EMPLOYMENT
AGREEMENT
THIS EMPLOYMENT AGREEMENT (this “
Agreement ”) is made and entered into this 13th
day of September, 2009, by and between Delcath Systems, Inc., a
Delaware corporation (the “ Company ”), and
David A. McDonald (the “ Executive
”).
RECITALS
THE PARTIES ENTER THIS AGREEMENT on the basis of
the following facts, understandings and intentions:
A. The
Company desires to hire the Executive as its Chief Financial
Officer on the terms and conditions set forth in this
Agreement.
B. This
Agreement shall govern the employment relationship between the
Executive and the Company from and after the Effective Date, and,
as of the Effective Date, supersedes and negates any previous
agreements or understandings with respect to such
relationship.
C. The
Executive desires to be employed by the Company on the terms and
conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the above
recitals incorporated herein and the mutual covenants and promises
contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby expressly acknowledged,
the parties agree as follows:
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Retention . The Company does hereby hire,
engage and employ the Executive beginning on a date to be mutually
agreed, not later than September 14, 2009 (such actual date of
employment commencement, the “ Effective Date
”), and concluding on the last day of the Period of
Employment (as such term is defined in Section 2 ) on the
terms and conditions expressly set forth in this
Agreement. The Executive does hereby accept and agree to
such hiring, engagement and employment, on the terms and conditions
expressly set forth in this Agreement.
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Duties . During the Period of Employment,
the Executive shall serve the Company as its Chief Financial
Officer and shall have the powers, authorities, duties and
obligations of management usually vested in the office of the Chief
Financial Officer of a company of a similar size and similar nature
as the Company, and such other powers, authorities, duties and
obligations commensurate with such position as the Company’s
Chief Executive Officer may assign from time to time, all subject
to the directives of the Company’s Board of Directors (the
“ Board ”) and the corporate policies of the
Company as they are in effect from time to time throughout the
Period of Employment (including, without limitation, the
Company’s business conduct and ethics policies, as in effect
from time to time). During the Period of Employment, the
Executive shall report to the Chief Executive Officer.
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1.3 No Other Employment;
Minimum Time Commitment . During the Period of Employment,
the Executive shall (i) devote substantially all of the
Executive’s business
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time, energy
and skill to the performance of the Executive’s duties for
the Company, (ii) perform such duties in a faithful, effective and
efficient manner to the best of his abilities, and (iii) hold no
other employment. The Company shall have the right to
require the Executive to resign from any board or similar body
(including, without limitation, any association, corporate, civic
or charitable board or similar body) on which he may then serve, if
the Board reasonably determines that the Executive’s service
in such capacity interferes with the effective discharge of the
Executive’s duties and responsibilities to the Company or
that any business related to such service is then in competition
with any business of the Company or any of its Affiliates (as such
term is defined in Section 5.5 ), successors or
assigns. The Executive’s service on the boards of
directors (or similar body) of other for-profit business entities
is subject to the approval of the Board. It will not be
a violation of this Agreement for the Executive to (i) serve on
civic or charitable boards or committees or (ii) manage personal
investments, so long as such activities do not materially interfere
with the performance of the Executive’s responsibilities to
the Company.
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No Breach
of Contract . The Executive hereby represents to
the Company that: (i) the execution and delivery of this Agreement
by the Executive and the Company and the performance by the
Executive of the Executive’s duties hereunder do not and
shall not constitute a breach of, conflict with, or otherwise
contravene or cause a default under, the terms of any other
agreement or policy to which the Executive is a party or otherwise
bound or any judgment, order or decree to which the Executive is
subject; (ii) the Executive has no information (including, without
limitation, confidential information and trade secrets) relating to
any other Person (as such term is defined in Section 5.5 )
which would prevent, or be violated by, the Executive entering into
this Agreement or carrying out his duties hereunder; (iii) the
Executive is not bound by any employment, consulting, non-compete,
confidentiality, trade secret or similar agreement with any other
Person that would prevent, or be violated by, the Executive
entering into this Agreement or carrying out his duties hereunder;
and (iv) the Executive understands the Company will rely upon the
accuracy and truth of the representations and warranties of the
Executive set forth herein and the Executive consents to such
reliance.
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Location . The Executive’s principal
place of employment shall be the Company’s principal
executive office as it may be located from time to
time. The Executive agrees that he will be regularly
present at that office. The Executive acknowledges that
he will be required to travel from time to time in the course of
performing his duties for the Company. As of the date of
this Agreement, the Company’s principal executive office is
located at 600 Fifth Avenue in New York, New York, and any
relocation shall require the approval of the Board.
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Period of
Employment . The “ Period of
Employment ” shall be a period of two years commencing on
the Effective Date and ending at the close of business on the
second anniversary of the Effective Date. Any renewal
will require the approval of the Chief Executive Officer and the
compensation and stock option committee of the Board or its
successor (the “ Compensation Committee
”). Renewal of this engagement must be discussed
and agreed upon not later than ninety (90) days prior to the
expiration of the current term. Notwithstanding the
foregoing, the Period of Employment is subject to earlier
termination as provided below in this Agreement. Failure
of the Board to renew beyond the second anniversary of the
Effective Date shall not constitute a breach of this Agreement and
shall not constitute an Involuntary Termination (as such term is
defined in Section 5.5 ) for purposes of this
Agreement.
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Base
Salary . During the Period of Employment,
the Company shall pay the Executive a base salary (the “
Base Salary ”), which shall be paid in accordance with
the Company’s regular payroll practices in effect from time
to time, but not less frequently than monthly. The
Executive’s minimum Base Salary shall be at an annualized
rate of three hundred twenty five thousand dollars
($325,000).
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Incentive
Bonus . The Executive shall be eligible to
receive an incentive bonus (“ Incentive Bonus ”)
for each consecutive 12-month period that ends on an anniversary of
the Effective Date (each, a “ Bonus Year ”)
during the Period of Employment; provided that the Executive
must be employed by the Company on the anniversary date in order to
be eligible for an Incentive Bonus with respect to the Bonus Year
ending on such date (and, if the Executive is not so employed at
such time, he shall not be considered to have “earned”
any Incentive Bonus with respect to the Bonus Year in
question). The target Incentive Bonus for each Bonus
Year shall equal 3 0 % of the total Base Salary paid in that
Bonus Year, based on performance objectives (which may include
corporate, business unit or division, financial, strategic,
individual or other objectives) established with respect to that
particular Bonus Year by the Compensation Committee. No
Incentive Bonus shall be paid unless the applicable performance
objectives have been attained, and the Compensation Committee shall
determine whether and to what level an Incentive Bonus is merited
in any given Bonus Year. The Compensation Committee has
the right to decide that Incentive Bonuses shall not be paid
depending upon the performance of the Company, or financial
conditions of the Company and/or financial
markets. Under no circumstances shall the Company pay
the Executive an Incentive Bonus for a Bonus Year if his employment
is terminated for Cause on or prior to the bonus payment date for
such Bonus Year. Any Incentive Bonus earned for a Bonus
Year will be paid to the Executive not later than sixty (60) days
following the end of the calendar year during which such Bonus Year
ends.
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Stock
Option Grant and Restricted Stock Award .
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(a) On the Effective
Date, the Company will grant the Executive a stock option to
purchase 250,000 of the issued and outstanding shares of the
Company’s common stock at a price per share equal to the
closing price on the date of grant (the “ Option
”).
(b) 10,417 of the
shares covered by the Option will vest on each of the first
twenty-three (23) monthly anniversaries of the Effective Date and
10,409 of the shares covered by the Option will vest on the
twenty-fourth (24 th
) monthly anniversary of the
Effective Date, subject to the Executive’s continued
employment by the Company through the respective monthly
anniversary.
(c) On the Effective
Date, the Company will also grant the Executive 50,000 shares of
restricted stock (“the Restricted Stock Award
”).
(d) 25,000
shares of the Restricted Stock Award will vest on the six (6) month
anniversary of the Effective Date and 25,000 shares of the
Restricted Stock Award will vest on the one (1) year anniversary of
the Effective Date, subject to the Executive’s continued
employment by the Company through the respective vesting
date.
(e) The Option and the
Restricted Stock Award shall be granted under the Company’s
2009 Stock Incentive Plan and shall be subject to such further
terms and conditions as set forth in a written stock option grant
letter and restricted stock agreement to be provided by the Company
to the Executive to evidence the Option and the Restricted Stock
Award under the plan.
The Executive
shall receive a special one-time bonus of $125,000 (the “
Special Bonus ”)(this payment, like all the other
payments and benefits set forth in this Agreement, will not be
“grossed up” for any income taxes that the Executive
will bear), payable within seven (7) business days following the
Effective Date. The Special Bonus is intended to reduce
the impact of the costs to the Executive in connection with his
relocation, moving and temporary housing while he secures permanent
housing in New York. Notwithstanding the foregoing, if
the Executive is terminated for Cause or resigns without Good
Reason prior to the first anniversary of the Effective Date, a pro
rata portion of the Special Bonus (determined by multiplying the
Special Bonus by a fraction, the numerator of which is the number
of days from the Severance Date (as such term is defined in
Section 5.3 ) to the second anniversary of the Effective
Date and the denominator of which is 730) shall be due and payable
to the Company immediately upon such employment termination,
subject to offset, at the Company’s election, against any
Severance Benefit (as such term is defined in Section 5.3 )
or other amount otherwise due under this Agreement.
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Retirement, Welfare and Fringe
Benefits . During the Period of Employment,
the Executive shall be entitled to participate in all retirement
and welfare benefit plans and programs, and fringe benefit plans
and programs, made available by the Company to the Company’s
executive officers generally, in accordance with the eligibility
and participation provisions of such plans and as such plans or
programs may be in effect from time to time.
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Reimbursement of Business
Expenses . The Executive is authorized to
incur reasonable expenses in carrying out the Executive’s
duties for the Company under this Agreement and shall be entitled
to reimbursement for all reasonable business expenses that the
Executive incurs during the Period of Employment in connection with
carrying out the Executive’s duties for the Company, subject
to the Company’s expense reimbursement policies and any
pre-approval policies in effect from time to time.
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Termination by the Company
. The Executive’s
employment by the Company, and the Period of Employment, may be
terminated at any time by the Company: (i) with Cause (as such term
is defined in Section 5.5 ), or (ii) without Cause, or (iii)
in the event of the Executive’s death, or (iv) in the event
that the Board determines in good faith that the Executive has a
Disability (as such term is defined in Section 5.5
).
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Termination by the Executive
. The Executive’s
employment by the Company, and the Period of Employment, may be
terminated by the Executive with no less than ninety (90)
days’ advance written notice to the Company (such notice to
be delivered in accordance with Section 18 );
provided , however , that in the case of a
termination with Good Reason, the Executive may provide immediate
written notice of termination once the applicable cure period (as
contemplated by the definition of Good Reason) has lapsed if the
Company has not reasonably cured the circumstances that gave rise
to the basis for the termination with Good Reason.
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Benefits
Upon Termination . If the Executive’s employment
by the Company is terminated during the Period of Employment for
any reason by the Company or by the Executive, or upon or following
the expiration of the Period of Employment (in any case, the date
that the Executive’s employment by the Company terminates is
referred to as the “ Severance Date ”), the
Company shall have no further obligation to make or provide to the
Executive, and the Executive shall have no further right to receive
or obtain from the Company, any payments or benefits except as
follows:
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(a) The Company shall
pay the Executive (or, in the event of his death, the
Executive’s estate) any Accrued Obligations (as such term is
defined in Section 5.5 );
(b) If, during the
Period of Employment, the Executive’s employment with the
Company terminates as a result of an Involuntary Termination (as
such term is defined in Section 5.5 ), the Company shall pay
the Executive (in addition to the Accrued Obligations), subject to
tax withholding and other authorized deductions, Base Salary for 12
months (the “ Severance Period
”). Such amount is referred to hereinafter as the
“ Severance Benefit .” Subject to
Section 5.8(a) , the Company shall pay the Severance Benefit
to the Executive in substantially equal installments in accordance
with the Company’s standard payroll practices over a period
of 12 months, with the first installment payable in the month
following the month in which the Executive’s Separation from
Service (as such term is defined in Section 5.5 )
occurs.
(c) Each installment
of the Severance Benefit (pursuant to the Company’s standard
payroll schedule and practices in the case of termination prior to
a Change of Control) shall be treated and considered a separate
payment for purposes of Section 409A of the Code. To the
maximum extent permitted, each installment of the Severance Benefit
shall be considered a payment under a “separation pay
plan” as such term is defined in Treasury Regulation Section
1.409A-1(b)(9)(iii), subject to the limitations
therein. Any installments in excess of the limitations
of Treasury Regulation Section 1.409A-1(b)(9)(iii) shall be
considered deferred compensation subject to Section 5.8(a)
.
(d) Notwithstanding
the foregoing provisions of this Section 5.3 , if the
Executive breaches his obligations under Section 6 or under
any other agreement that imposes restrictions with respect to the
Executive’s activities at any time, from and after the date
of such breach and not in any way in limitation of any right or
remedy otherwise available to the Company, the Executive will no
longer be entitled to, and the Company will no longer be obligated
to pay, any remaining unpaid portion of the Severance Benefit;
provided that, if the Executive provides the release
contemplated by Section 5.4 , in no event shall the
Executive be entitled to a Severance Benefit payment of less
than
$5,000, which amount the parties agree is good
and adequate consideration, standing alone, for the
Executive’s release contemplated by Section 5.4
.
(e) The foregoing
provisions of this Section 5.3 shall not affect: (i) the
Executive’s receipt of any benefits otherwise due terminated
employees under group insurance coverage consistent with the terms
of an applicable Company welfare benefit plan; (ii) the
Executive’s rights to continued health coverage under COBRA;
(iii) the Executive’s receipt of benefits otherwise due in
accordance with the terms of the Company’s 401(k) plan (if
any); and (iv) the Executive’s receipt of any accrued but
unpaid Incentive Bonus for the immediately preceding Bonus Year,
payable at the time provided in Section 3.2 .
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Release;
Exclusive Remedy .
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(a) This Section
5.4 shall apply notwithstanding anything else contained in this
Agreement or any other agreement to the contrary. As a
condition precedent to payment of the Severance Benefit on an
Involuntary Termination, the Executive shall, upon or promptly
following his last day of employment with the Company, provide the
Company with a valid, executed general release agreement in a form
acceptable to the Company substantially in the form attached as
Exhibit A, and such release agreement shall have not been revoked
by the Executive pursuant to any revocation rights afforded by
applicable law.
(b) The Executive
agrees that the payments and benefits contemplated by Section
5.3 shall constitute the exclusive and sole remedy for any
termination of his employment and the Executive covenants not to
assert or pursue any other remedies, at law or in equity, with
respect to any termination of employment. The Executive
agrees to resign, on the Severance Date, as an officer of the
Company and any Affiliate of the Company, and as a fiduciary of any
benefit plan of the Company or any Affiliate of the Company, and to
promptly execute and provide to the Company any further
documentation, as requested by the Company, to confirm such
resignation.
(a) As used herein,
“ Accrued Obligations ” means:
(i) any Base Salary
that had accrued but had not been paid on or before the Severance
Date;
(ii) any retirement,
welfare, or other fringe benefits accrued by Executive on or before
the Severance Date under any retirement, welfare or fringe benefit
plan or program in which Executive was a participant during his
employment with the Company, to the extent provided in such benefit
plans; and
(iii) any reimbursement
due to the Executive pursuant to Section 4.2 for expenses
reasonably incurred by the Executive on or before the Severance
Date and documented and pre-approved, to the extent applicable, in
accordance with the Company’s expense reimbursement policies
in effect at the applicable time.
(b) As used herein,
“ Affiliate ” of the Company means a Person that
directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
Company. As used in this definition, the term
“control,”
including the correlative terms
“controlling,” “controlled by” and
“under common control with,” means the possession,
directly or indirectly, of the power to direct or cause the
direction of management or policies (whether through ownership of
securities or any partnership or other ownership interest, by
contract or otherwise) of a Person.
(c) As used herein,
“ Cause ” shall mean, as reasonably determined
by the Board (excluding the Executive, if he is then a member of
the Board) based on the information then known to it, that one or
more of the following has occurred:
(i) the Executive has
committed a felony (under the laws of the United States or any
relevant state, or a similar crime or offense under the applicable
laws of any relevant foreign jurisdiction);
(ii) the Executive has
engaged in acts of fraud, dishonesty, or gross negligence that is
injurious to the Company, its Affiliates or any of their customers,
clients or employees;
(iii) the Executive has
engaged in gross misconduct, including abuse of controlled
substances, that is injurious to the Company, its Affiliates or any
of their customers, clients or employees;
(iv) the Executive
willfully fails to perform or uphold his duties under this
Agreement and/or willfully fails to comply with reasonable and
lawful directives of the Board; or
(v) any breach by the
Executive of any provision of Section 1 or Section 6
, or any material breach by the Executive of any other contract he
is a party to with the Company or any of its Affiliates including
the Code of Ethics or another material written policy.
(d) As used herein,
“ Good Reason ” shall mean a termination of the
Executive’s employment by means of resignation by the
Executive after the occurrence (without the Executive’s
written consent) of any one or more of the following
conditions:
(i) a material
diminution in the Executive’s rate of Base Salary;
(ii) a material
diminution in the Executive’s authority, duties, or
responsibilities;
(iii) a material change
in the geographic location of the Executive’s principal
office with the Company (for this purpose, in no event shall a
relocation of such office to a new location that is not more than
fifty (50) miles from the current location of the Company’s
executive offices constitute a “material change”);
or
(iv) a material breach
by the Company of this Agreement;
provided , however , that any such condition or
conditions, as applicable, shall not constitute grounds for a
termination with Good Reason unless (x) the Executive provides
written notice to the Company of the condition claimed to
constitute grounds for a termination with Good Reason within ninety
(90) days after the initial existence of such condition(s) (such
notice to be delivered in accordance with Section 18 ), and
(y) the
Company fails
to remedy such condition(s) within thirty (30) days of receiving
such written notice thereof; and (z) the termination of the
Executive’s employment with the Company shall not constitute
a termination with Good Reason unless such termination occurs not
more than one hundred twenty (120) days follow
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