Exhibit 10.3

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (the “Agreement”) is made effective as of the 1st day
of July, 2015 (the “Effective Date”) by and between Kips Bay Medical, Inc. (the
“Company”) and Manuel A. Villafaña (the “Executive”).

 

WHEREAS, the Company currently employs Executive pursuant an Employment
Agreement dated July 25, 2012 (the “2012 Agreement”), which expires by its terms
on July 1, 2015; and

 

WHEREAS, the Company and Executive wish to continue Executive’s employment
starting on July 1, 2015 upon the terms and conditions hereinafter set forth;
and

 

WHEREAS, the Company and Executive wish to provide for Executive’s potential
transition from the positions of Chairman of the Board of Directors, Chief
Executive Officer and President to the position of Executive Chairman of the
Board of Directors.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, receipt of which is hereby acknowledged, the parties hereto agree
as follows:

 

1.

Positions and Duties – Chief Executive Officer and President.

 

(a)     Positions – Chief Executive Officer and President. The Executive will
continue in his present full time positions of Chairman of the Board of
Directors, Chief Executive Officer and President during the term of his
employment as described in Section 3 below, unless and until such time as the
Company’s Board of Directors (the “Board”) notifies Executive of Executive’s
transition to the position of Executive Chairman of the Board (“Executive
Chairman”) pursuant to Section 2 below. As Chief Executive Officer and President
the Executive shall report to the Board.

 

(b)     Duties – Chief Executive Officer and President.

 

                          (i)     The Executive’s principal duty shall be to
assist the Board in developing and implementing the Company’s ongoing business
strategy and objectives.

 

                          (ii)     The Executive shall have such other duties as
are commensurate with his being the Company’s most senior executive officer,
including, but not limited to, being responsible for the general management and
operation of the Company.

 

                          (iii)     The Executive shall serve the Company
faithfully and to the best of his ability and shall devote his full business and
professional time, energy and diligence to the performance of the duties of such
offices.

 

                          (iv)     The Executive agrees to be subject to the
Company’s control, rules, regulations, policies and programs. The Executive
further agrees that he shall carry on all correspondence, publicity and
advertising in the Company’s name and he shall not enter into any contract on
behalf of the Company except as necessary or appropriate to execute the business
plan approved by the Board.

 

 
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2.

Positions and Duties – Executive Chairman.

 

(a)     Position – Executive Chairman. At any time following the Effective Date,
the Board, in its sole and absolute discretion, may appoint a new Chief
Executive Officer and President and elect to transition Executive from the full
time positions of Chairman of the Board, Chief Executive Officer and President
to the full time position of Executive Chairman. At such time, Executive shall
no longer hold the positions of Chief Executive Officer and President, but shall
continue to serve as a member of the Board (assuming he continues to be
re-elected by the Company’s shareholders as a director), and the Executive shall
continue to be employed by the Company as Executive Chairman during the term of
his employment as described in Section 3 below. As Executive Chairman, the
Executive shall report to the Board.

 

(b)      Duties – Executive Chairman.

 

(i)     The Executive shall have such duties, roles and responsibilities
consistent with such position as are described on Schedule A hereto or as
otherwise agreed upon from time to time by the Executive and the Board and shall
perform all acts associated with such role as necessary and desirable to advance
the best interests of the Company.

 

(ii)     The Executive shall serve the Company faithfully and to the best of his
ability and shall devote his full business and professional time, energy and
diligence to the performance of the duties of such offices.

 

(iii)     The Executive shall coordinate his duties and responsibilities with
the Company’s President and Chief Executive Officer and will not enter into any
agreement or contract on behalf of the Company without prior approval from the
Board or the Company’s President and Chief Executive Officer.

 

(iv)     The Executive agrees to be subject to the Company’s control, rules,
regulations, policies and programs. The Executive further agrees that he shall
carry on all correspondence, publicity and advertising in the Company’s name and
he shall not enter into any contract on behalf of the Company, except as
necessary or appropriate to execute the business plan approved by the Board.

 

3.

Term

 

Unless a Board Determination to Cease Business (as defined below) occurs prior
to the Effective Date or Executive’s continued employment with the Company as
Chairman of the Board, Chief Executive Officer and President under the 2012
Agreement has terminated prior to the Effective Date, the Executive’s employment
by the Company hereunder will commence on the Effective Date of this Agreement
and continue until terminated in accordance with Section 6 below. The period of
the Executive’s employment hereunder is referred to herein as the “Term.” The
date on which the Executive ceases to be employed, regardless of the reason, is
the “Date of Termination.” In the event a Board Determination to Cease Business
(as defined below) occurs prior to the Effective Date or the Executive is not
employed by the Company as Chairman of the Board, Chief Executive Officer and
President under the 2012 Agreement through the Effective Date, this Agreement
shall immediately terminate without effect and without either party having any
rights or obligations hereunder.

 

4.

Compensation

 

(a)     Base Salary. Commencing on the Effective Date, the Company will pay the
Executive a base salary of US $215,000 per annum; provided, however, that in the
event the Executive on the Effective Date or thereafter becomes the Executive
Chairman, the Company will pay the Executive (i) a base salary of US $150,500
per annum for the first 12 months that the Executive serves as Executive
Chairman, and (ii) a base salary of US $107,500 per annum thereafter until the
earlier of: June 30, 2017 or the Date of Termination, in either event prorated
to the amount of time in each period actually spent employed as Executive
Chairman (the “Base Salary”). Notwithstanding the foregoing, the Board will
review the Base Salary periodically and may adjust the Base Salary from time to
time in light of the Company’s performance and cash position, prevailing market
conditions and the Executive’s contributions to the Company recognizing that the
Executive’s base salary prior to January 2015 salary reductions was $363,875 per
year.

 

 
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(b)     Annual Bonus. The Executive shall be eligible to earn an annual
performance-based bonus in accordance with the Company’s bonus policies, subject
to the terms and condition of such policies as established by the Company from
time to time.

 

5.

Expenses; Fringe Benefits

 

(a)     Expenses. The Company will pay or reimburse the Executive for
reasonable, ordinary, necessary and documented business or entertainment
expenses incurred during his employment in the performance of his services
hereunder in accordance with the directions of the Board and when the Executive
is serving as Executive Chairman, the Company’s President and Chief Executive
Officer, and reimbursement policies of the Company as from time to time in
effect. The Executive, as a condition precedent to obtaining such payment or
reimbursement, must comply with the Company’s expense reimbursement policy as in
effect from time to time and provide all statements, bills or receipts
evidencing the expenses, plus any other information or materials that the
Company may require, within sixty (60) days of incurring such expense.

 

(b)     Benefit Plans. The Executive and, to the extent eligible, his
dependents, shall be eligible to participate in and receive benefits under
welfare benefit plans, retirement plans and programs, and other programs
provided by the Company to its executive employees generally, subject, however,
to the applicable eligibility and other provisions of the plans and programs in
effect from time to time.

 

6.

Termination

 

(a)     Termination by the Company for Cause. Notwithstanding anything herein to
the contrary, the Company may terminate the Executive’s employment for Cause (as
defined below) at any time effective upon the giving of written notice to the
Executive setting forth a Date of Termination. The term “Cause” shall include,
but not be limited to, the following grounds:

 

(i)     the Executive’s breach of any provision of this Agreement which is not
cured within thirty (30) days following Executive’s receipt of written notice
thereof from the Board;

 

(ii)     the Executive’s refusal to comply with the written, lawful instructions
of the Board;

 

(iii)     the Executive’s misappropriation of the funds or physical or
intellectual property of the Company, or any of its customers, clients, agents
or employees;

 

(iv)     the Executive’s use of illegal drugs, or conducting Company business
under the influence of illegal drugs, drugs illegally obtained, or alcohol;

 

(v)     the Executive’s commission of any act that constitutes a felony or any
crime involving moral turpitude, dishonesty or theft;

 

 
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(vi)     the Executive’s failure to comply with the Company’s business practices
and policies, including without limitation, policies against protected class
harassment and discrimination, including sexual harassment; or

 

(vii)     the Executive’s commission of any act or omission that materially
injures, or could reasonably be expected to materially injure, the reputation,
business, or business relationships of the Company.

 

(b)     Termination by the Company Without Cause. Notwithstanding anything to
the contrary herein, the Company may terminate the Executive’s employment
without Cause at any time by giving the Executive sixty (60) days advance
written notice of termination.

 

(c)     Termination by the Company Upon Board Determination to Cease Business.
Notwithstanding anything to the contrary herein, the Company may terminate the
Executive’s employment in the event the Board determines to cease the business
of the Company for any reason, which shall include, without limitation, a Board
decision to cease efforts to commercialize the Company’s eSVS MESH or commence a
proceeding for bankruptcy, dissolution or liquidation of the Company (referred
to herein as a “Board Determination to Cease Business”).

 

(d)     Termination Upon Death or Disability. Notwithstanding anything to the
contrary herein,

 

(i)     in the event of the Executive’s death, the Executive’s employment shall
end and the Date of Termination shall be the date of the Executive’s death
(“Death”).

 

(ii)     in the event the Executive shall be unable to perform the essential
functions of his position, with or without reasonable accommodation, on account
of a mental or physical impairment that substantially limits one or more of
life’s major activities for periods aggregating ninety (90) calendar days
(whether or not continuous) or more in any period of 365 calendar days
(“Disability”), or such other period as required by law (including to the extent
that the Company can reasonably accommodate the Disability for more than this
90-day period), the Company may terminate the Executive’s employment by giving
written notice to the Executive setting forth a Date of Termination. For the
avoidance of doubt, the Company shall continue to pay Executive’s Base Salary
during periods of physical or mental impairment before such time periods have
been satisfied and such notice of termination has been given.

 

(e)     Termination by the Executive without Good Reason. Notwithstanding
anything to the contrary herein, the Executive may terminate his employment
without Good Reason by giving the Company sixty (60) days advance written notice
of resignation. The Company may, at any time during the notice period, relieve
the Executive of his duties and place him on a paid leave of absence for the
remainder of the notice period.

 

(f)     Termination by the Executive for Good Reason. Notwithstanding anything
herein to the contrary, the Executive may terminate his employment for Good
Reason (as defined below) at any time effective upon the giving of written
notice to the Company and the Date of Termination shall be the date of Company’s
receipt of such notice. The term “Good Reason” shall mean any of the following
events occurring without Executive’s consent, which is not cured by the Company
within sixty (60) days of Company’s receipt of a written notice from Executive.
Such notice shall identify the applicable event, request that the Company cure
the event and be delivered to the Company not more than thirty (30) days after
the occurrence of the event. If the Company does not cure the event within the
60-day period, Executive may give Good Reason notice of termination to the
Company within ten (10) days following expiration of the cure period. The Good
Reason events shall consist of:

 

 
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(i)     a reduction of Executive’s annual Base Salary by more than 10% unless
such reduction is part of a general cost reduction program resulting from the
Company’s financial constraints or is due to Executive’s transition to Executive
Chairman;

 

(ii)     a material reduction in Executive’s authority or scope of
responsibility with respect to the Company’s operations unless such reduction is
due to Executive’s transition to Executive Chairman;

 

(iii)     the relocation of Executive’s primary place of employment by more than
forty (40) miles from Executive’s then-current primary place of employment;

 

(iv)     failure to nominate the Executive as a member of the Board, removal of
the Executive from the position of Chairman of the Board or Executive Chairman,
or the appointment of an individual other than the Executive to serve as
Chairman of the Board or Executive Chairman; or

 

(v)     the Company’s material breach of this Agreement.

 

Upon Executive’s request, the Board may in its sole discretion agree to
designate other circumstances as constituting Good Reason.

 

(g)     Termination on June 30, 2017. If not terminated earlier, Executive’s
employment with the Company shall terminate on June 30, 2017.

 

7.

Effect of Termination of Employment

 

(a)     Termination by the Company for Cause, by the Company upon a Board
Determination to Cease Business, by the Executive without Good Reason, upon
Executive’s Disability, or on June 30, 2017. In the event of the termination of
the Executive’s employment by the Company for Cause, by the Company upon a Board
Determination to Cease Business, by the Executive without Good Reason, upon the
Executive’s Disability, or pursuant to Section 6(g) above on June 30, 2017, the
Executive shall be entitled to the following payments and benefits, subject to
any appropriate offsets, as required or permitted by applicable law, for debts
or money due to the Company or an affiliate thereof (collectively, “Offsets”):

 

(i)     unpaid Base Salary through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination; and

 

(ii)     any benefits accrued to the Executive through the Date of Termination
under the plans and programs described in Section 5.

 

(b)     Termination by the Company Without Cause, upon Executive’s Death or by
the Executive for Good Reason. In the event of the termination of the
Executive’s employment by the Company without Cause, upon Executive’s Death or
by the Executive for Good Reason, the Executive shall be entitled to the
following payments and benefits, subject to any Offsets:

 

(i)     unpaid Base Salary through, and any unpaid reimbursable expenses
outstanding as of, the Date of Termination;

 

(ii)     any benefits accrued to the Executive through the Date of Termination
under the plans and programs described in Section 5;

 

 
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(iii)     as severance pay, his ending Base Salary to be paid, subject to any
delays required by Section 7(d) below, according to the Company’s normal payroll
schedule for continuing employees through the period ending on June 30, 2017
(the “Severance Period”); and

 

(iv)     the annual incentive bonus for that fiscal year at target performance
(or if the target goals have not been set at the time of the Executive’s
employment termination, then the target goals in effect for the prior fiscal
year), waiving any condition for continued employment, multiplied by a fraction,
the numerator of which is the number of days worked by the Executive in the
bonus period prior to the termination of employment, and the denominator of
which is the number of days in the bonus period, less any amount of any such
incentive bonus that has been paid; provided, however, that the prorated
incentive bonus will be payable and paid only if senior management of the
Company are paid a bonus based on achievement of goals at or above target for
the year in which the termination occurs and, subject to any delays required by
Section 7(d) below, will be paid to the Executive at the same time and manner as
the bonus is paid to other senior management of the Company.

 

(c)     Ending Base Salary. If Executive’s termination for Good Reason is based
upon the Company’s reduction of Executive’s annual Base Salary as described in
Section 6(f)(i) above, then the “ending Base Salary” referred to in Section
7(b)(iii) above shall be Executive’s annual Base Salary immediately prior to
such reduction.

 

(d)     Conditions and Timing of Payments. The severance payments and annual
incentive bonus under Sections 7(b)(iii) and (iv) are conditioned on the
Executive signing, or if payments are triggered by the Executive’s Death, a
representative of the Executive’s estate, returning, not rescinding and
complying with a separation agreement that includes (i) a full and final release
of claims in favor of the Company, in a form to be provided by the Company (the
“Separation Agreement”) and (ii) Executive’s agreement to provide consulting and
advisory services to the Company without additional pay from time to time during
the Severance Period as needed by the Company, except following the Executive’s
Death. The Company shall provide Executive, or the representative of his estate,
a form of Separation Agreement within ten (10) days following the Executive’s
termination of employment or Death and the Separation Agreement must be signed
and returned to the Company within sixty (60) days of receipt. The severance
payments and annual incentive bonus under Sections 7(b)(iii) and (iv) will be
payable or commenced on the first day of the seventh month following the
Executive’s termination of employment or, if payment is due on account of Death,
within ninety (90) days after the Executive’s date of Death. Any payments
accruing for payroll periods prior to the first payment date will be paid on the
first payment date, with the remaining severance payments made on the regular
payroll periods continuing through the end of the Severance Period. The Company
and Executive intend that Executive’s termination of employment under either
Section 7(a) or Section 7(b) above shall constitute a “separation from service”
as that phrase is defined under Section 409A of the Internal Revenue Code of
1986, as amended, and the notices, regulations and other guidance of general
applicability issued thereunder (“Code Section 409A”), and they agree (i) that
the level of consulting and advisory services provided by Executive following
the termination of employment shall not exceed the level permitted by Code
Section 409A following a separation from service and (ii) that they shall
disregard any continuing services that Executive may provide solely as a member
of the Board as provided under Treas. Reg. Sec. 1.409A-1(h)(5).

 

(e)     Termination and Clawback of Severance or Bonus upon Breach. If the
Executive breaches any material provision of the Separation Agreement or
Sections 8 or 9 of this Agreement, in addition to any other remedies at law or
in equity, the Company may cease making any severance payments or annual bonus
payments under Sections 7(b)(iii) or 7(b)(iv) without affecting its rights under
this Agreement or the Separation Agreement, and may seek to recoup from the
Executive any payments already made to the Executive under Sections 7(b)(iii) or
7(b)(iv).

 

 
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(f)     Termination of Severance or Bonus upon Ceasing Business. Notwithstanding
anything in this Agreement to the contrary, in the event of a Board
Determination to Cease Business following termination of the Executive’s
employment, the Company shall cease making and shall have no further obligation
to make any severance payments or annual bonus payments to Executive under
Section 7(b)(iii) or 7(b)(iv) or otherwise without affecting its rights under
this Agreement or the Separation Agreement.

 

(g)     Other Positions. Upon any termination of the Executive’s employment with
the Company for any reason, voluntary or involuntary, the Executive shall also
automatically resign, and will automatically be deemed to have resigned, from
all other positions with the Company and its affiliates, including from the
Board, unless Executive and the Company agree otherwise in writing.

 

8.

Restrictive Covenants

 

(a)     Non-Solicitation/Non-Servicing. The Executive acknowledges that: (i) the
business in which the Company competes is highly competitive; (ii) as a key
executive, he has participated and will continue to participate in servicing
current customers and vendors and/or soliciting prospective customers and
vendors, and that Executive has obtained and will continue to obtain knowledge
of the “know-how” and business practices of the Company, in which matters the
Company has a substantial proprietary interest; (iii) his employment requires
the performance of services that are special, unique, and extraordinary, and his
position with the Company places him in a position of confidence and trust with
the Company’s customers, vendors and employees; and (iv) his rendering of
services to the Company’s customers and vendors necessarily will require the
continuing disclosure to the Executive of confidential information (as defined
in Section 8(b) hereof) of the Company. In the course of his employment, the
Executive has developed personal relationships with the Company’s customers and
vendors and knowledge of those customers’ and vendors’ affairs and requirements,
and the Company’s relationship with its customers and vendors dependent upon the
Executive’s actions. Thus, the Executive agrees that it is a legitimate interest
of the Company, and reasonable and necessary for the protection of the Company’s
confidential information, goodwill and business, that the Executive make the
covenants contained herein and that the Company would not have entered into this
Agreement unless it contained the covenants in this Section 8. The Executive
therefore agrees that he will not, as an employee, consultant, contractor,
partner, shareholder, or in association with, any other person, business or
enterprise, except on behalf of the Company, directly or indirectly, and
regardless of the reason for his ceasing to be employed by the Company:

 

(i)     during the period that he is employed by the Company and for a period of
two (2) years after the Date of Termination, render any services to, engage in,
guaranty any obligations of, or have any ownership interests or other
affiliation in, any aspect of any business that provides products or services
that are the same as, or similar to, or compete with the Company’s then-current
products, products in development and services, in any country where the Company
offers to sell or sells its products or services;

 

(ii)     during the period that he is employed by the Company and for a period
of two (2) years after the Date of Termination, attempt in any manner to
solicit, persuade, induce, or encourage any customer, vendor, supplier,
consultant or other person or entity that has (or had within twelve months
before the Date of Termination) a contractual or other business relationship
with the Company to cease to do business or to reduce the amount of business
that any such person or entity has customarily done or is reasonably expected to
do with the Company; or

 

 
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(iii)     during the period that he is employed by the Company and for a period
of two (2) years after the Date of Termination, employ as an employee or retain
as a consultant any person who is then (or during the twelve months before the
Date of Termination was) an employee or consultant of the Company or persuade or
attempt to persuade any such employee or consultant to leave the employ of the
Company or to become employed as an employee or retained as a consultant by
anyone other than the Company.

 

(b)     Confidential Information. During the Executive’s employment with the
Company, he has acquired and had access to confidential or proprietary
information about the prototypes, product development plans and designs,
clinical testing data and results, patents, trademarks, access to computer
files, marketing strategies, marketing campaigns, financial information and
records, computer software programs, agreements and/or contracts between the
Company and customers, customer contacts, creative policies and ideas, and
information about or received from customers and other companies with which the
Company does business. The foregoing shall be collectively referred to as
“Confidential Information.” The Executive is aware that the Confidential
Information is not readily available to the public; accordingly, he also agrees
that he will not at any time (whether during or after the Term), disclose to
anyone (other than his counsel in the course of a dispute arising from the
alleged disclosure of Confidential Information or as required by law) any
Confidential Information, or utilize such Confidential Information for the
benefit of himself or any third party. The Executive agrees that these
restrictions shall apply whether or not any such information is marked
“confidential” and regardless of the form of the information. If the Executive
becomes legally required to disclose any Confidential Information, he will
provide the Company with prompt notice thereof so the Company may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Section 8(b) to permit a particular disclosure. If such
protective order or other remedy is not obtained or if the Company waives
compliance with the provisions of this Section 8(b) to permit a particular
disclosure, the Executive will furnish only that portion of the confidential
Information that he is legally required to disclose and, at the Company’s
expense, will cooperate with the Company to obtain a protective order or other
reliable assurance that confidential treatment will be accorded the confidential
Information. The Executive further agrees that all memoranda, disks, files,
notes, records or other documents, whether in electronic form or hard copy
(collectively, the “Material”) compiled by him or made available to him during
his employment with the Company and/or its predecessor (whether or not the
Material constitutes or contains confidential Information), and in connection
with the performance of his duties hereunder, shall be the property of the
Company and shall be delivered to the Company on the termination of the
Executive’s employment with the Company or at any other time upon request.
Except in connection with the Executive’s employment with the Company, the
Executive agrees that he will not make or retain copies or excerpts of the
Material.

 

(c)     Remedies. If the Executive commits a breach, or is about to commit a
breach, of any of the provisions of Sections 8(a) or (b), the Company shall have
the right to have the provisions of this Agreement specifically enforced by any
court having equity jurisdiction without being required to post bond or other
security and without having to prove the inadequacy of the available remedies at
law, it being acknowledged and agreed that any such breach or threatened breach
will cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company. In addition, the Company may take all
such other actions and seek all remedies available to it under law or in equity
and shall be entitled to such damages as it can show it has sustained by reason
of such breach. If the Company prevails against the Executive in a legal action
for violation of any portion of this Agreement, the Company shall be entitled to
collect from the Executive all attorneys’ fees and costs incurred by the Company
in bringing any action to enforce the terms of this Agreement, as well as any
attorneys’ fees and costs incurred by the Company for the collection of any
judgments in the Company’s favor arising out of the Executive’s violations.

 

 
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(d)     Understandings. The Executive acknowledges and agrees that (a) the
Company informed him as part of the offer of employment under the terms of this
Agreement that the restrictive covenants set forth above would be required as
part of the terms and conditions of such employment; (b) he has carefully
considered the restrictions contained in this Agreement and determined that they
are reasonable, and has sought the advice of legal counsel if so inclined; (c)
the restrictions in this Agreement will not unduly restrict the Executive in
securing other suitable employment in the event of termination from the Company;
and (d) he signed this Agreement before or upon commencement of, and as a
condition to, his employment with the Company under this Agreement.

 

(e)     Notification of Restrictive Covenants. Before accepting employment or
consulting work with any person, corporation or other entity during the Term or
any period thereafter that the Executive is subject to the restrictions set
forth in this Section 8, the Executive shall notify the prospective employer or
principal in writing of his obligations under such provisions and shall
simultaneously provide a copy of such written notice to the Company. In
addition, by signing below, the Executive authorizes the Company to notify third
parties (including, but not limited, the Company’s customers and competitors) of
the terms of Sections 8 and 9 of this Agreement and the Executive’s
responsibilities hereunder.

 

(f)     Tolling. The duration of the restrictive covenants set forth in this
Agreement shall not expire, and shall be tolled, during any period in which the
Executive is in violation of any of those covenants, and all restrictions shall
automatically be extended by the period of the Executive’s violation of any such
covenants.

 

(g)     Survival. The parties agree that this Section 8 shall survive
termination of the Executive’s employment with the Company and termination of
this Agreement for any reason.

 

(h)     Scope. As used in this Section 8, the term “Company” shall include the
Company and all parents, subsidiaries and affiliates of the Company and the
Company.

 

9.

Assignment of Inventions and Copyrights

 

(a)     Executive will and hereby does irrevocably assign to the Company and its
successors, assigns, and legal representatives:

 

(i)     Except as provided by any statutory notice provided herewith, the entire
right, title and interest to all Inventions;

 

“Inventions”, as used herein, means all inventions conceived or made or reduced
to practice in whole or in part by Executive after being employed by the
Company, including discoveries, improvements, designs, processes, techniques,
equipment, trademarks, and ideas (whether patentable or not and including,
without limitation, those that might be copyrightable).

 

(ii)     The entire right, title and interest to any United States or foreign
Letters Patents which may issue or that has issued with respect to Inventions;

 

(iii)     The entire right, title and interest to any renewals, reissues,
extensions, substitutions, continuations, continuations-in-part, or divisions
that may be filed with respect to the Inventions, applications, and patents;

 

 
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(iv)     The right to apply for Letters Patents in foreign countries in its own
name and to claim any priority rights to which such foreign applications are
entitled under international conventions, treaties or otherwise; and

 

(v)     The right to sue for past, present, and future infringement of such
Inventions and Letters Patent.

 

(b)     Executive further agrees to provide written disclosure of all Inventions
to the Company, even if any Invention is not assigned according to terms of any
statutory notice provided herewith.

 

(c)     Executive hereby authorizes and requests the Commissioner of Patents and
Trademarks to issue to the Company any Letters Patents which may be granted in
accordance with this Assignment.

 

(d)     Copyrights.

 

(i)     Executive hereby acknowledges and agrees that, to the extent any work
performed by Executive for the Company gives rise to the creation of any
copyrightable material (“Work”), all such Work, including all text, software,
source code, scripts, designs, diagrams, documentation, writings, visual works,
or other materials shall be deemed to be a work made for hire for the Company.

 

(ii)     To the extent that title to any Work may not, by operation of law, vest
in the Company or such Work may not be considered work made for hire for the
Company, all rights, title and interest therein were assigned and are hereby
irrevocably assigned to the Company, including but not limited to the right to
sue for past, present, and future infringement of any Work. All such Work shall
belong exclusively to the Company, with the Company having the right to obtain
and to hold in its own name, copyrights, registrations or such other protection
as may be appropriate to the subject matter, and any extensions and renewals
thereof.

 

(iii)     To the extent that title to any Work may not be assigned to the
Company, Executive hereby grants the Company a worldwide, nonexclusive,
perpetual, irrevocable, fully paid-up, royalty-free, unlimited, transferable,
sublicensable license, without right of accounting, in such Work.

 

(e)     Executive agrees to execute and deliver without further consideration
such documents and to perform such other lawful acts as the Company, its
successors and assigns may deem necessary to fully secure the Company’s rights,
title or interest in all Works and Inventions as set forth in this Agreement.

 

(f)     Notice to Executive. Pursuant to Minnesota Statutes Section 181.78, this
Agreement does not apply to an invention for which no equipment, supplies,
facility or trade secret information of the Company was used and which was
developed entirely on Executive’s own time, and (1) which does not relate (a)
directly to the business of the Company or (b) to the Company’s actual or
demonstrably anticipated research or development, or (2) which does not result
from any work performed by Executive for the Company.

 

(g)     Survival. The parties agree that this Section 9 shall survive
termination of the Executive’s employment with the Company and termination of
this Agreement for any reason.

 

 
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10.

Enforceability

 

It is intended that the obligations of the Executive to perform pursuant to the
terms of this Agreement are unconditional and do not depend on the performance
or nonperformance of any agreements, duties or obligations between the Company
and the Executive not specifically contained in this Agreement.

 

The Company’s action in not enforcing a breach of any part of this Agreement
shall not prevent the Company from enforcing it as to the same or any other
breach of this Agreement.

 

11.

Assignment

 

The Company shall have the right to assign this Agreement. This Agreement shall
inure to the benefit of, and may be enforced by, any and all successors and
assigns of the Company, including, without limitation, by asset assignment,
stock sale, merger, consolidation or other reorganization. The Executive’s
rights and obligations under this Agreement are personal to the Executive; he
may not assign or otherwise transfer his rights or obligations under this
Agreement, and any purported assignment or transfer shall be void and
ineffective.

 

12.

Modification

 

This Agreement may not be orally cancelled, changed, modified or amended; and no
cancellation, change, modification or amendment shall be effective or binding,
unless in writing and signed by the parties to this Agreement.

 

13.

409A Compliance

 

It is intended that any amounts payable under this Agreement shall be exempt
from or comply with the applicable requirements, if any, of Code Section 409A,
and the parties will interpret this Agreement in a manner that will preclude the
imposition of additional taxes and interest imposed under Code Section 409A. The
parties agree that this Agreement may be amended by the Company (as determined
by the Company) to the extent necessary to comply with Code Section 409A. The
Company and Executive acknowledge that the payments described in this Agreement
to be paid following the termination of Executive’s employment are subject to
the requirements of Code Section 409A and that whether or not Executive is a
“specified employee” as defined in Code Section 409A at the time of his
“separation from service,” payments will not be paid or commence earlier than
the first day of the seventh month following the date of the Executive’s
termination of employment, except in the event of Death, in which case payments
will commence within 30 days following Death. In all cases, for purposes of
compliance with Code Section 409A, “termination of employment” shall have the
same meaning as “separation from service” as defined in Code Section 409A.

 

14.

Severability and Survival

 

If any provision of this Agreement is determined to be invalid or unenforceable
for any reason, in whole or in part, the remaining provisions of this Agreement
shall nevertheless be binding upon the parties with the same effect as though
the invalid or unenforceable part had been severed or reformed to be
enforceable. The parties’ respective rights and obligations hereunder shall
survive the termination of the Executive’s employment to the extent necessary to
the intended preservation of such rights and obligations.

 

 
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15.

Applicable Law and Legal Proceedings

 

(a)     The Company’s principal offices are located in Plymouth, Minnesota.
Therefore, all questions concerning the construction, interpretation and
validity of this Agreement, and all matters relating hereto, shall be governed
by and construed and enforced under the laws of Minnesota, without giving effect
to any choice-of-law provision or rule (whether in Minnesota or elsewhere) that
would cause the application of the laws of any jurisdiction other than
Minnesota.

 

(b)     Except for an action seeking injunctive relief, the Company and the
Executive agree that any dispute arising either under this Agreement or
otherwise from the employment relationship shall be resolved by arbitration.
Each party expressly waives any right, whether pursuant to any applicable
federal, state, or local statute, to a jury trial and/or to have a court of law
determine rights and award damages with respect to any such dispute. The party
invoking arbitration shall notify the other party in writing (the “Written
Notice”). The parties shall exercise their best efforts, in good faith, to agree
upon selection of a single arbitrator. If the parties are unable to agree upon
selection of a single arbitrator, they shall so notify the American Arbitration
Association (“AAA”) or another agreed upon arbitration administrator and request
that the arbitration provider work with the parties to select a single
arbitrator. The arbitration shall be (i) conducted in accordance with the
American Arbitration Association’s National Rules for the Resolution of
Employment Disputes, (ii) held in Hennepin County, Minnesota, and (iii)
completed within six months (or within such other time as the parties may
mutually agree) of the receipt of Written Notice by the party being notified.
The arbitrator shall have no authority to assess punitive or exemplary damages
as to any dispute arising out of or concerning the provisions of this Agreement
or otherwise arising out of the employment relationship, except as and unless
such damages are expressly authorized by otherwise applicable and controlling
statutes. The arbitrator’s decision shall be final and binding and enforceable
in any court of competent jurisdiction. To the extent permitted by applicable
law, each party shall bear its own costs, including attorneys’ fees, and share
all costs of the arbitration equally. Nothing provided herein shall interfere
with either party’s right to seek or receive damages or costs as may be allowed
by applicable statutory law.

 

(c)      In the case of actions seeking injunctive relief only, each of the
parties hereto hereby irrevocably and unconditionally submits to the exclusive
jurisdiction of any Minnesota state court or federal court sitting in Hennepin
County, Minnesota, and any appellate court therefrom.

 

16.

Representations by Executive

 

The Executive represents that he is not subject to any agreement, instrument,
order, judgment or decree, or any other agreement, that would prevent or limit
him from entering into this Agreement or that would be breached upon performance
of his duties under this Agreement, including but not limited to any duties owed
to any former employers not to compete. Executive will defend and indemnify the
Company if this representation is not true.

 

If the Executive possesses any information that he knows or should know is
considered by any third party, such as a former employer of the Executive’s, to
be confidential, trade secret, or otherwise proprietary, the Executive shall not
disclose such information to the Company or use such information to benefit the
Company in any way.

 

17.

Entire Agreement

 

This Agreement represents the entire agreement between the Company and the
Executive with respect to the employment of the Executive by the Company, and
all prior discussions, negotiations, agreements, plans and arrangements relating
to the employment of the Executive by the Company and all parents, subsidiaries
and affiliates of the Company, including the Company, are nullified and
superseded hereby.

 

 
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18.

Headings

 

The headings contained in this Agreement are for reference purposes only and
shall not affect the meaning or interpretation of this Agreement.

 

19.

Withholdings

 

The Company may withhold from any amounts payable under this Agreement such
federal, state or local taxes as may be required under any applicable law or
regulation.

 

20.

Counterparts

 

This Agreement may be executed by facsimile transmission and in counterparts,
each of which shall be deemed an original and all of which shall constitute one
instrument.

 

21.

No Strict Construction

 

The language used in this Agreement will be deemed to be chosen by the Company
and the Executive to express their mutual intent. No rule of law or contract
interpretation that provides that in the case of ambiguity or uncertainty a
provision should be construed against the draftsman will be applied against any
party hereto.

 

 

 

Signatures on Following Page 

 

 
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Kips Bay Medical, Inc.

                Date:

March 24, 2015

By:

/s/ Scott Kellen

     

Scott Kellen

    Its:

Chief Operating Officer and

     

Chief Financial Officer

                     

Manuel A. Villafaña

                Date:

March 24, 2015

By:

/s/ Manuel A. Villafaña

 

 
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Schedule A

 

Specified duties of Executive Chairman consist of:

 

 

●

Transition responsibilities to and provide orientation to the Company’s
President and Chief Executive Officer (“CEO”);

 

●

Provide counsel to CEO on organization structure, financial structure,
regulatory strategy and related topics;

 

●

Develop and execute company strategy with CEO;

 

●

Provide overall leadership and strategic direction of the Company, together with
the Board and CEO;

 

●

Provide guidance to the CEO and other senior management of the Company;

 

●

Coordinate activities of the Board;

 

●

Play integral part of strengthening relationships with physicians, customers,
shareholders, regulatory bodies and other important constituencies; and

 

●

Assist CEO with strategic business development activities.