2.1 Salary. Executive shall receive, for services to be rendered under this Agreement, an annualized base salary ("Base Salary") equal to $400,000. Such Base Salary shall commence as of the Effective Date, and shall be payable in installments consistent with the Company's payroll policies. Executive's Base Salary shall be reviewed at least annually by the Board, and in the Board's sole discretion, may be increased at any time.
2.2Termination.
(a) In the event Executive's employment terminates for any reason other than death, disability, a termination upon a Change of Control, a voluntary termination not for Good Reason, or a termination for Cause, upon execution of an effective release in the form attached hereto as Exhibit A: (i) Executive shall receive twelve (12) monthly payments each equal in amount to one-twelfth (1/12th) of the sum of (x) the full amount of one year's Target Bonus (at the level in effect at that time) and (y) his then Base Salary; (ii) additional Stock Options (as defined below) shall, immediately prior to Executive's termination of employment, become vested with respect to that number of shares which would have become vested had Executive remained in continuous service with the Company for an additional twelve (12) months following the date of Executive's termination of employment; and (iii) for a period of twelve (12) months (or until comparable benefits coverage becomes available to Executive, if sooner), the Company shall pay the costs associated with the continuation of Executive's medical, dental, and vision benefits under the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA") as in effect immediately prior to Executive's termination of employment.
(b)For purposes of this Agreement, "Good Reason" means that any of the following are undertaken without Executive's express written consent: (i) the assignment to Executive of any duties or responsibilities which result in any diminution or adverse change of Executive's position, status or circumstances of employment; (ii) a reduction by the Company in Executive's Base Salary; (iii) the taking of any action by the Company which would adversely affect Executive's participation in, or reduce Executive's benefits under, the Company's benefit plans (including equity benefits) as of the time this Agreement is executed, except to the extent the benefits of all other executive officers of the Company are similarly reduced; (iv) a relocation of Executive's principal office to a location more than forty (40) miles from 180 Kimball Way, South San Francisco, California, except for required travel by Executive on the Company's business; (v) any breach by the Company of any material provision of this Agreement; or (vi) any failure by the Company to obtain the assumption of this Agreement by any successor or assign of the Company. For purposes of this Agreement, "Cause" means: (V) an intentional action or intentional failure to act by Executive which was performed in bad faith and to the material detriment of the Company; (W) Executive intentionally refuses or intentionally fails to act in accordance with any lawful and proper direction or order of the Board; (X) Executive willfully and habitually neglects the duties of employment; (Y) Executive violates Section 4 or Section 5 of this Agreement or (Z) Executive is convicted of a felony crime involving moral turpitude; provided, however, that in the event that any of the foregoing events under clauses (V), (W), (X) or (Y) above is capable of being cured, the Company shall provide written notice to Executive describing the nature of such event and Executive shall thereafter have ten (10) business days to cure such event.
(c)In the event of Executive's termination upon a Change of Control, upon execution of an effective release in the form attached hereto as Exhibit A: (i) Executive shall, within seven (7) days of such termination, one lump sum payment equivalent to eighteen (18) months of his then Base Salary, plus a pro rata share of his Target Bonus for the calendar year in which such termination occurs, plus the amount of eighteen months of his Target Bonus, minus standard withholdings and deductions; (ii) all of Executive's outstanding Stock Options shall become fully vested and exercisable immediately upon the occurrence of such termination; and (iii) for a period of eighteen (18) months (or until comparable benefits coverage becomes available to Executive, if sooner), the Company shall pay the costs associated with the continuation of Executive's medical dental, and vision benefits under COBRA as in effect immediately prior to Executive's termination of employment. For purposes of this paragraph, both Executive's "Base Salary" and "Target Bonus" shall be the greater of those amounts in effect either immediately prior to the Change of Control or the termination of Executive's employment.
(d) A termination upon a Change of Control shall be deemed to occur for purposes of this Agreement in the event of a Change of Control (as defined below) upon which or within thirteen (13) months following the consummation of which: Executive does not continue to render services as President and Chief Executive Officer of the Company (or any successor or surviving corporation) or Executive terminates employment with the Company (or a successor or surviving corporation) for Good Reason. For purposes of this Agreement, a Change of Control means (i) any sale, merger, consolidation, tender offer or similar acquisition of shares, or other transaction or series of related transactions (each a "Transaction") as a result of which at least a majority of the voting power of the Company is not held, directly or indirectly, by the persons or entities who held the Company's securities with voting power before such Transaction (provided, however, that any person who acquired voting securities of the Company in contemplation of the Transaction and who immediately after such Transaction possesses direct or indirect ownership of at least ten percent (10%) of the securities of the Company or the surviving entity (or if the Company or the surviving entity is a controlled affiliate of another entity, then of such controlling entity) shall not be included in the group of those persons or entities who held the Company's securities with voting power before such Transaction); (ii) a sale or other disposition of all or a substantial part of the Company's assets, whether in one transaction or a series of related transactions; or (iii) individuals who on the date hereof constitute the Board and any new director (other than a director designated by a person or entity who has entered into an agreement to effect a transaction described in clause (i) or (ii) above) whose nomination and/or election to the Board was approved by a vote of at least a majority of the directors then still in office who either were directors on the date hereof or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority of the Board.
2.3Golden Parachute Taxes. Notwithstanding anything contained in this Agreement to the contrary, to the extent that payments and benefits provided under this Agreement to Executive and benefits provided to, or for the benefit of, Executive under any other Company plan or agreement (such payments or benefits are collectively referred to as the "Payments") would be subject to the excise tax (the "Excise Tax") imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), the Payments shall be reduced (but not below zero) to the extent necessary so that no Payment to be made or benefit to be provided to the Executive shall be subject to the Excise Tax, but only if, by reason of such reduction, the net after-tax benefit received by Executive shall exceed the net after-tax benefit received by him if no such reduction was made. For purposes of this Section 2.3, "net after-tax benefit" shall mean (a) the Payments which Executive receives or is then entitled to receive from the Company that would constitute "parachute payments" within the meaning of Section 280G of the Code, less (b) the amount of all federal, state and local income taxes payable with respect to the foregoing calculated at the maximum marginal income tax rate for each year in which the foregoing shall be paid Executive (based on the rate in effect for such year as set forth in the Code as in effect at the time of the first payment of the foregoing), less (c) the amount of excise taxes imposed with respect to the payments and benefits described in (a) above by Section 4999 of the Code. The foregoing determination will be made by the a nationally recognized accounting firm (the "Accounting Firm") selected by the Company (which may be, but will not be required to be, the Company's independent auditors). The Company will direct the Accounting Firm to submit its determination and detailed supporting calculations to both the Executive and the Company within fifteen (15) days after his date of termination of employment. If the Accounting Firm determines that such reduction is required by this Section 2.3, the Executive, in his sole and absolute discretion, may determine which Payments shall be reduced to the extent necessary so that no portion thereof shall be subject to the excise tax imposed by Section 4999 of the Code, and the Company shall pay such reduced amount to him. The fees and expenses of the Accounting Firm for its services in connection with the determinations and calculations contemplated by this Section 2.3 will be borne by the Company.
2.4 Annual Bonus. Executive will be eligible for an annual bonus up to fifty percent (50%) of Executive's then current Base Salary upon achievement of reasonable goals specified by the Board (the "Target Bonus"). Such goals shall be set forth in writing by the Board prior to the close of the first quarter of each fiscal year of the Company, with fifty percent (50%) of such goals to be dependent on Executive's individual performance and fifty percent (50%) of such goals to be dependent on the Company's performance.
2.5 Employee Loan.On the Effective Date, the Company agrees to loan Executive $300,000 pursuant to the terms of the form of promissory note attached hereto as Exhibit B (the "Note"). The Note is full-recourse, secured by any shares of the Company's common stock acquired by Executive upon the exercise of any Stock Options, bears interest at the rate of 5.61% per annum and is payable in full on the earlier of (a) thirty (30) days following Executive's termination of employment (other than Executive's termination of employment for Good Reason or Executive's termination of employment without Cause or due to death or disability) or (b) January 2, 2004. Provided that Executive continues to render services to the Company through each such date, the Company will forgive one thirty-sixth (1/36th) of the principal amount of the Note and any accrued interest thereon on the first day of each calendar month following the Effective Date, such that (provided Executive has not ceased to render services to the Company as of each such date) the Note shall be forgiven in its entirety on January 1, 2004. In the event Executive is terminated without Cause or due to death or disability or that Executive terminates his employment for Good Reason, the Company will concurrently therewith forgive all remaining principal and interest due under the Note.
2.6 Medical and Dental Coverage. The Company shall provide Executive with the medical and dental coverage which is no less favorable than that provided to any other executive of the Company.
2.7 Standard Company Benefits. Executive shall be entitled to all other rights and benefits for which he is eligible under the terms and conditions of such benefits which may be in effect from time to time and provided by the Company to its employees generally and/or to its management and executive employees in particular.
2.8 Expenses. Executive shall be entitled to receive prompt reimbursement of all reasonable expenses incurred by Executive in performing Company services. Executive agrees to furnish the Company reasonably adequate records and other documentary evidence of such expenses for which Executive seeks reimbursement. Such expenses shall be accounted for under the policies and procedures established by the Company.
2.9 Vacation and Sick Leave. Executive shall be entitled to vacation and to sick leave in accordance with policies as periodically established by the Company for Company officers. In addition, Executive shall be entitled, without loss of pay, to be absent voluntarily from the performance of employment duties for such periods of time and for such valid and legitimate reasons as the Board in its discretion may determine.
2.10 Stock Options.Executive shall be granted options to purchase 500,000 shares of the Company's common stock (the "Time Vesting Options") at an exercise price equal to the fair market value of the Company's common stock as of the date of grant of such options. Provided Executive remains in continuous service with the Company as of the applicable vesting dates, twelve and one half percent (12-1/2%) of the Time Vesting Options shall vest upon the six (6) month anniversary of the Effective Date and the remaining Time Vesting Options shall vest at the rate of 1/42nd of such remaining options per month, such that one hundred percent (100%) of the Time Vesting Options shall be vested on the fourth (4th) anniversary of the Effective Date. The Time Vesting Options shall be treated as incentive stock options within the meaning of Section 422 of the Code to the maximum extent possible and shall become exercisable as they become vested, and the remaining portion of the Time Vesting Options shall become exercisable upon the date of grant of such options. The vested portion of all Stock Options which are not incentive stock options shall be transferable to family members to the maximum extent permitted by the Securities Act of 1933, as amended. Other terms and conditions of the Time Vesting Options shall be consistent with the terms of the Company's compensatory stock plan under which they are granted and as mutually agreed to by the Company and Executive. In addition to the Time Vesting Options, effective as of the Effective Date, Executive shall be granted non-statutory stock options to purchase 100,000 shares of the Company's common stock (the "Performance Vesting Options") at an exercise price equal to the fair market value of the Company's common stock as of the Effective Date. Provided Executive remains in continuous service with the Company through the seventh (7th) anniversary of the Effective Date, the Performance Vesting Options shall become vested and exercisable in their entirety as of the seventh (7th) anniversary of the Effective Date; provided however, that upon the determination by the Board of Directors that Executive has met by Executive's performance during 2001 at least seventy-five percent (75%) of certain performance goals to be established jointly by Executive and the Board and/or the Compensation Committee of the Board during the first quarter of calendar year 2001, the Performance Vesting Options shall vest and become exercisable pursuant to the schedule described above with respect to the Time Vesting Options as if governed by such schedule as of their date of grant. Other terms and conditions of the Performance Vesting Options shall be consistent with the terms of the Company's compensatory stock plan under which they are granted and as mutually agreed to by the Company and Executive. The Time Vesting Options and Performance Vesting Options, together with any additional options to purchase shares of the Company's common stock that Executive may be granted from time to time are referred to herein collectively as the "Stock Options." The Stock Options shall be granted by the Board or authorized committee of the Board, and shall be granted pursuant to, and except as provided herein shall be governed by, the terms of the Company's stock option plans and customary forms of stock option agreement as amended from time to time.
