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Employment Agreement - StemCells Inc. and Martin McGlynn

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                                                                 January 2, 2001

Martin McGlynn
Sandy, Utah 84092

Dear Martin:

     On behalf of StemCells, Inc. (the "Company"), I am pleased to offer you the
position of President and Chief Executive Officer under the terms and conditions
that follow:

     1. STARTING DATE. The date on which your full-time employment with the
Company will start is January 15, 2001.

     2. POSITION AND DUTIES. As President and Chief Executive Officer, you will
be expected to exert your full-time best efforts to promote and protect the
business interests of the Company. Specifically, but not exclusively, your
responsibilities will be to manage the operations of the Company, to build and
maintain an outstanding and harmonious working team of both scientific and
professional employees, to secure, promote and maintain the appropriate
financing and capital structure of the Company, to manage and direct the
strategic development of the Company's business plan and its implementation and
to oversee the overall scientific affairs of the Company. You will report
directly to the Board. In addition, and without further compensation, you agree
to service as a member of the Board of Directors of the Company (the "Board")
and as a director or officer of one or more of the Company's Affiliates, if so
elected or appointed from time to time. For the purposes of this agreement,
"Affiliates" means all persons and entities directly or indirectly controlling,
controlled by or under common control with the Company, where control may be by
management authority, equity interest or otherwise. It is understood that your
membership on the Board, and on the board of any Affiliate of the Company, will
not continue past your tenure as President and Chief Executive Officer, and you
agree to resign, effective on termination of your employment, from any such
directorships you may then hold.

     3. SALARY. For all services that you perform for the Company and its
Affiliates, your base salary will be at the rate of Two Hundred Seventy-Five
Thousand Dollars ($275,000) per year. Your performance and compensation will be
reviewed at least annually by the Compensation Committee of the Board. In
addition, the Board, in its sole discretion, may award you a cash bonus of up to
twenty-five percent of your base salary, based on the Board's review of your


Martin McGlynn
January 2, 2001
Page 2

     4. STOCK OPTIONS. Through the StemCells, Inc. 1992 Equity Incentive Plan
(the "Incentive Plan"), and subject to the terms and conditions of such Plan,
you will be granted an option to acquire Four Hundred Thousand (400,000) shares
of the common stock of the Company (the "Time-Based Option") at the then-current
fair market value of such shares, as reasonably determined by the Board, on
January 15, 2001. Subject to your continued employment by the Company, the
Time-Based Option will vest over forty-eight (48) months as follows: (i) one
quarter of the shares will vest on the first anniversary of the date on which
your employment with the Company begins and (ii) the remaining shares shall vest
at the rate of one forty-eighth (1/48) per month on the last day of each month
during the ensuing thirty-six months. Except as otherwise expressly provided
herein, the Time-Based Option shall be governed by the terms of the Incentive
Plan, as in effect from time to time. A copy of the Incentive Plan as currently
in effect is attached as Exhibit A. In addition, the Board, in its sole
discretion, may award you a bonus option of up to 25,000 shares of the Company's
common stock, depending on the Board's review of your performance. Any Change in
Control will result in the accelerated vesting of the option to acquire 100% of
such shares. A Change in Control shall mean any consolidation or merger in which
the Company is not the surviving corporation, a transaction or series of related
transactions that result in the acquisition of all or substantially all of the
Company's outstanding Common Stock by a single person or entity or by a group of
persons or entities acting in concert, or the sale or transfer of all or
substantially all of the Company's assets.

     5. RELOCATION AND RELOCATION ALLOWANCE. No later than the date on which
your employment with the Company begins, you will establish your principal
office at the Company's offices in Sunnyvale and a temporary residence for
yourself within driving distance of such office, and will spend, on average, at
least five days per week in residence there. The Company will reimburse you, up
to a reasonable amount to be agreed upon, for the cost of the temporary
residence. When you relocate permanently to the area where the Company maintains
its offices, the Company will pay you a relocation bonus in the amount of Fifty
Thousand Dollars ($50,000). In addition the Company will reimburse you for your
reasonable expenses associated with relocation, such as the realtor's commission
on the sale of your Utah home, closing costs in connection with the purchase of
a new home, moving and, if necessary, storage of household goods, and
transportation for you and your wife, provided that the reimbursed amount shall
not exceed Twenty-Five Thousand Dollars ($25,000) exclusive of the realtor's
commission. Further, the Company will negotiate with you in good faith
concerning an amount to be provided by the Company to assist in your purchase of
a home within driving distance of the Company's offices, and the method of its
provision. Such assistance may include, without limitation, a bridge loan should
one be appropriate.


Martin McGlynn
January 2, 2001
Page 3

     6. BENEFITS. You will be entitled to participate in any and all employee
benefit plans from time to time in effect for senior management of the Company
generally, except to the extent that such plans are duplicative of benefits
otherwise provided to you under this Agreement. Such participation shall be
subject to (i) the terms of the applicable plan documents, (ii) generally
applicable policies of the Company and (iii) the discretion of the Board and
plan administrators, as provided for in or contemplated by such plan. I am
enclosing a summary of current employee benefits for your information, and of
course the agreements with providers are available to you. The Company will
provide you with a leased automobile, the cost of which, including insurance,
gas and maintenance, will be paid by you and the Company in proportion to your
business and personal use of such automobile. Prior to your permanent relocation
to within driving distance of the Company's principal offices, the Company will
reimburse you and your wife for the cost of one round trip per month to Utah.
The Company will provide you with three weeks vacation per year. The Company
shall reimburse you for all expenses reasonably incurred by you in connection
with your performance of your duties hereunder on a basis consistent with
Company policies.

condition of accepting this offer of employment, you will be required to
complete, sign and return the Company's standard form of Employment Agreement, a
copy of which is attached hereto as Exhibit B and by this reference
incorporated. You hereby represent that you are not now bound by any employment
agreement, confidential or proprietary information agreement or similar
agreement, with any person or entity including without limitation any current or
previous employer, that would impose any restriction on your acceptance of this
offer or that would interfere with your ability to fulfill the responsibilities
of your position with the Company.

employment with the Company is "at will," which means that either you or the
Company may terminate your employment at any time, with or without cause or good

        a. The Company may terminate your employment other than for "cause" at
any time upon written notice to you and, in that event, (i) the Company will
continue to pay you your base salary for one year following the date of such
termination. To the maximum extent permitted by the Company's benefit plans, all
healthcare benefits provided to you hereunder shall continue for one year
following the date of such termination other than for cause, but the Company
shall not be obligated to purchase any special insurance or other coverage in
order to satisfy the foregoing obligation.

        b. The Company may terminate your employment upon written notice to you
in the event that you become disabled during your employment through any
illness, injury, accident or condition of either physical or psychological
nature and, as a result, you are unable to perform substantially all of your
duties and responsibilities


Martin McGlynn
January 2, 2001
Page 4

hereunder for ninety (90) days during any three hundred and sixty-five (365)
calendar days. In that event, the Company will continue to pay you your base
salary (i) for a period of six (6) months following such termination or (ii)
until you obtain other full time employment or (iii) until you become eligible
for disability income under any disability income plan provided by the Company,
whichever of these events shall first occur.

        c. The Company may terminate your employment hereunder for cause at any
time upon written notice to you setting forth in reasonable detail the nature of
such cause. The following, as determined by the Company in its reasonable
judgment, shall constitute "cause" for termination: (i) your willful failure to
perform your material duties and responsibilities to the Company and its
Affiliates (including, without limitation, those duties and responsibilities
described in Section 1) and; (ii) your material breach of Paragraph 7 of this
Agreement or of Exhibit A incorporated thereby; (iii) fraud, embezzlement or
other material dishonesty with respect to the Company or any of its Affiliates;
or (iv) your conviction of, or plea of nolo contendere to, a felony.

        d. You may terminate your employment at any time, with or without good
reason, upon written notice to the Company. If you decide to terminate your
employment without good reason, you agree to give the Company three months'
notice of termination. You may terminate your employment hereunder with good
reason at any time upon written notice to the Company. The following shall
constitute "good reason" for termination: material breach by the Company of any
provision of this Agreement, including, without limitation, any material
diminution in your authority or responsibilities from that contemplated by
Section 1 hereof, which breach continues for more than ten (10) business days
following receipt by the Company of written notice from you setting forth in
reasonable detail the nature of such breach. If you terminate your employment
with good reason, the Company will be obligated to you under Paragraph 8.a
hereof as if the Company had terminated your employment other than for cause.

        e. If you resign without good reason or your employment is terminated by
the Company for cause, the Company shall have no further obligation to you other
than for base salary earned through the date of termination. No severance pay or
other benefits of any kind will be provided.

     9. WITHHOLDING. All payments and reimbursements made by the Company under
this Agreement shall be reduced by any tax or other amounts required to be
withheld by the Company under applicable law.

     10. EMPLOYMENT ELIGIBILITY VERIFICATION. As you know, all people
employed in the United States are required to complete an Employment
Eligibility Verification Form on the first day of employment and submit an
original document or documents that establish identity and employment
eligibility within three business days of employment. The employment offered
in this letter is contingent on your doing so.


Martin McGlynn
January 2, 2001
Page 5

     11. ASSIGNMENT. Neither you nor the Company may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without your consent to
one of its Affiliates or to any Person with whom the Company shall hereafter
affect a reorganization, consolidation or merger or to whom the Company
transfers all or substantially all of its properties or assets. This Agreement
shall inure to the benefit of and be binding upon you and the Company and each
of your respective successors, executors, administrators, heirs and permitted

     12. WAIVER. Except as otherwise expressly provided in this Agreement, no
waiver of any provision hereof shall be effective unless made in writing and
signed by the waiving party. The failure of either party to require performance
of any term or obligation of this Agreement, or the waiver by either party of
any breach of this Agreement, shall not prevent any subsequent enforcement of
such term or obligation or be deemed a waiver of any subsequent breach.

     13. SEVERABILITY. If any portion or provision of this Agreement shall to
any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.

     14. NOTICES. Except as otherwise expressly provided herein, any notices,
requests, demands and other communications provided for by this Agreement shall
be in writing and shall be effective when delivered in person or deposited in
the United States mail, postage prepaid, registered or certified, and addressed
to you at your last known address on the books of the Company or, in the case of
the Company, at its main office, attention of the Chairman of the Board.

     15. CAPTIONS. The captions and headings in this Agreement are for
convenience only and in no way define or describe the scope or content of any
provision of this Agreement.

     16. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between you and the Company and supersedes all prior
communications, agreements and understandings, written and oral, with respect to
the terms and conditions of your employment. This Agreement may not be amended
or modified, except by an agreement in writing signed by you and the Chairman of
the Board or other specifically authorized representative of the Company.


Martin McGlynn
January 2, 2001
Page 6

     17. GOVERNING LAW. This Agreement shall be governed, construed and enforced
in accordance with the laws of California, without regard to the conflict of
laws principles thereof.

     18. NO CONFLICTING AGREEMENTS. You hereby represent to the Company that
neither your execution and delivery of this Agreement nor your acceptance of
employment with the Company nor your performance under this Agreement will
conflict with or result in a breach of any of the terms, conditions or
provisions of any agreement to which you are a party or are bound or any order,
injunction, judgment or decrees of any court or governmental authority or any
arbitration award applicable to you.

     19. COMPLIANCE WITH AGREEMENT. The Company's obligations under this
Agreement and its obligation to deliver stock under the terms of the stock
options granted pursuant to the terms of this Agreement (or otherwise granted
you during the course of your employment) are conditioned on your compliance
with the terms and conditions of this Agreement and the accuracy of the
representations made to the Company by you herein.

     If the foregoing is acceptable to you, please sign the enclosed copy of
this letter in the space provided below and return it to me, whereupon this
letter and such copy will constitute a binding agreement between you and the
Company on the basis set forth above as of the date first above written.

                                       Sincerely yours,
                                       STEMCELLS, INC.

                                              John J. Schwartz, Ph.D.

Accepted and agreed:

Martin McGlynn