EMPLOYMENT AGREEMENT
Employment Agreement ("Agreement") dated as of
October 23, 1996 between Pacific Biometrics, Inc., a Delaware
corporation (the "Company"), and G. Xxxxxxx Xxxxxxx (the "Executive").
ARTICLE I
EMPLOYMENT
The Company hereby employs Executive, and Executive
accepts employment with the Company, upon the following terms and
conditions:
1.1 Employment. The Company hereby employs Executive,
and Executive agrees to serve, as the Chief Scientific Officer and
Founder of the Company during the term of this Agreement. Subject to the
Board of Directors of the Company, the Executive shall be responsible
for management of product development activities assigned by the
President and CEO, including research and development, regulatory,
clinical and manufacturing start-up activities and such other services
as may be delegated by the Board of Directors, provided that such duties
shall be reasonably consistent with those duties assigned to executive
officers of organizations comparable to the Company. The Executive
agrees to devote his full business time and attention and best efforts
to the affairs of the Company during the Term of this Agreement;
provided, however, that, to the extent that such activities do not
otherwise violate the provisions of this Agreement or
interfere with the performance of his duties hereunder, the Executive
may continue to serve as the Chairman of the Board of Directors and
President of Pacific Biometrics Research Foundation and perform such
duties as are customary with respect to such positions. The Executive
shall not be permitted to perform any outside consulting services unless
the Company is unable to pay his Base Salary and bonus, in an amount
equal to at least $110,000 per year. Notwithstanding the foregoing, the
Executive shall be allowed to hold positions in appropriate professional
organizations and conduct such activities as are reasonably related to
Executive's profession and prior practice (i.e. lecturing, conducting
seminars and workshops) and receive honoraria in connection therewith.
1.2 Term. The employment of the Executive by the
Company under the terms and conditions of this Agreement will commence
on the date hereof and continue until October 22, 1998 (the "Term")
unless terminated sooner in accordance with the provisions of Article
IV.
ARTICLE II
COMPENSATION
2.1 (a) Annual Salary. During the Term the Company
shall pay to the Executive an annual salary of $90,000 (the "Base
Salary"), payable in equal installments every two weeks. Executive
shall be entitled to such annual increase in the Base
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Salary as determined by the Board of Directors or compensation committee
thereof.
(b) Bonus. Executive shall be entitled to
receive a bonus equal to an aggregate of $50,000 as follows: (i)
$10,000 upon commencement of the pilot clinical trials in connection
with the Osteopatch product; (ii) $15,000 upon commencement of
clinical trials to support the 510(k) submission to the United States
Food and Drug Administration ("FDA") in connection with the Osteopatch
product; (iii) $10,000 at the time of the 510(k) filing in connection
with the Osteopatch product; and (iv) $15,000 upon FDA approval of the
Osteopatch product. Upon completion of clause (iii) above, an
additional bonus based on milestones commensurate with the Company's
priorities and objectives shall be established. In addition, Executive
shall be entitled to receive a cash bonus, payable upon receipt of
funds by the Company from customers, equal to two and one-half percent
of the amount received from the first eligible laboratory contract or
other service contract and one percent of the amount received from
each subsequent contract entered into with the same client, provided
that such laboratory contracts or other service contracts are
originated primarily through the efforts of Executive. The Executive
will not be permitted to assist in the pricing of such contracts on
behalf of the Company.
(c) Stock Options. In connection with the
execution of this Agreement, the Company granted to Executive on July 9,
1996 an option to purchase 80,000 shares of the Company's
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common stock, $.01 par value per share, at an exercise price of $3.45
per share. Such options shall vest either (i) equally over a four year
period commencing on July 9, 1997 (i.e. 20,000 shares per year for four
years); or (ii) earlier as follows: (a) 30,000 of such options will vest
at the time of the FDA 510(K) submission; (b) 30,000 of such options
shall vest immediately upon FDA approval of the Company's Osteopatch
product; and (c) 20,000 of such options shall vest immediately upon FDA
approval of any application submitted by the Company with respect to its
SalivaSac product or other product approved by the President and CEO.
2.2 Reimbursement of Expenses. The Executive shall
be entitled to receive prompt reimbursement of all reasonable expenses
incurred by the Executive in performing services hereunder, including
all expenses of travel, entertainment and living expenses while away
from home on business at the request of, or in the service of, the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures established by the
Company.
2.3 Benefits. The Company shall pay the Executive as
additional salary the annual cost of a disability insurance policy which
provides for payments equal to the maximum percentage of the Base Salary
allowable during the term of disability which may be obtained at
reasonable cost to the Company, with payments commencing three months
after the commencement of the disability. The Executive shall be
entitled
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to participate in and be covered by all health, insurance, pension,
401(k), stock purchase, stock option and any other employee plans and
benefits established by the Company (collectively referred to herein as
the "Company Benefit Plans") for its full-time employees generally,
subject to meeting applicable eligibility requirements. If no health
benefits are offered to employees generally, Executive shall be entitled
to a reasonable allowance for health insurance or reimbursement of
health insurance premiums paid directly by Executive with respect to a
health plan for the benefit of Executive and his dependent family
members.
2.4 Vacations and Holidays. During the Term, the
Executive shall be entitled to an annual vacation leave of a minimum
of four weeks at full pay. The Executive shall be entitled to such
holidays as are established by the Company for all employees and such
other religious holidays as is customary pursuant to Executive's
religious practice.
2.5 Indemnification. The Executive shall be
indemnified by the Company with respect to any personal guarantee of
Company indebtedness or Company leasehold obligations the Executive may
still be obligated on at the date of this contract.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. The Executive will not during
his employment by the Company or thereafter at any time disclose,
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directly or indirectly, to any person or entity or use, or permit the
use of, any trade secrets or confidential information relating to the
Company. "Confidential Information" shall include all information
reasonably expected to be kept confidential, including, without
limitation of the generality of the foregoing, trade secrets, know-how,
production processes, customer lists, supply arrangements, business and
financial plans and projections, marketing plans and advertising
arrangements, the terms of any license agreement relating to any of the
foregoing, and all information denominated as "confidential" and is made
available only on a restricted basis.
3.2 Return of Company Material. The Executive shall
promptly deliver to the Company on termination of the Executive's
employment with the Company, for whatever the reason, or at any time
the Company may so request, all Company memoranda, notes, records,
reports, manuals, drawings, computer software, and all documents
containing Confidential Information belonging to the Company,
including all copies of such materials which the Executive may then
possess or have under Executive's control.
3.3 Non-Competition; Non-Solicitation. (a) During
the Term of Executive's employment and for a period of nine
months thereafter (the "Non-Compete Period"), the Executive will
not, directly or indirectly, without the express written consent
of the Board of Directors: (i) own, manage, operate, join,
control, or participate in or be connected with, as an officer,
employee partner, stockholder, director, adviser, consultant, or
agent (whether paid or unpaid), any business, which is at the
time engaged in any activities which, directly or indirectly,
compete with the business of the Company (a "Competitive
Business") provided that the Company continues to pay to
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Executive, in a timely manner, the amounts required pursuant to
Section 4.2 of this Agreement; the foregoing provision being also
intended to prohibit the Executive from acquiring or holding in
excess of 5% of any issue of stock or securities of any Company
which has any securities listed on a national securities exchange or
quoted in the daily listing of over-the-counter market securities.
(b) During the Term of Executive's employment and
for a period of two years thereafter, the Executive will not, directly
or indirectly, without the express written consent of the Board of
Directors: (i) recruit, solicit or otherwise induce or influence any
proprietor, partner, stockholder, lender, director, officer, employee,
sales agent, joint venturer, investor, lessor, supplier, customer,
consultant, agent, representative or any other person which has a
business relationship with the Company to discontinue, reduce or
modify such employment, agency or business relationship with the
Company, (ii) employ or seek to employ or cause any Competitive
Business to employ or seek to employ any person or agent who is then
(or was at any time within one year prior to the date the Executive or
the Competitive Business employs or seeks to employ
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such person) engaged or retained by the Company or (iii) develop, or
cause to be developed, products competitive with the Company's
Osteopatch and SalivaSac products.
(c) In the event that Executive breaches his
obligations in any respect under this Section 3.3, the Company, in
addition to pursuing all available remedies under this Agreement, at
law or otherwise, and without limiting its right to pursue the same
may cease all payments due to the Executive under this Agreement.
(d) Since a breach of the provisions of this Section
3.3 could not adequately be compensated by money damages, the Company
shall be entitled, in addition to any other right and remedy available
to it, to an injunction restraining such breach or a threatened
breach, and in either case no bond or other security shall be required
in connection therewith. Executive agrees that the provisions of this
Section 3.3 are necessary and reasonable to protect the Company in the
conduct of its business. If any restriction contained in this Section
3.3 shall be deemed to be invalid, illegal, or unenforceable by reason
of the extent, duration, or geographical scope thereof, or otherwise,
then the court making such determination shall have the right to
reduce such extent, duration, geographical scope, or other provisions
hereof, and in its reduced form such restriction shall then be
enforceable in the manner contemplated hereby.
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3.4 Copyrights, Patents, Etc. Any interest in patents,
patent applications, inventions, technological innovations, copyrights,
copyrightable works, developments, discoveries, designs, and processes
("Inventions") which Executive now or hereafter during the period he is
employed by the Company under this Agreement or otherwise and for six
months thereafter may own, conceive of, or develop and either relating
to the fields in which the Company may then be engaged or contemplates
being engaged or conceived of or developed utilizing the time, material,
facilities, technology or information of the Company, shall belong to
the Company. As soon as Executive owns, conceives of, or develops any
Invention, he agrees immediately to communicate such fact in writing to
the Company, and without further compensation, but at the Company's
expense (except as noted in clause (a) of this Section 3.4), forthwith
upon request of the Company, Executive shall execute all such
assignments and other documents (including applications for patents,
copyrights, trademarks, and assignments thereof) and take all such other
action as the Company may reasonably request in order (a) to vest in the
Company all Executive's right, title, and interest in and to such
Inventions, free and clear of liens, mortgages, security interests,
pledges, charges, and encumbrances ("Liens") (Executive to take such
action at his expense as is necessary to remove all such Liens) and (b),
if patentable or copyrightable, to obtain patents or copyrights
(including extensions and
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renewals) therefor in any and all countries in such name as the Company
shall determine.
ARTICLE IV
TERMINATION
4.1 Termination. (a) The Board of Directors may
terminate the Executive's employment hereunder as follows:
(1) upon the death of the Executive, this
Agreement shall immediately terminate, whereupon Executive
or his estate, as the case may be, shall be entitled to
receive his Base Salary and bonus at the rate provided in
Section 2.1 to the date on which termination shall take
effect;
(2) upon a determination of Permanent
Disability; "Permanent Disability" shall mean a
physical or mental incapacity as a result of which
the Executive becomes totally unable to continue the
performance of his duties hereunder for a period of
180 consecutive days or an aggregate of 270 days in
any consecutive 24 month period. A determination of
Permanent Disability shall be subject to the
certification of a qualified medical doctor agreed
to by the Company and the Executive or, in the event
of the Executive's incapacity to designate a doctor,
the Executive's legal representative. In the absence
of agreement between the Company and the Executive,
each party shall nominate a qualified medical doctor
and the two doctors so nominated shall
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select a third doctor, who shall make the determination
as to the occurrence and continuance of a Permanent
Disability; or
(3) for Cause. "Cause" shall mean only the
following:
(i) the willful and continued
failure by the Executive to substantially
perform his duties hereunder (other than
such failure resulting from the Executive's
incapacity due to physical or mental
illness);
(ii) personal dishonesty;
(iii) willful misconduct by the Executive
(which includes a willful, material breach of this
Agreement by the Executive);
(iv) continued incompetence in the
performance of Executive's duties;
(v) conviction of a crime;
(vi) theft from the Company or misuse of
Company funds or assets; or
(viii) a willful violation of any
law, rule or regulation, or the imposition
of a final order issued by any regulatory
authority against the Company which
prohibits the Executive from holding an
executive position with the Company.
For purposes of this Agreement, no act, or failure
to act, on the Executive's part shall be considered "willful"
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unless done, or omitted to be done, by the Executive in bad
faith and without a reasonable belief that such action or
omission by the Executive was in the best interests of the
Company.
4.2 Termination Benefits. (a) If the Executive's
employment hereunder is terminated by the Company for Cause,
neither party shall have any further obligations hereunder except
for (i) obligations accruing prior to the date of termination,
and (ii) obligations or covenants contained herein that extend beyond
the term of this Agreement.
(b) If the Executive's employment hereunder is
terminated by the Company without Cause or as the result of a change in
control of the Company, the Executive shall be entitled to receive his
Base Salary and all benefits for a period of nine months from such date
of termination. A "change in control" shall mean either of the
following events: (i) a third party obtains control of the Company and
fails to assume this Agreement, or (ii) there is a change in the current
majority of the Board of Directors, except that director nominees
approved by the Board from time to time subsequent to the date hereof
shall be considered members of the current majority of the Board.
Additionally, the Executive's stock options will vest completely at the
date of termination.
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ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Assumption of Obligations. The Company will
require any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially
all of the business and/or assets of the Company, by agreement in form
and substance satisfactory to the Executive, expressly, absolutely and
unconditionally to assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material
breach of this Agreement. (If at any time during the Term of this
Agreement the Executive is employed by any corporation, a majority of
the voting securities of which is then owned by the Company, "Company"
as used in this Agreement shall in addition include such employer.) In
such event, the Company agrees that it shall pay or shall cause such
employer to pay any amounts owed to the Executive pursuant to this
Agreement.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices
and all other communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when
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delivered or mailed by United States registered mail, return receipt
required, postage prepaid, as follows:
If to the Company:
Pacific Biometrics, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000
Attn.: Chairman, Compensation Committee of
Board of Directors
If to the Executive:
G. Xxxxxxx Xxxxxxx
00000 XX 000xx
Xxxxxxxx, XX 00000
or such other address as either party may have furnished to the other
in writing in accordance herewith, except that notices of change of
address shall be effective only upon receipt.
6.2 No Waivers. No provision of this Agreement may
be modified, waived or discharged unless such waiver, modification or
discharge is agreed to in writing signed by the Executive and the
Company. No waiver by either party hereto at any time of any breach by
the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the
State of Delaware without regard to its conflict of law
provisions.
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6.4 Severability or Partial Invalidity. The
invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
6.6 Entire Agreement. This Agreement constitutes the
entire agreement of the parties and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings, and
negotiations between the parties with respect to the subject matter
hereof. This Agreement is intended by the parties as the final
expression of their agreement with respect to such terms as are
included in this Agreement and may not be contradicted by evidence of
any prior or contemporaneous agreement. The parties further intend
that this Agreement constitutes the complete and exclusive statement
of its terms and that no extrinsic evidence may be introduced in any
judicial proceeding involving this Agreement.
6.7 Assignment. Subject to the provisions of Article
IV hereof, this Agreement and the rights, duties, and obligations
hereunder may not be assigned or delegated by any party without the
prior written consent of the other party. Any
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such assignment or delegation without the prior written consent of the
other party shall be void and be of no effect. Notwithstanding the
foregoing provisions of this Section 6.7, the Company may assign or
delegate its rights, duties, and obligations hereunder to any person or
entity which succeeds to all or substantially all of the business of the
Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets
of the Company; provided that such person assumes the Company's
obligations under this Agreement in accordance with Section 5.1.
6.8 Beneficial Interests. This Agreement shall inure
to the benefit of and be enforceable by the Executive's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while
any amounts are still payable to his hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other
designee or, if there be no such designee, to the Executive's estate.
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IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
PACIFIC BIOMETRICS, INC.
By S/ Xxxx X. Xxxxx
Xxxx X. Xxxxx, President and Chief
Executive Officer
S/G. Xxxxxxx Xxxxxxx
G. Xxxxxxx Xxxxxxx
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