Exhibit 10.4
COMPANY LETTERHEAD
May 26, 2006
▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear ▇▇▇▇▇:
We are delighted to present this letter agreement (the "Agreement"),
setting out the terms of your employment with Phase III Medical, Inc. (the
"Company") as Chairman of the Board and Chief Executive Officer. If these terms
are acceptable, please sign and date the copy of this letter provided herewith
and return it to the Company at your first convenience. If you accept the terms
offered herein, this Agreement shall be deemed to be effective (the "Effective
Date") on the later of May 16, 2006 or immediately after the close of the
current financing of at least $2 million with ▇▇▇▇▇▇ Capital (the current
financing effort which is seeking at least $2 million but up to $3.75 million in
financing is referred to as the "▇▇▇▇▇▇ Financing"). If the aforementioned
financing of at least $2 million is not closed by June 14, 2006, this letter
agreement shall be void and of no effect whatsoever.
1. Employment.
You will be employed by the Company as Chief Executive Officer. As
Chief Executive Officer you will have overall responsibility for all aspects of
the Company's business. You will report directly to the Board of the Directors
of the Company (the "Board") and shall have such duties and responsibilities
consistent with such position as shall, from time to time, be delegated or
assigned to you by the Board. You will also serve as Chairman of the Board.
During the Term, as defined below, you shall devote your best efforts,
energy and skill to the services of the Company and the promotion of its
interests and not take part in activities detrimental to the best interests of
the Company.
2. Term.
The term of this Agreement shall continue for a period of two (2) years
following the Effective Date, unless earlier terminated as provided herein, and
shall be automatically renewed for successive one (1) year terms unless the
Company or you provide written notice of its or your determination not to renew
this Agreement at least sixty (60) days prior to the expiration of the then
current term (the "Term"). In the event of a determination by you or the Company
not to renew this Agreement based upon Good Reason (as defined below)or Without
Cause (as defined below), as the case may be, the Company shall pay to you the
Base Salary (as defined below) for a period of three months following the end of
the Term.
3. Base Salary.
In consideration for your services under this Agreement, you shall be
paid an annual base salary ("Base Salary") of One Hundred and Eighty Thousand
Dollars ($180,000), which amount shall increase to Two Hundred Thirty-Six
Thousand Dollars ($236,000) on the first year anniversary of the Effective Date;
provided, however, that if after the Effective Date, the Company raises an
aggregate of at least $5,000,000 in one or a series of equity and/or debt
financings (which financings commence after completion of the ▇▇▇▇▇▇ Financing),
the Base Salary shall be increased to Two Hundred Seventy-Five Thousand Dollars
($275,000). After the second year anniversary of the Effective Date, and on an
annual basis thereafter, the Base Salary shall be reviewed by the Board and any
increase to the Base Salary shall be determined by the Board based on your
performance and the Company's overall performance. The Base Salary shall be paid
to you in accordance with the Company's standard payroll practices, but not less
than monthly.
4. Annual Bonus.
You shall be eligible to receive an annual bonus in an amount
determined by the Board in its sole discretion, based on your performance.
5. Benefits; Perquisites; Reimbursement of Expenses.
In addition to those payments set forth above, you shall be entitled to
the following benefits and payments:
(a) Employee Benefit Plans Generally. The Company shall
provide medical insurance to you, your spouse and your dependents, and
provide you disability insurance, on terms satisfactory to you. You
shall be entitled to participate in all other employee benefit plans
which the Company provides or may establish from time to time for the
benefit of its senior executives.
(b) Vacation. You shall be entitled to six weeks paid vacation
in addition to Company holidays. Any vacation time not used during a
calendar year will be forfeited without compensation.
(c) Perquisites and Reimbursement of Expenses. You shall be
entitled to a car allowance of $1,000 per month, all other perquisites
offered to senior executives of the Company, including, but not limited
to, payment or reimbursement for cell phone, blackberry and internet
service and free life time storage of stem cells. In addition, you
shall be entitled to reimbursement for all ordinary and reasonable
out-of-pocket business expenses which are incurred by you in
furtherance of the Company's business, in accordance with the policies
adopted from time to time by the Company. You shall submit to the
Company not less than once a calendar quarter reports of such expenses
and other disbursements in the form normally used by the Company.
(d) Insurance. You shall be covered by a Directors and
Officers Liability Insurance policy that generally covers the directors
and officers of the Company, provided by the Company at its expense.
The Company shall, at your option, either (i) obtain and maintain
$2,000,000 of variable life insurance with an insurance company of your
choice or (ii) reimburse you or pay directly the monthly payments for
an insurance policy you currently own not to exceed $1200 per month.
You shall cooperate in all respects with the Company's efforts to
obtain and maintain key person life insurance on your life.
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(e) Legal Fees. The Company shall reimburse you for reasonable
legal fees incurred by you to in connection with the negotiation and
drafting of this Agreement.
(f) Indemnification. You shall be entitled through the Term of
your employment with the Company to the benefit of the indemnification
provisions contained on the date hereof in the Company's By-Laws as the
same may hereafter be amended, and of any indemnification provisions
that may hereafter be added to the Company's Certificate of
Incorporation (not including any amendments or additions that limit or
narrow, but including any that add to or broaden, the protection
afforded to you by those provisions), to the extent permitted by
applicable law at the time of the assertion of any liability against
you.
6. Stock and Options.
You shall be eligible to receive annual equity incentive grants under
the Company's 2003 Equity Incentive Plan (the "Plan") or any other to plan
adopted by the Board. In addition, on the Effective Date you shall receive under
the Plan:
(a) Stock. Two Million (2,000,000) shares of the Company's
common stock (the "Shares"). The Shares are included in the Company's
registration statement on Form S-8; and
(b) Options. Ten (10) year reload options (with reload subject
to availability of shares under the Plan as it may be amended from time
to time) to purchase Five Million Four Hundred Thousand (5,400,000)
shares of the Company's common stock (the "Option Shares"), which
options shall be exercisable on a cashless basis and shall vest as to
Three Million (3,000,000) Option Shares immediately, One Million Two
Hundred Thousand (1,200,0000) Option Shares on the first anniversary of
the Effective Date and One Million Two Hundred Thousand (1,200,0000)
Option Shares on the second anniversary of the Effective Date. The
exercise price of the options shall be (i) $.053 as to the first
1,000,000 Option Shares, (ii) $.08 as to the second 1,000,000 Option
Shares, (iii) $.10 as to the third 1,000,000 Option Shares, (iv) $.16
as to the next 1,200,000 Option Shares, and (v) $.25 as to the balance.
The Option Shares are included in the Company's registration statement
on Form S-8.
All share and option issuances are subject to your execution of the
Company's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Policy. In addition, you acknowledge that in your
position, you will be an "affiliate" of the Company for purposes of federal
securities laws and your shares and transfer of your shares will be treated as
such.
7. Termination.
(a) Termination of Your Employment due to Death or Disability.
Your employment with the Company shall terminate as of the date of your
death or the date you are determined to be "Disabled," as defined
below. Upon such termination, the following shall apply:
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(i) The Company shall pay to you or your estate, as
the case may be, all amounts due and owing as of the date of
termination.
(ii) If you or your eligible spouse and dependents
timely elect health care continuation coverage ("COBRA
Coverage"), the Company shall pay the monthly premiums for
such coverage for the duration of the applicable COBRA
Coverage period.
(iii) All of your stock options which have vested as
of the termination date shall remain exercisable by you or
your estate, as the case may be, for 48 months following the
termination date, but not beyond the original 10 year term of
the options.
For these purposes, you shall be considered to be "Disabled" if you are
unable to perform the substantial functions of your position for one hundred
eighty (180) consecutive days or more in a twelve (12) month period, unless a
greater period is required by law. A determination of disability shall be made
jointly by a physician of your choice and a physician of the Company's choice.
If both physicians cannot agree on whether you are Disabled, a third physician
chosen by the first two shall make the final and binding determination.
(b) Termination of Your Employment by the Company Without
Cause or Voluntary Termination by You With Good Reason. If the Company
terminates your employment without Cause or if you terminate your
employment with Good Reason the following shall apply:
(i) The Company shall pay to you the Base Salary for
a period equal to the greater of the balance of the Term or
one (1) year following the date of such termination (the
"Severance Period"). You shall be under no obligation to
secure alternative employment during the Severance Period, and
payment of the Base Salary shall be made without regard to any
subsequent employment you may obtain.
(ii) The Company shall also pay you a bonus equal to
the last annual bonus you received multiplied by a fraction,
the numerator of which shall be the number of days in the
calendar year elapsed as of the termination date and the
denominator of which shall be 365.
(iii) If you or your eligible spouse and dependents
timely elect COBRA Coverage, the Company shall pay the monthly
premiums for such coverage during the Severance Period;
provided that, if you are entitled to coverage under a
subsequent employer's group health insurance plan during the
Severance Period, payment of such premiums shall cease.
(iv) All of your stock options which have vested as
of the termination date plus any additional options that would
have vested during the twelve (12) month period following such
date (which additional options shall become immediately and
fully vested as of the termination date) shall remain
exercisable for 48 months following such date but not beyond
the original 10 year term of the options.
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(c) Termination of Your Employment by the Company With Cause or by You
Without Good Reason. The Company may terminate your employment with Cause or you
may resign at any time. In such case, you shall be paid all amounts due for
services rendered under this Agreement up until the termination date.
Thereafter, no further payments shall be made to you under this Agreement. All
stock options granted to you hereunder or under any other agreement that are
fully vested as of the date of your termination shall remain exercisable for
ninety (90) days from the termination date. If you dispute the grounds for your
termination, your vested options will remain exercisable until ninety (90) day
after the date the dispute is resolved. All unvested options shall be forfeited.
(d) Cause. As used herein, "Cause" means that you have:
(i) committed gross negligence in connection with your
duties as set forth herein or otherwise with respect
to the business and affairs of the Company, which
gross negligence has a material adverse effect on the
business of the Company or your ability to perform
your duties under this Agreement;
(ii) committed fraud in connection with your duties as set
forth herein or otherwise with respect to the
business and affairs of the Company;
(iii) engaged in "willful misconduct" with respect to the
business and affairs of the Company. For purposes of
this Agreement, "willful misconduct" means misconduct
committed with actual knowledge that your actions
violate directions and instructions of the Board,
which directions and instructions are legal and
consistent with the Agreement; or
(iv) been found by a court of competent jurisdiction to
have committed or plead guilty to an unlawful act
whether or not related to the business of the Company
if the commission of such act has a material adverse
effect either on (a) your ability to perform your
duties under the Agreement or (b) the reputation and
goodwill of the Company.
"Cause" shall be found only by a majority of the full Board and only
after you have received notice from the Board, have had an opportunity
to discuss the issues with the Board, have had an opportunity to be
heard generally and through counsel, and have been given a thirty (30)
day period to cure, where cure is feasible.
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(e) Good Reason. As used herein, "Good Reason" means that:
(i) the Company has materially breached this Agreement;
(ii) you are removed or not appointed as a member the
Board;
(iii) the Company fails to acquire the assignment of this
Agreement by an acquiring entity;
(iv) your position has been materially reduced or you have
been assigned duties that are materially inconsistent
with your duties as set forth herein or which
materially impair your ability to perform the
services contemplated hereunder; or
(v) the Company relocates its offices outside of a fifty
(50) mile radius of New York City.
Termination for Good Reason may occur only after you have given the
Board notice and thirty (30) day period to cure, where cure is
feasible.
8. Change in Control.
(a) Subject to the provisions of this Section 8, the vesting of your
options upon a Change of Control shall be governed by the terms of this
Agreement, the Plans and your option agreements, but in no event shall less than
75% of your then unvested stock options become immediately vested and
exercisable.
(b) Voluntary Termination by You After a Change in Control Without Good
Reason. If you voluntarily terminate your employment following the effective
date of the Change in Control the following shall apply:
(i) The Company shall pay to you the Base Salary for a period
of one (1) year following the date of such termination (the "Change in
Control Severance Period"). You shall be under no obligation to secure
alternative employment during the Change in Control Severance Period,
and payment of the Base Salary shall be made without regard to any
subsequent employment you may obtain;
(ii) The Company shall also pay you a bonus equal to the last
annual bonus you received multiplied by a fraction, the numerator of
which shall be the number of days in the calendar year elapsed as of
the termination date and the denominator of which shall be 365. Should
the Company revise its compensation schedule, you will be paid a
pro-rata bonus as reasonably determined under the compensation system
then in place;
(iii) If you or your eligible spouse and dependents timely
elect COBRA Coverage, the Company shall pay the monthly premiums for
such coverage during the Change in Control Severance Period; provided
that, if you elect coverage under a subsequent employer's group health
insurance plan during the Change in Control Severance Period, payment
of such premiums shall cease; and
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(iv) All of your stock options which have vested as of the
termination date plus any additional options that would have vested
during the twelve (12) month period following such date (which
additional options shall become immediately and fully vested as of the
termination date) shall remain exercisable for 48 months following such
date but not beyond the original 10 year term of the options.
(c) If you voluntarily terminate your employment after a Change in
Control with Good Reason, then Paragraph 7(c) shall apply in lieu of Paragraph
8(b).
(d) Notwithstanding anything contained herein to the contrary, the
Company may reduce the payments set forth in this Section 8 to the extent such
payments, when added to other payments made pursuant to this Agreement,
constitute a "parachute payment" as defined in Section 280(G) of the Internal
Revenue Code of 1986, as amended.
(e) Change in Control Defined. A Change in Control shall be deemed to
have occurred if:
(i) there is a consolidation or merger of the Company, whether or
not the Company is the continuing or surviving corporation;
if, after such merger or consolidation shareholders of the
Company immediately prior to such merger or consolidation hold
less than 50% of the voting stock of the surviving entity;
(ii) there is a sale or transfer of all or substantially all of the
assets of the Company in one or a series of transactions or
there is a complete liquidation or dissolution of the Company;
or
(iii) any individual or entity or group acting in concert and
affiliates thereof, acquires, directly or indirectly, more
than 50% of the outstanding shares of voting stock of the
Company; provided that this subsection (iii) shall not apply
to an underwritten public offering of the Company's
securities.
(f) The Company shall not be required to make the payments and provide
the benefits specified in Sections 7 or 8 of this letter agreement unless you or
your estate, as applicable, has executed and delivered to the Company (and does
not revoke) a general release in a form reasonably satisfactory and mutually
agreeable to you and the Company (the "Release"). The Release shall include,
without limitation, a general release of the Company, its affiliates and
subsidiaries and their respective officers, directors, managers, members,
shareholders, partners, employees, agents and other related parties (the
"Releasees") from all liability (excluding the Company's obligations to pay and
provide the post-termination payments and benefits described in Sections 7 or 8
hereof, as applicable), a covenant not to sue the Releasees and such other terms
deemed reasonably necessary by the Company for its protection.
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9. Confidentiality/Noncompetition.
(a) During the term of your employment and for an additional period of
two years after you are no longer employed by the Company, you will not reveal,
divulge or make known to any individual, partnership, joint venture, corporation
or other business entity (other than the Company or its affiliates) or use for
your own account any customer lists, trade secrets or any confidential
information of any kind ("Protected Information") used by the Company or any of
its commonly controlled affiliates in the conduct of the Company's business and
made known to you by reason of your employment with the Company or any of its
affiliates (whether or not developed, devised or otherwise created in whole or
in part by your efforts), and upon termination of the Term you will deliver to
the Company any material relating to any Protected Information that you have
received during your employment with the Company; provided, that Protected
Information shall not include information that shall become known to the public
or the trade without violation of this Section 9(a); and provided, further, that
you shall not violate this Section 9(a) if Protected Information is disclosed by
you at the direction of the Company or if you are required to provide Protected
Information in any legal proceeding or by order of any court.
(b) During the term of your employment, you will not, directly or
indirectly, engage in a Competitive Business, including owning or controlling an
interest in (except as a passive investor owning less than five percent (5%) of
the equity securities of a publicly-owned company), or acting as director,
officer or employee of, or consultant to, any individual, partnership, joint
venture, corporation or other business entity known to you to be engaged in a
Competitive Business. "Competitive Business" shall mean the collection or
storage of stem cells or any other business which comprises a substantial
portion of the Company's operations or Board approved planned operations during
the Term of your employment; provided, however, that notwithstanding the
aforesaid, you shall not be prohibited from acting in any of the aforesaid
capacities for or with respect to any subsidiary, division, affiliate or unit
(each, a "Unit") of an entity if that Unit itself is not engaged in a
Competitive Business, irrespective of whether some other Unit of such entity
engages in such competition (as long as you do not engage in a Competitive
Business for such other Unit); and provided further that you will not be
restricted from continuing to act in any capacity for and receiving compensation
from those companies with which you currently have understandings, arrangements,
agreements or commitments or from engaging in any activities for such industry
organizations or charitable foundations as you may desire.
(c) You acknowledge that the provisions of this Section 9 are
reasonable and necessary for the protection of the Company and that each
provision, and the period or periods of time and types and scope of restrictions
on the activities specified herein are, and are intended to be divisible. In the
event that any provision of this Agreement, including any sentence, clause or
part hereof, shall be deemed contrary to law or invalid or unenforceable in any
respect by a court of competent jurisdiction, the remaining provisions shall not
be affected, but shall, subject to the discretion of such court, remain in full
force and effect and any invalid and unenforceable provisions shall be deemed,
without further action on the part of the parties hereto, modified, amended and
limited to the extent necessary to render the same valid and enforceable.
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10. Section 409A.
All payments of "nonqualified deferred compensation" (within the
meaning of Section 409A of the Internal Revenue Code of 1986, as amended
("Section 409A")) are intended to comply with the requirements of Section 409A,
and shall be interpreted in accordance therewith. Unless otherwise expressly
provided, any payment of compensation by the Company to you, whether pursuant to
this Agreement or otherwise, shall be made within two and one-half months (2
1/2) months after the end of the calendar year in which your right to such
payment vests (for purposes of Section 409A). Neither party may accelerate any
such deferred payment, except in compliance with Section 409A, and no amount
shall be paid prior to the earliest date on which it is permitted to be paid
under Section 409A. Notwithstanding anything herein to the contrary no amendment
may be made to this Agreement if it would cause the Agreement or any payment
hereunder not to be in compliance with Section 409A.
11. Miscellaneous Provisions.
(a) Notices. All notices and other communications hereunder between you
and the Company shall be in writing, shall be addressed to the receiving party's
address of record (or to such other address as a party may designate by notice
hereunder), and shall be either (i) delivered by hand, (ii) made by telecopy,
(iii) sent by overnight courier, or (iv) sent by certified mail, return receipt
requested, postage prepaid.
(b) Modifications and Amendments. The terms and provisions of this
Agreement may be modified or amended only by written agreement executed by the
parties hereto.
(c) Source of Payment. All payments provided for in this Agreement
shall be paid in cash from the general funds of the Company. The Company shall
not be required to establish a special or separate fund or other segregation of
assets to assure such payments.
(d) Waivers and Consents. The terms and provisions of this Agreement
may be waived, or consent for the departure there from granted, only by written
document executed by the party entitled to the benefits of such terms or
provisions. No such waiver or consent shall be deemed to be or shall constitute
a waiver or consent with respect to any other terms or provisions of this
Agreement, whether or not similar. Each such waiver or consent shall be
effective only in the specific instance and for the purpose for which it was
given, and shall not constitute a continuing waiver or consent.
(e) Assignment. This Agreement shall inure to the benefit of and be
enforceable by your personal or legal representatives, executors,
administrators, successors, heirs, distributes, devisees and legatees. This
Agreement may not be assigned or pledged by you. In the event of the merger or
consolidation of the Company (whether or not the Company is the surviving or
resulting corporation), the transfer of all or substantially all the assets of
the Company, or the voluntary or involuntary dissolution of the Company, the
surviving or resulting corporation or the transferee or transferees of the
Company's assets shall be bound by this and the Company shall take all actions
necessary to ensure that such corporation, transferee or transferees assume and
are bound by its provisions.
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(f) Severability. The parties intend this Agreement to be enforced as
written. However, if any portion or provision of this Agreement shall to any
extent be declared illegal or unenforceable by a duly authorized court of proper
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
(g) Choice of Law. This Agreement and the rights and obligations of the
parties hereunder shall be construed in accordance with and governed by the law
of the State of New York, without giving effect to the conflict of law
principles thereof.
(h) Entire Agreement; Termination of Prior Agreements; Exceptions. This
Agreement constitutes the entire agreement of the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings
of the parties hereto, oral or written, with respect to the subject matter
hereof. The Advisory Board Agreement dated September 14, 2005, as supplemented
and extended including by way of a Supplement to Advisory Agreement dated as of
January 18, 2006, shall be deemed terminated and null and void except as
follows: (1) vesting of the 240,000 warrants granted pursuant to the Advisory
Board Agreement shall be accelerated so that the warrants are fully vested as of
the Effective Date, (2) the Executive shall receive $103,000 in cash and 1
million shares of the Company's restricted Common Stock upon the initial closing
of the ▇▇▇▇▇▇ Financing (3) if an aggregate of at least $3 million dollars is
raised and/or other debt or equity financings in accordance with the Advisory
Board Agreement prior to August 15, 2006, the Executive shall receive an
additional payment of $50,000, and (4) all registration rights provisions of the
Advisory Board Agreement shall continue in full force and effect.
(i) Acknowledgments. You hereby acknowledge and warrant that (i) you
have the legal capacity to execute and perform this Agreement, and have
knowingly and voluntarily entered into this Agreement; (ii) you have been
advised that your interests may be different from the Company's interests, (iii)
you have been afforded a reasonable opportunity to review this Agreement, to
understand its terms and to discuss it with an attorney and/or financial advisor
of your choice, (iv) this Agreement is a valid and binding agreement enforceable
against you according to its terms and (v) the execution and performance of this
Agreement does not violate the terms of any existing agreement or understanding
to which you are a party or by which you are bound.
(j) Arbitration. Any dispute or controversy between you and the
Company, arising out of or relating to this Agreement or the breach of this
Agreement, shall be settled by arbitration administered by the American
Arbitration Association ("AAA") in accordance with its Employment Disputes
Arbitration Rules then in effect, and judgment on the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof. Any
arbitration shall be held before a single arbitrator who shall be selected by
the mutual agreement of you and the Company, unless the parties are unable to
agree to an arbitrator, in which case, the arbitrator will be selected under the
procedures of the AAA. The arbitrator shall have the authority to award any
remedy or relief that a court of competent jurisdiction could order or grant,
including, without limitation, the issuance of an injunction. However, either
party may, without inconsistency with this arbitration provision, apply to any
court having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award is
rendered or the controversy is otherwise resolved. Except as necessary in court
proceedings to enforce this arbitration provision or an award rendered
hereunder, to obtain interim relief, as required by law, or the party's
immediate family and legal and financial advisors, neither a party nor an
arbitrator may disclose the existence, content or results of any arbitration
hereunder without the prior written consent of you and the Company. The
non-prevailing party shall pay all costs and fees associated with such
arbitration, including all arbitration fees, the arbitrator's fees, attorneys'
fees and all costs.
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If the terms of this Agreement are acceptable to you please sign where
indicated below. It is understood and acknowledged that a fax signature
will be considered to be valid as an original.
Very truly yours,
PHASE III MEDICAL, INC.
By: ________________________________
Name:
Title:
Agreed to and accepted:
--------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, M.D.
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