EXHIBIT 10.1
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") dated as of September 1, 2004,
by and between PacificHealth Laboratories, Inc. (hereinafter the "Company"), a
Delaware corporation, and Xxxxx Xxxxxxxxxxx (hereinafter "Employee").
WHEREAS, the Company desires to retain the services of Employee and
Employee desires to be employed upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of their mutual promises, the parties
agree as follows:
1. EMPLOYMENT: The Company shall employ Employee as its President
and Chief Executive Officer reporting to the Chairman of the Board of Directors,
and Employee shall accept employment and shall render services in such
capacities, under and subject to the conditions and terms set forth herein.
During the period of his employment, Employee shall devote his full time,
attention, energy, knowledge and skill to the business and interests of the
Company, from offices of the Company to be maintained in the Central New Jersey
area. During the term of his employment Employee shall have no other employment
or business interests requiring his services, except as provided in the next
sentence, and the Company shall be entitled to the profits and other benefits
arising from or incident to the work, services and advice of Employee. The
preceding sentence shall not apply to royalties payable to Employee on any
products being marketed or in development by third parties prior to September 1,
2004, provided that Employee shall not be required to devote material time to
assisting with the marketing or development of such products. Employee shall
also perform the services for the Company ordinarily associated with the
position of "Chief Marketing Officer" until such time as a Chief Marketing
Officer is hired with approval of the Board of Directors. Upon commencement of
Employee's employment, an additional position on the Company's Board of
Directors ("Board") shall be created and Employee shall be appointed to such
additional position. Thereafter, during the term of this Agreement, the Board
and/or nominating committee shall nominate Employee for reelection to the Board
at each annual meeting of the Company's stockholders. If for any reason Employee
is not re-elected to the Board by the stockholders during the term of this
Agreement, Employee shall be entitled to terminate this Agreement upon 30 days'
written notice; provided that such circumstances and termination shall be deemed
an early expiration and not a breach of this Agreement by any party.
2. TERM: The term of this Agreement, and the term of employment of
Employee hereunder, shall commence on September 1, 2004 (the Effective Date"),
and shall end on the day preceding the second anniversary date of the Effective
Date, i.e., August 31, 2006 (the "Scheduled Termination Date"), provided:
a. Employee shall have the right to terminate his employment
hereunder for cause, upon written notice to the Company referring to this
paragraph 2(a) and describing the condition relied upon by him in invoking the
provisions hereof, if, without Employee's written consent, (i) the Company fails
to pay Employee any salary or other compensation or benefit required to be paid
hereunder when due and for a period of thirty (30) days after demand therefor by
Employee; (ii) there occurs any substantial change in the authorities, powers,
functions or duties attached to Employee's positions; or (iii) Employee is
required by any directive from the Company to reside outside of the Central New
Jersey area; unless, in any such case, the Company, within thirty (30) days
after Employee's giving of notice hereunder, takes full and effective action to
eliminate the condition cited by Employee in his notice of termination as the
reason for his giving of such notice.
b. Employee shall have the right to terminate his employment
hereunder without cause at any time upon not less than thirty (30) days written
notice.
3. COMPENSATION:
a. Employee shall receive base salary that shall be paid in
equal, bi-weekly installments commencing with the first pay period immediately
following the Effective Date. Employee's salary shall be as follows:
i) For the term of this Agreement, Employee's annual base
salary shall be $275,000. Annual base salary shall be adjusted with a cost of
living adjustment reflective of the consumer price index for urban consumers in
each year of renewal.
b. In addition to his base salary, Employee shall be entitled
to a bonus based on the Company's pre-tax net income (not taking into account
the application of any previously earned tax benefits, and as determined by the
Company's regularly employed independent accountants), as follows:
i) 5% of the Company's pre-tax net income for the period
beginning September 1, 2004 and ending on December 31, 2004, provided that the
Board determines, in its reasonable discretion, that such income was due in
material part to Employee's efforts or activities;
ii) For all calendar years beginning January 1, 2005, 5%
of the Company's pre-tax net income for the calendar year, provided that if
Employee's employment terminates prior to the end of the calendar year, the
bonus shall be 5% of the Company's pre-tax net income for the calendar year
through the end of the month in which Employee's employment terminates;
provided, however, that in each case the bonus shall not exceed 100% of
Employee's base salary payable for the period during which net income is
measured.
c. In addition to base salary and bonus payable pursuant to
(a) and (b) above, Employee shall receive options ("Options") to purchase
550,000 shares of the Company's Common Stock, at a purchase price equal to the
10-day trading average "bid" price prior to September 1, 2004, under the
Company's Year 2000 Stock Option Plan, subject to the following terms and
conditions:
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i) The Options shall vest as to 137,500 shares on
September 1, 2004, as to 137,500 shares on September 1, 2005, as top 137,500
shares on September 1, 2006, and as to 137,500 shares on September 1, 2007, and
shall be exercisable by Employee only to the extent vested. If the Company does
not offer to renew this Agreement for a period of at least one year following
the Scheduled Termination Date, all unvested options vest on the business day
before the last day of the second year of this Agreement.
ii) To the extent not previously vested, the Options shall
terminate upon termination of Employee's employment by (A) Employee, other than
pursuant to paragraph 2a of this Agreement, or (B) by the Company with cause as
defined in paragraph 5e.
iii) The Options shall vest in full immediately (A) if
Employee's employment is terminated by the Company without cause as defined in
paragraph 5e, (B) Employee's employment is terminated by Employee under
paragraph 2a(C) upon a "Change in Control" as described in paragraph 3d.
iv) To the extent not previously exercised, the Options
shall terminate upon the earlier of (A) the fifth anniversary of the Effective
Date or (B) six (6) months following the termination of Employee's employment
with the Company.
v) The Options are not intended to be "Incentive Stock
Options" and shall be subject to all of the terms and conditions of the
Company's Year 2000 Stock Option Plan applicable to options that are not
Incentive Stock Options.
d. In the event of a Change in Control, as defined
below, Employee shall be paid, as additional compensation, a lump sum equal to
his annual base salary in effect immediately prior to the Change in Control.,
payable at closing or completion of the Change in Control, and at such time all
of his unvested options shall vest. A "Change in Control" shall mean any Sale of
the Company, as defined below, or the acquisition of beneficial ownership, by
any stockholder or group of stockholders, not including stockholders who are
officers or directors of the Company on the date of this Agreement or any
affiliate of such officer or director, of shares of the Company's capital stock
entitled to cast at least 50% of all votes which may be cast in the election of
the Company's directors. Sale of the Company shall mean (A) any merger or
consolidation involving the Company if the stockholders of the Company prior to
the merger hold less than 50% of the shares of the combined entity after the
merger, or (B) transfer or sale of all or substantially all of the assets of the
Company.
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4. OTHER BENEFITS: The Company shall pay Employee for ordinary and
reasonable business expenses incurred by him in the performance of services
pursuant to this Agreement. In addition, the Company shall provide Employee with
a Company-owned or leased automobile for his use or reimburse Employee for his
costs in leasing such automobile. Employee shall keep such records and shall
render to the Company such accounts covering such expenses as the Company shall
reasonably require.
a. During the term of his employment and during any
restricted period during which Employee is entitled to receive payments pursuant
to subparagraph 5(c) below, Employee shall be entitled to participate in any
medical, health, disability and accident or other hospitalization or insurance
plan established by the Company for its executive employees generally.
b. During each full year of the term of Employment, Employee
shall be entitled to three (3) weeks paid vacation time.
The Company will reimburse Employee for the reasonable costs described in the
next sentence incurred by him in relocation and travel to the Central Jersey
area for purposes of accepting employment with the Company, up to an aggregate
maximum of $150,000. Relocation costs shall include costs incurred in connection
with the sale of Employee's residence in Utah (attorney's fees, brokerage costs,
advertising costs, and similar costs), the costs of moving Employee's family and
household goods to New Jersey (all costs of packing, storing, moving and
insuring such goods), the costs of locating and acquiring a home in New Jersey
(rental cars, inspection fees, all closing costs (including insurance and tax
escrows and similar costs but not points or interest), temporary housing for six
months and air fare between New Jersey and Utah.
5. COMPENSATION UPON TERMINATION: If Employee's employment is
terminated at any time during the term hereof, the following provisions shall
apply:
a. If Employee's employment is terminated for any reason, the
Company shall pay employee all base salary accrued through the effective date of
termination. If Employee's employment is terminated by the Company prior to the
Scheduled Termination Date without cause, as defined in subparagraph (e) below,
or by Employee prior to the Scheduled Termination Date with cause pursuant to
subparagraph 2(b) above, the Company shall, in addition, pay to Employee, at the
time of termination, an amount equal to the base salary which would have been
paid during a period (the "Severance Period") beginning on the date of
termination of employment and ending on the later of (A) the Scheduled
Termination Date, or (B) the first anniversary of the termination date. These
payments shall be in lieu of any other severance or post-employment benefits
except as otherwise expressly provided for in this Agreement.
b. If Employee's employment is terminated by the Company for
any reason other than Employee's death, the Company, at its election, by notice
to Employee given not later than ten (10) days after such termination and
referring specifically to this subparagraph, shall have the right to require for
one (1) year from the date of termination (the "restricted period") that
Employee not become employed by, become an officer, director, partner, member,
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manager or agent of, serve as an advisor or consultant to, or become an investor
in, any business engaged in the manufacture or sale of sports nutrition or
diet/weight loss products, or any other products which the Company was
manufacturing or selling that contribute greater than 5% of the business' total
revenues, or had planned in writing to manufacture or sell, prior to the date of
termination, provided that (i) the Company continues to pay to Employee during
the restricted period when payment of Employee's base salary would otherwise be
due and without interruption, an amount equal to one hundred (100%) percent of
Employee's base salary in effect immediately prior to termination unless such
termination is for "cause", as defined below, in which case no payment shall be
required, and (ii) the Company honors and timely performs its obligations to
Employee under subparagraph (a) above. Any failure by the Company to make the
payments required hereunder as and when due, or to honor and timely perform its
obligations to Employee under subparagraphs (a) or (b) above, shall constitute a
full and irrevocable waiver of the Company's rights under this subparagraph (b).
Payments, if any, to Employee under the second sentence of paragraph (a) above
shall be applied to the payments required under this paragraph, and no
additional payment shall be required except to the extent the restricted period
exceeds the Severance Period.
c. Nothing in subparagraph (c) above or elsewhere in this
Agreement shall prohibit Employee from acquiring a passive equity stake
representing less then one (1%) of any class of an issuer's outstanding
securities.
d. For the purposes of this Agreement, "cause" for
termination of Employee's employment shall exist only in the event of (i)
Employee's gross negligence or intentional malfeasance in the performance of his
duties as an officer of the Company which results in or creates a substantial
risk of serious financial injury to the Company, (ii) Employee's conviction of a
felony or misdemeanor involving fraud or theft provided that, if such conviction
is appealed by Employee, the conviction is upheld by the appellate courts, (iii)
any final determination by any governmental agency, court or securities exchange
or by The Nasdaq Stock Market, Inc. ("Nasdaq") that Employee has violated any
securities laws or exchange or Nasdaq rules, (iv) Employee's breach of this
Agreement which is not completely cured within 30 days after Employee has
received written notice of such breach or (v) Employee enters into a consent
order with respect to any matter referenced in clause (iii).
6. ASSIGNMENT: This Agreement is personal in its nature and
neither of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except that the
Company may assign or transfer this Agreement to a successor organization in the
event of merger, consolidation, or transfer of sale of all or substantially all
of the assets of the Company, in which case the term Company shall mean such
successor, provided that in the case of any such assignment or transfer, the
obligations of this Agreement are assumed by such successor or are binding upon
and inure to the benefit of such successor as a matter of law.
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7. NOTICES: All notices hereunder shall be in writing and shall be
deemed to have been given at the time when mailed in any general or branch
United States Post Office enclosed in a certified post-paid envelope, addressed
to the respective parties stated below, or to such changed address as such party
may fix by notice as aforesaid:
To the Company:
PacificHealth Laboratories, Inc.
Attn: Board of Directors
000 Xxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
With a copy to:
Xxxxxx Xxxxxxx Xxxxxx & Xxxxxxx, LLC
Attention: Xxxx Xxxxxx
0000 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxxxxxx, XX 00000
To Employee:
Xxxxx Xxxxxxxxxxx
0000 Xxxxxx Xxxx Xx.
Xxxx Xxxx Xxxx, XX 00000
in each case with copies of such notice to each director of the Company then in
office.
8. GOVERNING LAW: This Agreement and all performance under this
Agreement shall be governed by the laws of the State of New Jersey.
9. WAIVER, MODIFICATION: No waiver or modification of this
Agreement or of any covenant, condition or limitation contained herein shall be
valid or effective unless it is in writing and duly executed by Employee and the
Company.
10. RESOLUTION OF DISPUTES: Any controversy or claim arising out
of or relating to this Agreement or the breach thereof, including without
limitation a claim for declaratory relief or relief which is equitable in
nature, shall be settled by arbitration in either Philadelphia, Pennsylvania or
Newark, New Jersey, by an arbitrator selected by Employee and the Company. If
the Company and Employee cannot agree on the appointment of an arbitrator within
ten (10) days after a request for arbitration, then such arbitrator shall be an
attorney-at-law with no prior professional association with any of the parties
or their affiliates who is selected in accordance with procedures established
and implemented by the American Arbitration Association. The arbitration shall
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be conducted in accordance with the rules of the American Arbitration
Association, except as otherwise provided in this paragraph 10. Except as
otherwise provided herein, all costs of the arbitration shall be borne by the
Company. Judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction over the parties. Any award of the arbitrator
shall include interest at a rate or rates considered just under the
circumstances by the arbitrator and may include, in the discretion of the
arbitrator, an award of legal expenses and costs to the prevailing party.
IN WITNESS WHEREOF, Employee has signed his name and the
Company, by the signatures of its duly authorized officers, has executed this
Agreement, as of the date and year mentioned at the top of page one.
PACIFICHEALTH LABORATORIES, INC.
BY:/S/ BY:/S/
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XXXXX XXXXXXXXXXX XXXXXXX X. XXXXXX, VP - FINANCE & CFO
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