November 20, 1996
X. Xxxxxxx Xxxxxxx
0000 X. Xxxxxxxxx Xxxx. #000
Xxxxxx Xxxx, XX 00000
Re: Your Employment With Cellegy Pharmaceuticals, Inc.
Dear Xxxx,
This letter will set forth the binding agreement of employment ("the
Agreement"), effective as of December 1, 1996 ("the Effective Date"), between
you and Cellegy Pharmaceuticals, Inc., a California corporation ("Cellegy" or
the "Company").
1. EMPLOYMENT AND DUTIES
(a) Employment. During the Employment Term (as defined in Section 3
below), the Company agrees to employ you, and subject to Section 3 below, you
agree to serve, as President and Chief Executive Officer of Cellegy. You will
have such duties and authority as are customary for, and commensurate with, such
position, including general management and direction of the Company, and such
other reasonable duties and authority as the Board of Directors of Cellegy (the
"Board") prescribes from time to time. You will also be nominated for election
as a director of Cellegy at the next Board meeting, scheduled for December 5,
1996.
(b) Exclusive Service. Except for your current consulting assignment
with Alphagene, Inc., which will be completed on January 31, 1997 or sooner, you
agree to devote your full time and efforts to this employment and apply all your
skill and experience to the performance of your duties and advancing the
Company's interests in accordance with your experience and skills. In addition,
during the Employment Term you will not act as a member of the Board of
Directors for any other corporation or engage in any other consulting activity
without the prior written approval of Company (which approval shall not be
withheld unreasonably) unless so directed by the Company, and you will otherwise
do nothing inconsistent with the performance of your duties hereunder.
2. COMPENSATION
(a) Salary. For your services under this Agreement, Xxxxxxx will pay as
salary to you the amount of $22,083.33 per month (an annualized salary of
$265,000.00) during each of the calendar years of the Employment Term, as
defined in Section 3 below, pro rated for any year in
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 2
which this Agreement is in effect for only a portion of the calendar year. Your
salary will be paid in conformity with Xxxxxxx's normal payroll period. The
Board (or the compensation committee thereof) shall, in its discretion, review
your salary and other compensation at least annually. From the Effective Date
through the end of your current consulting assignment, your Cellegy salary will
be adjusted based on the number of business days spent pro-rata on non-Cellegy
activities.
(b) Signing Bonus. You will receive a signing bonus of $50,000 payable
60 days after the Effective Date. You will repay such bonus if your employment
with Cellegy is terminated during a one-year period after the Effective Date for
any reason (including without limitation your voluntary termination) other than
termination Without Cause or termination due to death or disability.
(c) Other Benefits. You will be entitled to participate in and receive
benefits under Cellegy's standard company benefits plans as in effect from time
to time which currently includes: medical, dental and health insurance, a
SEP-IRA (or 401K) savings plan (subject to current contribution restrictions), a
long-term disability plan currently available to Cellegy employees (maximum
coverage $150,000 annually), life insurance (maximum coverage of one times
salary up to $250,000), two weeks per year of vacation time (subject to
applicable company "carry over" policies). You will also be entitled to
participate in the Company's employee stock option and equity incentive plans
which are generally available to executive employees.
(d) Expenses. During the term of your employment under this Agreement,
you will be entitled to receive prompt reimbursement from Cellegy for all
reasonable business-related expenses incurred by you, in accordance with
Cellegy's policies and procedures as in effect from time to time, provided that
such expenses are properly documented and accounted for in accordance with the
requirements of the Internal Revenue Service.
(e) Deductions and Withholding. All amounts payable or which become
payable under any provisions of this Agreement will be subject to any deductions
authorized in writing by you and any deductions and withholdings required by
law.
3. TERM OF EMPLOYMENT
(a) Term. This Agreement will continue in full force and effect from
and including the Effective Date through and including four years from the
Effective Date unless sooner terminated pursuant to the provisions of this
Agreement. Thereafter, the term of this Agreement shall automatically be renewed
for a maximum of two additional successive one-year terms on each anniversary of
the Effective Date (so that the maximum term is six years from the Effective
Date), unless either party gives notice of the non-renewal of such annual term
at least 30 days before commencement of the next annual term. The term of this
Agreement, unless terminated or extended as hereinafter provided will be
referred to as the "Employment Term."
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 3
(b) Extension of Term. The term of this Agreement may be extended by a
written amendment to this Agreement signed by both parties.
(c) Termination Without Cause. Your employment with Cellegy under this
Agreement may be terminated by Cellegy at any time during the Employment Term by
a majority vote of the Board, for any reason or for no reason, such termination
to be effective upon delivery of written notice by Cellegy of termination
Without Cause. For purposes of this Agreement, a termination Without Cause shall
not include termination of your employment for "Cause" or termination by reason
of your death or disability or your voluntary termination of your employment.
Termination other than for Cause shall be deemed to include termination by
reason of the non-renewal of the term of this Agreement.
(d) Termination for Cause. Your employment may be terminated for Cause
by a majority vote of the Board, immediately upon delivery of termination notice
thereof to you. For the purposes of this Agreement, "Cause" for your termination
will exist at any time after the happening of one or more of the following
events, as determined by the Company in its reasonable judgment: (i) your
willful and deliberate failure or a refusal (not resulting from your incapacity
due to physical or mental illness) to comply in any material respect with the
legal, ethical and reasonable policies, standards or regulations of the Company
of which you have or reasonably should have had prior knowledge, and provided
that written notice, in reasonable detail as to the alleged failure or refusal,
has been given to you by the Board and, if the failure is capable of cure, you
have had a reasonable opportunity to cure such failure; (ii) your willful and
deliberate failure or a refusal (not resulting from your incapacity due to
physical or mental illness) in any material respect, faithfully or diligently,
to perform your legal, ethical and reasonable duties, determined by the Company
in accordance with this Agreement or the customary duties of your employment of
which you have or reasonably should have had prior knowledge, and provided that
written notice, in reasonable detail as to the alleged failure or refusal, has
been given to you by the Board and, if the failure is capable of cure, you have
had a reasonable opportunity to cure such failure; (iii) your deliberate
concealment from the Board of any action by the Company in violation of any
legal, ethical and reasonable policy standard or regulation set by the Board;
(iv) your deliberate failure to obtain Board approval for any Company act
requiring Board approval; (v) any unprofessional, unethical or fraudulent
conduct that is demonstrably injurious and materially discredits the Company or
is materially detrimental to the reputation, character or standing of the
Company; (vi) dishonest conduct or a deliberate attempt to do injury to the
Company; (vii) your material breach of this Agreement; or (viii) your conviction
of a felony or other crime involving embezzlement, fraud or any offense
involving the money or property of the Company; provided, however, that with
respect to clauses (i) and (ii) above, if your failure or refusal was the result
of a reasonable good faith objection by you, which you set forth to the Board of
Directors of the Company, that such compliance or performance would not be in
the best interests of the Company and its shareholders or would violate an
applicable law or regulation or ethical duty, then any such termination by the
Board as a result of such failure or refusal shall be deemed to be a termination
other than for Cause.
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 4
(e) Termination Due to Death or Disability. Your employment under this
Agreement will terminate immediately upon your death. In the event that for any
reason of injury, illness or to the physical or mental impairment you are (i)
completely unable to perform your services under this Agreement for more than
two consecutive months, or (ii) unable in the good faith judgment of the
majority of the Board to perform your services under this Agreement for fifty
percent or more of the normal working day during each day of three consecutive
months, then Cellegy may terminate your employment under this Agreement by
delivery to you of written notice of such termination.
4. PAYMENTS AND BENEFITS AFTER TERMINATION OF EMPLOYMENT.
(a) Upon termination of this Agreement under Section 3(d) of this
Agreement ("Termination for Cause"), Section 3(e) ("Termination Due to Death or
Disability") or your voluntary termination of employment, all salary, benefits
and stock option vesting under this Agreement will cease immediately. Upon
termination pursuant to Section 3(c) of this Agreement ("Termination Without
Cause") after the Effective Date, including without limitation termination of
employment other than for Cause upon or after the occurrence of a merger or
acquisition of the business of Cellegy by another person or entity (whether such
transaction is structured as a merger, third party purchase of equity from
Cellegy or from its shareholders, or a sale by Cellegy of all or substantially
all of its assets or otherwise in which Cellegy is not the continuing or
surviving corporation), you will be paid severance pay by Xxxxxxx in the form of
a continuation of your salary for a period of twelve (12) months from and after
the date of such termination even if you have secured other employment (pro
rated for the first and last month of such twelve-month period if your
employment is terminated other than at the end of a calendar month and less any
applicable amounts required to be withheld). At your option, six months of this
severance pay may be taken in one lump sum upon termination with the remainder
being paid monthly in equal increments over the severance period. In addition,
during the period that you are receiving severance payments and as long as you
have not secured full-time employment with another employer (such period
referred to as the "Eligibility Period"), to the extent permitted by applicable
Company plans and policies and unless prohibited by law, your medical and
dental, disability, and life insurance benefits will be continued. If any such
benefit cannot be continued, the Company will pay you the equivalent amount of
premiums for such benefit, and shall also pay you an additional sum to cover any
federal or state income or employment tax due on such amounts. Your SEP-IRA (or
401K) and vacation accrual will cease on the termination date. During the period
of payment of severance pay you will cooperate with Cellegy in providing for the
orderly transition of your duties and responsibilities to other individuals, as
reasonably requested by Xxxxxxx.
(b) Moreover, during the period you are receiving severance payments
even if you have secured other employment, the period during which you may
exercise the Option will (to the extent the Option is otherwise exercisable as
provided herein) be extended until thae termination of the severance period.
Except as provided herein, vesting of Option Shares shall cease as of the date
of employment termination. For the 150,000 Option Shares described under
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 5
Section 5(iv) below, in the event of a termination other than for Cause, a
number of additional Option Shares shall become exercisable in an amount equal
to 1/48 of such 150,000 Option Shares per month (based on the grant date) for
each month from the last annual option vesting date (or, if such termination is
within one year of the grant date of the Option, then from the grant date of the
Option) until (and including) the full month in which employment termination
occurs. In addition, if the termination other than for Cause occurs within the
first six months after the grant date of the Option, then a number of the 25,000
additional Option Shares referred to in Section 5(i) shall become exercisable in
an amount equal to 1/6 of such 25,000 Option Shares per month for each month
from the grant date until (and including) the full month in which the employment
termination occurs.
5. OPTIONS. As soon as possible after you become a full-time employee,
Cellegy will recommend to the Board (or the Compensation Committee thereof) that
the Board grant to you a stock option (the "Option"), under its 1995 Equity
Incentive Plan (the "Plan"), exercisable for a total of 245,000 shares of
Cellegy Common Stock. The option will, to the extent permitted by applicable
Internal Revenue Service ("IRS") regulations, be an incentive stock option. The
Option will have an exercise price equal to 100% of the closing price of the
Common Stock on the date the option is granted, as reported in the Wall Street
Journal (or similar publication). The Option will be exercisable (will "vest")
as follows:
(i) Of the shares subject to the Option ("Option Shares"), 50,000 of
the Option Shares will be subject to vesting (according to the provisions of the
Plan and your Option relating to termination of employment), as follows:
Shares Vesting
25,000 On Grant Date
25,000 6 months after Grant Date
(ii) Under applicable IRS rules and provisions of the Plan, where the
value of Option Shares that first become exercisable in a calendar year exceeds
$100,000, the incremental shares will not be considered Incentive Stock Options
("ISOs") but will be considered Non-Qualified Stock Options ("NSOs").
(iii) 45,000 of the Option Shares will vest if the Cellegy Common Stock
closing price is at or above $12.50 (taking into account any split of the Common
Stock) for ten consecutive trading days during the five year period beginning on
the Grant Date of the Option Shares. Notwithstanding the above, all 45,000
Option Shares (subject to the provisions of the Plan and your Option relating to
termination of employment) will vest five (5) years from the grant date.
(iv) 150,000 of the Option Shares will vest in equal annual
installments over a period of four years from the grant date.
6. OBLIGATIONS NOT TO COMPETE: NO SOLICITATION.
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 6
(a) Noncompetition. You hereby agree that while you are employed by
Company, you shall not engage in or provide services to any business that is
directly or indirectly competitive with or detrimental to any present or
contemplated business of the Company known to you. Each of the following
activities shall, without limitation, be deemed to constitute engaging in
business within the meaning of this Section: to engage in, work with, have an
interest or concern in, advise, lend money to, guarantee the debts or
obligations of, or permit one's name or any part thereof to be used in
connection with, an enterprise or endeavor, either individually, in partnership,
or in conjunction with any person or persons, firms, associations, companies, or
corporations, whether as a principal, agent, shareholder, employee, officer,
director, partner, consultant or in any other manner whatsoever; provided,
however, that you shall retain the right to invest in or have an interest in
entities traded on any public market or offered by any national brokerage house,
provided that said interest does not exceed five percent (5%) of the voting
control of said entity. In addition, you may make passive investments in
privately held entities that are determined by the Board of Directors of Company
not to be competitors of Company. You also agree that if you are terminated
Without Cause, for a period of one year after your termination you shall not
engage in, work with, provide service to, have an interest or concern in,
advise, lend money to, guarantee the debts or obligations of, or permit one's
name or any part thereof, to be used in conjunction with, three persons, firms,
associations, companies, corporations, partnerships, or entities selected by the
Company prior to or substantially contemporaneously with your termination and
directly or indirectly competitive with the present or contemplated business of
the Company.
(b) Nonsolicitation. You agree that as long as you are an employee of
the Company and for one year thereafter (the "Restricted Period"), (i) you shall
not directly or indirectly, either for yourself or for any other person or
entity, directly or indirectly, solicit, induce or attempt to induce any
employee of the Company to terminate his or her employment with the Company; and
(ii) you will not in any manner attempt to induce or assist others to attempt to
induce any customer or client of the Company to terminate his association with
the Company, nor do anything directly or indirectly to interfere with the
relationship between the Company and any such persons or concerns.
7. MISCELLANEOUS. This Agreement contains the entire understanding and
sole and entire agreement between us with respect to the subject matter of the
Agreement, supersedes any and all prior agreements, negotiations and discussions
between us with respect to the subject matter covered hereby and may only be
modified by an agreement in writing signed by Xxxxxxx and you. If any provision
of the Agreement is held to be invalid or otherwise unenforceable, in whole or
in part, the remainder of such provision and the remainder of this Agreement
will not be affected thereby and will be enforced to the fullest extent
permitted by law. Neither this Agreement nor the rights or obligations under
this Agreement will be assignable by you. Cellegy may assign the Agreement to
any successor of Cellegy without your consent. This Agreement will be binding
upon our respective successors and assigns and upon your heirs, executors and
administrators. This Agreement will be governed by and constructed under the
laws of the State of California without regard to conflict of laws. Any notice,
request, demand or other
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 7
communication required or permitted under this Agreement will be deemed to be
properly given when personally served in writing, or two days after deposit in
the United States mail, postage pre-paid, or one business day after deposit with
a reputable national courier service for overnight delivery with confirmation of
receipt, addressed to Cellegy at its principal executive office, or to you at
the address shown at the beginning of this letter, or by facsimile upon
confirmation of receipt. Each of us may change our respective address for notice
purposes by written notice to the other in accordance with this Section.
8. ARBITRATION. Cellegy and you shall submit to mandatory binding
arbitration in any controversy or claim arising out of, or relating to, this
Agreement or any breach hereof or your employment relationship with the Company;
provided, however, that both you and the Company retain the right to seek or
obtain, and shall not be prohibited, limited or in any other way restricted from
seeking or obtaining, equitable relief from a court having jurisdiction over the
parties. Such arbitration shall be conducted in San Francisco in accordance with
the California Code of Civil Procedure Section 1280, et. seq., as amended,
including the rights of discovery under Code of Civil Procedure Section 1283.05,
and judgment upon the determination or award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. The parties shall each pay
one-half of all fees and costs of the arbitration.
9. ATTORNEY FEES. In any action arising out of or relating to this
Agreement, the non-prevailing party shall pay the reasonable attorney fees and
costs of the prevailing party.
10. BOARD COMPOSITION. With respect to the Company's next annual
meeting of shareholders (or, if you do not make a recommendation in connection
with that meeting, then at the next annual meeting thereafter), you have the
right to recommend up to two new Board members in addition to yourself, provided
you and they together do not account for 50% of
X. Xxxxxxx Xxxxxxx
November 20, 1996
Page 8
membership of the Board. Your selections are subject to the approval by the
Board and the shareholders at the annual meeting.
Sincerely,
CELLEGY PHARMACEUTICALS, INC.
By: /s/ Xx. Xxxx X. Xxxxxxxxxx
----------------------------
Xx. Xxxx X. Xxxxxxxxxx
Chairman of the Board
Cellegy Pharmaceuticals, Inc.
ACCEPTED AND AGREED:
/s/ X. Xxxxxxx Xxxxxxx
----------------------
X. Xxxxxxx Xxxxxxx
