Exhibit 10.2

 

INDEMNIFICATION AGREEMENT

 

THIS AGREEMENT (this “Agreement”) is made as of the 19th day of August, 2005
(the “Effective Date”) by and between MAXIM PHARMACEUTICALS, INC., a Delaware
corporation (the “Company”), and LARRY G. STAMBAUGH, an individual
(“Stambaugh”).

 

BACKGROUND

 

A.                                   Stambaugh is currently the Chairman,
President and Chief Executive Officer of the Company, and has served in these
capacities since 1993.

 

B.                                     On or about August 19, 2005, the Company
entered into agreement with Stambaugh forgiving an existing loan, then in
default, on certain terms and circumstances.

 

C.                                     The Compensation Committee of the
Company’s Board of Directors, together with the Company’s full Board of
Directors (other than Stambaugh) has extensively reviewed and analyzed, among
other matters and factors, all related facts and circumstances to these
agreements and/or amendments, including the Company’s current needs, prospects
and contingency plans, and Stambaugh’s current assets and liabilities, together
with what is in the best interest of the Company’s stockholders and creditors
now and in the future.

 

D.                                    In the context of the foregoing
background, the parties are entering into this Indemnification Agreement on the
following terms:

 

AGREEMENT

 

1.                                       Indemnification for Excise Tax.

 

(a)                                  In the event it shall be determined that
the Note Forgiveness, when considered in connection with any other payment or
distribution (hereinafter “Payment” or “Payments”) by the Company to or for the
benefit of Stambaugh, would be subject to  Federal and/or State Excise Tax
imposed by Section 280G and Section 4999 of the Internal Revenue Code of 1986,
as amended (the “Code”) or similar State provision, or if the Note Forgiveness
causes any other payment or distribution by the Company to Stambaugh to be
subject to the Excise Tax imposed by Section 280G or Section 4999 of the Code,
or similar State excise tax, if any,  or any interest or penalties are incurred
by Stambaugh with respect to any such  tax related thereto (any such excise tax,
or related taxes, together with any such interest and penalties, are hereinafter
collectively referred to as the “Excise Tax”), then Stambaugh shall be entitled
to receive an additional payment (a “Gross-Up Payment”) in an amount such that
after payment by Stambaugh of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without limitation, any  income
and employment taxes (and any interest and penalties imposed with respect
thereto), interest and the additional 20% tax imposed under Code Section 280G
and Section 4999 or similar State provision, and Excise Tax imposed upon the
Gross-Up Payment, Stambaugh retains an amount of the Gross-Up Payment equal to
the Excise Tax imposed upon the Payments such that it leaves him in a cash
neutral position.

 

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(b)                                  Stambaugh shall notify the Company in
writing of any claim by a taxing authority that, if successful, would require
the payment by the Company of the Gross-Up Payment.  Such notification shall be
given as soon as practicable but no later than ten (10) business days after
Stambaugh is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid.  Stambaugh shall not pay such claim prior to the expiration of the
thirty-day period following the date on which it gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due).  If the Company notifies Stambaugh in
writing prior to the expiration of such period that it desires to contest such
claim, Stambaugh shall:

 

(i)                                    give the Company any information
reasonably requested by the Company relating to such claim;

 

(ii)                                take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the Company;

 

(iii)                            cooperate with the Company in good faith in
order effectively to contest such claim; and

 

(iv)                               permit the Company to participate in any
proceedings relating to such claim;

 

provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred by Stambaugh in
connection with such contest and shall indemnify and hold Stambaugh harmless, on
an after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.

 

(c)                                  All determinations required to be made
under this Section 1, including whether and when a Gross-Up Payment is required
and the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determinations, shall be made by a competent CPA firm selected
by the Company (the “Accounting Firm”).  In making its calculations, the
Accounting Firm agrees to use Stambaugh’s marginal tax rate as determined by a
competent CPA selected by Stambaugh, and shall provide detailed supporting
calculations both to the Company and Stambaugh within fifteen business days of
the Company’s receipt of notice from Stambaugh of any claim by a taxing
authority that, if successful, would require the payment by the Company of the
Gross-Up Payment.  In the event that the Accounting Firm is serving as an
accountant or auditor for the individual, entity or group (other than the
Company) effecting the change of control resulting in an Excise Tax, the Company
shall appoint another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then be referred
to as the Accounting Firm hereunder).  All fees and expenses of the Accounting
Firm shall be borne solely by the Company.

 

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(d)                                  Any Gross-Up Payment, as determined
pursuant to this Section 1, shall be paid by the Company to  the applicable
taxing authority on behalf of Stambaugh within five days of the receipt of the
Accounting Firm’s determination. As a result of the uncertainty in the
application of Section 280G of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that a Gross-Up Payment which
will not have been made by the Company should have been made (“Underpayment”),
consistent with the calculations required to be made hereunder.  In the event
that the Company exhausts its remedies pursuant to paragraph 1(b) and Stambaugh
thereafter is required to make payments to taxing authorities in excess of that
determined originally by the Accounting Firm,  the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Stambaugh.  Accordingly, the Company will pay on a grossed up basis any
additional amounts required so that the effect of such payments is cash neutral
to Stambaugh.

 

(e)                                  Without limitation on the foregoing
provisions of this paragraph 1(b), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forego any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either  direct Stambaugh to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Stambaugh agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Stambaugh to pay such
claim and sue for a refund (which the Company shall only so direct if applicable
law permits the advancement referred to in this proviso), the Company shall
advance the amount of such payment to Stambaugh, on an interest-free basis and
shall indemnify and hold Stambaugh harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with respect thereto)
imposed by any taxing authority with respect to such advance or with respect to
any imputed income with respect to such advance; and further provided that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of Stambaugh with respect to which such contested amount is claimed
to be due is limited solely to such contested amount.  Further, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Stambaugh shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

 

(f)                                    If, after the receipt by Stambaugh of an
amount advanced by the Company pursuant to paragraph 1(e), Stambaugh becomes
entitled to receive any refund with respect to such claim related to an advanced
payment, Stambaugh shall (subject to the Company’s complying with the
requirements of paragraph 1(e)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto).  If, after the receipt by Stambaugh of an amount advanced
by the Company pursuant to paragraph 1(e), a determination is made that
Stambaugh shall not be entitled to any refund with respect to such claim and the
Company does not notify Stambaugh in writing of its intent to contest such
denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.

 

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2.                                       No Condition Precedent.  The continued
employment of Stambaugh  is not a condition precedent to the indemnification
provisions of paragraph 1.  In the event of termination, with or without cause,
the agreements and promises contained in paragraph 1 will survive a termination
of employment.

 

4.                                       Miscellaneous.

 

(a)                                  Construction.                       The
language of this Agreement has been negotiated between the parties and shall be
construed simply, according to its plain meaning, and not strictly for or
against either party regardless of the source of draftsmanship.

 

(b)                                 Counterparts.  This Agreement may be
executed in counterparts, and each counterpart, once executed, shall have the
efficacy of a signed original.  True and correct copies of signed counterparts
may be used in place of originals for any purpose.  Signatures transmitted
electronically or via facsimile shall be deemed to be original signatures.

 

(c)                                  Attorneys’ Fees And Costs.  In the event of
future litigation in connection with or concerning the subject matter of this
Agreement or any breach of this Agreement, the prevailing party shall be
entitled to recover all costs and expenses incurred by that party, including
actual attorneys fees, expert and consultant fees, and costs in addition to any
other relief to which it may be entitled.  The parties further agree that the
prevailing party shall be entitled to recover all costs, including actual
attorney’s fees and costs, of collecting any costs and expenses awarded pursuant
to the prior provision.

 

(d)                                 Independent Legal Advice.  The parties
acknowledge that they have been advised by their own independently selected
counsel and other advisors in connection with this Agreement and enter into this
Agreement solely on the basis of that advice and on the basis of their own
independent investigation of all of the facts, laws, and circumstances material
to this Agreement or any provision hereof and not in any manner or to any degree
based upon any statement or omission by any other party and/or their counsel.

 

(e)                                  Authority To Execute Agreement.  Each
person whose signature appears hereon represents, warrants and guarantees that
he has been duly authorized and has full authority to execute this Agreement on
behalf of the party on whose behalf this Agreement is executed.

 

(f)                                    Binding Agreement.  This Agreement shall
be binding upon the parties and their successors in interest and assigns.

 

(g)                                 No Modification.  No term of this Agreement
shall be modified, waived, or changed except by an instrument in writing signed
by both parties.

 

(h)                                 Severability.  If for any reason any clause
or provision of this Agreement should be held unenforceable, invalid or in
violation of law by any court or other tribunal, then the remaining clauses and
provisions hereof shall nevertheless remain in full force and effect.

 

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BY EXECUTING THIS AGREEMENT, EACH OF THE PARTIES ACKNOWLEDGES THAT IT OR HE HAS
READ THIS AGREEMENT AND UNDERSTANDS AND AGREES TO ITS TERMS AND PROVISIONS.

 

IN WITNESS WHEREOF, the parties have entered into and delivered this Agreement
as of the Effective Date.

 

MAXIM PHARMACEUTICALS, INC.

LARRY G. STAMBAUGH

 

 

 

 

By:

/s/F. Duwaine Townsen

 

By:

/s/Larry G. Stambaugh

 

 

F. Duwaine Townsen
Lead Independent Director of
the Board of Directors

 

Larry G. Stambaugh

 

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