Sample Business Contracts

Employment Agreement - VaxGen Inc. and Carter A. Lee

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                              EMPLOYMENT AGREEMENT

        THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into on
April 1, 1999, by and between Carter A. Lee, a resident of California ("Lee"),
and VaxGen, Inc., a Delaware corporation (the "Company").


        WHEREAS, the Company desires to employ Lee as Senior Vice President,
Finance and Administration, and Lee desires to be so employed;

        WHEREAS, Lee is a current employee, serving as General Manager of

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

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

        1. Employment. The Company hereby employs Lee as its Senior Vice
President, Finance and Administration, and Lee hereby accepts such employment
upon the terms and conditions set forth in this Agreement.

        2. Term. Lee's employment will begin on April 1, 1999, and will continue
for an initial term of four years ending May 31, 2003. Thereafter, Lee'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.

        3. Duties. Lee will perform such executive and administrative duties
consistent with his position as Senior Vice President, Finance and
Administration 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. Lee shall report directly to the President of
the Company. Lee will be responsible for the accounting, budgeting treasury,
external (SEC) reporting, purchasing, corporate/legal administration, human
resources, MIS, contract administration, facilities, communications, and the
general office administration of the Company. The Company will provide to Lee an
office and staff in Brisbane, CA as are required for the performance of his

<PAGE>   2
        4. Compensation. The Company will pay Lee an annual base salary of
$185,000 for the first year of employment. Lee's annual base salary will be
payable semi-monthly. Lee will have the opportunity for an annual bonus of up to
20% of annual salary and up to 10,000 options under the Company's stock option
plan, such bonuses to be determined solely by the Board of Directors. Lee's
salary and bonuses will be considered annually for potential increase by the
Compensation Committee of the Board of Directors.

        5. Stock Options.

               (a) Initial Stock Option Grant: Lee shall receive incentive and
non-qualified options to purchase 125,000 shares of Common Stock of VaxGen at
$9.50 per share (with as many shares allocated to an incentive stock option as
is permissible under applicable laws). The Board has previously granted Lee
75,000 options on December 1, 1998. 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. The options shall accelerate in full
immediately upon occurrence of any of the following events: (i) Change of
Control (as defined below) of VaxGen, or (ii) termination of Lee's employment
without cause or by Lee for Good Reason (as defined below). Upon an occurrence
of event described in (ii) above, the right to exercise all nonqualified stock
options shall be extended to one year from the date of termination.

               (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 a shareholder of the Company holding less than 50% or
more 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, Lee shall receive a one time bonus of
37,500 shares of common stock.

        6. Expenses. The Company will reimburse Lee 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.

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

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

<PAGE>   3
               (a) Death. Lee's employment hereunder shall terminate upon his

               (b) Disability. The Company may terminate Lee'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.

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

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

        9. Benefits Upon Termination.

               (a) Voluntary Termination, Termination for Cause for Due to Death
or Disability. In the event Lee's voluntary termination from employment with
Company or termination of Lee's employment as a result of his death or
disability or for Cause, Lee shall be entitled to no compensation or benefits
from Company other than those earned under paragraph 5 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 Lee's
employment is terminated by Company for any reason other than for cause or by
Lee for Good Reason, Lee shall be entitled to the following separation benefits:

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

                      (ii) continued payment of Lee'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 5 above.

<PAGE>   4
        10. Restrictive Covenants.

                (a) Confidential Information. Lee 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 Lee or others) and confidential information
and biological materials entrusted to the Company by third parties, including,
without limitation, 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 Lee during employment will be the exclusive property
of the Company. Except as may be necessary in connection with the Company's
business, Lee will not (during or after his employment with the Company)
disclose Confidential Information to any third person, firm or entity or use
Confidential Information for his own purposes or for the benefit or any third
person, firm or entity. In his work for the Company, Lee will refrain from
unauthorized use or disclosure of information and biological materials owned by
former employers or other third parties.

               (b) Inventions. Lee 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"). Lee hereby assigns to the Company all of his right, title and
interest in and to any Inventions. Lee 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 patents.

               (c) Company Documents. Upon the termination of his employment,
Lee 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. Lee 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 Lee in the performance of such duties and
services. Therefore, during employment and for a period of one year after the
termination of his employment with the Company, Lee 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
<PAGE>   5
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 Lee's employment with the
Company. Nothing contained in this Agreement shall be construed to prevent Lee
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 amended.

        11. Indemnification. The Company will indemnify Lee to the fullest
extent permitted by law and will hold harmless from and against any claim,
liability or expense (including reasonable attorneys' fees) made against or
incurred by Lee 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.

        12. No Impediment to Agreement. Except as otherwise disclosed herein,
Lee 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.

        13. 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.
                                                 1000 Marina Blvd., Suite 200
                                                 Brisbane, CA 94005

        Copy to:                                 Ralph Pais, Esq.
                                                 Fenwick & West LLP
                                                 Two Palo Alto Square
                                                 Palo Alto, CA 94306

        To Carter Lee                            Carter A. Lee
                                                 VaxGen, Inc.
                                                 1000 Marina Blvd., Suite 200
                                                 Brisbane, CA 94005

<PAGE>   6
        14. 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.

        15. 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

        16. Successors and Assigns. The services and duties to be performed by
Lee 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 Lee, his heirs and representatives.

        17. 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.

        18. 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.

        19. Survival. The obligations set forth in paragraph 10 shall survive
termination of this Agreement.

        20. 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.

        21. Withholding. The Company may deduct and withhold from the payments
to be made to Lee 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/ ROBERT C. NOWINSKI                                         
      Robert Nowinski, Chairman and CEO

Carter A. Lee