Employment Agreement - Axiom Pharmaceutical Inc. and Peter W. Cunningham
Employment Agreement
AGREEMENT dated as of the 1st day of August, 2003 between Axiom
Pharmaceutical, Inc., a Delaware corporation having its principal executive
offices at 8324 Delgany Avenue Playa del Rey, California 90293 (the "Company"),
and Peter W. Cunningham (the "Employee").
WITNESSETH:
WHEREAS, the Company and the Employee wish to enter into an Employment
Agreement in its entirety;
NOW, THEREFORE, the Company and the Employee hereby agree that, effective
as of August 1, 2003, the Employment Agreement is stated in its entirety to read
as follows:
1. Employment.
The Company agrees to employ the Employee, and the Employee agrees to remain in
the employ of the Company, during the term of this Agreement and on the other
terms and conditions hereafter set forth.
2. Term.
The term of this Agreement shall commence on August 1, 2003 (the "Commencement
Date") and shall terminate at the close of business on the first anniversary of
the Commencement Date unless sooner terminated in accordance with the terms of
this Agreement. Notwithstanding the foregoing, this agreement shall
automatically renew for additional one year terms on the second and third
anniversaries of the Commencement date, unless either party provides written
notice not less than 60 days prior to the renewal date that it does not intend
to renew the term of the Agreement. In the case of any such notice of
non-renewal, this Agreement shall expire on the day prior to the anniversary of
the Commencement Date.
3. Positions and Responsibilities; Place of Performance.
(a) Throughout the term of this Agreement, the Employee agrees to
remain in the employ of the Company, and the Company agrees to employ the
Employee, as the Chief Operating Officer of the Company, reporting to the
President, Chief Executive Officer and Board of Directors of the Company. As the
Chief Operating Officer of the Company, the Employee shall be a senior officer
of the Company and its subsidiaries, shall have effective participation in
supervision, control and policy-making authority over, and responsibility for,
the strategic direction and general leadership and management of the business
and affairs of the Company and its subsidiaries, subject only to the authority
of the President, CEO and Board, and shall have all of the powers, authority,
duties and responsibilities usually incident to the position and role of Chief
Operating Officer in public companies that are comparable in size, character and
performance to the Company. The Company agrees to use its best efforts to secure
the employee's election as a member of the Board during the term of this
Agreement, and the Employee agrees to serve as such without additional
compensation beyond that provided in this Agreement, or for additional
compensation as may be proposed by the Board.
(b) In connection with his employment by the Company, the Employee
shall be based at Orange County, California or at any other Company location, as
may be determined to be appropriate for the performance of Employee's duties,
and Employee agrees to travel, to the extent reasonably necessary to perform
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Employee's duties and obligations under this Agreement, to Company facilities
and other destinations elsewhere. It is envisioned that the Chief Operating
Officer shall spend a significant portion of his time in China, managing the
Company's operations there
During the term of this agreement the employee shall serve the company and shall
devote such time attention as may be reasonably required to perform the
responsibilities
(c) During the term of this Agreement, the Employee shall serve the
Company as his primary responsibility and shall devote his business time,
attention, skill and efforts to the faithful performance of his duties
hereunder; provided that the Employee may engage in commercial consulting
services in the healthcare industries, with the provision that if perceived or
potential conflicts arise, the Employee will notify the company in writing, and
the Employee and the Company will determine an effective way forward, so as to
not interfere with the with the objects, operations and benefits of the Company.
(d)It is envisioned that the commercial consulting activities of the
Employee may contribute relationships that will be beneficial to the Company.
Further, the Employee may serve as a member of the board of directors of other
companies (and retain remuneration for such service) if such activities and
service do not materially interfere with the performance of his duties and
responsibilities hereunder.
4. Compensation.
For all services rendered by the Employee in any capacity during the term of
this Agreement, and for his undertakings with respect to confidential
information, non-solicitation and disparaging remarks set forth in sections 6
and 7 below, the Employee shall be entitled to the following:
(a) a salary, payable in installments not less frequent than
monthly, at the annual rate of one hundred twenty thousand dollars (US$120,000
(in the lawful currency of the United States of America)), with such increases
in such rate, if any, as the Compensation Committee of the Board may approve
from time to time during the term of this Agreement. It is envisioned that the
increases will be based on achievement of targets agreed with the Board; (the
annual salary rate as increased from time to time during the term of this
Agreement being hereafter referred to as the "Base Salary", and the objective is
to bring the base salary in line with industry standards);
(b) participation in the Company's annual executive incentive or
bonus plan as in effect from time to time, with the opportunity to receive an
award in accordance with the terms and conditions of such plan, for each fiscal
year of the Company that commences or terminates during the term of this
Agreement, of up to 50% of the Base Salary earned during such year (or such
higher percentage as the Board or a committee of the Board may allow from time
to time during the term of this Agreement, the objective is to bring
compensation in line with industry standards), it being understood that any
award for the fiscal year of the Company in which the term of this Agreement
terminates pursuant to the terms hereof shall be prorated based on the portion
of such fiscal year that coincides with the term of this Agreement and shall be
made at the same time as awards (if any) are made to other participants with
respect to such fiscal year. This award will be given solely at the discretion
of the Board working in consultation with the compensation committee.
(c) participation in the Company's stock incentive plan / stock
grant plan as from time to time in effect, subject to the terms and conditions
of such plan. The Company shall provide a stock grant for the Employee of
250,000 shares deliverable in six equal installments, the first installment of
41,667 shares of stock will be delivered on August 1, 2003, the second
installment of 41,667 shares of the stock will be delivered on February 1, 2004,
third installment of 41,667 shares of the stock will be delivered on August 1,
2004, the forth installment of 41,667 shares of the stock will be delivered on
February 1, 2005, the fifth installment of 41,667 shares of the stock will be
delivered on August 1, 2005, the sixth installment of 41,667 shares of the stock
will be delivered on February 1, 2006 The shares should become fully registered
and unrestricted as soon as practical. Stock incentives / grants / warrants
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shall be awarded in accordance with the Company's stock incentive / grant /
warrant plans applicable to senior officers in the Company.
(d) for business use in China of an automobile and housing /
furnished accommodation at Company expense will be provided. Such accommodation
and transportation shall be reasonable and in line with industry standards for
companies similarly situated to the Company, with respect to foreign employees
in China.
(e) participation in all Company health plan, or reimbursement of
health insurance expenses paid by the Employee. Participation in all Company
welfare, savings and other employee benefit and fringe benefit plans (including
vacation pay plans or policies and life and disability insurance plans) in which
other senior officers of the Company participate during the term of this
Agreement, subject in all events to the terms and conditions of such plans as in
effect from time to time. Nothing in this paragraph (e) shall preclude the
Company from amending or terminating any such plan at any time. The plans
covered by this paragraph (e) shall not include the annual incentive or stock
incentive plans, which are covered by paragraphs (b) and (c) above.
5. Termination of Employment.
(a) Termination by the Company without Good Cause. (i) If the
Employee's employment with the Company is terminated by the Company without Good
Cause the employee will be paid three month of his base salary, bonus accrued to
that time, unrestricted stock deliverable as of the date of termination, all
expenses due, retirement benefits and other compensation and benefits earned up
to that time
(b) Termination by the Company for Good Cause or by the Employee
without Good Reason. If, during the term of this Agreement, the Employee's
employment by the Company is terminated by the Company for Good Cause or by the
Employee without Good Reason, the Employee shall not be entitled to receive any
compensation under section 4 above accruing after the date of such termination
or any payment under paragraph 5(a) above, but he shall be entitled to receive
deliverable as of such date, expenses and relocation to Los Angeles, California,
USA. . However, the Company's obligations under sections 8, 9 and 10 shall not
be affected by such termination of employment. The provisions of this paragraph
6(b) shall be in addition to, and not in lieu of, any other rights and remedies
the Company may have at law or in equity or under any other provision of this
Agreement in respect of such termination of employment. However, if during the
term of this Agreement the Employee's employment is terminated by the Employee
without Good Reason and the Employee gives the Company at least 120 days'
advance notice of such termination, then the Employee shall not have any
obligation or liability to the Company under this Agreement in respect of such
termination of employment, but his obligations under Section 6 and 7 hereof
shall not be affected by such termination of employment.
(c) Good Cause Defined. For purposes of this Agreement, the Company
shall have "Good Cause" to terminate the Employee's employment during the term
of this Agreement only if:
(i) the Employee fails to substantially perform his duties
hereunder for any reason or fails to devote substantially all of his business
time to the affairs of the Company;
(ii) the Employee commits an act of dishonesty resulting or
intended to result directly or indirectly in gain or personal enrichment at the
expense of the Company;
(iii) the Employee is grossly negligent or engages in willful
misconduct or insubordination in the performance of his duties hereunder; or
(iv) the Employee materially breaches his obligations under
section 6 or paragraph 7(a) below, relating to confidential information and
non-solicitation.
Any foregoing provision of this paragraph 5(c) to the contrary notwithstanding,
the Company shall not have "Good Cause" to terminate the Employee's employment
during the term of his employment after a Change in Control or Potential Change
in Control (as such terms are defined in section 11 below) unless (A) the
Employee's act or omission is willful and has a material adverse effect upon the
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Company, (B) the Board of Directors gives the Employee (I) written notice
warning of its intention to terminate the Employee for Good Cause if the
specified act or omission alleged to constitute Good Cause is not discontinued
and, if curable, cured, and (II) a reasonable opportunity after receipt of such
written notice, but in no event less than eight weeks, to discontinue and, if
curable, cure the conduct alleged to constitute Good Cause, and (C) the Employee
fails to discontinue and, if curable, cure the act or omission in question;
provided that clauses (B) and (C) of this sentence shall not apply with respect
to misconduct on the part of the Employee that constitutes a felony in the
jurisdiction in which the Employee engages in such misconduct, and, provided
further, that this sentence shall not apply to conduct involving moral
turpitude. For all purposes of this Agreement, no act, or failure to act, on the
Employee's part shall be deemed "willful" unless done, or omitted to be done, by
him intentionally and in bad faith (i.e., without reasonable belief that his
action or omission was in furtherance of the interests of the Company or a
subsidiary of the Company).
(d) Good Reason Defined. For purposes of this Agreement, the Employee
shall have "Good Reason" to terminate his employment during the term of this
Agreement only if:
(i) the Company fails to pay or provide any amount or benefit that
the Company is obligated to pay or provide under section 4 above or section 8, 9
or 10 below and the failure is not remedied within 30 days after the Company
receives written notice from the Employee of such failure; or
(ii) the Company assigns the Employee duties, responsibilities or
reporting relationships not contemplated by section 3 above without his consent,
or limits his duties or responsibilities or power or authority contemplated by
section 3 above in any respect materially detrimental to him, and in either case
the situation is not remedied within 30 days after the Company receives written
notice from the Employee of the situation; or
(iii) a Change in Control occurs and as a result thereof either (A)
equity securities of the Company cease to be publicly-traded, or (B) the
Employee is not elected or designated to serve as the sole Chief Operating
Officer of the surviving company; or
(vi) a Change in Control or Potential Change in Control occurs and
(A) the dollar value of the stock optioned to the Employee annually thereafter
is less than the average annual dollar value of the stock that was optioned to
the Employee during the one year prior to the Change in Control or Potential
Change in Control, or (B) the material terms of such options (including without
limitation vesting schedules) are less favorable to the Employee than the
material terms of the options that were granted to the Employee during the one
year prior to the Change in Control or Potential Change in Control, and in
either case (A) or (B) the situation is not remedied within 30 days after the
Company receives written notice from the Employee of the situation.
In no event shall the Employee's continued employment after any of the foregoing
constitute his consent to the act or omission in question, or a waiver of his
right to terminate his employment for Good Reason hereunder on account of such
act or omission.
6. Confidential Information.
The Employee agrees not to disclose, either while in the Company's employ or at
any time thereafter, to any person not employed by the Company, or not engaged
to render services to the Company, except with the prior written consent of an
authorized officer of the Company or as necessary or appropriate for the
performance of his duties hereunder, any confidential information obtained by
him while in the employ of the Company, including, without limitation,
information relating to any of the inventions, processes, formulae, plans,
devices, compilations of information, research, methods of distribution,
suppliers, customers, client relationships, marketing strategies or trade
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secrets of the Company or any subsidiary thereof; provided, however, that this
provision shall not preclude the Employee from use or disclosure of information
known generally to the public or of information not generally considered
confidential by persons regularly engaged in the business conducted by the
Company or any subsidiary thereof, or from disclosure required by law or court
order. The Employee also agrees that upon leaving the Company's employ he will
not take with him, without the prior written consent of an authorized officer of
the Company, and he will surrender to the Company, any record, list, drawing,
blueprint, specification or other document or property of the Company or any
subsidiary thereof, together with any copy or reproduction thereof, mechanical
or otherwise, which is of a confidential nature relating to the Company or any
subsidiary thereof, or without limitation, relating to its or their methods of
distribution, suppliers, customers, client relationships, marketing strategies
or any description of any formulae or secret processes, or which was obtained by
him or entrusted to him during the course of his employment with the Company.
7. Restrictive Covenants
(a) Non-Solicitation. Employee covenants and agrees that, during his
employment by the Company and during the one year period immediately following
the termination of his employment with the Company for any reason (including,
without limitation, a termination of employment by the Company without cause and
a voluntary termination of employment by the Employee with Good Reason), he will
not solicit or attempt to persuade any employee of the Company, its subsidiaries
or affiliates (except the Employee's personal secretary or administrative
assistant), or any other person who performs services for the Company, its
subsidiaries or affiliates at the time the Employee's employment terminates or
at any time within one year thereafter, to terminate or reduce or refrain from
engaging in his or her employment or other service relationship with the
Company, its subsidiaries or affiliates; provided, however, that responding to
inquiries from any such employees or other persons that are not initiated by the
Employee, and subsequently hiring such employees or other persons following the
termination of their employment with the Company, its subsidiaries and
affiliates shall be permitted.
(b) Specific Enforcement. Employee recognizes and agrees that, by
reason of his knowledge, experience, skill and abilities, his services are
extraordinary and unique, that the breach or attempted breach of any of the
restrictions set forth above in this section 7 will result in immediate and
irreparable injury for which the Company will not have an adequate remedy at
law, and that the Company shall be entitled to a decree of specific performance
of those restrictions and to a temporary and permanent injunction enjoining the
breach thereof, and to seek any and all other remedies to which the Company may
be entitled, including, without limitation, monetary damages, without posting
bond or furnishing security of any kind.
(c) Restrictions Reasonable. Employee specifically and expressly
represents and warrants that (i) he has reviewed and agreed to the restrictive
covenants contained in this section 7 and their contemplated operation after
receiving the advice of counsel of his choosing; (ii) he believes, after
receiving such advice, that the restrictive covenants and their contemplated
operation are fair and reasonable; (iii) he will not seek or attempt to seek to
have the restrictive covenants declared invalid, and, after receiving the advice
of counsel, expressly waives any right to do so; and (iv) if the full breadth of
any restrictive covenant and/or its contemplated operation shall be held in any
fashion to be too broad, such covenant or its contemplated operation, as the
case may be, shall be interpreted in a manner as broadly in favor of the
beneficiary of such covenant as is legally permissible. Employee recognizes and
agrees that the restrictions on his activities contained in this section 7 are
required for the reasonable protection of the Company and its investments; and
that the restriction on his activities set forth in paragraph 7(a) will not
deprive the Employee of the ability to earn a livelihood.
(d) Non-Disparagement. Employee covenants and agrees that, during
the one year period immediately following the termination of his employment with
the Company for any reason (including, without limitation, a termination of
employment by the Company without cause and a voluntary termination of
employment by the Employee with Good Reason), he will not make disparaging
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remarks about the Company, its subsidiaries or affiliates or any of their
officers, directors or employees, unless required by law or reasonably necessary
to assert or defend his position in a bona fide dispute arising out of or
relating to this Agreement or the breach thereof.
(e) Effect on Termination Payments. The Employee recognizes and
agrees that the Company shall not be obligated to make any payments provided for
in paragraph 5(a) above if the Employee violates the provisions of section 6 or
paragraph 7(a) or 7(d) above during the one year period immediately following
the termination for any reason of his employment with the Company. In addition,
the Employee recognizes and agrees that, if the Employee violates such
provisions, the Company may recoup any payments the Company may have theretofore
made pursuant to paragraph 5(a) above and any payments the Company may
thereafter make under paragraph 5(a). The foregoing provisions of this paragraph
7(e) shall be in addition to and not by way of limitation of any other rights
and remedies the Company may have in respect of the violation in question.
8. Indemnification
To the fullest extent permitted by applicable law, the Company shall indemnify,
defend and hold harmless the Employee from and against any and all claims,
demands, actions, causes of action, liabilities, losses, judgments, fines, costs
and expenses (including reasonable attorneys' fees and settlement expenses)
arising from or relating to his service or status as an officer, director,
employee, agent or representative of the Company or any subsidiary of the
Company or in any other capacity in which the Employee serves or has served at
the request of, or for the benefit of, the Company or its subsidiaries. The
Company's obligations under this section 8 shall be in addition to, and not in
derogation of, any other rights the Employee may have against the Company to
indemnification or advancement of expenses, whether by statute, contract or
otherwise. Director's insurance shall be provided by the company and Errors and
Omissions insurance shall be provided by the company.
9. Certain Additional Payments by the Company, Excise Tax and or
Additional Income Tax or Other
(a) Anything in this Agreement (other than the second sentence of
this paragraph 9(a)) to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Employee (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, but determined without
regard to any additional payments required under this section 9) (a "Payment"),
would be subject to the excise tax imposed by Section 4999 of the United States
Internal Revenue Code (the "Code") or any other such tax in any jurisdiction,
including additional income tax, and interest or penalties are incurred by the
Employee with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), or any other such tax in any jurisdiction, then the Employee
shall be entitled to receive an additional payment (an "Gross-Up Payment") in an
amount such that after payment by the Employee of all taxes and any benefits
that result from the deductibility by the Employee of such taxes (including, in
each case, any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax, Additional Income Tax, or any
other such tax imposed upon the Gross-Up Payment, the Employee retains an amount
of the Gross-Up Payment equal to the Excise Tax or Additional Income Tas imposed
upon the Payments. However, if it shall be determined that none of the Payments
would be subject to the Excise Tax if the total Payments were reduced in the
aggregate by $50,000 or less, then in that event the total Payments shall be
reduced by the smallest amount (in no event to exceed $50,000 in the aggregate)
necessary to ensure that none of the Payments will be subject to the Excise Tax.
The decision as to which Payments shall be so reduced shall be made by the
Employee.
(b) Subject to the provisions of paragraph 9(a) above and 9(c)below,
all determinations required to be made under this section 9, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, and
whether Payments are to be reduced pursuant to the second sentence of paragraph
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9(a) above, shall be made by Deloitte & Touche or such other certified public
accounting firm as may be designated by the Employee (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Employee within 15 business days of the receipt of notice from the Employee that
there has been a Payment, or such earlier time as is requested by the Company.
In the event that the Accounting Firm is serving as accountant or auditor for
the individual, entity or group effecting the "change in ownership or effective
control" or "change in the ownership of a substantial portion of assets" (within
the meaning of Code section 280G(b)(2)(A)) that gives rise to the Excise Tax, or
Additional Income Tax, the Employee shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this section 9, shall be paid by the
Company to the Employee within five days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Employee. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to paragraph 9(c) and the
Employee thereafter is required to make a payment of any Excise Tax, or
Additional Income Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment, along with any penalty
and interest imposed with respect to such Underpayment, shall be promptly paid
by the Company to or for the benefit of the Employee.
(c) The Employee shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require either the
payment by the Company of the Gross-Up Payment or the reduction of Payments
pursuant to the second sentence of paragraph 9(a) above. Such notification shall
be given as soon as practicable but no later than ten business days after the
Employee is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Employee shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Employee in writing
prior to the expiration of such period that it desires to contest such claim,
the Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest and penalties)
incurred in connection with such contest and shall indemnify and hold the
Employee harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this paragraph 9(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Employee to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and the Employee agrees
to prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine, provided, however, that if the Company directs the
Employee to pay such claim and sue for a refund, the Company shall advance the
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amount of such payment to the Employee, on an interest-free basis and shall
indemnify and hold the Employee harmless, on an after-tax basis, from any Excise
Tax or income tax (including interest or penalties with respect thereto) imposed
with respect to such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of the
Employee with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and the Employee shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Employee of an amount advanced by
the Company pursuant to paragraph 9(a) or 9(c), the Employee becomes entitled to
receive any refund with respect to such claim, the Employee shall (subject to
the Company's complying with the requirements of paragraph 9(c)) promptly pay to
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Employee of an amount advanced by the Company pursuant to paragraph 9(c), a
determination is made that the Employee shall not be entitled to any refund with
respect to such claim and the Company does not notify the Employee in writing of
its intent to contest such denial of refund prior to the expiration of 30 days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
10. Certain Enforcement Matters
(a) If, after a Change in Control or Potential Change in Control, a
dispute arises (i) with respect to this Agreement or the breach thereof, or (ii)
with respect to the Employee's or the Company's rights or obligations under this
Agreement, including but not limited to any such dispute between the Employee
and the Company, the Company shall pay or reimburse the Employee for all
reasonable costs and expenses (including court costs, arbitrators' fees and
reasonable attorneys' fees and disbursements) the Employee incurs in connection
with such dispute, including without limitation costs and expenses he incurs to
obtain payment or otherwise enforce his rights under this Agreement, or to
obtain payment of costs and expenses due under this paragraph 10(a). In
addition, the Company shall pay the Employee such additional amount (a "Gross
Up") as will be sufficient, after the Employee pays his tax liability with
respect to the Gross Up from the Gross Up, to pay all of his federal, state and
local tax liability with respect to any costs and expenses that are paid by the
Company pursuant to this paragraph 10(a). The Company shall promptly pay or
reimburse the Employee for all such costs and expenses as he incurs them, upon
presentation of reasonable documentation of such costs and expenses, and shall
promptly pay the related Gross Up as and when it pays or reimburses costs and
expenses. The Employee shall not be obligated to repay any such costs, expenses
or Gross Up unless it is finally determined by the trier of fact in a
non-appealable judicial or arbitral decision or ruling (as applicable) that the
Employee's principal positions with respect to the principal matter(s) in
dispute were unreasonable and pursued in bad faith.
(b) Any payments to which the Employee may be entitled under this
Agreement, including, without limitation, under section 5, 8, 9 or 10 hereof,
shall be made forthwith on the applicable date(s) for payment specified in this
Agreement. If for any reason the amount of any payment due to the Employee
cannot be finally determined on that date, such amount shall be estimated on a
good faith basis by the Company and the estimated amount shall be paid no later
than within 10 days after such date. As soon as practicable thereafter, the
final determination of the amount due shall be made and any adjustment requiring
a payment to or from the Employee shall be made as promptly as practicable.
(c) Any controversy or claim arising, after a Change in Control or
Potential Change in Control, out of or related to this Agreement or the breach
thereof, shall be settled by binding arbitration in the City of Los Angeles, in
accordance with the employment dispute arbitration rules of the American
Arbitration Association then in effect, and the arbitrator's decision shall be
binding and final and judgment upon the award rendered may be entered in any
court having jurisdiction thereof, except that the Employee may elect to have
any such controversy or claim settled by judicial determination in lieu of
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arbitration by bringing a court action, if he is the plaintiff or, if he is not
the plaintiff, demanding such judicial determination within the time to answer
any complaint in any arbitration action that may be commenced.
11. Change in Control
(a) The term "Change in Control" as used in this Agreement means a
change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), whether or not the Company is then
subject to such reporting requirement; provided that, whether or
not any of the following events would constitute a change of
control of such a nature, a Change in Control shall be deemed to
occur for purposes of this Agreement if and when any of the
following events occur:
(i) any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act), other than--
(A) the Company,
(B) a Subsidiary,
(C) a trustee or other fiduciary holding securities under
an employee benefit plan of the
Company or a Subsidiary, or
(D) an underwriter engaged in a distribution of Company
stock to the public with the Company's written consent, becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of Voting Securities that meet two tests: (I) they represent more than thirty
percent (30%) (this seems low to me, how about 40%) of the combined voting power
of the then outstanding Voting Securities, and (II) they also represent more
than the percentage of the combined voting power of the then outstanding Voting
Securities beneficially owned, directly or indirectly, at that time by Douglas
MacLellan and his associates (as defined in Rule 12b-2 under the Exchange Act)
(this definition is not very broad and would not include Madame Wang, That or
TriPoint). However, the second test stated in clause (II) above shall not apply
if the "person" in question is Douglas MacLellan and/or his associates (as
defined in Rule 12b-2 under the Exchange Act). In addition, if the "person" in
question is an institutional investor whose investment in Voting Securities is
purely passive when such person becomes the beneficial owner of Voting
Securities that meet the tests set forth in clause (I) and, if applicable, (II)
above, then such event (i.e., such person's becoming the beneficial owner of
such Voting Securities) shall not be deemed to constitute a Change in Control
under this subparagraph 11(a)(i) for so long as (and only for so long as) such
person's investment in Voting Securities remains purely passive;
(ii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or a
Subsidiary, reverse split of any class of Voting Securities, or an acquisition
of securities or assets by the Company or a Subsidiary, or consummation of any
such transaction if stockholder approval is not obtained, other than (A) any
such transaction in which the holders of outstanding Voting Securities
immediately prior to the transaction receive, with respect to such Voting
Securities (or, in the case of a transaction in which the Company is the
surviving corporation or a transaction involving a Subsidiary, retain), voting
securities of the surviving or transferee entity representing more than fifty
percent (50%) of the total voting power outstanding immediately after such
transaction, with the voting power of each such continuing holder relative to
other such continuing holders not substantially altered in the transaction, or
(B) any such transaction which would result in a Related Party beneficially
owning more than 50 percent of the voting securities of the surviving entity
outstanding immediately after such transaction;
(iii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
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by the Company of all or substantially all of the Company's assets other than
any such transaction which would result in a Related Party owning or acquiring
more than 50 percent of the assets owned by the Company immediately prior to the
transaction; or
(iv) the persons who were members of the Board of Directors of
the Company immediately before a tender or exchange offer for shares of Common
Stock by any person other than the Company or a Related Party, or before a
merger or consolidation of the Company or a Subsidiary, or contested election of
the Board of Directors of the Company, or before any combination of such
transactions, cease to constitute a majority of the Board of Directors of the
Company as a result of such transaction or transactions.
(b) For purposes of paragraph 11(a) above:
(i) the term "Related Party" shall mean (A) a Subsidiary, (B)
an employee or group of employees of the Company or any Subsidiary, (C) a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company or any Subsidiary, or (D) a corporation or other form of business
entity owned directly or indirectly by the stockholders of the Company in
substantially the same proportion as their ownership of Voting Securities;
(ii) the term "Subsidiary means a corporation or other form of
business association of which shares (or other ownership interests) having more
than 50% of the voting power are, or in the future become, owned or controlled,
directly or indirectly, by the Company; and
(iii) the term "Voting Securities" shall mean any securities
of the Company which carry the right to vote generally in the election of
directors.
(c) For purposes of this Agreement, a "Potential Change in Control"
means that (i) the Company enters into an agreement, the consummation of which
would result in the occurrence of a Change of Control; or (ii) the Board adopts
a resolution to the effect that, for purposes of this Agreement, a potential
change in control of the Company has occurred.
12. Severability; Survival
(a) In the event that any provision of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement not so invalid or unenforceable shall be unaffected
thereby and shall remain in full force and effect to the fullest extent
permitted by law; and
(b) Any provision of this Agreement which may for any reason be
invalid or unenforceable in any jurisdiction shall remain in effect and be
enforceable in any jurisdiction in which such provision shall be valid and
enforceable.
(c) The provisions of sections 6, 7, 8, 9 and 10 of this
Agreement, and any other provision of this Agreement which is intended to apply,
operate or have effect after the expiration or termination of the term of this
Agreement, or at a time when the term of this Agreement may have expired or
terminated, shall survive the expiration or termination of the term of this
Agreement for any reason.
13. General Provisions
(a) No right or interest to or in any payments to be made under
this Agreement shall be subject to anticipation, alienation, sale, encumbrance,
pledge, charge or hypothecation or to execution, attachment, levy or similar
process, or assignment by operation of law. All payments to be made by the
Company hereunder shall be subject to the withholding of such amounts as the
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Company may determine it is required to withhold under the laws or regulations
of any governmental authority, whether foreign, federal, state or local.
(b) The Employee has the right to assign payments at his sole
discretion in part or in full to his personal retirement account, as the company
has not established a retirement or pension plan. The tax benefits or
liabilities of these assigned payments if any will accrue to the Employee.
(c) To the extent that the Employee acquires a right to receive
payments from the Company under this Agreement, such right shall be no greater
than the right of an unsecured general creditor of the Company. All payments to
be made hereunder shall be paid from the general funds of the Company and no
special or separate fund shall be established to assure payment of any amount
hereunder.
(d) This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of California, without giving effect to
the principles of conflicts of laws of that State.
(e) This Agreement shall be binding upon and inure to the benefit of
the Company, its successors and assigns, and the Employee, his heirs, devisees,
distributees and legal representatives.
(f) Any notice or other communication to the Company pursuant to any
provision of this Agreement shall be given in writing and will be deemed to have
been delivered:
(i) when delivered in person to the Corporate Secretary or
General Counsel of the Company; or
(ii) one week after it is deposited in the United States
certified or registered mail, postage prepaid, addressed to the Corporate
Secretary of the Company at 8324 Delgany Avenue Playa del Rey, California 90293
or at such other address of which the Company may from time to time give the
Employee written notice in accordance with paragraph 13(g) below.
(g) Any notice or other communication to the Employee pursuant to
any provision of the Agreement shall be given in writing and will be deemed to
have been delivered:
(i) when delivered to the Employee in person, or
(ii) one week after it is deposited in the United States
certified or registered mail, postage prepaid, addressed to the Employee at his
address as it appears on the records of the Company or at such other address of
which the Employee may from time to time give the Company written notice in
accordance with paragraph 13(e) above.
(h) No provision of this Agreement may be amended, modified or
waived unless such amendment, modification or waiver shall be agreed to in a
writing signed by the Employee and an authorized officer of the Company.
(i) This instrument contains the entire agreement of the parties
relating to the subject matter of this Agreement and supersedes and replaces all
prior agreements and understandings with respect to such subject matter, and the
parties have made no agreements, representations or warranties relating to the
subject matter of this Agreement which are not set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AXIOM PHARMACEUTICALS, INC.
By: /s/ That Ngo
-------------
That Ngo,
President
/s/ Peter Cunningham
--------------------
Employee
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