Executive Employment Agreement - Star Scientific Inc., Jonnie R. Williams and Paul L. Perito
STAR SCIENTIFIC, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement") is entered into
as of April 27, 1999, by and among STAR SCIENTIFIC, INC., a Delaware corporation
(the "Company"), JONNIE R. WILLIAMS ("Williams"), and PAUL L. PERITO
("Executive").
Recitals
A. The Company is engaged in the research, development and
commercialization of smoking cessation products and reduced-risk smoking
products, and the manufacture and sale of discount cigarettes with activated
charcoal filters and low TSNA Star-Cured tobacco to be phased in over the next
three years.
B. Williams is a substantial shareholder (actual and/or beneficial),
and/or officer and/or director of the Company.
C. Executive is an attorney and partner in the law firm of Paul,
Hastings, Janofsky & Walker, LLP ("PHJW") and Chair of the Washington, D.C.,
litigation practice of PHJW.
D. The Company wishes to employ Executive and to have the benefit of
his skills and services, and Executive wishes to be employed by the Company, as
Executive Vice President, General Counsel and Secretary of the Company, on the
terms and subject to the conditions set forth herein.
E. Executive, as a condition to his resigning his partnership with PHJW
and entering into this Agreement requires that Williams pledge 1,500,000 of the
Company's shares owned by Williams to secure the payment and performance of the
Company's obligations hereunder, and Williams is willing to pledge such shares
in order to induce Executive to forgo his partnership and join the senior
management of the Company.
Agreement
NOW, THEREFORE, in consideration of these premises, the mutual
covenants and agreements of the parties hereunder, and for other good and
valuable consideration the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Employment and Duties.
a. Position. The Company hereby employs Executive, and
Executive hereby accepts employment with the Company, as Executive Vice
President, General Counsel and Secretary of the Company.
<PAGE> 2
b. Duties. Executive agrees to devote his best efforts, and
shall have primary responsibility within the Company, to oversee and manage (i)
the legal affairs of the Company, including all matters concerning the Company's
corporate governance and structure, securities laws and other regulatory
compliance, employment laws compliance and counseling, contract negotiation and
dispute resolution, and litigation involving the Company, (ii) government
relations and lobbying concerning the Company's business and affairs, (iii)
public relations concerning the Company's business and affairs, and (iv) such
other duties, including management and oversight functions, consistent with the
foregoing, assigned to him by the Board of Directors of the Company (the "Board
of Directors"). Executive shall perform his duties in a trustworthy,
businesslike and loyal manner.
c. Authority to Select Counsel and Government and Public
Relations Professionals. Executive shall have sole authority, subject only to
confirmation and ratification by the Board of Directors, to select all outside
counsel, lobbyists and other government relations professionals, and public
relations professionals as Executive deems necessary and appropriate in the
performance of his duties hereunder.
d. Reporting. Executive shall report to the Board of
Directors.
e. Place of Employment. The Company shall establish and pay
all costs associated with an office for Executive as well as for the scientific
and regulatory functions of the company, at a location selected by Executive.
Executive shall perform the services required by this Agreement at such office
except that Executive shall perform the services required by this Agreement at
the Company's Petersburg, VA offices at least one day each week.
f. Change of Duties. The duties of Executive may be modified
from time to time by the mutual consent of the Company and Executive without
resulting in a rescission of this Agreement. The mutual written consent of the
Company and Executive shall constitute execution of that modification.
Notwithstanding any such change, the employment of Executive shall be construed
as continuing under this Agreement as so modified.
g. Devotion of Time to Company's Business. During the Term of
this Agreement (as such term is defined in Section 1.i. hereof), Executive
agrees (i) to devote seventy percent (70%) of his entire productive time,
ability and attention to the business of the Company during normal working
hours, the Company acknowledging and agreeing that Executive may devote up to
thirty percent (30%) of his time to his duties as Senior Counsel with PHJW, (ii)
not to engage in any other business duties or business pursuits whatsoever,
other than as Senior Counsel with PHJW or such other law firm as Executive may
become affiliated with in a capacity substantially similar to that of Senior
Counsel with PHJW, (iii) whether directly or indirectly, not to render any
services of a commercial or professional nature to any individual, trust,
partnership, company, corporation, business, organization, group or other entity
(each, a "Person"), other than as Senior Counsel with PHJW or such other law
firm as Executive may become affiliated with in a capacity substantially similar
to that of Senior Counsel with PHJW,
-2-
<PAGE> 3
whether for compensation or otherwise, without the prior written consent of the
Board of Directors, and (iv) whether directly or indirectly, not to acquire,
hold or retain more than a one percent (1%) interest in any business competing
with or similar in nature to the business of the Company or any of its
Affiliates (as such term is defined below); provided, however, the expenditure
of reasonable amounts of time for litigation support, book project, charitable,
professional educational or professional activities or, subject to the
foregoing, the making of passive personal investments shall not be deemed a
breach of this Agreement or require the prior written consent of the Company if
those activities do not materially interfere with the services required of
Executive under this Agreement. For purposes of this Agreement, "Affiliates"
shall mean any Person that, directly or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
the Company.
h. Executive's Continuing Relationship With PHJW. The Company
acknowledges that Executive will continue to have a business relationship with
PHJW as Senior Counsel with PHJW or such other law firm as Executive may become
affiliated with in a capacity substantially similar to that of Senior Counsel
with PHJW, and that in such capacity as Senior Counsel to PHJW, Executive will
devote up to thirty percent (30%) of his entire productive time, ability and
attention to the business of PHJW and its clients. The Company expressly
consents to such continuing business relationship and acknowledges that
Executive will be compensated by PHJW for his thirty percent (30%) commitment,
none of which compensation will be related to any fees paid by the Company to
PHJW for professional services performed by other lawyers and paraprofessionals.
i. Term. Unless sooner terminated as provided in Section 4
hereof the term of this Agreement shall commence on June 15, 1999, or such later
date Executive actually commences work hereunder by mutual agreement of the
parties, and shall continue until June 15, 2002 (the "Initial Term"), and shall
be renewable for successive one (1) year terms (each, a "Renewal Term") at the
option of the Company. Notice of renewal or, if applicable, the Company's option
not to renew, shall be given to Executive in writing at least one hundred twenty
(120) days prior to the end of the Initial Term or the applicable Renewal Term,
as the case may be. The Initial Term, together with any Renewal Terms shall be
referred to in this Agreement as the "Term of this Agreement."
j. Observance of Company Rules, Regulations and Policies.
Executive shall duly, punctually and faithfully perform and observe any and all
rules, regulations and policies which the Company may now or hereafter
reasonably establish governing the conduct of its business or its employees to
the extent such rules, regulations and policies are not in conflict with this
Agreement. Executive shall promptly provide written notice to the Board of
Directors of any such apparent conflict of which Executive becomes aware.
-3-
<PAGE> 4
2. Compensation.
a. Base Salary. During the Term of this Agreement, the Company
shall pay to Executive a base salary of Six Hundred Thousand Dollars ($600,000)
per year (the "Base Salary"), subject to increase from time to time in the good
faith discretion of the Board of Directors, payable in arrears on a monthly or
semi-monthly basis in accordance with the Company's standard payroll procedures
in effect at the time of payment.
b. Signing Bonus. In order to induce Executive to enter into
this Agreement and resign his partnership with PHJW, Executive shall be paid a
signing bonus in the amount of Two Hundred Fifty Thousand Dollars ($250,000)
which shall be paid to Executive in four installments as follows: (i) $100,000
shall be paid upon execution and delivery of this Agreement, (ii) $50,000 shall
be paid on or before the date one month after the date of this Agreement, (iii)
$50,000 shall be paid on or before the date two months after the date of this
Agreement, and (iv) the final $50,000 shall be paid on or before the date three
months after the date of this Agreement.
c. Annual Bonus. In addition to the Base Salary, the Company
shall pay to Executive, on or before March 31 of each year, annual bonuses based
on the Company's financial performance, and/or the increase in the fair market
value of the Company's stock, and/or Executive's performance as follows:
i. For the period April 27, 1999, through
December 31, 1999, the Company shall pay Executive a bonus in an amount to be
determined by the Board of Directors but not less than the sum of Two Hundred
Fifty Thousand Dollars ($250,000), based upon (A) the performance of the Company
as reflected by increases in the Company's stock price during such period,
and/or (B) the Company maintaining positive earnings for such period, and/or (C)
the performance of Executive during such period.
ii. For the period January 1, 2000, through December
31, 2000, the Company shall pay Executive a bonus in an amount to be determined
by the Board of Directors but not less than the sum of Two Hundred Fifty
Thousand Dollars ($250,000) if either (A) the Company's gross revenues for the
year ending December 31, 2000, increase by fifty percent (50%) or more over the
year ending December 31, 1999, and/or (B) if the price of the Company's common
stock, determined based on the average daily bid price on the NASDAQ for the
Company's stock during either (1) the thirty (30) day period ending on December
31, 2000, and/or (2) any ninety (90) day period during the period January 1,
2000, through December 31, 2000, increases by fifty percent (50%) or more over
such price for the thirty (30) day period ending on December 31, 1999.
iii. For the period January 1, 2001, through December
31, 2001, the Company shall pay Executive a bonus in an amount to be determined
by the Board of Directors but not less than the sum of Two Hundred Fifty
Thousand Dollars ($250,000) if either (A) the
-4-
<PAGE> 5
Company's gross revenues for the year ending December 31, 2001, increase by
twenty-five percent (25%) or more over the year ending December 31, 2000, and/or
(B) if the price of the Company's common stock, determined based on the average
daily bid price on the NASDAQ for the Company's stock during either (1) the
thirty (30) day period ending on December 31, 2001, and/or (2) any ninety (90)
day period during the period January 1, 2001, through December 31, 2001,
increases by twenty-five percent (25%) or more over such price for the thirty
(30) day period ending on December 31, 2000.
iv. For each calendar year of this Agreement after
December 31, 2001, or partial year if this Agreement terminates prior to the end
of such year, the Company shall pay Executive a bonus in an amount to be
determined by the Board of Directors but not less than the sum of Two Hundred
Fifty Thousand Dollars ($250,000) based upon (A) the performance of the Company
as reflected by increases in the Company's stock price during such year, and/or
(B) the Company maintaining positive earnings for such year, and/or (C) the
performance of Executive during such year. If this Agreement terminates prior to
the end of such a year, then the bonus shall be payable to Executive on the date
this Agreement terminates.
d. Stock Sale. In order to encourage Executive's contribution
to the successful performance of the Company and as additional consideration to
induce Executive to resign his Partnership with PHJW, the Company shall sell Two
Million shares of the Company's common stock to Executive for One Dollar ($1.00)
per share. The purchase price shall be payable by Executive's execution and
delivery to the Company of a promissory note (the "Purchase Note"), to be dated
as of even date herewith, in the original principal amount of Two Million
Dollars ($2,000,000.00), payable to the order of the Company, bearing interest
at seven percent (7%) per annum. The Note shall be payable interest only
annually in arrears on the anniversary date of the Note with the entire unpaid
balance of the Note, if not sooner paid, due and payable in full on the fifth
(5th) anniversary of the date of the Note. The Note shall be non-recourse as to
Executive as to accrued interest and as eighty-five percent (85%) of the
principal amount of the Note.
e. Stock Option.
i. Qualified Stock Option. The parties acknowledge
and agree that, as additional incentive to Executive, Executive shall be
granted, immediately upon execution of this Agreement, a qualified stock option
(the "Option") to purchase one million (1,000,000) shares of Common Stock of the
Company at an exercise price of One and Eleven-Sixteenths Dollars ($1-11/16) per
share pursuant to an option agreement on the Company's standard form under its
1998 Stock Option Plan (the "Plan"). Subject to the forfeiture provision and
repurchase right of the Company described below, the option agreement shall
provide that:
ii. Vesting. Upon execution and delivery of this
Agreement, the Option shall be fully vested.
-5-
<PAGE> 6
iii. Termination. The Option shall immediately
terminate upon the earlier to occur of (A) March 1, 2009, or (B) the effective
date of termination of this Agreement by the Company for Cause (as such term in
defined in Section 4(c) hereof) or by the Executive without Good Reason (as such
term in defined in Section 4(f) hereof).
iv. Accelerated Termination and Forfeiture of
Option; Company Repurchase Right. On the effective date of termination of this
Agreement by the Company for Cause under Section 4(c) of this Agreement, or by
the Executive under Section 4(e), as the case may be, (A) the Option shall
immediately terminate and revert to the Company (including all vested but
unexercised shares subject to the Option); and (B) any and all shares issued
upon exercise of the Option on or prior to such effective date of termination or
date of notice shall be subject to a repurchase right in favor of the Company at
a purchase price equal to the exercise price of such shares.
v. Disposition Transaction. Upon the
occurrence of a Disposition Transaction, as defined below, Executive shall be
entitled to receive for each share of common stock then owned by Executive and
for each vested but unexercised share subject to the Option, consideration per
share of not less than, and payable on the same terms as, the consideration per
share received by Francis O'Donnell, Jr., M.D., Williams, and/or Regent Court
Technologies, L.L.C., as a result of the Disposition Transaction, and/or to
participate on terms no less favorable than terms available to Francis
O'Donnell, Jr., M.D., Williams, and/or Regent Court Technologies, L.L.C., in the
case of a Deposition Transaction involving issuance by the Company of shares of
its stock in an offering pursuant to a registration statement filed with the
Securities Exchange Commission. A "Disposition Transaction" shall occur if at
any time after the date hereof, the Company, Francis O'Donnell, Jr., M.D.,
Williams, or Regent Court Technologies, L.L.C., or any combination thereof (1)
accepts any offer to purchase thirty percent (30%) or more of the aggregate
shares of capital stock of the Company actually or beneficially owned by Francis
O'Donnell, Jr., M.D., Williams, and/or Regent Court Technologies, L.L.C., and/or
(2) accepts any offer to purchase shares of the capital stock of the Company
constituting at least fifty percent (50%) of all of the then outstanding shares
of the Company, and/or (3) accepts any offer to merge or consolidate the
Company, or enter into a share exchange, with another corporation or entity,
and/or (4) accepts any offer to sell all or substantially all of the assets of
the Company, and/or (5) accepts any other offer to enter into a transaction the
result of which will be to transfer voting control of the Company to any party
other than Francis O'Donnell, Jr., M.D., Williams, and/or Regent Court
Technologies, L.L.C., and/or (6) enters into any agreements in connection with,
or undertakes, the issuance of shares of the Company's stock in an offering
pursuant to a registration statement filed with the Securities Exchange
Commission. The Company and Williams each covenant and agree not to enter into
any Disposition Transaction that does not expressly recognize and give effect to
the terms of this Section 2.e.v.
f. Incentive Plans. In addition to all other benefits and
compensation provided by this Agreement, Executive shall be eligible to
participate in such of the Company's equity, compensation and incentive plans as
are generally available to any of the management
-6-
<PAGE> 7
executives of the Company, including without limitation any executive and
performance bonus or incentive plans.
g. Vacation. Executive shall be entitled to such annual
vacation time with full pay as the Company may provide in its standard policies
and practices for any other management executives; provided, however, that in
any event Executive shall be entitled to a minimum of twenty (20) days annual
paid vacation time.
h. Directors and Officers Liability Insurance; Professional
Liability Insurance. Executive shall be entitled to participation in, and have
the benefit of directors and officers liability insurance providing coverage in
an amount of less than that provided by the Company for its Chief Executive
Officer and/or Chairman of the Board. The Company shall acquire and maintain
professional liability insurance for Executive insuring against any claims
against Executive arising from his performance of legal services to the Company
while acting in his capacity as an officer and employee of the Company.
i. Term Life Insurance. The Company shall acquire a term life
insurance policy in the amount of $1,500,000 substantially similar to the policy
maintained by PHJW with the Perito 1995 Family Trust U/A/D 53195, Robin Crawford
Perito, Trustee, as beneficiary thereunder, and shall pay the premiums due on
such policy and maintain such policy in full force and effect during the Term of
this Agreement.
j. Disability Insurance. The disability insurance policy
maintained by PHJW for Executive providing disability benefits in the amount of
$35,000 per month, will be assumed by the Company, or replaced with a
substantially similar policy if such policy is not assumable, and the Company
shall pay the premiums due on such policy and maintain such policy in full force
and effect during the Term of this Agreement.
k. Automobile. The Company will furnish Executive with an
automobile equipped with a car telephone and will reimburse Executive all
reasonable costs and expenses relating to Executive's use of such automobile and
car telephone, including without limitation, amounts incurred for insurance, gas
and general maintenance and repairs.
l. Mobile Telephone. Executive shall have use of a wireless
mobile telephone of his choice and the Company will be responsible for payment
of all business usage charges and all usual operational and maintenance expenses
associated with the use by Executive of such telephone.
m. Club Dues. The Company shall reimburse Executive for
monthly and/or annual dues related to Executives membership in the City Club,
Georgetown Club, University Club and Kenwood Golf Club.
-7-
<PAGE> 8
n. Outside Counsel for Executive. In order for Executive to
have the benefit of counsel independent of PHJW to advise and counsel Executive
with respect to the employment issues relating to terms of this Agreement, the
Company shall pay the reasonable attorneys' fees and expenses incurred by
Executive in connection with such advise and counsel and the drafting and
execution of this Agreement.
o. Other Benefits. Executive shall participate in and have the
benefits of all present and future vacation, holiday, paid leave, unpaid leave,
life, accident, disability, dental, vision and health insurance plans, pension,
profit-sharing and savings plans and all other plans and benefits which the
Company now or in the future from time to time makes available to any of its
management executives.
i. Withholding. The parties shall comply with all applicable
legal withholding requirements in connection with all regular monthly and/or
bi-monthly compensation payable to Executive hereunder.
3. Expense Reimbursement.
a. General Business Expenses. The Company shall reimburse
Executive for all business travel and other out-of-pocket expenses reasonably
incurred by Executive in the course of performing his duties hereunder this
Agreement. All reimbursable expenses shall be appropriately documented and shall
be in reasonable detail and in a format and manner consistent with the Company's
expense reporting policy, as well as applicable federal and state tax record
keeping requirements.
b. Professional Educational Expenses and Fees. In addition,
the Company shall reimburse Executive for (i) all reasonable expenses incurred
for continuing education courses required to maintain Executive's professional
status and bar membership as an attorney, and (ii) all reasonable professional
fees, licenses, and dues associated with Executive's professional status and bar
membership as an attorney.
4. Termination and Rights on Termination. This Agreement shall
terminate upon the occurrence of any of the following events:
a. Death. Upon the death of Executive, in which event the
Company shall, within thirty (30) days of receiving notice of such death, pay
Executive's estate all salary and other compensation hereunder, then due and
payable and all accrued vacation pay and bonuses, if any, in each case payable
or accrued through the date of death. In addition, the Company shall pay
Executive's estate, at the time or times otherwise payable under the terms of
this Agreement, all salary, benefits, bonuses, and other compensation that would
have been payable hereunder by the Company to Executive during the one year
period immediately following Executive's death.
-8-
<PAGE> 9
b. Disability. Upon the mental or physical Disability (as such
term is defined below) of Executive, in which event the Company shall, within
thirty (30) days following the determination of Disability, pay Executive all
salary then due and payable and all accrued vacation pay and bonuses, if any, in
each case payable or accrued through the date of determination. In addition, the
Company shall pay all salary, benefits, bonuses, and other compensation that
would have been payable hereunder by the Company to Executive during the one
year period immediately following Executive's disability. For purposes of this
Agreement, "Disability" shall mean a physical or mental condition, verified by a
physician designated by the Company, which prevents Executive from carrying out
one or more of the material aspects of his assigned duties for at least ninety
(90) consecutive days, or for a total of ninety (90) days in any six (6) month
period.
c. Termination by the Company For Cause. Upon delivery by the
Company to Executive of a written notice terminating this Agreement for Cause
(as such term is defined below), which notice shall be supported by a reasonably
detailed statement of the relevant facts and reasons for termination, in which
event the Company shall, within thirty (30) days following such termination, pay
Executive all salary then due and payable through the date of termination.
Executive shall not be entitled to any severance compensation or any accrued
vacation pay or bonuses. For purposes of this Agreement, "Cause" shall mean:
i. Executive shall have committed an act of
dishonesty, fraud, embezzlement or theft with respect to the property, business
or affairs of the Company, in any such event in such a manner as to cause
material loss, damage or injury to the Company;
ii. Executive shall have materially breached this
Agreement and such breach shall have continued for a period of twenty (20) days
after receipt of written notice from the Company specifying such breach;
iii. Executive shall have been grossly negligent in
the performance of his duties hereunder, intentionally not performed or
misperformed any of such duties, or refused to abide by or comply with the
directives of the Board of Directors, which action shall have continued for a
period of twenty (20) days after receipt of written notice from the Company
demanding such action cease or be cured;
iv. Executive shall have been found guilty of, or has
plead nolo contendere to, the commission of a felony offense or other crime
involving moral turpitude; or
v. Executive shall have abused alcohol or drugs
(legal or illegal) that, in the reasonable judgment of the Board of Directors,
materially impairs Executive's ability to perform his duties hereunder.
d. Termination by the Company Without Cause. Thirty (30) days
after delivery by the Company to Executive of a written notice terminating
Executive's employment
-9-
<PAGE> 10
under this Agreement for any reason without cause, in which event the Company
shall continue to pay Executive all salary, benefits, bonuses and other
compensation that would be due hereunder through the end of the Term of this
Agreement had the Company not terminated Executive's employment.
e. Voluntary Termination by Executive. Thirty (30) days after
delivery by Executive to the Company of a written notice terminating this
Agreement for any reason without cause, in which event the Company shall, within
thirty (30) days following the effective date of termination, pay Executive all
salary then due and payable through the date of termination. Executive shall not
be entitled to any severance compensation or any accrued vacation pay or
bonuses.
f. Termination by Executive for Good Reason. Thirty (30) days
after delivery by Executive to the Company of a written notice terminating this
Agreement for Good Reason (as such term is defined below), in which event the
Company shall pay Executive such amounts in such manner as provided for in
Section 4.d. hereof. For purposes of this Agreement, "Good Reason" shall mean:
i. The assignment of Executive to any duties
inconsistent with, or any adverse change in, Executive's positions, duties,
responsibilities, functions or status with the Company, or the removal of
Executive from, or failure to reelect Executive to, any of such positions;
provided, however, that a change in Executive's positions, duties,
responsibilities, functions or status that Executive shall agree to in writing
shall not be an event of Good Reason or give rise to termination under this
Section 4.f.;
ii. A reduction by the Company of Executive's Base
Salary without his written consent;
iii. The failure by the Company to continue in effect
for Executive any material benefit provided herein or otherwise available to any
of the management executives of the Company, including without limitation, any
retirement, pension or incentive plans, life, accident, disability or health
insurance plans, equity or cash bonus plans or savings and profit sharing plans,
or any action by the Company which would adversely affect Executive's
participation in or reduce Executive's benefits under any of such plans or
deprive Executive of any fringe benefit enjoyed by Executive; or
iv. Any other material breach by the Company of this
Agreement which is not cured within twenty (20) days of delivery of written
notice thereof by Executive to the Company.
g. Termination by Executive upon Disposition Transaction
and/or Certain Change of Management. Thirty (30) days after delivery by
Executive to the Company of a written notice terminating this Agreement upon (i)
the consummation of a Disposition
-10-
<PAGE> 11
Transaction, other than a Disposition Transaction described in Section 2.e.v.(6)
above, entered into prior to the later of June 15, 2000, or the date one year
after Executive's actual commencement of employment hereunder, or (ii) a change
in the senior management of the Company resulting from the death or disability
of Jonnie R. Williams, in which event the Company shall, within thirty (30) days
following the effective date of termination, pay Executive the sum of
$2,500,000. Although the parties have been advised that 26 U.S.C. 280G is not
applicable to any payment that may become due Executive hereunder, if 26 U.S.C.
280G is found to be applicable, then the Company shall pay any tax due by
Executive under Section 280G as a result of any payment to Executive under this
Section 4.g.. It is anticipated by the parties that payment that may become due
under (ii) above will be funded by one or more policies of life and/or
disability insurance to be purchased by the Company prior to June 15, 1999,
which provide for a benefit in the amount of $2,500,000 payable to Executive as
beneficiary under such policy or policies. In the event the Company purchases
such policy or policies by June 15, 1999, and thereafter maintains such policy
or policies in continuous and full force and effect during the term hereof, then
Executive agrees to look solely to such policy or policies for payment of any
amount due under (ii) above; provided, however, that in the event the Company
does not purchase such policy or policies and thereafter maintain such policy or
policies in continuous and full force and effect during the term hereof, then
the Company shall be directly and fully obligated to Executive for such payment.
h. Effect of Termination; Options. All rights and obligations
of the Company and Executive under this Agreement shall cease as of the
effective date of termination, except that the obligations of the Company under
this Section 4 and Executive's obligations under Sections 5 and 6 hereof shall
survive such termination in accordance with their respective terms. In addition,
notwithstanding anything to the contrary contained herein or in any agreement
with respect thereto, (i) upon termination of Executive's employment pursuant to
Section 4.c., all equity options, restricted equity grants and similar rights
held by Executive with respect to securities of the Company, including without
limitation the Option, shall, to the extent not then fully vested, immediately
terminate and revert to the Company, (ii) upon termination of Executive's
employment pursuant to Section 4.e., all equity options, restricted equity
grants and similar rights held by Executive with respect to securities of the
Company, including without limitation the Option, shall, remain in full force
and effect and shall not be affected by such termination, and (iii) upon
termination of Executive's employment pursuant to any other provision of this
Section 4, all equity options, restricted equity grants and similar rights held
by Executive with respect to securities of the Company, including without
limitation the Option, shall, to the extent not then fully vested, immediately
become fully vested.
i. No Termination by Merger; Transfer of Assets or
Dissolution. This Agreement shall not be terminated by any dissolution of the
Company resulting from either merger or consolidation in which the Company is
not the consolidated or surviving corporation or other entity or transfer of all
or substantially all of the assets of the Company. In such event, the rights,
benefits and obligations herein shall automatically be deemed to be assigned to
the
-11-
<PAGE> 12
surviving or resulting corporation or other entity or to the transferee of the
assets, as the case may be, with the consent of Executive.
5. Restriction on Competition.
a. Covenant Not to Compete. During the Term of this Agreement
and for a period of twelve (12) months from the termination of this Agreement,
Executive shall not, without the prior written consent of the Company, either
directly or indirectly, for himself or on behalf of or in conjunction with any
other Person (i) own, manage, operate, control, be employed by, participate in,
render services to, or be associated in any manner with the ownership,
management, operation or control of, any business similar to the type of
business conducted by the Company or any of its Affiliates within any of the
geographic territories in which the Company or any of its Affiliates conducts
business, (ii) solicit business of the same or similar type being carried on by
the Company or any of its Affiliates from any Person known by Executive to be a
customer of the Company or any of its Affiliates, whether or not Executive had
personal contact with such Person during and by reason of Executive's employment
with the Company, or (iii) endeavor or attempt in any way to interfere with or
induce a breach of any contractual relationship that the Company or any of its
Affiliates may have with any employee, customer, contractor, supplier,
representative or distributor.
b. No Breach for Activities Deemed Not Competitive. It is
further agreed that, in the event that Executive shall cease to be employed by
the Company and enter into a business or pursue other activities that, at such
time, are not in competition with the Company or any of its Affiliates,
Executive shall not be chargeable with a violation of this Section 5 if the
Company subsequently enters the same (or a similar) competitive business or
activity. In addition, if Executive has no actual knowledge that his actions
violate the terms of this Section 5, Executive shall not be deemed to have
breached the restrictive covenants contained herein if, promptly after being
notified by the Company of such breach, Executive ceases the prohibited actions.
c. Severability. The covenants in this Section 5 are severable
and separate, and the unenforceability of any specific covenant shall not affect
the provisions of any other covenant. If any provision of this Section 5
relating to the time period or geographic area of the restrictive covenants
shall be declared by a court of competent jurisdiction to exceed the maximum
time period or geographic area, as applicable, that such court deems reasonable
and enforceable, such time period or geographic area shall be deemed to be, and
thereafter shall become, the maximum time period or largest geographic area that
such court deems reasonable and enforceable and this Agreement shall
automatically be considered to have been amended and rensed~to reflect such
determination.
d. Fair and Reasonable. Executive has carefully read and
considered the provisions of this Section 5 and, having done so, agrees that the
restrictive covenants in this Section 5 impose a fair and reasonable restraint
on Executive and are reasonably required to
-12-
<PAGE> 13
protect the interests of the Company, its Affiliates and their respective
officers, directors, employees and stockholders. It is further agreed that the
Company and Executive intend that such covenants be construed and enforced in
accordance with the changing activities, business and locations of the Company
throughout the term of these covenants.
6. Confidential Information.
a. Confidential Information. Executive hereby agrees to hold
in strict confidence and not to disclose to any third party, other than
employees and agents of the Company or persons retained by the Company to
represent its interests, any of the valuable, confidential and proprietary
business, financial, technical, economic, sales and/or other types of
proprietary business information relating to the Company or any of its
Affiliates (including all trade secrets) in whatever form, whether oral,
written, or electronic (collectively, the "Confidential Information"), to which
Executive has, or is given (or has had or been given), access during the course
of his employment with the Company. It is agreed that the Confidential
Information is confidential and proprietary to the Company because such
Confidential Information encompasses technical know-how, trade secrets, or
technical, financial, organizational, sales or other valuable aspects of the
business and trade of the Company or its Affiliates, including without
limitation, technologies, products, processes, plans, clients, personnel,
operations and business activities. This restriction shall not apply to any
Confidential Information that (a) becomes known generally to the public through
no fault of the Executive, (b) is required by applicable law, legal process, or
any order or mandate of a court or other governmental authority to be disclosed,
or (c) is reasonably believed by Executive, based upon the advice of legal
counsel, to be required to be disclosed in defense of a lawsuit or other legal
or administrative action brought against Executive; provided, however, that in
the case of clause (b) or (c), Executive shall give the Company reasonable
advance written notice of the Confidential Information intended to be disclosed
and the reasons and circumstances surrounding such disclosure, in order to
permit the Company to seek a protective order or other appropriate request for
confidential treatment of the applicable Confidential Information.
b. Return of Company Property. In the event of termination of
Executive's employment with the Company for whatever reason or no reason, (a)
Executive agrees not to copy, make known, disclose or use, any of the
Confidential Information without the Company's prior written consent, and (b)
Executive or Executive's personal representative shall return to the Company (i)
all Confidential Information, (ii) all other records, designs, patents, business
plans, financial statements, manuals, memoranda, lists, correspondence, reports,
records, charts, advertising materials and other data or property delivered to
or compiled by Executive by or on behalf of the Company or its respective
representatives, vendors or customers that pertain to the business of the
Company or any of its Affiliates, whether in paper, electronic or other form,
and (iii) all keys, credit cards, vehicles and other property of the Company.
Executive shall not retain or cause to be retained any copies of the foregoing.
Executive hereby agrees that all of the foregoing shall be and remain the
property of the Company and the applicable Affiliates and be subject at all
times to their discretion and control.
-13-
<PAGE> 14
7. Corporate Opportunities.
a. Duty to Notify. During the Term of this Agreement, in the
event that Executive shall become aware of any business opportunity related to
the business of the Company, Executive shall promptly notify the Board of
Directors of such opportunity. Executive shall not appropriate for himself or
for any other Person other than the Company (or any Affiliate) any such
opportunity unless, as to any particular opportunity, the Board of Directors
fails to take appropriate action within thirty (30) days. Executive's duty to
notify the Board of Directors and to refrain from appropriating all such
opportunities for thirty (30) days shall neither be limited by, nor shall such
duty limit, the application of the general laws relating to the fiduciary duties
of an agent or employee.
b. Failure to Notify. In the event that Executive fails to
notify the Board of Directors or so appropriates any such opportunity without
the express written consent of the Board of Directors, Executive shall be deemed
to have violated the provisions of this Section notwithstanding the following:
i. The capacity in which Executive shall have
acquired such opportunity; or
ii. The probable success in the hands of the Company
of such opportunity.
8. Williams Stock Pledge. Williams shall pledge and grant
Executive a security interest and lien on 1,500,000 shares of the Company's
common stock to secure the full and timely payment and performance of all
obligations, agreements, covenants, conditions and liabilities of the Company to
Executive arising under this Agreement, such pledge to be evidenced by a pledge
agreement in form and substance satisfactory to Executive, which will be
prepared and which Williams shall execute and deliver as soon hereafter as is
reasonably practical. Williams shall take such actions and shall deliver such
stock certificates, stock powers and/or other documents to Harvey B. Cohen,
Esquire, to be held as agent of Executive, as reasonably may be necessary to
perfect the security interest and lien to be granted in favor of Executive by
Williams pursuant to this Section 8.
9. No Prior Agreements. Executive hereby represents and warrants
to the Company that the execution of this Agreement by Executive, his employment
by the Company, and the performance of his duties hereunder will not violate or
be a breach of any agreement with a former employer or any other Person.
Further, Executive agrees to indemnify and hold harmless the Company and its
officers, directors and representatives for any claim, including, but not
limited to, reasonable attorneys' fees and expenses of investigation, of any
such third party that such third party may now have or may hereafter come to
have against the Company or such other persons, based upon or arising out of any
noncompetition agreement, invention, secrecy or other agreement between
Executive and such third party that was in existence as of the effective date
-14-
<PAGE> 15
of this Agreement. To the extent that Executive had any oral or written
employment agreement or understanding with the Company, this Agreement shall
automatically supersede such agreement or understanding, and upon execution of
this Agreement by Executive and the Company, such prior agreement or
understanding automatically shall be deemed to have been terminated and shall be
null and void.
10. Representation. Executive acknowledges that he (a) has reviewed
this Agreement in its entirety, (b) has had an opportunity to obtain the advice
of separate legal counsel prior to executing this Agreement, and (c) fully
understands all provisions of this Agreement.
11. Assignment: Binding Effect. Executive understands that he has
been selected for employment by the Company on the basis of his personal
qualifications, experience and skills. Executive agrees, therefore, that he
cannot assign or delegate all or any portion of his performance under this
Agreement. This Agreement may not be assigned or transferred by the Company
without the prior written consent of Executive. Subject to the preceding two
sentences, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors, and assigns. Notwithstanding the foregoing, if
Executive accepts employment with an Affiliate, unless Executive and his new
employer agree otherwise in writing, this Agreement shall automatically be
deemed to have been assigned to such new employer (which shall thereafter be an
additional or substitute beneficiary of the covenants contained herein, as
appropriate), with the consent of Executive, such assignment shall be considered
a condition of employment by such new employer, and references to the "Company"
in this Agreement shall be deemed to refer to such new employer.
12. Complete Agreement: Waiver: Amendment. Executive has no oral
representations, understandings or agreements with the Company or any of its
officers, directors or representatives covering the same subject matter as this
Agreement. This Agreement is the final, complete and exclusive statement and
expression of the agreement between the Company and Executive with respect to
the subject matter hereof and thereof, and cannot be varied, contradicted, or
supplemented by evidence of any prior or contemporaneous oral or written
agreements. This Agreement may not be later modified except by a further writing
signed by a duly authorized officer of the Company and Executive, and no term of
this Agreement may be waived except by writing signed by the party waiving the
benefit of such term.
13. Notice. All notices, requests, demands and other communications
required or permitted to be given under this Agreement shall be in writing and
shall be given or made by personally delivering the same to or sending the same
by prepaid certified or registered mail, return receipt requested, or by
reputable overnight courier, or by facsimile machine to the party to which it is
directed at the address set out on the signature page to this Agreement, with
copies to counsel as indicated, or at such other address as such party shall
have specified by written notice to the other party as provided in this Section,
and shall be deemed to be given if delivered personally at the time of delivery,
or if sent by certified or registered mail as herein provided three (3) days
after the same shall have been posted, or if sent by reputable overnight courier
-15-
<PAGE> 16
upon receipt, or if sent by facsimile machine as soon as the sender receives
written or telephonic confirmation that the facsimile was received by the
recipient and such facsimile is followed the same day by mailing by prepaid
first class mail.
14. Severability: Headings. If any portion of this Agreement is held
invalid or inoperative, the other portions of this Agreement shall be deemed
valid and operative and, so far as is reasonable and possible, effect shall be
given to the intent manifested by the portion held invalid and inoperative. This
severability provision shall be in addition to, and not in place of, the
provisions of Section 5(c) above. The Sections headings herein are for reference
purposes only and are not intended in any way to describe, interpret, define or
limit the extent or intent of this Agreement or of any part hereof.
15. Equitable Remedy. Because of the difficulty of measuring economic
losses to the Company as a result of a breach of the restrictive covenants set
forth in Sections 5 and 6 hereof, and because of the immediate and irreparable
damage that would be caused to the Company for which monetary damages would not
be a sufficient remedy, it is hereby agreed that in addition to all other
remedies that may be available to the Company or Executive at law or in equity,
the Company or Executive shall be entitled to specific performance and any
injunctive or other equitable relief as a remedy for any breach or threatened
breach of the aforementioned restrictive covenants.
16. Arbitration. Any unresolved dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively by arbitration
conducted in accordance with the rules of the American Arbitration Association
then in effect. The arbitrators shall not have the authority to add to, detract
from, or modify any provision hereof nor to award punitive damages to any
injured party. A decision by a majority of the arbitration panel shall be final
and binding. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. Notwithstanding the foregoing, the Company shall be
entitled to seek injunctive or other equitable relief, as contemplated by
Section 15 hereof, from any court of competent jurisdiction, without the need to
resort to arbitration. Should judicial proceedings be commenced to enforce or
carry out this provision or any arbitration award, the prevailing party in such
proceedings shall be entitled to reasonable attorneys' fees and costs in
addition to other relief.
17. Governing Law. This Agreement shall in all respects be construed
according to the laws of the Commonwealth of Virginia, without regard to its
conflict of laws principles.
18. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all of the parties to
this Agreement, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
19. Signatures. The parties shall be entitled to rely upon and
enforce a facsimile of any authorized signatures as if it were the original.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
STAR SCIENTIFIC, INC.
By: /s/ ROBERT J. DELORENZO [SEAL]
-------------------------
Robert J. DeLorenzo, M.D., Ph.D.
Chief Executive Officer
Address for Notices:
16 South Market Street
Petersburg, Virginia 23803
Attention: Mr. Jonnie R. Williams
WILLIAMS:
/s/ JONNIE R. WILLIAMS [SEAL]
----------------------------
Jonnie R. Williams
Address for Notices:
----------------------------
----------------------------
EXECUTIVE:
/s/ PAUL L. PERITO [SEAL]
----------------------------
Paul L. Perito
Address for Notices:
7 Newlands Street
Chevy Chase, Maryland 20815
with a copy to:
Harvey B. Cohen, Esquire
Cohen, Gettings & Dunham, P.C.
2200 Wilson Boulevard, Suite 800
Arlington, Virginia 22201
-17-