Exhibit 10.69

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is entered into by and between
Robert Miller (the “Executive”), and Oculus Innovative Sciences, Inc., a
Delaware corporation (the “Corporation”), as of June 20, 2013 (the “Effective
Date”). This Agreement replaces that certain employment agreement dated as of
June 1, 2004 and entered into by and between the Executive and the Corporation.

 

RECITALS

 

WHEREAS, prior to the date hereof, the Executive has served as Chief Financial
Officer of the Corporation in accordance with the terms and conditions set forth
in the related employment agreement dated as of June 1, 2004 between the
Corporation and the Executive;

 

WHEREAS, the Corporation desires that the Executive continue to be employed by
the Corporation as its Chief Financial Officer, and to carry out the duties and
responsibilities described below, all on the terms and conditions set forth
herein; and

 

WHEREAS, the Executive is willing to accept such employment on such terms and
conditions.

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants and promises of the parties herein, the receipt and sufficiency of
which are hereby acknowledged by each of the parties, the Corporation and the
Executive hereto agree as follows:

 

1. Employment and Duties.

 

1.1 Position. On the terms and subject to the conditions set forth herein, the
Corporation agrees to continue to employ the Executive as its Chief Financial
Officer for the Period of Employment (as defined in Section 2). The Executive
does hereby accept and agree to such employment, on the terms and conditions
expressly set forth in this Agreement.

 

1.2 Duties. During the Period of Employment (as defined in Section 2), the
Executive shall serve the Corporation as its Chief Financial Officer (“CFO”).
The Executive shall, without limitation and without limiting the Executive’s
other duties to the Corporation, and without limiting the authority of the
Corporation’s Board of Directors (the “Board”), be responsible for the financial
affairs of the Corporation and have such other duties and responsibilities as
the Chief Executive Officer (“CEO”) shall designate that are consistent with the
Executive’s position as CFO. The Executive shall perform all of such duties and
responsibilities in accordance with the legal directives of the Board and in
accordance with the practices and policies of the Corporation as in effect from
time to time throughout the Period of Employment (as defined in Section 2)
(including, without limitation, the Corporation’s insider trading and ethics
policies, as they may change from time to time). While employed as CFO, the
Executive shall report exclusively to the CEO. Throughout the Period of
Employment (as defined in Section 2), the Executive shall not serve on the
boards of directors or advisory boards of any other entity, except for any
wholly or majority owned subsidiaries of the Corporation, unless such service is
expressly approved by the Board.

 

1.3 No Other Employment; Minimum Time Commitment. Throughout the Period of
Employment (as defined in Section 2), the Executive shall both (i) devote
substantially all of the Executive’s business time, energy and skill to the
performance of the Executive’s duties for the Corporation, and (ii) hold no
other job. The Executive agrees that any investment or direct involvement in, or
any appointment to or continuing service on the board of directors or similar
body of, any corporation or other entity, other than wholly or majority owned
subsidiaries of the Corporation, must be first approved in writing by the
Corporation. The foregoing provisions of this Section 1.3 shall not prevent the
Executive from investing in non-competitive, publicly-traded securities to the
extent permitted by Section 7(b). The Executive agrees that, as of the Effective
Date, Exhibit A to this Agreement sets forth a complete and accurate description
of (i) any investment or direct involvement of the Executive in any other
corporation or business that reasonably could be construed as falling outside of
the scope of the foregoing permitted investments and involvement, and (ii) any
board of directors or similar body of any corporation or other entity on which
the Executive is a member, other than wholly or majority owned subsidiaries of
the Corporation.

 

1

 

 

1.4 No Breach of Contract. The Executive hereby represents to the Corporation
that: (i) the execution and delivery of this Agreement by the Executive and the
Corporation and the performance by the Executive of the Executive’s duties
hereunder shall not constitute a breach of, or otherwise contravene, the terms
of any other agreement or policy to which the Executive is a party or otherwise
bound; (ii) the Executive has no information (including, without limitation,
confidential information and trade secrets) of any other person or entity which
the Executive is not legally and contractually free to disclose to the
Corporation; and (iii) the Executive is not bound by any confidentiality, trade
secret or similar agreement (other than this Agreement) with any other person or
entity.

 

1.5 Location. The Executive acknowledges that the Corporation’s principal
executive offices are currently located in Petaluma, California. The Executive’s
principal place of employment shall be the Corporation’s principal executive
offices, though such principal place of employment of the Executive may be moved
from time to time upon mutual agreement by the Executive and the Corporation.
The Executive agrees that the Executive will be regularly present at the
Corporation’s principal executive offices, or such other location as the parties
may designate, and that the Executive may be required to travel from time to
time in the course of performing the Executive’s duties for the Corporation.

 

2. Period of Employment. The “Period of Employment” shall commence on the
Effective Date, and shall continue in full force and effect until the date of
the Executive’s termination pursuant to Section 5. This Agreement shall govern
the terms of Executive’s employment hereunder on and after the Effective Date.

 

3. Compensation.

 

3.1 Base Salary. As of the Effective Date and during the Period of Employment,
the Corporation shall pay to the Executive a base salary at the rate of $250,000
per year, subject to increase (but not decrease) by the Board (the “Base
Salary”) with the sole exception set forth in Section 3.2 below. The Executive’s
Base Salary shall be paid in accordance with the Corporation’s regular payroll
practices in effect from time to time, but not less frequently than in monthly
installments.

 

3.2 Stock Awards. The Executive shall continue to vest in those options to
purchase the Corporation’s common stock previously granted to the Executive in
accordance with the terms of such option grants. The Corporation may, in its
sole discretion, grant additional stock options and/or make other stock-based
awards to the Executive.

 

4. Benefits.

 

4.1 Health and Welfare. During the Period of Employment, the Executive shall be
entitled to participate in all employee pension and welfare benefit plans and
programs made available by the Corporation to the Corporation’s senior-level
employees generally, as such plans or programs may be in effect from time to
time.

 

2

 

 

4.2 Reimbursement of Business Expenses. The Executive is authorized to incur
reasonable expenses in carrying out the Executive’s duties for the Corporation
under this Agreement and entitled to reimbursement for all such expenses the
Executive incurs during the Period of Employment in connection with carrying out
the Executive’s duties for the Corporation, subject to the Corporation’s
reasonable expense reimbursement policies in effect from time to time. The
Corporation shall reimburse the Executive to the extent required by the
preceding sentence.

 

4.3 Vacation and Other Leave. During the Period of Employment, the Executive
shall accrue and be entitled to take paid vacation in accordance with the
Corporation’s standard vacation policies in effect from time to time, including
the Corporation’s policies regarding vacation accruals. The Executive shall also
be entitled to all other holiday and leave pay generally available to all other
employees of the Corporation.

 

5. Termination.

 

5.1 Termination by the Corporation. The Executive’s employment by the
Corporation, and the Period of Employment, may be terminated at any time by the
Corporation: (i) with Cause (as defined in Section 5.5), or (ii) without Cause
(as defined in Section 5.5), 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 defined in Section 5.5).

 

5.2 Termination by the Executive. The Executive’s employment by the Corporation,
and the Period of Employment, may be terminated at any time by the Executive, on
no less than thirty (30) days’ prior written notice to the Corporation. Any
termination by the Executive for Good Reason (as defined in Section 5.5) shall
be communicated by a Notice of Termination to the Corporation. For purposes of
this Agreement, in the case of a notice given by the Executive to the
Corporation, a “Notice of Termination” means a written notice which (i) is
communicated to the Corporation within thirty (30) days of the initial existence
of the condition giving rise to the Executive’s right to terminate for Good
Reason, (ii) indicates the specific termination provision in this Agreement
relied upon, (iii) sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive’s employment under
the provision so indicated, (iv) waives the Executive’s right to terminate for
Good Reason if the Corporation within thirty (30) days of such notice cures the
condition otherwise giving rise to the Executive’s right to terminate for Good
Reason, and (v) if the termination date is other than the date that is
thirty-one (31) days after the communication of such notice, specifies the
termination date.

 

5.3 Benefits Upon Termination. If the Executive’s employment by the Corporation
is terminated during the Period of Employment for any reason by the Corporation
or by the Executive, the Corporation 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 Corporation, any payments or benefits, except:

 

(a) the Corporation shall pay the Executive (or, in the event of his death, the
Executive’s estate) any Accrued Obligations (as defined in Section 5.5); and

 

(b) if, during the Period of Employment, the Executive’s employment is
terminated by the Corporation without Cause (as defined in Section 5.5) or by
the Executive for Good Reason (as defined in Section 5.5) (and, in each case,
other than due to either the Executive’s death, or a good faith determination by
the Board that the Executive has a Disability (as defined in Section 5.5)):

 

3

 

 

(i) the Corporation shall, subject to the conditions set forth in Section 5.3(c)
and the constraints set forth in Section 5.8, also pay the Executive a lump sum
severance benefit equal to eighteen (18) times the average monthly Base Salary
paid to the Executive over the twelve (12) whole months preceding the month in
which the termination of the Executive’s employment occurs (or, if the Period of
Employment has not been in effect for twelve (12) whole months preceding the
month in which the termination of the Executive’s employment occurs, the average
monthly Base Salary for this purpose shall be determined based on the average
monthly Base Salary paid to the Executive over the whole months in the Period of
Employment occurring prior to the month in which the termination of the
Executive’s employment occurs). Subject to the conditions set forth in Section
5.3(c), such lump sum amount shall be paid to the Executive (without interest)
no later than seven (7) days following the date on which the Executive’s
employment by the Corporation terminates;

 

(ii) the Corporation shall, subject to the conditions set forth in Section
5.3(c), pay as a severance benefit one hundred percent (100%) of the Executive’s
premiums under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) for
the same or reasonably equivalent medical coverage as in effect on the date the
Executive’s employment terminated for a period not to exceed the lesser of one
year following the date of such termination or until the Executive becomes
eligible for medical insurance coverage provided by another employer; and

 

(iii) as of the date the Executive’s employment terminates, any and all stock
options, stock appreciation rights, restricted stock awards, and similar equity
and equity-based awards granted by the Corporation to the Executive outstanding
immediately prior to such termination of employment shall thereupon be deemed
fully vested and shall be exercisable for a period of no less than twelve (12)
months thereafter or until the stated expiration date for such option or award
at the end of its maximum term, whichever is earlier; provided, however, that
this Section 5.3(b)(iii) shall not affect any right of the Corporation to
terminate such option or award in connection with a change in control of the
Corporation or similar event to the extent such right exists under the
provisions of any agreement evidencing such option or award.

 

(c) Any obligation of the Corporation pursuant to Section 5.3(b) to pay a
severance benefit in the circumstances described therein is further subject to
the following two conditions precedent: (i) such severance obligation shall be
paid only if the Executive has remained in compliance with all of the provisions
of Section 5.6 and Sections 7 through 12, and such obligation shall terminate
immediately if the Executive is for any reason not in compliance with one or
more of the provisions of Section 5.6, and Sections 7 through 12; and (ii) the
Executive’s satisfaction of the release obligations set forth in Section 5.4.
For purposes of the preceding sentence, if the Executive is not in compliance
with one or more provisions of Section 5.6, and Sections 7 through 12, and a
cure is reasonably possible in the circumstances, the Executive will not be
deemed to have breached such provision(s) unless the Executive is given notice
and a reasonable opportunity (in no case shall more than a 10 business day cure
period be required) to cure such breach and such breach is not cured within such
time period. The parties agree that a cure will not be reasonably possible in
all circumstances including, without limitation, a material breach of
confidentiality or similar occurrence.

 

(d) Except as expressly provided herein, the foregoing provisions of this
Section 5.3 shall not affect: (i) the Executive’s receipt of benefits otherwise
due to terminated employees under group insurance coverage consistent with the
terms of the applicable welfare benefit plan of the Corporation; (ii) the
Executive’s rights under COBRA to continue participation in medical, dental,
hospitalization and life insurance coverage; (iii) the Executive’s receipt of
benefits otherwise due in accordance with the terms of the Corporation’s 401(k)
plan (if any); or (iv) any rights that the Executive may have under and with
respect to a stock option, stock appreciation right, restricted stock award, or
similar equity or equity-based award, to the extent that such award was granted
before the date that the Executive’s employment by the Corporation terminated
and to the extent expressly provided in the written agreement evidencing such
award.

 

4

 

 

5.4 Release; Exclusive Remedy.

 

(a) This Section 5.4 shall apply notwithstanding anything else contained in this
Agreement to the contrary. As a condition precedent to any obligation of the
Corporation to the Executive pursuant to Section 5.3(b), the Executive shall,
upon or promptly following his last day of employment with the Corporation,
provide the Corporation with a valid, executed, written Release (as defined in
Section 5.5) (in a form provided by the Corporation) and such Release (as
defined in Section 5.5) shall have not been revoked by the Executive pursuant to
any revocation rights afforded by applicable law. The Corporation shall have no
obligation to make any payment to the Executive pursuant to Section 5.3(b)
unless and until the Release (as defined in Section 5.5) contemplated by this
Section 5.4 becomes irrevocable by the Executive in accordance with all
applicable laws, rules and regulations.

 

(b) The Executive agrees that the payments 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 to pursue any other remedies, at
law or in equity, with respect to any termination of employment. The Corporation
and Executive acknowledge and agree that there is no duty of the Executive to
mitigate damages under this Agreement. All amounts paid to the Executive
pursuant to Section 5.3 shall be paid without regard to whether the Executive
has taken or takes actions to mitigate damages.

 

5.5 Certain Defined Terms.

 

(a) As used herein, “Accrued Obligations” means:

 

(i) any Base Salary that has accrued but has not yet been paid to the Executive
(including accrued and unpaid vacation time) prior to the date of termination;
and

 

(ii) any reimbursement due to the Executive pursuant to Section 4.2 for expenses
incurred by the Executive prior to the date of termination.

 

(b) As used herein, “Cause” shall mean the reasonable and good faith
determination by a majority of the Board based on its reasonable belief at the
time, that, during the Period of Employment, any of the following events or
contingencies exists or has occurred:

 

(i) the Executive is convicted of, or has pled guilty to, a felony (as such term
is defined under the laws of the United States or any state thereof); or

 

(ii) the Executive has engaged in acts of fraud, material dishonesty or other
acts of willful misconduct in the course of his duties hereunder, unless the
Executive believed in good faith that such acts were in the interests of the
Corporation; or

 

(iii) the Executive willfully and repeatedly fails to perform or uphold his
duties under this Agreement; or

 

5

 

 

(iv) the Executive willfully fails to comply with reasonable directives of the
CEO which are communicated to him in writing.

 

(c) As used herein, “Disability” shall mean a physical or mental impairment
which substantially limits a major life activity of the Executive and which
renders the Executive unable to perform the essential functions of the
Executive’s position, even with reasonable accommodation which does not impose
an undue hardship on the Corporation, for ninety (90) days in any consecutive
twelve (12) month period, but only if the Executive is considered to be disabled
within the meaning of Treasury Regulation section 1.409A-3(i)(4). Without
limiting the circumstances in which the Executive may be determined to be
disabled as defined in Treasury Regulation section 1.409A-3(i)(4), the Executive
will be presumed to be disabled if determined to be totally disabled by the
Social Security Administration or if determined to be disabled in accordance
with a disability insurance program, provided the definition of disability
applied under such disability insurance program complies with the requirements
of Treasury Regulation section 1.409A-3(i)(4).

 

(d) As used herein, “Good Reason” shall mean the occurrence of one or more of
the following without the Executive’s written consent:

 

(i) the assignment of the Executive to duties materially inconsistent with the
Executive’s authorities, duties, responsibilities and status (including titles
and reporting requirements) as CFO of the Corporation, or a material reduction
or alteration in the nature or status of the Executive’s authorities, duties or
responsibilities, other than an insubstantial and inadvertent act that is
remedied by the Corporation promptly after receipt of notice thereof given by
the Executive; or

 

(ii) a reduction by the Corporation in the Executive’s Base Salary as in effect
on the Effective Date or as the same shall be increased from time to time, other
than as specified in Section 3.2, or the Corporation otherwise fails to satisfy
its compensation obligations to the Executive under this Agreement, after
written notice by the Executive and a reasonable opportunity to cure; or

 

(iii) only after a sale of the Corporation, the Corporation’s requirement that
the Executive to be based at any office or location more than fifty (50) miles
from the Corporation’s headquarters in Petaluma, California; or

 

(iv) the failure of the Corporation to obtain a satisfactory agreement from any
successor to the Corporation to assume and agree to perform this Agreement.

 

provided, however, that none of the events specified in clause (i), (ii), or
(iii) above shall constitute Good Reason unless the Executive shall have
notified the Corporation in writing describing the events which constitute Good
Reason and the Corporation shall have failed to cure such event within a
reasonable period, not to exceed ten (10) business days, after the Corporation’s
actual receipt of such written notice.

 

6

 

 

(e) As used herein, “Release” shall mean a written release, discharge and
covenant not to sue entered into by the Executive on behalf of himself, his
descendants, dependents, heirs, executors, administrators, assigns, and
successors, and each of them, of and in favor of the Corporation, its parent (if
any), the Corporation’s subsidiaries and affiliates, past and present, and each
of them, as well as its and their trustees, directors, officers, agents,
attorneys, insurers, employees, shareholders, members, representatives, assigns,
and successors, past and present, and each of them (the “releasees”), with
respect to and from any and all claims, wages, demands, rights, liens,
agreements, contracts, covenants, actions, suits, causes of action, obligations,
debts, costs, expenses, attorneys’ fees, damages, judgments, orders and
liabilities of whatever kind or nature in law, equity or otherwise, whether now
known or unknown, suspected or unsuspected, and whether or not concealed or
hidden, which the Executive may then own or hold, or the Executive at any time
theretofore owned or held, or may in the future hold as against any or all of
said releasees, arising out of or in any way connected with the Executive’s
employment relationship with each and every member of the Company Group (as
defined in Section 7) with which the Executive has had such a relationship, or
the termination of his employment or any other transactions, occurrences, acts
or omissions or any loss, damage or injury whatever, known or unknown, suspected
or unsuspected, resulting from any act or omission by or on the part of said
releasees, or any of them, committed or omitted prior to the date of such
Release including, without limiting the generality of the foregoing, any claim
under Section 1981 of the Civil Rights Act of 1866, Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Family and Medical Leave Act of 1993, the California Fair
Employment and Housing Act, the California Family Rights Act, any other claim
under any other federal, state or local law or regulation, and any other claim
for severance pay, bonus or incentive pay, sick leave, holiday pay, vacation
pay, life insurance, health or medical insurance or any other fringe benefit,
medical expenses, or disability (except that such Release shall not constitute a
release of any Corporation obligation to the Executive that may be due to the
Executive pursuant to Section 5.3(b) upon the Corporation’s receipt of such
Release). The Release shall also contain the Executive’s representation and
warranty that he has not theretofore assigned or transferred to any other person
or entity, other than the Corporation, any released matter or any part or
portion thereof and that he will defend, indemnify and hold harmless the
Corporation and the aforementioned releasees from and against any claim
(including the payment of attorneys’ fees and costs actually incurred whether or
not litigation is commenced) that is directly or indirectly based on or in
connection with or arising out of any such assignment or transfer made,
purported or claimed.

 

(f) As used herein, a “Change of Control” shall mean the occurrence of any of
the following:

 

i.            a sale, lease or other disposition of all or substantially all of
the assets of the Corporation and its subsidiaries, taken as a whole;

 

ii.            any consolidation or merger of the Corporation with or into any
other corporation or other person, or any other corporate reorganization or
transaction (including the acquisition of capital stock of the Corporation),
whether or not the Corporation is a party thereto, in which the stockholders of
the Corporation immediately prior to such consolidation, merger, reorganization
or transaction, own capital stock and either:

 

a. represent directly, or indirectly through one or more entities, less than
fifty percent (50%) of the economic interests in or voting power of the
Corporation or other surviving entity immediately after such consolidation,
merger, reorganization or transaction; or

   

b. do not directly, or indirectly through one or more entities, have the power
to elect a majority of the entire board of directors of the Corporation or other
surviving entity immediately after such consolidation, merger, reorganization or
transaction; or

 

iii.            any stock sale or other transaction or series of related
transactions, whether or not the Corporation is a party thereto, after giving
effect to which in excess of fifty percent (50%) of the Corporation’s voting
power is owned directly, or indirectly though one or more entities, by any
person and its “affiliates” or “associates” (as such terms are defined in the
rules adopted by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended).

 

7

 

  

 

(g) For purposes of the definition of “Change of Control”, the following
definitions shall be applicable:

 

i.            The term “person” shall mean any individual, corporation or other
entity and any group as such term is used in Section 13(d) (3) or 14(d) (2) of
the Exchange Act.

 

ii.            Any person shall be deemed to be the beneficial owner of any
shares of capital stock of the Corporation:

 

a. which that person owns directly whether or not of record, or

 

b. which that person has the right to acquire pursuant to any agreement or
understanding or upon exercise of conversion rights, warrants, or options, or
otherwise, or

 

c. which are beneficially owned, directly or indirectly (including shares deemed
owned through application of clause (b) above, by an “affiliate” or “associate”
(as defined in the rules of the Securities and Exchange Commission under the
Securities Act of 1933, as amended) of that person, or

 

d. which are beneficially owned, directly or indirectly (including shares deemed
owned through application of clause (b) above), by any other person with which
that person or his “affiliate” or “associate” (defined as aforesaid) has any
agreement, arrangement, or understanding for the purpose of acquiring, holding,
voting or disposing of capital stock of the Corporation.

 

iii.            The outstanding shares of capital stock of the Corporation shall
include shares deemed owned through application of clause (ii) (b), (c), and (d)
above, but shall not include any other shares which may be issuable pursuant to
any agreement or upon exercise of conversion rights, warrants or options, or
otherwise, but which are not actually outstanding.

 

5.6 Resignation From Boards and Committees. Upon or promptly following any
termination of Executive’s employment with the Corporation, the Executive agrees
to resign, if applicable, as of the date of such termination, from (i) each and
every board of directors (or similar body, as the case may be) of the
Corporation and each of its affiliates on which the Executive may then serve (if
any), and (ii) each and every office of the Corporation and each of its
affiliates that the Executive may then hold, and all positions that he may have
previously held with the Corporation and any of its affiliates.

 

5.7 Excise Tax Gross-Up. During and after the Period of Employment with the
Corporation, the Executive shall be entitled to the excise tax protections set
forth in Exhibit B hereto.

 

8

 

 

5.8 Section 409A of the Internal Revenue Code.

 

(a) This Agreement is intended to comply with Section 409A of the Internal
Revenue Code of 1986 (“Section 409A”) and shall be construed and interpreted
consistent with that intent. In the event that any payment or benefit payable
under Section 5.3 of this Agreement is not compliant with Section 409A and any
taxes, penalties or interest are imposed on the Executive under Section 409A as
a result of such noncompliance (the “Section 409A Penalties”), the Corporation
shall put the Executive in an after tax economic position equivalent to the
position the Executive would have been in without the imposition of such Section
409A Penalties. The Executive shall notify the Corporation in writing of any
claim by the Internal Revenue Service or state tax authorities that, if
successful, would require the payment of any such Section 409A Penalties or
related state tax statutes. The Executive’s right to be put in an equivalent
after tax economic position is subject to the Executive providing such
notification no later than ten (10) business days after Executive is informed in
writing of such claim. If the Corporation desires to contest such claim,
Executive shall (i) cooperate with the Corporation in good faith in order to
effectively contest such claim and (ii) permit the Corporation to participate in
any proceedings relating to such claim. The Corporation shall control all
proceedings taken in connection with such contest; provided, however, that the
Corporation shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest.
This section shall also apply to any taxes, penalties, or interest imposed by
any state that are calculated in a manner similar to taxes, penalties, or
interest imposed by Section 409A(a)(1)(B), including those amounts imposed by
the California Revenue and Taxation Code (R&TC) Sections 17501 and 24601.

 

(b) If and to the extent that any payment or benefit under this Agreement, or
any plan or arrangement of the Corporation, is determined by the Corporation to
constitute “non-qualified deferred compensation” subject to Section 409A and is
payable to the Executive by reason of the Executive’s termination of employment,
then (a) such payment or benefit shall be made or provided to the Executive only
upon a “separation from service” as defined for purposes of Section 409A under
applicable regulations (a “Separation from Service”) and (b) if the Executive is
a “specified employee” (within the meaning of Section 409A and as determined by
the Corporation), such payment or benefit shall not be made or provided before
the date that is six (6) months after the date of the Executive’s Separation
from Service (or the Executive’s earlier death). For the purposes of clarity,
the first payment thereof will include a catch-up payment covering the amount
that would have otherwise been paid to the Executive during the period between
the termination of Executive’s employment and the first payment date but for the
application of this provision, and the balance of the installments (if any) will
be payable in accordance with their original schedule.

 

(c) To the extent any expense reimbursement or in-kind benefit is determined to
be subject to Section 409A, the amount of any such expenses eligible for
reimbursement or in-kind benefits provided in one taxable year shall not affect
the expenses eligible for reimbursement or in-kind benefits provided in any
other taxable year (except under any lifetime limit applicable to expenses for
medical care), in no event shall any expenses be reimbursed after the last day
of the calendar year following the calendar year in which the Executive incurred
such expenses, and in no event shall any right to reimbursement or in-kind
benefits be subject to liquidation or exchange for another benefit.

 

(d) To the extent that any provision of this Agreement is ambiguous as to its
compliance with Section 409A, the provision will be read in such a manner so
that all payments hereunder comply with Section 409A. To the extent any payment
under this Agreement may be classified as a “short-term deferral” within the
meaning of Section 409A, such payment shall be deemed a short-term deferral,
even if it may also qualify for an exemption from Section 409A under another
provision of Section 409A. Payments pursuant to this section are intended to
constitute separate payments for purposes of Section 1.409A-2(b)(2) of the
Treasury Regulations.

 

9

 

 

6. Means and Effect of Termination. Any termination of the Executive’s
employment under this Agreement shall be communicated by written notice of
termination from the terminating party to the other party. The notice of
termination shall indicate the specific provision(s) of this Agreement relied
upon in effecting the termination.

 

7. Non-Competition. The Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Corporation, the amount of sensitive
and confidential information involved in the discharge of the Executive’s
position with the Corporation, and the harm to the Corporation that would result
if such knowledge or expertise was disclosed or made available to a competitor.
Based on that understanding, the Executive hereby expressly agrees as follows:

 

(a) As a result of the particular nature of the Executive’s relationship with
the Corporation, in the capacities identified earlier in this Agreement, for the
Period of Employment, the Executive hereby agrees that he will not, directly or
indirectly, (i) engage in any business for the Executive’s own account or
otherwise derive any personal benefit from any business that competes with the
business of the Corporation or any of its affiliates (the Corporation and its
affiliates are referred to, collectively, as the “Company Group”), (ii) enter
the employ of, or render any services to, any person engaged in any business
that competes with the business of any entity within the Company Group, (iii)
acquire a financial interest in any person engaged in any business that competes
with the business of any entity within the Company Group, directly or
indirectly, as an individual, partner, member, shareholder, officer, director,
principal, agent, trustee or consultant, or (iv) interfere with business
relationships (whether formed before or after the Effective Date) between the
Corporation, any of its respective affiliates or subsidiaries, and any
customers, suppliers, officers, employees, partners, members or investors of any
entity within the Company Group. For purposes of this Agreement, businesses in
competition with the Company Group shall include, without limitation, businesses
which any entity within the Company Group may conduct operations, and any
businesses which any entity within the Company Group has specific plans to
conduct operations in the future and as to which the Executive is aware of such
planning, whether or not such businesses have or have not as of that date
commenced operations.

 

(b) Notwithstanding anything to the contrary in this Agreement, the Executive
may, directly or indirectly, own, solely as an investment, securities of any
Person which are publicly traded on a national or regional stock exchange or on
the over-the-counter market if the Executive (i) is not a controlling Person of,
or a member of a group that controls, such Person, and (ii) does not, directly
or indirectly, beneficially own one percent (1%) or more of any class of
securities of such Person. For purposes of this Section 7(b), “Person” shall
have the meaning ascribed to such terms in Section 3(a)(9) of the Exchange Act
and used in Sections 13(d) and 14(d) thereof, including a “group” as described
in Section 13(d) thereof.

 

8. Confidentiality. As a material part of the consideration for the
Corporation’s commitment to the terms of this Agreement, the Executive hereby
agrees that the Executive will not at any time (whether during or after the
Executive’s employment with the Corporation), other than in the course of the
Executive’s duties hereunder, or unless compelled by lawful process after
written notice to the Corporation of such notice along with sufficient time for
the Corporation to try and overturn such lawful process, disclose or use for the
Executive’s own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise, any trade secrets, or other
confidential data or information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit and
financial data, financing methods, or plans of any entity within the Company
Group; provided, however, that the foregoing shall not apply to information
which is generally known to the industry or the public, other than as a result
of the Executive’s breach of this covenant. The Executive further agrees that
the Executive will not retain or use for his own account, at any time, any trade
names, trademark or other proprietary business designation used or owned in
connection with the business of any entity within the Company Group.

 

10

 

 

9. Inventions and Developments.

 

(a) All inventions, policies, systems, developments or improvements conceived,
designed, implemented and/or made by the Executive, either alone or in
conjunction with others, at any time or at any place during the Period of
Employment, whether or not reduced to writing or practice during such Period of
Employment, which directly or indirectly relate to the business of any entity
within the Company Group, or which were developed or made in whole or in part
using the facilities and/or capital of any entity within the Company Group,
shall be the sole and exclusive property of the Company Group. The Executive
shall promptly give notice to the Corporation of any such invention,
development, patent or improvement, and shall at the same time, without the need
for any request by any person or entity within the Company Group, assign all of
the Executive’s rights to such invention, development, patent and/or improvement
to the Company Group. The Executive shall sign all instruments necessary for the
filing and prosecution of any applications for, or extensions or renewals of,
letters patent of the United States or any foreign country that any entity in
the Company Group desires to file.

 

(b) All copyrightable work by the Executive during the Period of Employment that
relates to the business of any entity in the Company Group is intended to be
“work made for hire” as defined in Section 101 of the Copyright Act of 1976, and
shall be the property of the Company Group. If the copyright to any such
copyrightable work is not the property of the Company Group by operation of the
law, the Executive will, without further consideration, assign to the Company
Group all right, title and interest in such copyrightable work and will assist
the entities in the Company Group and their nominees in every way, at the
Company Group’s expense, to secure, maintain and defend for the Company Group’s
benefit, copyrights and any extensions and renewals thereof on any and all such
work including translations thereof in any and all countries, such work to be
and to remain the property of the Company Group whether copyrighted or not.

 

10. Anti-Solicitation. In light of the amount of sensitive and confidential
information involved in the discharge of the Executive’s duties, and the harm to
the Corporation that would result if such knowledge or expertise were disclosed
or made available to a competitor, and as a reasonable step to help protect the
confidentiality of such information, the Executive promises and agrees that
during the Period of Employment and for a period of two (2) years thereafter,
the Executive will not, directly or indirectly, individually or as a consultant
to, or as an employee, officer, shareholder, director or other owner or
participant in any business, influence or attempt to influence the customers,
vendors, suppliers, joint venturers, associates, consultants, agents, or
partners of any entity within the Company Group, either directly or indirectly,
to divert their business away from the Company Group, to any individual,
partnership, firm, corporation or other entity then in competition with the
business of any entity within the Company Group, and he will not otherwise
materially interfere with any business relationship of any entity within the
Company Group.

 

11. Soliciting Employees. In light of the amount of sensitive and confidential
information involved in the discharge of the Executive’s duties, and the harm to
the Corporation that would result if such knowledge or expertise were disclosed
or made available to a competitor, and as a reasonable step to help protect the
confidentiality of such information, the Executive promises and agrees that
during the Period of Employment and for a period of two (2) years thereafter,
the Executive will not, directly or indirectly, individually or as a consultant
to, or as an employee, officer, shareholder, director, or other owner of or
participant in any business, solicit (or assist in soliciting) any person who is
then, or at any time within six (6) months prior thereto was, an employee of an
entity within the Company Group, who earned annually $25,000 or more as an
employee of such entity during the last six (6) months of his or her own
employment to work for (as an employee, consultant or otherwise) any business,
individual, partnership, firm, corporation, or other entity whether or not
engaged in competitive business with any entity in the Company Group.

 

11

 

 

12. Return of Property. The Executive agrees to truthfully and faithfully
account for and deliver to the Corporation all property belonging to the
Corporation, any other entity in the Company Group, or any of their respective
affiliates, which the Executive may receive from or on account of the
Corporation, any other entity in the Company Group, or any of their respective
affiliates, and upon the termination of the Period of Employment, or the
Corporation’s demand, the Executive shall immediately deliver to the Corporation
all such property belonging to the Corporation, any other entity in the Company
Group, or any of their respective affiliates.

 

13. Withholding Taxes. Notwithstanding anything else herein to the contrary, the
Corporation may withhold (or cause there to be withheld, as the case may be)
from any amounts otherwise due or payable under or pursuant to this Agreement
such federal, state and local income, employment, or other taxes as may be
required to be withheld pursuant to any applicable law or regulation.

 

14. Cooperation in Litigation. The Executive agrees that, during the Period of
Employment or after the termination of the Executive’s employment, he will
reasonably cooperate with the Corporation, subject to his reasonable personal
and business schedules, in any litigation which arises out of events occurring
prior to the termination of his employment, including but not limited to,
serving as a witness or consultant and producing documents and information
relevant to the case or helpful to the Corporation. The Corporation agrees to
reimburse the Executive for all reasonable costs and expenses he incurs in
connection with his obligations under this Section 14 and, in addition, to
reasonably compensate the Executive for time actually spent in connection
therewith following the termination of his employment with the Corporation.

 

15. Assignment. This Agreement is personal in its nature and neither of the
parties hereto shall, without the consent of the other, assign or transfer this
Agreement or any rights or obligations hereunder; provided, however, that in the
event of a merger, consolidation, or transfer or sale of all or substantially
all of the assets of the Corporation with or to any other individual(s) or
entity, this Agreement shall, subject to the provisions hereof, be binding upon
and inure to the benefit of such successor and such successor shall discharge
and perform all the promises, covenants, duties, and obligations of the
Corporation hereunder.

 

16. Number and Gender. Where the context requires, the singular shall include
the plural, the plural shall include the singular, and any gender shall include
all other genders.

 

17. Section Headings. The section headings of, and titles of paragraphs and
subparagraphs contained in, this Agreement are for the purposes of convenience
only, and they neither form a part of this Agreement nor are they to be used in
the construction or interpretation thereof.

 

18. Governing Law. This Agreement, and all questions relating to its validity,
interpretation, performance and enforcement, as well as the legal relations
hereby created between the parties hereto, shall be governed by and construed
under, and interpreted and enforced in accordance with, the laws of the State of
California, notwithstanding any California or other conflict of law provision to
the contrary. This Agreement is intended to comply with Section 409A of the
Internal Revenue Code of 1986 and the regulations promulgated thereunder.

 

12

 

 

19. Severability. If any provision of this Agreement or the application thereof
is held invalid, the invalidity shall not affect other provisions or
applications of this Agreement which can be given effect without the invalid
provisions or applications and to this end the provisions of this Agreement are
declared to be severable.

 

20. Entire Agreement. This Agreement replaces and supersedes prior employment
agreements, including the employment agreement executed by and between the
Executive and the Corporation dated June 1, 2004 or any prior consulting
agreement. This Agreement embodies the entire agreement of the parties hereto
respecting the matters within its scope. Any prior negotiations, correspondence,
agreements, proposals or understandings relating to the subject matter hereof
shall be deemed to have been merged into this Agreement, and to the extent
inconsistent herewith, such negotiations, correspondence, agreements, proposals,
or understandings shall be deemed to be of no force or effect. There are no
representations, warranties, or agreements, whether express or implied, or oral
or written, with respect to the subject matter hereof, except as expressly set
forth herein.

 

21. Modifications. This Agreement may not be amended, modified or changed (in
whole or in part), except by a formal definitive written agreement expressly
referring to this Agreement, which agreement is executed by both of the parties
hereto.

 

22. Waiver. Neither the failure nor any delay on the part of a party to exercise
any right, remedy, power or privilege under this Agreement shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, remedy,
power or privilege preclude any other or further exercise of the same or of any
right, remedy, power or privilege, nor shall any waiver of any right, remedy,
power or privilege with respect to any occurrence be construed as a waiver of
such right, remedy, power or privilege with respect to any other occurrence. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.

 

23. Resolution of Disputes.

 

(a) Any controversy arising out of or relating to the Executive’s employment
(whether or not before or after the expiration of the Period of Employment), any
termination of the Executive’s employment, this Agreement or the enforcement or
interpretation of this Agreement, or because of an alleged breach, default, or
misrepresentation in connection with any of the provisions of this Agreement,
including (without limitation) any state or federal statutory claims, shall be
submitted to arbitration in Santa Rosa, California, before a sole arbitrator
(the “Arbitrator”) selected from judicial arbitration mediation services
(“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator
shall be selected from the American Arbitration Association (“AAA”), and shall
be conducted in accordance with the provisions of California Code of Civil
Procedure §§ 1280 et seq. as the exclusive remedy of such dispute; provided,
however, that provisional injunctive relief may, but need not, be sought in a
court of law while arbitration proceedings are pending, and any provisional
injunctive relief granted by such court shall remain effective until the matter
is finally determined by the Arbitrator. Final resolution of any dispute through
arbitration may include any remedy or relief that the Arbitrator deems just and
equitable, including any and all remedies provided by applicable state or
federal statutes. At the conclusion of the arbitration, the Arbitrator shall
issue a written decision that sets forth the essential findings and conclusions
upon which the Arbitrator’s award or decision is based. Any award or relief
granted by the Arbitrator hereunder shall be final and binding on the parties
hereto and may be enforced by any court of competent jurisdiction.

 

(b) The parties acknowledge and agree that they are hereby waiving any rights to
trial by jury in any action, proceeding or counterclaim brought by either of the
parties against the other in connection with any matter whatsoever arising out
of or in any way connected with any of the matters referenced in the first
sentence of Section 23(a).

 

13

 

 

(c) The parties agree that the Corporation shall be responsible for payment of
the forum costs of any arbitration hereunder, including the Arbitrator’s fee.
The parties further agree that in any proceeding with respect to such matters,
the prevailing party will be entitled to recover its reasonable attorney’s fees
and costs from the non-prevailing party (other than forum costs associated with
the arbitration which in any event shall be paid by the Corporation).

 

(d) Without limiting the remedies available to the parties and notwithstanding
the foregoing provisions of this Section 23, the Executive and the Corporation
acknowledge that any breach of any of the covenants or provisions contained in
Sections 5.6, and 7 through 12 could result in irreparable injury to either of
the parties hereto for which there might be no adequate remedy at law, and that,
in the event of such a breach or threat thereof, the non-breaching party shall
be entitled to obtain a temporary restraining order and/or a preliminary
injunction and a permanent injunction restraining the other party hereto from
engaging in any activities prohibited by any covenant or provision in Sections
5.6, and 7 through 12 or such other equitable relief as may be required to
enforce specifically any of the covenants or provisions of Sections 5.6, and 7
through 12.

 

24. Notices.

 

(a) All notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing and shall be deemed to have
been duly received if (i) delivered by hand or by courier, effective upon
delivery, (ii) given by facsimile or electronic version, when transmitted if
transmitted on a business day and during normal business hours of the recipient,
and otherwise delivered on the next business day following transmission, or
(iii) sent by registered or certified mail, postage prepaid, return receipt
requested, five (5) business days after being deposited in the U.S. postal mail.
Any notice shall be duly addressed to the parties as follows:

 

(i) If to the Corporation:

 

Oculus Innovative Sciences, Inc.

1129 North McDowell Boulevard

Petaluma, California 94954

Attn: General Counsel

Fax: +1 (707) 283-0551

 

(ii) If to the Executive:

 

Robert Miller

At the address on file with the Corporation

 

(b) Any party may alter the address to which communications or copies are to be
sent by giving notice of such change of address in conformity with the
provisions of this Section 24 for the giving of notice..

 

25. Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally
binding contract and acknowledges and agrees that they have had the opportunity
to consult with legal counsel of their choice. Each party has cooperated in the
drafting, negotiation and preparation of this Agreement. Hence, in any
construction to be made of this Agreement, the same shall not be construed
against either party on the basis of that party being the drafter of such
language.

 

14

 

 

26. Provisions that Survive Termination. The provisions of 5.3, 5.4, 5.5, 5.6,
5.7, 5.8, 7 through 25, 27, and this Section 26 shall survive any termination of
the Period of Employment.

 

27. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original as against any party whose signature
appears thereon, and all of which together shall constitute one and the same
instrument. This Agreement shall become binding when one or more counterparts
hereof, individually or taken together, shall bear the signatures of all of the
parties reflected hereon as the signatories. Photographic copies of such signed
counterparts may be used in lieu of the originals for any purpose.

 

[Signature Page Follows]

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

15

 

 

IN WITNESS WHEREOF, the Corporation and the Executive have executed this
Agreement as of the Effective Date.

                                                  CORPORATION                  
        Oculus Innovative Sciences, Inc.,             a Delaware corporation

       

 

By

  /s/ Greg French         Name:   Greg French         Title:  

Chairman of the Compensation Committee of

          Oculus Innovative Sciences, Inc.                                      
  EXECUTIVE                       By:   /s/ Robert Miller         Name:   Robert
Miller            

 

 

16

 

 

EXHIBIT A — SECTION 1.3 DISCLOSURE SCHEDULE

 

None.                        

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17

 

 

EXHIBIT B — SECTION 5.7 EXCISE TAX GROSS-UP

 

B.1 Equalization Payment. If any payment, distribution, transfer, or benefit
(including, without limitation, any amounts received or deemed received by the
Executive within the meaning of any provision of the Internal Revenue Code of
1986, as amended (the “Code”), or by the Executive as a result of (and not by
way of limitation) any automatic vesting, lapse of restrictions and/or
accelerated target or performance achievement provisions, or otherwise,
applicable to outstanding grants or awards to the Executive under any of the
Corporation’s incentive plans) by the Corporation or a successor, or by a direct
or indirect subsidiary or affiliate of the Corporation (or any successor or
affiliate of any of them, and including any benefit plan of any of them),
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise (collectively, the “Total Payments”), is subject to
the excise tax imposed under Section 4999 of the Code or any similar or
successor tax (the “Excise Tax”), the Corporation shall pay in cash to Executive
an additional amount (the “Gross-Up Payment”) such that the net amount retained
by the Executive after the deduction of any Excise Tax upon the Gross-Up
Payment(s) provided for by this Section B.1 shall be equal to such Total
Payments had they not been subject to the Excise Tax. Such Gross-Up Payment
shall be paid by the Corporation, according to the terms of this Agreement, to
the Executive by the end of the taxable year following the taxable year in which
the Executive pays the Excise Tax.

 

B.2 Calculation of Gross-Up Payment. The determination of whether a Gross-Up
Payment is required pursuant to this Exhibit B and the amount of any such
Gross-Up Payment shall be determined in writing (the “Determination”) by a
nationally-recognized certified public accounting firm selected by the
Corporation (the “Accounting Firm”). The Accounting Firm shall provide its
Determination in writing, together with detailed supporting calculations and
documentation and any assumptions used in making such computation, to the
Corporation and the Executive. In the event of a termination of the Executive’s
employment which reasonably may require the payment of a Gross-Up Payment or in
the event of a Change in Control, such documentation shall be provided no later
than twenty (20) days following such event. Within twenty (20) days following
delivery of the Accounting Firm’s Determination, the Executive shall have the
right, at the Corporation’s expense, to obtain the opinion of an “outside
counsel,” which opinion need not be unqualified, which sets forth: (i) the
amount of the Executive’s “annualized includible compensation for the base
period” (as defined in Section 280G(d)(1) of the Code); (ii) the present value
of the Total Payments made to the Executive; (iii) the amount and present value
of any “excess parachute payment” as such term is defined in the Code; and (iv)
detailed supporting calculations and documentation and any assumptions used in
making such computations. The opinion of such outside counsel shall be supported
by the opinion of a nationally-recognized certified public accounting firm and,
if necessary or required by the Corporation, a firm of nationally-recognized
executive compensation consultants. The Executive shall also have the right to
obtain such an opinion of outside counsel in the event that the Corporation has
not timely submitted the initial determination to the Accounting Firm as
provided above (including, without limitation, in the event that the Corporation
does not submit such a determination to the Accounting Firm following an event
in connection with which the Executive reasonably believes that he may be
entitled to a Gross-Up Payment). The outside counsel’s opinion shall be binding
upon the Corporation and the Executive and shall constitute the “Determination”
for purposes of this Exhibit B instead of the initial determination by the
Accounting Firm. The Corporation shall pay (or, to the extent paid by the
Executive, reimburse the Executive for) the certified public accounting firm’s
and, if applicable, the executive compensation consultant’s reasonable and
customary fees for rendering such opinion. For purposes of this Section B.2,
“outside counsel” means a licensed attorney selected by the Executive who is
recognized in the field of executive compensation and has experience with
respect to the calculation of the Excise Tax; provided that the Corporation must
approve the Executive’s selection, which approval shall not be unreasonably
withheld.

 

18

 

 

B.3 Computation Assumptions. For purposes of determining whether any Total
Payments will be subject to Excise Tax, and the amount of any such Excise Tax:

 

  (a)   Any other payments, benefits and/or amounts received or to be received
by the Executive in connection with or contingent upon any change in the
ownership or effective control of the Corporation or any change in the ownership
of a substantial portion of the Corporation’s assets or termination of the
Executive’s employment (whether pursuant to the terms of this Agreement or any
other plan, arrangement or agreement with the Corporation, or with any Person
(as defined below) whose actions result in such a change or any Person (as
defined below) affiliated with the Corporation or such Persons (as defined
below)) shall be combined to determine whether the Executive has received any
“parachute payment” within the meaning of Section 280G(b)(2) of the Code, and if
so, the amount of any “excess parachute payments” within the meaning of Section
280G(b)(1) that shall be treated as subject to the Excise Tax, unless in the
opinion of the person or firm rendering the Determination, such other payments,
benefits and/or amounts (in whole or in part) do not constitute “parachute
payments” within the meaning of Section 280G(b)(2) of the Code, or such excess
parachute payments represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code, or are
otherwise not subject to the Excise Tax. For purposes of this Section B.3(a),
“Person” shall have the meaning ascribed to such term in Section 3(a)(9) of the
Exchange Act and used in Sections 13(d) and 14(d) thereof, including a “group”
as defined in Section 13(d) thereof);           (b)   The value of any non-cash
benefits or any deferred payment or benefit shall be determined by the person or
firm rendering the Determination in accordance with the principles of Sections
280G(d)(3) and (4) of the Code;           (c)   The compensation and benefits
provided for in Section 5 of this Agreement, and any other compensation earned
prior to the termination of the Executive’s employment pursuant to the
Corporation’s compensation programs (if such payments would have been made in
the future in any event, even though the timing of such payment is triggered by
a change in the ownership or effective control of the Corporation or any change
in the ownership of a substantial portion of the Corporation’s assets or a
termination of the Executive’s employment), shall for purposes of the
calculation pursuant to this Section B.3 be deemed to be reasonable; and        
  (d)  

The Executive shall be deemed to pay federal income taxes at the highest
marginal rate of federal income taxation in the calendar year in which the
Gross-Up Payment is to be made. Furthermore, the computation of the Gross-Up
Payment shall assume (and adjust for the fact) that (i) there is a loss of
miscellaneous itemized deductions under Section 67 of the Code (or analogous
federal or state provisions) on account of the Gross-Up Payment, and (ii) a loss
of itemized deductions under Section 68 of the Code (or analogous federal or
state provisions) on account of the Gross-Up Payment. The computation of the
Gross-Up Payment shall take into account any reduction in the Gross-Up Payment
due to the Executive’s share of the hospital insurance portion of FICA and any
state withholding taxes (other than any state withholding tax for income tax
liability). The computation of the state and local income taxes applicable to
the Gross-Up Payment shall be based on the highest marginal rate of taxation in
the state and locality of the Executive’s residence on the date the Executive’s
employment terminates, and shall take into account the maximum reduction in
federal income taxes that could be obtained from the deduction of such state and
local taxes.

 

(e)   It is the intent of the parties that the amounts payable under this
Agreement, and the Corporation’s and the Executive’s exercise of authority or
discretion hereunder shall comply with and avoid the imputation of any tax,
penalty, or interest under Section 409A of the Code. This Agreement and this
Exhibit B shall be construed in interpretation with that intent.  

  

19

 

 

B.4 Executive’s Obligation to Notify Corporation. The Executive shall promptly
notify the Corporation in writing of any claim by the Internal Revenue Service
(or any successor thereof) or any state or local taxing authority (individually
or collectively, the “Taxing Authority”) that, if successful, would require the
payment by the Corporation of a Gross-Up Payment in excess of any Gross-Up
Payment as originally set forth in the Determination. If the Corporation
notifies the Executive in writing that it desires to contest such claim, the
Executive shall: (a) give the Corporation any information reasonably requested
by the Corporation relating to such claim; (b) take such action in connection
with contesting such claim as the Corporation shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney selected by the
Corporation that is reasonably acceptable to the Executive; (c) cooperate with
the Corporation in good faith in order to effectively contest such claim; and
(d) permit the Corporation to participate in any proceedings relating to such
claim; provided that the Corporation shall bear and pay directly all attorneys’
fees, costs and expenses (including additional interest, penalties and additions
to tax) incurred in connection with such contest and shall indemnify and hold
the Executive harmless, on an after-tax basis, for all taxes (including, without
limitation, income and excise taxes), interest, penalties and additions to tax
imposed in relation to such claim and in relation to the payment of such costs
and expenses or indemnification. Without limitation on the foregoing provisions
of this Section B.4, and to the extent its actions do not unreasonably interfere
with or prejudice the Executive’s disputes with the Taxing Authority as to other
issues, the Corporation shall control all proceedings taken in connection with
such contest and, in its reasonable discretion, 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
Executive to pay the tax, interest or penalties claimed and sue for a refund or
contest the claim in any permissible manner, and the Executive 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
Corporation shall determine; provided, however, that if the Corporation directs
Executive to pay such claim and sue for a refund, the Corporation shall advance
an amount equal to such payment to the Executive, on an interest-free basis, and
shall indemnify and hold the Executive harmless, on an after-tax basis, from all
taxes (including, without limitation, income and excise taxes), interest,
penalties and additions to tax imposed with respect to such advance or with
respect to any imputed income with respect to such advance, as any such amounts
are incurred; and, further, provided, that any extension of the statute of
limitations relating to payment of taxes, interest, penalties or additions to
tax for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount; and,
provided, further, that any settlement of any claim shall be reasonably
acceptable to the Executive and the Corporation’s control of the contest shall
be limited to issues with respect to which a Gross-Up Payment would be payable
hereunder, and the Executive shall be entitled to settle or contest, as the case
may be, any other issue.

 

B.5 Subsequent Recalculation. In the event of a binding or uncontested
determination by the Taxing Authority that adjusts the computation set forth in
the Determination so that the Executive did not receive the greatest net benefit
required pursuant to Section B.1, the Corporation shall reimburse the Executive
as provided herein for the full amount necessary to place the Executive in the
same after-tax position as he would have been in had no Excise Tax applied. In
the event of a binding or uncontested determination by the Taxing Authority that
adjusts the computation set forth in the Determination so that the Executive
received a payment or benefit in excess of the amount required pursuant to
Section B.1, then the Executive shall promptly pay to the Corporation (without
interest) the amount of such excess.

 

20