EXHIBIT 10.13
EMPLOYMENT AGREEMENT
May 14, 1999
Xx. Xxxxxxx X. Xxxx
0000 Xxxx Xxxxxxxx Xxxxx
Xxxxxx, Xxxxxxxxxx 00000
Dear Phil:
On behalf of the Board of Directors I am pleased to offer you the
position of President and Chief Executive Officer of Obagi Medical Products,
Inc. (the "Company") on the following terms:
a. DUTIES
You will perform the duties customarily associated with this position
with respect to the Company's operations on a full-time basis, and will report
directly to the Chairman of the Board of Directors of the Company. You will be
based in Long Beach, California, or such other Southern California location,
which the Company establishes as its principal place of business, within a 50
mile radius of Long Beach.
b. EFFECTIVE PERIOD OF TERMS OF EMPLOYMENT
The terms of your employment set forth herein shall be effective for a
period of two (2) years commencing no later than June 3, 1999, and the terms
shall be automatically renewed for successive one-year periods, subject to the
termination provisions set forth herein.
c. COMPENSATION
SALARY: Your salary shall be $225,000 per annum. Your salary shall be
paid semi-monthly, subject to standard payroll deductions and withholdings.
BONUS: You shall be entitled to an annual bonus based on the
achievement of certain benchmarks and in the amounts as set forth on Exhibit "A"
attached hereto. All bonuses will be subject to the standard payroll deductions
and withholdings and shall be paid not later than the end of the first fiscal
quarter of the following year. No bonus shall be due
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and owing unless you are employed by the Company on December 31 of the
applicable year.
GUARANTEED BONUS: For the calendar year 1999 only, you will be
guaranteed to receive a minimum bonus of $4,166.77 for each month you are
employed by the Company in 1999 (the "Guaranteed Bonus"). Your prorated portion
of the Guaranteed Bonus shall be paid semi-monthly, subject to standard payroll
deductions and withholdings. For any partial month, you will be paid a pro rata
portion of $4,166.77 based on the number of days you were employed during such
month.
STOCK OPTION GRANT: The Company hereby grants you stock options to
purchase 160,000 common shares of the Company (the "Options") as follows:
------------------------------------------- --------------------- ---------------------------------
Number of Stock Options Exercise Price Vesting Period
per Share
------------------------------------------- --------------------- ---------------------------------
80,000 $1.00 16,000 shares per year on the
1st, 2nd, 3rd, 4th, and 5th
anniversaries of your employment
16,000 $1.38 After 1 year of employment
16,000 $1.85 After 2 years of employment
16,000 $2.44 After 3 years of employment
16,000 $3.17 After 4 years of employment
16,000 $4.07 After 5 years of employment
The Options will be qualified incentive stock options and shall be
subject to and issued in accordance with the terms set forth on Exhibit "B"
attached hereto, including, but not limited to, the vesting schedule set forth
therein. The granting of the Options hereunder is conditioned upon the
requirement that you enter into a Buy Sell Agreement in the form of Exhibit "C"
attached hereto (the "Buy Sell Agreement") contemporaneously with your execution
of this Agreement. Any shares issued to you upon exercise of the Options shall
be subject to the Buy Sell Agreement.
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RIGHT TO PURCHASE STOCK: In addition to the Options granted hereunder,
the Company grants you a one-time option to purchase shares of the Company's
common stock and Series B Preferred Stock as follows:
(i) Purchase Price.
Common Stock $0.50 per share
Series B Preferred Stock $100 per share
(ii) Purchase Ratio
You shall be eligible to purchase 50 shares of the Company's
common stock for each share of Series B Preferred Stock
purchased. This purchase option may only be exercised in
accordance with this ratio.
(iii) Company Loan
In the event you exercise this purchase option, the Company
agrees to lend you fifty percent (50%) of the total purchase
price required to exercise this purchase option, as evidenced
by a note in the form of exhibit "D" attached hereto. The
terms of this loan shall be as follows:
Term: 10 years
Interest: 8.75% per annum
Payment: Interest on the Note shall
be due and payable on each
anniversary date of the
Note.
Principal shall be repaid
at maturity or, if earlier,
from the first proceeds
from any redemption or
disposition of the common
stock and/or Series B
Preferred Stock purchased
pursuant to this purchase
option.
Security: The Note shall be
non-recourse to you
individually and shall be
secured by the common stock
and Series B Preferred
Stock purchased pursuant to
this purchase option, which
security interest shall be
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evidenced by a Pledge
Agreement, in the form of
Exhibit "E" attached
hereto.
(iv) Expiration of Purchase Option
If you have not exercised the purchase option within 90 days
of the commencement date of your employment, the purchase
option granted hereunder shall terminate and be of no further
force and effect.
(v) Buy Sell Agreement
Any of the Company's common stock or Series B Preferred Stock
purchased by you pursuant to this purchase option shall be
subject to the terms of the Buy Sell Agreement.
BENEFITS: You will be eligible for three weeks paid vacation per year,
health, dental, and all other benefits the Company provides, from time to time,
to its most senior employees, and to participate in the Company's 401(k) plan.
CAR ALLOWANCE: You will receive $800 per month as a car allowance,
subject to the standard payroll deductions and withholdings, which you shall
apply to any and all vehicle operation, lease and/or purchase expenses.
MOVING EXPENSE ALLOWANCE: The Company shall reimburse you for all
reasonable moving expenses incurred in relocating your family once in an amount
not to exceed $8,500.00
d. TERMINATION
Subject to the Company's duty to pay your compensation as set forth in
this paragraph, either you or the Company may terminate your employment with or
without cause, at any time, for any reason whatsoever without advance notice.
This at-will employment relationship cannot be changed except by writing signed
by the Chairman of the Board of Directors of the Company.
If the Company terminates your employment without cause, you will
receive as your sole severance, any bonus still owing from the previous year,
your base salary for the remaining balance of the period ending May 30, 2001,
payable semi-monthly, subject to standard payroll deductions and withholdings.
Any continuing payments shall cease immediately if you violate any provision of
this Agreement, including the
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provisions of Sections f, g, and h. If the Company exercises its right to
terminate your employment without cause, no compensation will be owed to you
other than the severance payment referred to in the previous sentence.
If you voluntarily terminate your employment, if you die or become
physically or mentally disabled, as certified by a physician, or if the Company
terminates your employment for cause, all compensation and benefits shall cease
immediately, and you will receive no severance benefits except for any bonus
still owing from the previous year. For purposes of this Agreement, termination
for cause shall mean material misconduct, including, but not limited to (i)
conviction of any felony or any crime involving moral turpitude or dishonesty or
which is punishable by imprisonment in a state or federal correctional facility;
(ii) participation in a fraud or act of dishonesty against the Company or any of
its customers or suppliers; (iii) willful and material breach of this Agreement
or other Company policies; (iv) willful violation of reasonable rules,
regulations, orders or directives of the Company's Board of Directors; (v)
refusal to perform your duties on a full-time basis; (vi) conduct by you which
in the good faith and reasonable determination of the Board of Directors of the
Company demonstrates negligence, willful malfeasance or unfitness to serve,
(vii) conduct by you which would be considered harassment in violation of the
Company's policies or (viii) any other act or omission by you which is
materially injurious to the financial condition or the business reputation of
the Company.
e. POLICIES AND PROCEDURES
You will be expected to abide by all Company policies and procedures.
The Company may issue policies, rules, regulations, guidelines, procedures or
other informational material, whether in the form of handbooks, memoranda, or
otherwise, relating to its employees. These materials are general guidelines for
your information and any changes in the Company's policies, rules, regulations,
guidelines, procedures or materials shall not be construed to alter, modify, or
amend this Agreement for any purpose whatsoever, and this Agreement shall
control over such policies, to the extent of any conflict.
f. CONFIDENTIALITY
At any time following execution of this Agreement, you agree to hold as
a fiduciary of the Company and not to use or disclose, directly or indirectly,
for any reason, whatsoever or in any way any confidential information or trade
secrets of Company, including, but not limited to, information with respect to
Company as follows: the identity, lists and/or descriptions of any customers of
Company; financial statements,
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cost reports, or other financial information; product or service pricing
information; contract proposals and bidding information; processes, policies
and procedures developed as part of a confidential business plan; research;
secret data; processes; and management systems and procedures, including
manuals and supplements thereto, marketing data and plans intended for
internal use, other than (i) at the discretion of Company during the course
of your employment (ii) after receipt of the prior written consent of
Company, or (iii) as required by any court or governmental regulatory agency
having competent jurisdiction over Company. All records, files, memoranda,
reports, customer lists, drawings, plans, documents and the like that you
use, prepare or come into contact with during the course of your employment
with the Company shall remain the sole property of the Company and shall be
turned over to the Company upon termination of your employment with the
Company.
You agree that all copyrights, trademarks, tradenames, service marks,
inventions, whether patentable or unpatentable, processes and other intangible
or intellectual property rights that may be invented, conceived, developed or
enhanced by you, whether alone or jointly with others, during the term of this
Agreement that relate to the Company's business, or that result from any work
performed by you for the Company, shall be disclosed to the Company and shall be
the sole property of the Company, and you hereby assign to the Company any right
or interest that you may otherwise have in respect thereof. Upon the reasonable
request of the Company, you shall execute, acknowledge, deliver and file any
instrument or document necessary or appropriate to give effect to this provision
and do all other acts and things necessary to enable the Company to exploit the
same or to obtain patents or similar protection with respect thereto. You agree
that the covenants set forth in this paragraph shall accrue to the benefit of
the Company, irrespective of the reason for termination of the other provisions
of this Agreement and the corresponding employment relationship created hereby.
g. NON-COMPETITION
You agree that during the term of this Agreement and for a period of
two years thereafter, you will not, without the prior written consent of the
Company's Board of Directors:
(i) Whether for compensation or otherwise, directly or
indirectly engage in a Competitive Activity, as defined in Paragraph g.(iii), or
any part thereof, or assist any person in such person's conduct of the Company's
business, or any part thereof, whether as a director, officer, employee,
consultant, adviser, independent contractor or otherwise; or
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(ii) Hold a legal or beneficial interest in any person which
is engaged in the Company's business or any part thereof, whether such interest
is as an owner, investor, partner, creditor (other than as a trade creditor in
the ordinary course of business); joint venture or otherwise.
(iii) "Competitive Activity" is defined for purposes herein as
any business or other endeavor, in any county of any state of the United States
or a comparable jurisdiction in Canada or any other country, of a kind being
conducted by the Company as of the commencement date of your employment or at
any time thereafter through the date of termination of your employment.
h. NON-SOLICITATION
You agree that during the term of this Agreement and for a period of
two years thereafter, you will not, without the prior written consent of the
Company's Board of Directors:
(i) Solicit, divert or attempt to divert from the Company or
any person deriving title to the goodwill of the Company (a "Transferee") any
business constituting, or any customer of, any part of the Company's Business,
conducted by the Company or such Transferee. "Company's Business" is defined for
purposes herein as any business or other endeavor, in any county of any state of
the United States or a comparable jurisdiction in Canada or any other country,
of a kind being conducted by the Company as of the commencement date of your
employment or at any time thereafter through the date of termination of your
employment; or
(ii) Induce or attempt to induce any person then, or during
the immediately preceding six (6) month period, engaged or employed (whether
part-time or full-time) by the Company or any Transferee, whether as an officer,
employee, consultant, salesman, adviser or independent contractor to leave the
employ of the Company or such Transferee, as the case may be, or to cease
providing the services to the Company or such Transferee, as the case may be,
then provided by such person, or in any other manner seek to engage or employ
any such person (whether or not for compensation) as an officer, employee
consultant, adviser or independent contractor such that such person would
thereafter be unable to devote his or her full business time and attention to
the business then conducted by the Company or such Transferee, as the case may
be.
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i. ACKNOWLEDGEMENT
You hereby specifically acknowledge and agree that the restrictions
contained in Sections f, g and h hereof are reasonable and necessary to protect
the business and prospective business of Company and that the enforcement of
these provisions will not work an undue hardship on you.
j. ARBITRATION
We shall arbitrate any dispute or controversy that should arise as to
the meaning, effect, performance, enforcement or other issues in connection
with, arising out of or relating to this Agreement, or any other dispute or
controversy, whether of law or fact of any nature whatsoever arising out of your
employment by the Company (including, but not limited to, all state and federal
statutory and discrimination claims whether for race, sex, sexual orientation,
religion, national origin, age, marital status, or medical condition, handicap
or disability, or otherwise) in Los Angeles County, California, before a single
arbitrator selected by and in accordance with the then rules of the American
Arbitration Association ("AAA"). The arbitrator shall apply California
substantive law and the California Evidence Code to the proceedings. The
arbitrator shall have the power to grant all legal and equitable remedies and
award compensatory damages provided by California law. The arbitrator shall
prepare in writing and provide to the parties an award indicating factual
findings and the reasons on which the decision is based. The written
determination of the arbitrator shall be final, conclusive and binding on the
parties and their affiliates. Provided, however, that the arbitrator shall not
have the power to commit errors of law or legal reasoning, and the award may be
vacated or corrected pursuant to California Code of Civil Procedure Sections
1286.2 or 1286.6 for any such error. In rendering its determination, the AAA
shall be entitled to allocate its fees and expenses among the parties in such
proportion as it deems appropriate in its sole discretion and each party agrees
to pay such fees and expenses forthwith after delivery of the AAA's
determination to them. The arbitrator shall also be entitled to award attorneys'
fees and expenses to the totally or partially prevailing party in such amount as
he or she deems appropriate in his or her sole discretion.
k. MISCELLANEOUS
If any provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws, such provision shall be fully
severable, and this Agreement and each separate provision hereof shall be
construed and enforced as if such illegal invalid, or unenforceable provision
had never comprised a part of this Agreement, and the
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remaining provisions of this Agreement, shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provisions
or by its severance from this Agreement. In addition, in lieu of such
illegal, invalid or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable, if such reformation is allowable under
applicable law.
This Agreement and the exhibits hereto constitutes the complete, final
and exclusive embodiment of the entire agreement between you and the Company
with respect to the terms and conditions of your employment, and it supersedes
any other agreements or promises made to you by anyone, whether oral or written.
You agree that, except as provided herein, no other representations or promises
were made to you regarding your employment with the Company. This Agreement
shall be construed and interpreted in accordance with the laws of the State of
California.
We look forward to your joining the Company and to a successful and
enjoyable working relationship.
Sincerely,
Obagi Medical Products, Inc.
By: /s/ Xxxxx Xxxx
-------------------------------------
Xxxxx Xxxx, Chairman of the Board
Accepted:
/s/ Xxxxxxx X. Xxxx 5/14/99
-----------------------------------------
Xxxxxxx X. Xxxx
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