Exhibit 10.4
EMPLOYMENT
AGREEMENT
This Employment
Agreement , dated as of February 16, 2007 (this
“Agreement”), is by and between Isonics
Corporation , a California corporation whose address is 5906
McIntyre Street, Golden, CO 80403 (the “Company”), and
Christopher Toffales , an individual residing at 21 Motts
Hollow Road, Port Jefferson, New York 11777
(“Executive”).
WHEREAS, the Board of Directors of the Company (the
“Board of Directors”) has determined that it is in the
best interests of the Company and the Company’s shareholders
that the Company undertake a restructuring of management of the
Company; and
WHEREAS, as an integral part of said restructuring, the
Board of Directors desires to retain the services of Executive, and
Executive is willing to provide such services, upon the terms and
conditions as set forth below.
NOW, THEREFORE
, in consideration of the mutual
premises, covenants, representations and warranties herein
contained, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
hereto agree as follows:
1.
Retention of Services; Term . Effective as of the date
hereof (the “Effective Date”), the Company retains the
services of Executive, and Executive agrees to furnish such
services, upon the terms and conditions set forth in this
Agreement. Subject to earlier termination on the terms and
conditions provided in section 7 of this Agreement, and subject to
certain provisions of this Agreement which shall survive any
termination of the employment of Executive, the term (the
“Employment Period”) of the employment of Executive
under this Agreement is to commence upon satisfaction or waiver of
each of the conditions precedent set forth in Section 14 and
terminate on April 30, 2009. The Company shall give Executive
written notice that the Company shall not continue to employ
executive after the expiration of the Employment Period at least
three months prior to the last day of the Employment Period; absent
the giving of such notice, this Agreement and the Employment Period
shall be deemed to be extended for an additional one year
period.
2.
Duties and Extent of Services During Employment
Period .
(a)
During the Employment Period, Executive shall (i) serve as the
Chairman of the Board of Directors of the Company on the terms and
conditions set forth in this Agreement, (ii) report directly to the
Board of Directors and (iii) exercise such authority, perform such
executive duties and functions and discharge such executive
responsibilities as are reasonably associated with
Executive’s position, consistent with the responsibilities of
a chairman of the board of directors of a company comparable to the
Company, commensurate with the authority vested in the Executive
pursuant to this Agreement and consistent with the Bylaws of the
Company.
(b)
Notwithstanding anything to the contrary contained in this
Agreement, in his capacity as the Chairman of the Board of
Directors of the Company, Executive may act on behalf of the
Company to the fullest extent permissible for a person acting in
such capacity under applicable
law, subject to the direction and
supervision of the Board of Directors and the requirements of
California law.
(c)
Executive shall be required to devote sufficient time to the
business of the Company to achieve the purposes of the
Company’s business, expected to be approximately one-half
(50%) of his business time.
(d)
Notwithstanding anything to the contrary contained in this
Agreement, during the Employment Period, Executive may (i) engage,
directly or indirectly, in any other businesses and ventures,
including providing services and otherwise being affiliated with
(A) Irvine Sensors Corporation, (B) SenseIt Corp., a Delaware
corporation in which the Company is a stockholder
“SenseIt”), (C) CTC Aero, LLC, a New York limited
liability company in which Executive (in his individual capacity
and not in his capacity as an officer, director and/or employee of
the Company) is the sole member (“CTC Aero”), and (D)
other persons or entities (and their respective affiliates) with
whom Executive or CTC Aero, has any equity interest or any other
business or financial relationship or arrangement as of the date of
the commencement of the Employment Period, (ii) become an employee,
officer or director of, or provide consulting or other services
for, any other person or entity that is not directly competitive
with the Company and (iii) devote time, attention and energies to
reasonable community activities and public affairs, provided such
community activities and public affairs efforts shall not conflict
with the amount of time required to be devoted to the Company under
this Agreement. Neither the Company nor any of the
Company’s officers, directors, employees and stockholders
shall have any right, title or interest, by virtue of this
Agreement or otherwise, to share in any of the businesses,
ventures, equity interests, business or financial relationships or
arrangements, investments or activities to which Executive may
engage or participate in pursuant to the preceding sentence or in
any income or revenues derived from any of such businesses,
ventures, equity interests, business or financial relationships or
arrangements, investments or activities.
(e)
Effective as of the Effective Date and thereafter throughout the
Employment Term, the Company shall take all steps reasonably
necessary (including, but not limited to, solicitation of proxies
or written consents) to cause Executive to be elected as a director
of the Company.
3.
Remuneration .
(a)
During the Employment Period, the Company shall pay to Executive as
compensation for his services performed under this Agreement an
amount equal to $10,000.00 per calendar month (the “Base
Salary”), which amount shall be paid in a manner consistent
with the Company’s payroll practices for executive
officers. To the extent that the first and/or last months of
the Employment Period consist of less than a full calendar month,
the compensation shall be pro-rated accordingly for such first and
last months.
(b)
(i) The Company shall seek and use its best efforts to obtain
shareholder approval of the Company’s 2007 Restructuring
Equity Plan (the “Plan”) at a shareholders’
meeting which shall be held within 70 days after receiving at least
$1,000,000 in new debt or equity capital following the date
hereof. If the Company does not receive new debt or equity
capital before June 30, 2007, approval will be sought and the
Company will use its best efforts to obtain shareholder
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approval of the Plan at the
Company’s 2007 annual meeting of shareholders, currently
contemplated to be held in October 2007.
(ii)
At the meeting of the Board of Directors of the Company at which
this contract is approved, the Board of Directors will grant
Executive a non-qualified stock option (the “Option”)
to purchase 2,250,000 shares of the common stock, no par value (the
“Common Stock”), of the Company under the Plan,
exercisable at fair market value (as defined in the Plan) on such
date, with a term of five years, and exercisable as
follows:
(A)
500,000 shares shall become exercisable immediately upon
shareholder approval of the Plan;
(B)
750,000 shares shall become exercisable on April 30,
2008;
(C)
83,333 shares shall become exercisable on May 31, 2008;
(D)
83,333 shares shall become exercisable on June 30, 2008;
(E)
83,334 shares shall become exercisable on July 31, 2008;
(F)
83,333 shares shall become exercisable on August 31,
2008;
(G)
83,333 shares shall become exercisable on September 30,
2008;
(H)
83,334 shares shall become exercisable on October 31,
2008;
(I)
83,333 shares shall become exercisable on November 30,
2008;
(J)
83,333 shares shall become exercisable on December 31,
2008;
(K)
83,334 shares shall become exercisable on January 31,
2009;
(L)
83,333 shares shall become exercisable on February 28,
2009;
(M)
83,333 shares shall become exercisable on March 31, 2009;
and
(N)
83,334 shares shall become exercisable on April 30,
2009.
(iii)
The option agreement evidencing the Option will provide
that:
(A)
If this Agreement or Executive’s employment by the Company is
terminated (1) by the Company without cause or (2) by a failure to
renew this Agreement or to enter into a new employment agreement
following the expiration of the Employment Period, one-half of the
shares underlying the Option that are not exercisable as provided
in paragraph 3(b)(ii) will immediately become exercisable and the
Option, to the extent then exercisable pursuant to paragraph
3(b)(ii) and this clause (A), will remain exercisable for the
remaining term thereof.
(B)
If Executive terminates this Agreement and his employment hereunder
for any reason, no further portion of the Option will become
exercisable and the Option, to the extent then exercisable pursuant
to paragraph 3(b)(ii) and this clause (B), will (1) remain
exercisable for three months after such termination, if the
termination occurs prior to the first anniversary of the date of
this Agreement, or (2) remain exercisable for the remainder of the
term of the Option, if the termination occurs on or after the first
anniversary of this Agreement.
(C)
If this Agreement or Executive’s employment by the Company is
terminated by the Company for cause (as defined below), the portion
of the Option then
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exercisable shall, to the extent
exercisable pursuant to paragraph 3(b)(ii), remain exercisable for
the three months following such termination.
(D)
The Option shall become exercisable in full, notwithstanding the
schedule of exercisability set forth in paragraph 3(b)(ii), for the
duration of the stated term thereof upon any (A) change in control
of the Company, (B) merger of the Company as a result of which the
shareholders of the Company immediately preceding such merger shall
own less than a majority of the voting securities of the surviving
corporation in the merger, (C) any sale of all or substantially all
of the assets of the Company (for purposes of this clause (C), the
sale of Protection Plus Security Corporation and Isonics Vancouver,
Inc., or such entities’ assets, shall not constitute the sale
of all or substantially all of the assets of the Company), or (D)
any dissolution, liquidation or winding up of the
Company.
(E)
The option agreement will provide that broker cashless-exercise
will be permitted.
(iv)
The Company shall take all steps reasonably necessary (including,
but not limited to, solicitation of proxies or written consents) to
cause shareholder approval of the Plan to be obtained.
(c)
(i)
With respect to the Company’s fiscal year ending April 30,
2008, the Company will pay Executive a cash bonus (from which will
be deducted normal withholding) equal in value to $250,000 if he
accomplishes the following events to the reasonable satisfaction of
the Company’s compensation committee:
(A)
Executive, with the assistance of other members of management and
employees of the Company, will assess the Company’s
ion-mobility spectroscopy (“IMS”) technology and
products and provide a recommendation to the Board of Directors for
the continuation of that division, discontinuance of that division,
or other recommendation by March 15, 2007, understanding that this
will not be a detailed plan or forecast by that date, but Executive
will be available to the Board of Directors to discuss his
recommendation and the basis therefor. If Executive concludes
that the Company should continue to pursue the IMS technology and
products, then he, with the assistance of other members of
management and employees of the Company, shall present to the Board
of Directors a more complete plan for presentation to the Board of
Directors by April 15, 2007. When completed, Executive will
have earned 25% of the bonus, which portion of the bonus, if and
when so earned, shall be paid to Executive no later than the
earlier of (1) the date on which the Company has received
$2,000,000 in gross proceeds from the C-D Offering (as such term is
defined in subparagraph 14(a)(i)) or (2) June 30, 2007.
(B)
Executive, with the assistance of other members of management and
employees of the Company, will create a three-year strategic plan
for the Company for presentation to the board of directors not
later than October 2007. This is expected to be a reasonably
detailed plan, including appropriate forecasts and other
information. When completed, Executive will have earned 25%
of the bonus, which portion of the bonus
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shall be paid to Executive no later
than fifteen calendar days following the date on which such portion
of the bonus is earned.
(C)
Executive will identify and negotiate a significant strategic
acquisition for Isonics by April 30, 2008, and (by that date)
obtain a letter of intent or other documentation indicating the
other party’s desire and intention to complete such
transaction with a reasonable likelihood that the acquisition can
and will be completed in accordance with legal requirements before
November 1, 2008. When such letter of intent is obtained,
Executive will have earned 50% of the bonus, which portion of the
bonus shall be paid to Executive no later than fifteen calendar
days following the date on which such portion of the bonus is
earned.
(ii)
On or before March 31, 2008, the compensation committee will
negotiate a reasonable, appropriate, market-based bonus program for
Mr. Toffales’ continuing employment for the Company’s
fiscal year ending April 30, 2009, which will be based on EBITDA
and other reasonable performance criteria.
(iii)
The bonus described in subparagraphs 3(c)(i) and (ii) are
hereinafter referred to as the “Bonus.”
(d)
All compensation and employee benefits to be provided Executive
under this Agreement shall be exclusive of any compensation and
employee benefit to which Executive may be entitled to receive from
SenseIt or any other entity as contemplated by paragraph 3(d) of
this Agreement.
(e)
Notwithstanding anything to the contrary contained in this
Agreement, in the event that employee benefits are no longer
provided to Executive under his employment agreement with SenseIt,
the Company shall provide to the Employee all other benefits and
perquisites previously provided to the Executive by SenseIt to the
extent comparable benefits do not already exist at Isonics;
provided, that the time Executive shall be required to devote to
the business of the company and its subsidiaries shall be increased
to approximately 60% of the Executive’s business
time.
4.
Employee Benefits; Expenses .
(a)
During the term of this Agreement, the Company shall provide to
Executive the right to participate in the Company’s then
existing medical and dental insurance, life insurance, disability
insurance, retirement plans, profit-sharing plans, savings plans,
stock option plans and other employee benefit plans and policies as
currently provided by Administaff (or its successor) on the same
terms as are then generally available to the Company’s senior
executive officers.
(b)
The Company shall reimburse Executive for all reasonable and
necessary expenses, and other disbursements incurred by Executive
for or on behalf of the Company in the performance of
Executive’s duties under this Agreement, upon submission of
appropriate documentation therefor, consistent with the
Company’s expense reimbursement policies. Reasonable
and necessary expenses includes full refundable (upgradeable) coach
fare, or if not available business or other class fare, for air
travel when traveling on behalf of the Company. When
Executive’s
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travel for the
Company is combined with travel for other activities of Executive,
Executive will fairly allocate the costs between the Company and
Executive’s other activities.
(c)
During the term of this Agreement and for a three year period
thereafter, the Company shall have in effect at all times, at its
expense and no cost to Executive, one or more directors and
officers liability indemnification insurance policies (the
“D&O Policies”) covering liabilities which may have
accrued or that will be incurred by the performance of
Executive’s services on behalf of the Company in the minimum
benefit amount of amounts to be determined in good faith by the
board of directors, and provided that all officers and directors
are treated alike.
(d)
No amounts paid to or on behalf of Executive under any plan or
arrangement in accordance with paragraphs 5(a), (b), and (c), shall
be deemed to be paid in lieu of other compensation to which
Executive is entitled to receive or benefit from under this
Agreement.
5.
Confidential Information; Proprietary
