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Employment Agreement - VaxGen Inc. and Phillip Berman

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                              EMPLOYMENT AGREEMENT

        THIS AGREEMENT is made and entered into as of October 10, 1997 by and
between Phillip Berman, a resident of California ("Berman"), and VaxGen, Inc. a
Delaware corporation (the "Company").


        WHEREAS, the Company desires to employ Berman as the Vice President of
Research and Berman desires to be so employed.

        WHEREAS, Berman is a current employee of Genentech, Inc.

        WHEREAS, the Company and Berman desire to set forth in writing the terms
of their agreement with respect to Berman's employment and the termination of
Berman's employment with Genentech;

        NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties agree as follows:

        1. Term. Berman's employment, which began on November 15, 1997, will
continue for an initial term of three years. Thereafter, Berman's employment
will be automatically renewed for successive one-year terms, unless notice of
termination is given by either party to the other at least thirty days before
the expiration of the then current term. It is agreed that Berman may continue
with part-time employment at Genentech, Inc., during the initial six-month
period of this Agreement. Such part-time employment by Genentech shall not
exceed 50% of Berman's time and effort and shall be determined by mutual
agreement between Berman, the Company, and Genentech.

        2. Duties. Berman will perform such executive and administrative duties
consistent with his position as Vice President of Research of the Company as are
reasonably assigned to him by the Board and will be given such executive and
administrative powers and authority as may be needed to carry out those duties.
Berman shall report directly to the President of VaxGen. Berman will be
responsible as Vice President of Research for all activities regarding research
in the basic sciences and in clinical research (including laboratory clinical
support) required for the Company's development of its HIV vaccine, as well as
other products. The Company will provide to Berman an office, laboratory space
and staff in South San Francisco as are required for the performance of his
duties. Berman agrees to serve as Director of the Company and the Company agrees
to cause Berman to be elected to the Board of Directors.

        3. Compensation. The Company will pay Berman an annual base salary of
$175,000 for the first year of employment. Berman's annual base salary will be
payable in equal installments not less frequently than monthly. Berman shall be
entitled to an annual bonus of up to 20% of salary, such bonus to be determined
solely by the Company's Board of Directors. Berman's salary

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and bonus will be considered annually for potential increase by the Compensation
Committee of the Board of Directors.

        4. Stock Options.

               (a) Initial Stock Option Grant. Berman shall receive incentive
and non-qualified options to purchase 400,000 shares of Common Stock of VaxGen
at $3.50 per share (with as many shares allocated to an incentive stock option
as is permissible under applicable laws). The stock options will be administered
according to the VaxGen's Stock Option Plan and shall vest over time as
indicated in the Stock Option Plan; provided, however, that the option
agreements shall provide that the vesting of the options shall accelerate in
full immediately upon occurrence of any of the following events: (i) Change of
Control (as defined below) of VaxGen, (ii) full enrollment of Phase III clinical
trials of VaxGen B/E and B/B vaccines or (iii) termination of Berman's
employment without cause or by Berman for Good Reason (as defined below). Upon
an occurrence of event described in (iii) above, the right to exercise all
nonqualified stock options shall be extended to one year from the date of

               (b) Change of Control. In the event the Company undergoes a
change of control (a "Change of Control") by virtue of (a) its sale or exchange
of stock (resulting in the shareholders of the Company holding less than 50% of
its outstanding equity and underlying options and warrants) in a transaction or
series of transactions occurring in any 12 month period, and/or (b) Genentech
increases its holding in the Company to a level of 50% or more of the Company's
outstanding equity, underlying options and warrants in a transaction or series
of transactions, in addition to the acceleration of vesting as described in
paragraph 4(a) above, Berman shall receive a one time bonus of 151,515 shares of
common stock.

        5. Expenses. The Company will reimburse Berman for travel, entertainment
and other expenses reasonably incurred by him in connection with his employment
under this Agreement upon presentation of appropriate vouchers or receipts.

        6. Benefits. Berman shall have the right, on the same basis as other
members of senior management of VaxGen, to participate in and to receive
benefits under any of VaxGen's employee benefit plans, in effect from time to
time. In addition, Berman shall be entitled to the benefits afforded to other
members of senior management under VaxGen's vacation, holiday and business
expense reimbursement policies.

        7. Early Termination of Employment. Employment under this Agreement will
terminate prior to expiration of the term upon any of the following:

               (a) Death. Berman's employment hereunder shall terminate upon his

               (b) Disability. The Company may terminate Berman's employment
hereunder if he has been unable to perform his duties hereunder for a period of
six consecutive months and if he has not resumed on a full-time basis the
performance of such duties within thirty days after written notice from the
Company of its intent to terminate his employment due to disability.

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               (c) Cause. The Company may terminate Berman's employment
hereunder for Cause. For purposes of this Agreement, the term "Cause" means (i)
willful and repeated failure by Berman to perform his duties hereunder which is
not remedied within thirty days after written notice from the Company, (ii)
conviction of Berman for a felony, or (iii) Berman's dishonesty that is
demonstrably injurious to the Company.

               (d) Termination by Berman. Berman may terminate his employment
hereunder for Good Reason. For purposes of this Agreement, the term "Good
Reason" shall mean (I) the Company substantially reducing Berman's duties,
position, authority or responsibility hereunder and not reinstating the same
within thirty days after written notice from Berman, or (ii) breach by the
Company of its obligations under this Agreement if not remedied within thirty
days after written notice from Berman.

        8. Benefits Upon Termination.

               (a) Voluntary Termination, Termination for Cause for Due to Death
or Disability. In the event of Berman's voluntary termination from employment
with VaxGen or termination of Berman's employment as a result of his death or
disability or for Cause, Berman shall be entitled to no compensation or benefits
from VaxGen other than those earned under paragraph 3 above through the date of
his termination or in the case of any stock options, vested through the date of
his termination.

               (b) Termination Without Cause or For Good Reason: If Berman's
employment is terminated by VaxGen for any reason other than for cause or by
Berman for Good Reason, Berman shall be entitled to the following separation

                      (i) all accrued compensation (including pro-rated target
bonus) and benefits through the date of termination;

                      (ii) continued payment of Berman's salary at his Base
Salary rate, less applicable withholding, for twelve (12) months following his
termination; and

                      (iii) acceleration of vesting of his options as provided
in paragraph 4(a) above.

        9. Restrictive Covenants.

               (a) Confidential Information. Berman acknowledges that, during
the course of his employment with the Company, he will have access to
confidential information and biological materials not generally known outside
the Company (whether conceived or developed by Berman or others) and
confidential information and biological materials entrusted to the Company by
third parties, including, without limitations, trade secrets, techniques,
formulae, biological materials, marketing and other business plans, data,
strategies and forecasts (collectively, "Confidential Information"). Any
Confidential Information conceived or developed by Berman during employment will
be the exclusive property of the Company. Except as may be necessary in
connection with the Company's business, Berman will not (during or after his
employment with the Company) disclose Confidential Information to any third
person, firm or entity or use

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Confidential Information for his own purposes or for the benefit or any third
person, firm or entity. In his work for the Company, Berman will refrain from
unauthorized use or disclosure of information and biological materials owned by
former employers or other third parties.

               (b) Inventions. Berman will promptly disclose to the Company any
discoveries, inventions, formulae and techniques, whether or not patentable,
made, conceived or first reduced to practice by him, either alone or together
with others, during his employment with the Company (collectively, the
"Inventions"). Berman hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Berman will execute such documents and take
such other actions as may be reasonably requested by the Company (at the
Company's expense) to enable the Company to apply for, obtain, maintain and
enforce patents on any of the Inventions or to facilitate the transfer or
assignment of any of the Company's rights with respect to the Inventions and

               (c) Company Documents. Upon the termination of his employment,
Berman will deliver to the Company all documents and other tangible property
containing Confidential Information which are then in his possession or control.

               (d) Covenant Not to Compete. Berman acknowledges that his duties
hereunder and the services he will provide to the Company are of a special,
unique, unusual and extraordinary character, which gives this Agreement
particular value to the Company, and that it would be difficult to employ any
individual or individuals to replace Berman in the performance of such duties
and services. Therefore, during employment with the Company, and for a one year
period following termination of employment, Berman will not, directly or
indirectly, enter into, organize, control, engage in, be employed by, serve as a
consultant to, be an officer or director of or have any direct or indirect
investment in any business, person, partnership, association, firm or
corporation engaged in any business activity (including, but not limited to,
research, development, manufacturing, selling, leasing, licensing or providing
services) which is competitive with the business and/or scientific activities
that the Company is developing or exploiting during Berman's employment with the
Company. Nothing contained in this Agreement shall be construed to prevent
Berman from owning at any time, directly or indirectly, as much as 5% of any
class of equity securities issued by any corporation or other entity which are
publicly traded and registered under the Securities and Exchange Act of 1934, as

        10. Indemnification. The Company will indemnify Berman to the fullest
extent permitted by law and will hold him harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Berman in connection with his relationship with the Company. This
obligation will include, Without limitation, prompt payment in advance of any
and all costs of defending the same, including attorney fees.

        11. No Impediment to Agreement. Except as otherwise disclosed herein,
Berman hereby represents to the Company that he is not, as of the date hereof,
and will not be, during employment with the Company, employed under contract,
oral or written, by any other person, firm or entity and is not and will not be
bound by the provisions of any restrictive covenant or confidentiality agreement
which would constitute an impediment to, or restriction upon, his ability to
enter into this Agreement and to perform the duties of his employment.

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        12. Notices. Any notice under this Agreement must be in writing and will
be deemed to have been given when personally delivered or mailed by first-class
or express mail to the recipient at the following address (or such other address
as shall be specified by prior written notice):

        To the Company:                      VaxGen, Inc.
                                             Attn.: Donald P. Francis
                                             501 Forbes Boulevard
                                             South San Francisco, CA 94080

        Copy to:                             Dr. Phillip Berman

        13. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law. If any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or the interpretation of this Agreement in any other jurisdiction.

        14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the law of

        15. Successors and Assigns. The services and duties to be performed by
Berman hereunder are personal and may not be assigned. This Agreement shall be
binding upon and inure to the benefit of the Company, its successors and
assigns, and Berman, his heirs and representatives.

        16. Complete Agreement. This Agreement constitutes the entire agreement
between the parties concerning the subject matter hereof and supersedes all
prior agreements between the parties concerning the subject matter hereof.

        17. Waiver. Failure by either party to insist upon strict adherence to
any one or more of the provisions of this Agreement on one or more occasions
shall not be construed as a waiver, nor shall it deprive that party of the right
to require strict compliance thereafter.

        18. Survival. The obligations set forth in paragraphs 9a and 10 shall
survive termination of this Agreement.

        19. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.

        20. Withholding. The Company may deduct and withhold from the payments
to be made to Berman hereunder any amounts required to be deducted and withheld
by the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.

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        19. Amendments. No amendment hereto, or waivers or releases of
obligations or liabilities hereunder, shall be effective unless agreed to in
writing by the parties hereto.

        20. Withholding. The Company may deduct and withhold from the payments
to be made to Berman hereunder any amounts required to be deducted and withheld
by the Company under the provisions of any statute, law, regulation or ordinance
now or hereafter enacted.

        IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.

VaxGen, Inc.

By: /s/ DONALD FRANCIS       10 Oct. 97

Its: President

Phillip Berman