereby irrevocably waive any right to a trial
      by
      jury in any action, suit or other legal proceeding arising under or relating
      to
      any provision of this Agreement.

     

    
      
        
        

      

      
        -8-

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    9.6           Successors
      and Assigns.  This Agreement shall be binding upon and inure to
      the benefit of both parties and their respective successors and assigns,
      including any corporation with which, or into which, the Company may be merged
      or which may succeed to the Company’s assets or business, provided, however,
      that the obligations of the Employee are personal and shall not be assigned
      by
      him.  Notwithstanding the foregoing, if the Company is merged with or
      into a third party which is engaged in multiple lines of business, or if a
      third
      party engaged in multiple lines of business succeeds to the Company’s assets or
      business, then for purposes of Section 6.1(a), the term “Company” shall mean and
      refer to the business of the Company as it existed immediately prior to such
      event and as it subsequently develops and not to the third party’s other
      businesses.

     

    9.7           Waivers.  No
      delay or omission by the Company in exercising any right under this Agreement
      shall operate as a waiver of that or any other right.  A waiver or
      consent given by the Company on any one occasion shall be effective only in
      that
      instance and shall not be construed as a bar or waiver of any right on any
      other
      occasion.

     

    9.8           Captions.  The
      captions of the sections of this Agreement are for convenience of reference
      only
      and in no way define, limit or affect the scope or substance of any section
      of
      this Agreement.

     

    9.9           Severability.  In
      case any provision of this Agreement shall be invalid, illegal or otherwise
      unenforceable, the validity, legality and enforceability of the remaining
      provisions shall in no way be affected or impaired thereby.

     

    THE
      EMPLOYEE ACKNOWLEDGES THAT HE/SHE HAS CAREFULLY READ THIS AGREEMENT AND
      UNDERSTANDS AND AGREES TO ALL OF THE PROVISIONS IN THIS AGREEMENT.

     

    IN
      WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
      day
      and year set forth above.

     

    
      	 	
              NESTOR,
                INC.

            
	 	 
	
              By:

            	
              /s/
                Nigel P. Hebborn

            
	 	
              Nigel
                P. Hebborn

            
	 	
              Chief
                Financial Officer

            
	 	 
	 	 
	 	
              EMPLOYEE

            
	 	 
	 	
              /s/
                Clarence A. Davis

            
	 	
              Clarence
                A. Davis

            

    

    

    

     

    
      
        
        

      

      
        -9-

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    SCHEDULE
      A

     

    Change
      in Control Definition

     

    A
“Change
      in Control Event” shall mean:

     

    
      	
               

            	
              (i)

            	
              the
                acquisition by an individual, entity or group (within the meaning
                of
                Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a
                “Person”) of beneficial ownership of any capital stock
                of
                the Company if, after such acquisition, such Person beneficially
                owns
                (within the meaning of Rule 13d-3 promulgated under the Exchange
                Act) 30%
                or more of either (x) the then-outstanding shares of common stock
                of the
                Company (the “Outstanding Company Common Stock”) or (y)
                the combined voting power of the then-outstanding securities of the
                Company entitled to vote generally in the election of directors (the
                “Outstanding Company Voting Securities”);
                provided, however, that for purposes of this subsection (i),
                the following acquisitions shall not constitute a Change in Control
                Event:
                (A) any acquisition directly from the Company (excluding an acquisition
                pursuant to the exercise, conversion or exchange of any security
                exercisable for, convertible into or exchangeable for common stock
                or
                voting securities of the Company, unless the Person exercising, converting
                or exchanging such security acquired such security directly from
                the
                Company or an underwriter or agent of the Company), (B) any acquisition
                by
                any employee benefit plan (or related trust) sponsored or maintained
                by
                the Company or any corporation controlled by the Company, or (C)
                any
                acquisition by any corporation pursuant to a Business Combination
                (as
                defined below) which complies with clauses (x) and (y)  of
                subsection (iii) of this definition;
                or

            

    

     

    
      	
               

            	
              (ii)

            	
              such
                time as the Continuing Directors (as defined below) do not constitute
                a
                majority of the Board (or, if applicable, the Board of Directors
                of a
                successor corporation to the Company), where the term “Continuing
                Director” means at any date a member of the Board (x) who was a
                member of the Board on the date hereof or (y) who was nominated or
                elected
                subsequent to such date by at least a majority of the directors who
                were
                Continuing Directors at the time of such nomination or election or
                whose
                election to the Board was recommended or endorsed by at least a majority
                of the directors who were Continuing Directors at the time of such
                nomination or election; provided, however, that there shall
                be excluded from this clause (y) any individual whose initial assumption
                of office occurred as a result of an actual or threatened election
                contest
                with respect to the election or removal of directors or other actual
                or
                threatened solicitation of proxies or consents, by or on behalf of
                a
                person other than the Board; or

            

    

     

    
      
        
        

      

      
        -10-

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    
      	
               

            	
              (iii)

            	
              the
                consummation of a merger, consolidation, reorganization, recapitalization
                or share exchange involving the Company or a sale or other disposition
                of
                all or substantially all of the assets of the Company (a “Business
                Combination”), unless, immediately following such Business
                Combination, each of the following two conditions is satisfied: (x)
                all or
                substantially all of the individuals and entities who were the beneficial
                owners of the Outstanding Company Common Stock and Outstanding Company
                Voting Securities immediately prior to such Business Combination
                beneficially own, directly or indirectly, more than 50% of the
                then-outstanding shares of common stock and the combined voting power
                of
                the then-outstanding securities entitled to vote generally in the
                election
                of directors, respectively, of the resulting or acquiring corporation
                in
                such Business Combination (which shall include, without limitation,
                a
                corporation which as a result of such transaction owns the Company
                or
                substantially all of the Company’s assets either directly or through one
                or more subsidiaries) (such resulting or acquiring corporation is
                referred
                to herein as the “Acquiring Corporation”) in
                substantially the same proportions as their ownership of the Outstanding
                Company Common Stock and Outstanding Company Voting Securities,
                respectively, immediately prior to such Business Combination and
                (y) no
                Person (excluding Exempt Persons, the Acquiring Corporation or any
                employee benefit plan (or related trust) maintained or sponsored
                by the
                Company or by the Acquiring Corporation) beneficially owns, directly
                or
                indirectly, 30% or more of the then-outstanding shares of common
                stock of
                the Acquiring Corporation, or of the combined voting power of the
                then-outstanding securities of such corporation entitled to vote
                generally
                in the election of directors (except to the extent that such ownership
                existed prior to the Business
                Combination).

            

    

     

    
      
        
        

      

      
        -11-

        
          

        

      

      
        
        

              

                  CD_EMPLOYMENT
            AGREEMENT.DOC      
    

      

    

    

    

    SCHEDULE
      B

     

    Prior
      Agreements

     

    

     

    None.

     

    

     

    
      
        
        

      

      
        -12-

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