Exhibit 10.1

 

 

 

EMPLOYMENT AGREEMENT

 

This Employment Agreement (this “Agreement”) is entered into as of October 12,
2016 (the “Effective Date”) by and between Diffusion Pharmaceuticals Inc. (the
“Company”), and Ben L. Shealy (the “Executive”).

 

Recitals

 

WHEREAS, the Company desires to employ the Executive as a full-time employee of
the Company and the Executive desires to accept employment with the Company upon
the terms and conditions hereinafter set forth.

 

NOW THEREFORE, in consideration of the premises and the mutual covenants
hereinafter set forth, and intending to be legally bound hereby, it is hereby
agreed as follows:

 

Agreement

 

 

1.

Definitions.

 

1.1.     “Affiliate” means as to any Person, any other Person that directly or
indirectly controls, or is under common control with, or is controlled by, such
first Person. As used in this definition, “control” (including, with its
correlative meanings, “controlled by” and “under common control with”) shall
mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of voting equity
interests, by contract or otherwise). For the avoidance of doubt, each member of
the Company Group (other than the Company) is an Affiliate of the Company.

 

1.2.     “Board” means the Board of Directors of the Company.

 

1.3.     “Cause” means the Executive’s (i) indictment for, or entering of a plea
of guilty or nolo contendere (or its equivalent under any applicable legal
system) with respect to (A) a felony or (B) any crime involving moral turpitude;
(ii) commission of fraud, misrepresentation, embezzlement or theft against any
Person; (iii) engaging in any intentional activity that injures or would
reasonably be expected to injure (monetarily or otherwise), in any material
respect, the reputation, the business or a business relationship of the Company
or any of its Affiliates; (iv) gross negligence or willful misconduct in the
performance of the Executive’s duties to the Company or its Affiliates under
this Agreement, or willful refusal or failure to carry out the lawful
instructions of the Board or the Company’s Chief Executive Officer (or any
designee thereof) or the Company’s Chief Financial Officer (or any designee
thereof), as applicable, that are consistent with the Executive’s title and
position; (v) violation of any fiduciary duty owed to the Company or any of its
Affiliates; or (vi) breach of any Restrictive Covenant (as defined below) or
material breach or violation of any other provision of this Agreement, of a
written policy or code of conduct of the Company or any of its Affiliates (as in
effect from time to time) or any other agreement between the Executive and the
Company or any of its Affiliates. Except when such acts constituting Cause
which, by their nature, cannot reasonably be expected to be cured, the Executive
shall have twenty (20) days following the delivery of written notice by the
Company of its intention to terminate the Executive’s employment for Cause
within which to cure any acts constituting Cause. After the Company provides the
notice of its intent to terminate Executive’s employment for Cause, the Company
may suspend the Executive from all his duties and responsibilities and prevent
him from accessing the Company’s or its Affiliates’ premises or contacting any
personnel of the Company or any of its Affiliates. 

 

 
 

--------------------------------------------------------------------------------

 

 

1.4.     “Change of Control” means (i) the accumulation (if over time, in any
consecutive twelve (12) month period), whether directly, indirectly,
beneficially or of record, by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended) of 50.1% or more of the shares of the outstanding voting securities
of the Company, whether by merger, consolidation, sale or other transfer of
shares (other than a merger or consolidation where the stockholders of the
Company immediately prior to the merger or consolidation are immediately after
such merger or consolidation the direct or indirect beneficial owners of a
majority of the voting securities of the entity that survives such merger or
consolidation), (ii) a sale of all or substantially all of the assets of the
Company and its Subsidiaries, determined on a consolidated basis or (iii) during
any period of twelve (12) consecutive months, the individuals who, at the
beginning of such period, constitute the Board, and any new director whose
election by the Board or nomination for election by the Company’s stockholders
was approved by a vote of at least a majority of the directors then still in
office who either were directors at the beginning of the 12-month period or
whose election or nomination for election was previously so approved, cease for
any reason to constitute at least a majority of the Board; provided, however,
that the following acquisitions shall not constitute a Change of Control for the
purposes of this Agreement: (A) any acquisitions of voting securities or
securities convertible, exercisable or exchangeable into voting securities
directly from the Company or (B) any acquisition of voting securities or
securities convertible, exercisable or exchangeable into voting securities by
any employee benefit plan (or related trust) sponsored by or maintained by the
Company or any of its Subsidiaries; provided further, that a transaction will
not be a Change of Control unless it satisfies the requirements of Treasury
Regulation 1.409A-3(i)(5)(v), (vi) or (vii). 

 

1.5.      “Code” means the Internal Revenue Code of 1986, as amended.

 

1.6.      “Company Group” means the Company and the direct and indirect
Subsidiaries of the Company.

 

1.7.     “Company Invention”      means any Invention that is Invented by the
Executive (alone or jointly with others) (i) in the course of, in connection
with, or as a result of the Executive’s employment or other service with any
member of the Company Group (whether before, on or after the Effective Date),
(ii) at the direction or request of any member of the Company Group, or (iii)
through the use of, or that is related to, facilities, equipment, Confidential
Information, other Company Inventions, intellectual property or other resources
of any member of the Company Group, whether or not during the Executive’s work
hours.

 

1.8.     “Confidential Information” shall mean all information of a sensitive,
confidential or proprietary nature respecting the business and activities of any
member of the Company Group or any of their respective Affiliates, or the
predecessors and successors of any member of the Company Group or any of their
respective Affiliates, including, without limitation, the terms and provisions
of this Agreement (except for the terms and provisions of Sections 4.4 through
4.17), and the clients, customers, suppliers, computer or other files, projects,
products, computer disks or other media, computer hardware or computer software
programs, marketing plans, financial information, methodologies, Inventions,
know-how, research, developments, processes, practices, approaches, projections,
forecasts, formats, systems, data gathering methods and/or strategies of any
member of the Company Group or any of their respective Affiliates. “Confidential
Information” also includes all information received by the Company or any other
member of the Company Group under an obligation of confidentially to a third
party. Notwithstanding the foregoing, Confidential Information shall not include
any information that is generally available, or is made generally available, to
the public other than as a result of a direct or indirect unauthorized
disclosure by the Executive or any other Person subject to a confidentiality
obligation.

 

 
2

--------------------------------------------------------------------------------

 

 

1.9.     “Disability” means that the Executive has been unable, as determined by
the Board in good faith, to perform the Executive’s duties under this Agreement
for a period of ninety (90) consecutive days or for a total of one hundred and
twenty (120) days (whether or not consecutive) during any period of twelve (12)
consecutive months, as a result of injury, illness or any other physical or
mental impairment.

 

1.10.     “Good Reason” means any of the following actions taken by the Company
without the Executive’s prior written consent: (i) a material reduction in the
Executive’s duties, responsibilities or authority; (ii) a material reduction of
the Executive’s Base Salary (as defined below); (iii) failure or refusal of a
successor to the Company to either materially assume the Company’s obligations
under this Agreement or enter into a new employment agreement with the Executive
on terms that are materially similar to those provided under this Agreement, in
any case, in the event of a Change of Control; (iv) relocation of the
Executive’s primary work location that results in an increase in the Executive’s
one-way driving distance by more than twenty-five (25) miles from the
Executive’s then-current principal residence; or (v) a material breach of this
Agreement by the Company. Notwithstanding the foregoing, Good Reason shall not
be deemed to exist unless (A) the Executive gives the Company written notice
within sixty (60) days after the occurrence of the event which the Executive
believes constitutes the basis for Good Reason, specifying the particular act or
failure to act which the Executive believes constitutes the basis for Good
Reason, (B) the Company fails to cure such act or failure to act within thirty
(30) days after receipt of such notice and (C) the Executive terminates his
employment within thirty (30) days after the end of such 30-day cure period
specified in clause (B).

 

1.11.      “Invented” means made, conceived, invented, authored, or first
actually reduced to practice (in any case, whether partially or fully).

 

1.12.      “Invention” means any invention, formula, therapy, diagnostic
technique, discovery, improvement, idea, technique, design, method, art,
process, methodology, algorithm, machine, development, product, service,
technology, strategy, software, work of authorship or other Works (as defined in
Section 4.13), trade secret, innovation, trademark, data, database, or the like,
whether or not patentable, together with all intellectual property rights
therein.

 

1.13.     “Person” means an individual, partnership, limited liability company,
corporation, association, joint stock company, trust, joint venture,
unincorporated organization, investment fund, any other business entity and a
governmental entity or any department, agency or political subdivision thereof.

 

 
3

--------------------------------------------------------------------------------

 

 

1.14.     “Subsidiary” means, with respect to any Person, any other Person in
which such first Person has a direct or indirect equity ownership interest of at
least 50%.

 

1.15.     “Term of Employment” means the period of the Executive’s employment
under this Agreement.

 

1.16.     “Termination Date” means the date the Executive’s employment with the
Company terminates for any reason.

 

 

2.

Employment.

 

2.1.     Executive’s Representations. The Executive represents that (i) the
Executive is entering into this Agreement voluntarily and that the Executive’s
employment hereunder and compliance with the terms and conditions hereof will
not conflict with or result in the breach by the Executive of any agreement to
which the Executive is a party or by which the Executive may be bound and (ii)
in connection with the Executive’s employment with the Company or any other
member of the Company Group, the Executive will not (A) violate any
non-competition, non-solicitation or other similar covenant or agreement by
which the Executive is or may be bound or (B) use any confidential or
proprietary information that the Executive may have obtained in connection with
the Executive’s employment or engagement with any other Person.

 

2.2.     Position; Duties and Responsibilities. During the Term of Employment,
the Executive shall be employed as the Company’s Senior Vice President – Finance
and Treasurer, with such duties and responsibilities that are consistent with
such position as may be assigned by the Board or the Company’s Chief Executive
Officer (or any designee thereof) or the Company’s Chief Financial Officer (or
any designee thereof), as applicable, from time to time. In addition, during the
Term of Employment, the Executive shall serve in such other officer and/or
director positions with any member of the Company Group (for no additional
compensation) as may be determined by the Board from time to time. The Executive
further agrees that, during the Term of Employment, he shall not knowingly take
any action that is contrary to, or in conflict with, the best interests of the
Company Group.

 

2.3.      Reporting; Outside Activities. During the Term of Employment, the
Executive shall report to the Company’s Chief Executive Officer (or any designee
thereof) until a Chief Financial Officer commences employment with the Company,
and thereafter, to such Chief Financial Officer of the Company (or any designee
thereof), and the Executive shall diligently and conscientiously devote the
Executive’s full business time, attention, energy, skill and best efforts to the
business and affairs of the Company Group. Notwithstanding the foregoing, the
Executive may (i) continue to serve as a member of the board of any organization
listed in Exhibit A hereto, (ii) serve on other boards as may be approved by the
Board in its sole discretion, (iii) engage in educational, charitable and civic
activities and (iv) manage the Executive’s personal and business investments and
affairs, so long as such activities (A) do not, individually or in the
aggregate, interfere with the performance of the Executive’s duties under this
Agreement and (B) are not contrary to the interests of the Company Group or
competitive in any way with the Company Group. Subject to the foregoing, during
the Term of Employment, the Executive shall not, directly or indirectly, render
any services of a business, commercial, or professional nature to any other
Person, whether for compensation or otherwise, without the prior written consent
of the Board.

 

 
4

--------------------------------------------------------------------------------

 

 

 

3.

Compensation and Other Benefits.

 

3.1.     Base Salary. During the Term of Employment, the Executive shall receive
an initial base salary per annum of $231,000, the cash portion of which shall be
payable in accordance with the Company’s normal payroll practices as in effect
from time to time. During the Term of Employment, the Board may review the
Executive’s base salary and the Board may, in its sole discretion, increase (but
not decrease) such base salary by an amount it determines to be appropriate. The
Executive’s base salary, as may be in effect from time to time, is referred to
herein as “Base Salary.” Notwithstanding anything herein to the contrary, with
respect to any calendar year during the Term of Employment, the Board may, in
its sole discretion, determine that a portion of the Base Salary shall be paid
in the form of equity or equity-based compensation; provided that, such
determination shall be made before January 1 of the calendar year during which
such Base Salary will be earned, and such determination (and the portion of the
Base Salary determined to be so paid in the form of equity or equity-based
compensation) may not be revoked or otherwise modified at any time during such
calendar year; provided, further, that any such equity or equity-based
compensation shall be granted on January 1 of such calendar year or such later
date during such calendar year as may be determined by the Board in its sole
discretion. The Board shall act in good faith in determining the value of the
portion of the Base Salary that will be paid in the form of equity or
equity-based compensation. For calendar year 2016, the cash portion of the Base
Salary shall be $146,415. From and after January 1st of the year immediately
following the year in which a Change of Control occurs, no portion of the Base
Salary shall be paid in a form other than cash.

 

3.2.     Annual Bonus. During the Term of Employment, the Executive shall be
eligible to earn an annual performance bonus based on the achievement of the
performance goals established by the Board or a committee thereof in its sole
discretion, with an annual target bonus opportunity of 25% of the Base Salary
and the potential to earn a higher bonus for above target performance, with the
amount of any such bonus to be determined in the sole discretion of the Board or
a committee thereof (the “Annual Bonus”). Any Annual Bonus earned for any
performance period may be paid in cash or any equity or equity-based awards (or
any combination thereof), as determined in the sole discretion of the Board or a
committee thereof, with such determination to be made before January 1 of the
performance period to which such Annual Bonus relates (or such later date
permitted under Section 409A (as defined below)). Any earned Annual Bonus that
is payable in cash shall be paid in a lump sum, and any earned Annual Bonus that
is payable in equity or equity-based awards shall be granted, in any case, by no
later than the first March 15th to occur after the end of the applicable
performance period. The Board shall act in good faith in determining the value
of the portion of any earned Annual Bonus that will be paid in the form of
equity or equity-based awards. Except as set forth in Section 4.2, the Executive
must be employed by the Company on the bonus payment date in order to receive an
earned Annual Bonus with respect to any performance period. With respect to any
performance period commencing in any year following the year in which a Change
of Control occurs, no portion of the Annual Bonus shall be paid in a form other
than cash.

 

 
5

--------------------------------------------------------------------------------

 

 

3.3.     Equity Grants. During the Term of Employment, the Executive shall be
eligible for equity or equity-based awards that may be granted to the Executive
at such times, in such amounts and in such manner as the Board may determine in
its sole discretion. Any such equity or equity-based awards shall be subject to
the terms and conditions set forth in the applicable plan and award agreement.

 

3.4.      Expense Reimbursement. During the Term of Employment, the Company
shall reimburse the Executive’s reasonable and necessary business expenses
incurred in connection with performing the Executive’s duties hereunder in
accordance with its then-prevailing policies and procedures for expense
reimbursement (which shall include appropriate itemization and substantiation of
expenses incurred).

 

3.5.     Benefit Plans; Vacation. During the Term of Employment, the Executive
shall be entitled to participate in all broad-based employee benefit plans and
programs maintained from time to time for the benefit of the Company’s employees
(e.g., medical, dental and disability benefits) to the extent that the Executive
satisfies the eligibility requirements of such plans or programs (including,
without limitation, minimum hours worked) and subject to applicable law and the
terms and conditions of such plans or programs; provided, however, that the
Company may amend, modify or terminate any such plans or programs at any time in
its discretion. During the Term of Employment, the Executive shall be entitled
to 200 hours of paid time off per calendar year (pro-rated for partial years),
subject to the Company’s paid time off policy, as in effect from time to time.

 

4.            Termination; Restrictive Covenants. Upon the Termination Date, the
Executive shall be deemed to have immediately resigned from any and all officer,
director and other positions the Executive then holds with the Company and its
Affiliates (and this Agreement shall constitute notice of resignation by the
Executive without any further action by the Executive), and the Executive agrees
to execute and deliver such further instruments as are requested by the Company
in furtherance of the foregoing. Except as expressly provided in Section 4.2,
all rights the Executive may have to compensation and employee benefits from the
Company or its Affiliates shall terminate immediately upon the Termination Date.

 

4.1.     General. The Company may terminate the Term of Employment and the
Executive’s employment at any time, with or without Cause or due to Disability,
upon written notice to the Executive. The Executive may terminate the Term of
Employment and the Executive’s employment for Good Reason or for any other
reason at any time upon not less than ninety (90) days’ advance written notice
to the Company; provided, that following its receipt of the Executive’s notice
of termination, the Company may elect to reduce the notice period and cause the
Termination Date to occur earlier, and no such action by the Company shall
entitle the Executive to notice pay, severance pay or benefits or pay in lieu of
notice or lost wages or benefits. In addition, the Term of Employment and the
Executive’s employment with the Company shall terminate immediately upon the
Executive’s death.

 

4.2.     Separation Payments.

 

 
6

--------------------------------------------------------------------------------

 

 

4.2.1.     General. Except as otherwise provided in this Section 4.2, in the
event that the Executive’s employment with the Company terminates for any
reason, the Executive (or the Executive’s estate or legal representative, as
applicable) shall be entitled to receive only (i) the cash portion of the Base
Salary earned but unpaid through the Termination Date, paid in accordance with
the Company’s normal payroll policies (or at such earlier time as required by
applicable law), (ii) any accrued but unused vacation in accordance with the
Company’s policies and applicable law, (iii) any unreimbursed business expenses
incurred prior to the Termination Date that are otherwise reimbursable, with
such expenses to be reimbursed in accordance with the Company’s expense
reimbursement policies (as may be in effect from time to time), and (iv) any
vested benefits earned by the Executive under any employee benefit plan of the
Company or its Affiliates under which the Executive was participating
immediately prior to the Termination Date, with such benefits to be provided in
accordance with the terms of the applicable employee benefit plan (the items
described in the foregoing clauses (i) through (iv), collectively, the “Accrued
Benefits”). All other rights the Executive may have to compensation and employee
benefits from the Company or its Affiliates, other than as set forth in Sections
4.2.2, 4.2.3 or 4.2.4, shall immediately terminate upon the Termination Date.

 

4.2.2.     Death and Disability. In the event that the Executive’s employment is
terminated due to the Executive’s death or by the Company due to Disability, in
either case, during the Term of Employment, then in addition to the Accrued
Benefits, and subject to Section 4.2.5, the Executive (or the Executive’s estate
or legal representative, as applicable) shall be entitled to receive: (i) the
Annual Bonus earned in the fiscal year immediately preceding the fiscal year in
which such termination occurred, to the extent that such Annual Bonus is unpaid
as of the Termination Date, with such amount to be payable in cash and/or fully
vested shares of the Company’s common stock (as determined by the Company in its
sole discretion) at the same time as if no such termination had occurred (the
“Unpaid Prior Year Bonus”); (ii) the Annual Bonus for the year in which the
Termination Date occurs, but multiplied by a fraction (A) the numerator of which
is the number of days in the fiscal year that have transpired through the
Termination Date and (B) the denominator of which is the number of days in such
fiscal year (to be paid in cash and/or fully vested shares of the Company’s
common stock (as determined by the Company in its sole discretion) at the same
time as if no such termination had occurred); (iii) if the Executive and his
eligible dependents are eligible for, and timely elect COBRA continuation
coverage, the Company shall reimburse the Executive (or the Executive’s estate
or legal representative, as applicable) for the COBRA premiums for the Executive
and his eligible dependents under the Company’s medical, dental and vision
benefit plans for a period of 12 months following the Termination Date (the
“COBRA Benefit”); provided, however, that notwithstanding the foregoing, the
COBRA Benefit shall not be provided to the extent that it would result in any
fine, penalty or tax on the Company or any of its Affiliates (under Section
105(h) of the Code or the Patient Protection and Affordable Care Act of 2010, or
otherwise); provided further, that the COBRA Benefit shall cease earlier if the
Executive or his dependents become eligible for health coverage under the health
plan of another employer; and (iv) to the extent the following will not result
in a violation of Section 409A, with respect to each equity award received by
Executive from the Company or any of its direct or indirect parent companies
that is outstanding as of the Termination Date, accelerated vesting immediately
upon the Termination Date of, (I) with respect to any such equity award received
in payment of Base Salary or an Annual Bonus, 100% of such equity award and,
(II) with respect to any equity award not described in clause (I), the greater
of (x) the portion of the unvested equity award that would have become vested
within 12 months after the Termination Date had the Executive remained employed
by the Company during such 12- month period (without regard for the vesting
schedule set forth in any applicable plan or agreement governing such equity
award) or (y) the portion of the unvested equity award that is subject to
accelerated vesting (if any) upon such termination under the applicable equity
plan or award agreement; provided, however, that any equity awards that are
subject to the satisfaction of performance goals shall be deemed earned at not
less than target performance; and provided, further, that, with respect to any
equity award that is in the form of a stock option or stock appreciation right,
the option or stock appreciation right shall remain outstanding and exercisable
for 12 months following the Termination Date or, if longer, such period
following the Termination Date as provided under the applicable equity plan or
award agreement (but in no event beyond the expiration date of the applicable
option or stock appreciation right). All other rights the Executive may have to
compensation and employee benefits from the Company or its Affiliates, other
than as set forth in this Section 4.2.2, shall immediately terminate upon the
Termination Date.

 

 
7

--------------------------------------------------------------------------------

 

 

4.2.3.     Termination Without Cause or for Good Reason – Not In Connection with
a Change of Control. If, during the Term of Employment, the Executive’s
employment is terminated by the Company without Cause (and not due to death or
Disability) or by Executive for Good Reason, in either case, and such
termination is not covered by Section 4.2.4, then the Executive shall be
entitled to receive the Accrued Benefits and, subject to Section 4.2.5: (i) the
Unpaid Prior Year Bonus, with such amount to be payable in cash and/or fully
vested shares of the Company’s common stock (as determined by the Company in its
sole discretion) at the same time as if no such termination had occurred; (ii)
the Annual Bonus for the year in which the Termination Date occurs, but
multiplied by a fraction (A) the numerator of which is the number of days in the
fiscal year that have transpired through the Termination Date and (B) the
denominator of which is the number of days in such fiscal year (to be paid in
cash and/or fully vested shares of the Company’s common stock (as determined by
the Company in its sole discretion) at the same time as if no such termination
had occurred); (iii) continuation of the Base Salary as of the Termination Date
for nine months following the Termination Date, with all portions of such Base
Salary to be paid in cash in equal installments in accordance with the Company’s
normal payroll policies, with the first such payment to be made on the 60th day
following the Termination Date and to include a catch-up covering any payroll
dates between the Termination Date and the date of the first payment, and (iv)
the COBRA Benefit for a period of 12 months following the Termination Date;
provided, however, that notwithstanding the foregoing, the COBRA Benefit shall
not be provided to the extent that it would result in any fine, penalty or tax
on the Company or any of its Affiliates (under Section 105(h) of the Code or the
Patient Protection and Affordable Care Act of 2010, or otherwise); provided
further, that the COBRA Benefit shall cease earlier if the Executive (or his
dependents) become eligible for health coverage under the health plan of another
employer. All other rights the Executive may have to compensation and employee
benefits from the Company or its Affiliates, other than as set forth in this
Section 4.2.3, shall immediately terminate upon the Termination Date.

 

4.2.4.     Termination Without Cause or for Good Reason – In Connection with a
Change of Control. If, during the Term of Employment, the Executive’s employment
is terminated by the Company without Cause (and not due to death or Disability)
or by Executive for Good Reason, in either case, (A) upon or within 24 months
following a Change of Control or (B) within 60 days prior to such Change of
Control, then the Executive shall be entitled to receive the Accrued Benefits
and, subject to Section 4.2.5: (i) the Unpaid Prior Year Bonus, with such amount
to be payable in cash and/or fully vested shares of the Company’s common stock
(as determined by the Company in its sole discretion) at the same time as if no
such termination had occurred; (ii) the Annual Bonus for the year in which the
Termination Date occurs, but multiplied by a fraction (x) the numerator of which
is the number of days in the fiscal year that have transpired through the
Termination Date and (y) the denominator of which is the number of days in such
fiscal year (to be paid in cash and/or fully vested shares of the Company’s
common stock (as determined by the Company in its sole discretion) at the same
time as if no such termination had occurred); (iii) a lump sum payment equal to
1.5 times the sum of Executive’s Base Salary (at the highest rate in effect
during the 24 month period commencing on the date of such Change of Control) and
the higher of Executive’s target Annual Bonus opportunity and the Annual Bonus
paid to Executive with respect to the fiscal year immediately preceding the
fiscal year in which such termination occurred, with such payment to be paid in
cash on the first payroll date after the effective date of the release (as
described in Section 4.2.5) and in all events no later than 70 days after such
termination and (iv) a payment equal to 18 times the monthly COBRA premium for
Executive and his eligible dependents (at the rate in effect for Executive’s
coverage at the time of his termination, regardless of whether Executive elects
COBRA coverage), with one-third of such payment to be paid in cash on the first
payroll date after the effective date of the release (as described in Section
4.2.5) and in all events no later than 70 days after such termination, and with
the remaining two-thirds to be paid according to the same schedule as the COBRA
Benefit is provided in clause (iv) of Section 4.2.3 (i.e., in installments over
12 months following the Termination Date). Notwithstanding the foregoing, in the
event that a termination described in clause (B) of this Section 4.2.4 occurs,
then the payments described in clauses (iii) and (iv) of this Section 4.2.4
shall be paid over the same nine-month period (or the same 12-month period, as
applicable) and in the same manner as set forth in clauses (iii) and (iv) of
Section 4.2.3, respectively, rather than being paid in a lump sum. In addition,
if (and only if), during the Term of Employment, the Executive’s employment is
terminated by the Company without Cause (and not due to death or Disability) or
by Executive for Good Reason, in either case, upon or within 24 months following
a Change of Control, then, to the extent the following will not result in a
violation of Section 409A, the Executive shall be entitled to, in addition to
the Accrued Benefits and the payments set forth in the foregoing clauses (i)
through (iv), and subject to Section 4.2.5, immediate and full accelerated
vesting of all equity awards received by Executive from the Company or any of
its direct or indirect parent companies that are outstanding as of the
Termination Date without regard for the vesting schedule set forth in any
applicable plan or agreement governing such equity awards; provided that, any
equity awards that are subject to the satisfaction of performance goals shall be
deemed earned at not less than target performance; and provided, further, that,
with respect to any equity award that is in the form of a stock option or stock
appreciation right, the option or stock appreciation right shall remain
outstanding and exercisable for 24 months following the Termination Date (but in
no event beyond the expiration date of the applicable option or stock
appreciation right). All other rights the Executive may have to compensation and
employee benefits from the Company or its Affiliates, other than as set forth in
this Section 4.2.4, shall immediately terminate upon the Termination Date.

 

 
8

--------------------------------------------------------------------------------

 

 

4.2.5.     Release Requirement. Payment and provision of the benefits set forth
in Sections 4.2.2, 4.2.3 and 4.2.4 (other than the Accrued Benefits) is subject
to the Executive’s (or, as applicable, the Executive’s estate’s or legal
representative’s) execution of a general release of claims and covenant not to
sue in form and substance satisfactory to the Company, such that such release
becomes effective, with all revocation periods having expired unexercised,
within sixty (60) days after the Termination Date. Notwithstanding the
foregoing, if such sixty (60) day period ends in a calendar year after the
calendar year in which the Executive’s employment terminates, then to the extent
required by Section 409A, any severance payment set forth in Sections 4.2.2,
4.2.3 or 4.2.4 (other than the Accrued Benefits) that would have been made
during the calendar year in which the Executive’s employment terminates instead
shall be withheld and paid on the first payroll date in the calendar year after
the calendar year in which the Executive’s employment terminates, with all
remaining payments to be made as if no such delay had occurred.

 

4.3.     Violation of Restrictive Covenants. Without limiting the remedies
provided to the Company and its Affiliates as set forth in this Article 4, upon
the Executive’s breach of any of the Restrictive Covenants (as defined below),
other than any immaterial and unintentional breach by the Executive of the
confidentiality obligations set forth in Section 4.11, the Company will have no
obligation to continue to pay or provide any of the compensation or benefits
under Section 4.2 (other than the Accrued Benefits) and the Executive shall
repay to the Company any amounts paid under Section 4.2 (other than the Accrued
Benefits) after such breach occurred.

 

4.4.      Restrictive Covenants. As an inducement and as essential consideration
for the Company to enter into this Agreement, and in exchange for other good and
valuable consideration, the Executive hereby agrees to the restrictive covenants
contained in Sections 4.5 through 4.17 (the “Restrictive Covenants”). The
Company and the Executive agree that the Restrictive Covenants are essential and
narrowly tailored to preserve the goodwill of the business of the Company and
its Affiliates, to maintain the confidential and trade secret information of the
Company and its Affiliates, and to protect other legitimate business interests
of the Company and its Affiliates, and that the Company would not have entered
into this Agreement without the Executive’s agreement to the Restrictive
Covenants. For purposes of the Restrictive Covenants, each reference to
“Company,” “Company Group” and “Affiliate,” shall also refer to the predecessors
and successors of the Company, the members of the Company Group and any of their
Affiliates (as the case may be).

 

4.5.     Non-Competition. During the period commencing on the Effective Date and
ending 18 months after the Termination Date, regardless of the reason for
Executive’s termination of employment, the Executive shall not, in any state of
the United States where the Company conducts business as of the Termination
Date, engage in, or own, manage, operate or control, or participate in the
ownership, management, operation or control of any business or entity that sells
or provides products or services competitive with the products or services sold
or provided by any member of the Company Group. Notwithstanding the foregoing,
nothing in this Section 4.5 shall prevent the Executive from owning, as a
passive investor, up to two percent (2%) of the securities of any entity that
are publicly traded on a national securities exchange. For the avoidance of
doubt, nothing in this Section 4.5 prevents the Executive from working in the
pharmaceutical industry as long as such positions and activities are not
competitive with the business of the Company Group.

 

4.6.     Customer Non-Solicitation. During the period commencing on the
Effective Date and ending 18 months after the Termination Date, regardless of
the reason for Executive’s termination of employment, the Executive shall not
(except on the Company’s behalf during the Executive’s employment with the
Company), for purposes of providing products or services that are competitive
with those provided by any member of the Company Group, on the Executive’s own
behalf or on behalf of any other Person, solicit any customer or client of any
member of the Company Group with whom the Executive had contact, solicited, or
served within the twelve (12) months prior to the Termination Date.

 

 
9

--------------------------------------------------------------------------------

 

 

4.7.     Customer Non-Acceptance. During the period commencing on the Effective
Date and ending 18 months after the Termination Date, regardless of the reason
for Executive’s termination of employment, the Executive shall not (except on
the Company’s behalf during the Executive’s employment with the Company), for
purposes of providing products or services that are competitive with those
provided by any member of the Company Group, on the Executive’s own behalf or on
behalf of any other Person, accept business from any customer or client of any
member of the Company Group with whom the Executive had contact, solicited, or
served within the twelve (12) months prior to the Termination Date.

 

4.8.      Employee and Independent Contractor Non-Solicitation. During the
period commencing on the Effective Date and ending 18 months after the
Termination Date, regardless of the reason for Executive’s termination of
employment, the Executive shall not (except on the Company’s behalf during the
Term of Employment), on the Executive’s own behalf or on behalf of any other
Person, solicit for employment or engagement any individual who (A) is employed
by, or an independent contractor of, any member of the Company Group at the time
of such solicitation or (B) was employed by, or an independent contractor of,
any member of the Company Group within 12 months prior to such solicitation.

 

4.9.     Employee and Independent Contractor Non-Acceptance. During the period
commencing on the Effective Date and ending 18 months after the Termination
Date, regardless of the reason for Executive’s termination of employment, the
Executive shall not (except on the Company’s behalf during the Term of
Employment), on the Executive’s own behalf or on behalf of any other Person,
employ or engage any individual who (A) is employed by, or an independent
contractor of, any member of the Company Group at the time of such employment or
engagement or (B) was employed by, or an independent contractor of, any member
of the Company Group within twelve (12) months prior to such employment or
engagement.

 

4.10.      Non-Disparagement. During the Term of Employment and at all times
thereafter, the Executive shall not, directly or through any other Person make
any public or private statements (whether orally, in writing, via electronic
transmission, or otherwise) that disparage, denigrate or malign the Company, any
of the Company’s Affiliates or any of their respective businesses, products,
services, activities, operations, affairs, reputations or prospects; or any of
their respective officers, employees, directors, partners (general and limited),
agents, members or shareholders. For purposes of clarification, and not
limitation, a statement shall be deemed to disparage, denigrate or malign a
Person if such statement could be reasonably construed to adversely affect the
opinion any other Person may have or form of such first Person. The foregoing
limitations shall not be violated by truthful statements made by the Executive
(i) to any governmental authority or (ii) which are in response to legal
process, required governmental testimony or filings, or administrative or
arbitral proceedings (including, without limitation, depositions in connection
with such proceedings).

 

 
10

--------------------------------------------------------------------------------

 

 

4.11.     Confidentiality; Return of Property. During the Term of Employment and
at all times thereafter, the Executive shall not, without the prior express
written consent of the Company, directly or indirectly, use on the Executive’s
behalf or on behalf of any other Person, or divulge, disclose or make available
or accessible to any Person, any Confidential Information, other than when
required to do so in good faith to perform the Executive’s duties and
responsibilities hereunder while employed by any member of the Company Group,
when required to do so by a lawful order of a court of competent jurisdiction,
any governmental authority or agency, or any recognized subpoena power, or in
connection with reporting possible violations of federal law or regulation to
any governmental agency or entity, or making other disclosures that are
protected under the whistleblower provisions of federal law or regulation. In
the event that the Executive becomes legally compelled (by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process) to disclose any Confidential
Information, then prior to such disclosure, the Executive will provide the Board
with prompt written notice so that the Company may seek (with the Executive’s
cooperation) a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement. In the event that such
protective order or other remedy is not obtained, then the Executive will
furnish only that portion of the Confidential Information which is legally
required, and will cooperate with the Company in the Company’s efforts to obtain
reliable assurance that confidential treatment will be accorded to the
Confidential Information. In addition, the Executive shall not create any
derivative work or other product based on or resulting from any Confidential
Information (except in the good faith performance of the Executive’s duties
under this Agreement while employed by any member of the Company Group). The
Executive shall also proffer to the Board’s designee, no later than the
Termination Date (or upon the earlier request of the Company), and without
retaining any copies, notes or excerpts thereof, all property of the Company and
its Affiliates, including, without limitation, memoranda, computer disks or
other media, computer programs, diaries, notes, records, data, customer or
client lists, marketing plans and strategies, and any other documents consisting
of or containing Confidential Information, that are in the Executive’s actual or
constructive possession or which are subject to the Executive’s control at such
time. To the extent the Executive has retained any such property or Confidential
Information on any electronic or computer equipment belonging to the Executive
or under the Executive’s control, the Executive agrees to so advise Company and
to follow Company’s instructions in permanently deleting all such property or
Confidential Information and all copies. Notwithstanding the foregoing, in
accordance with the Defend Trade Secrets Act of 2016, the Executive shall not be
held criminally or civilly liable under any federal or state trade secret law
for the disclosure of a trade secret that: (a) is made (I) in confidence to a
federal, state, or local government official, either directly or indirectly, or
to an attorney, and (II) solely for the purpose of reporting or investigating a
suspected violation of law; or (b) is made in a complaint or other document
filed in a lawsuit or other proceeding, if such filing is made under seal.

 

4.12.     Ownership of Inventions. The Executive acknowledges and agrees that
all Company Inventions (including all intellectual property rights arising
therein or thereto, all rights of priority relating to patents, and all claims
for past, present and future infringement, misappropriation relating thereto),
and all Confidential Information, hereby are and shall be the sole and exclusive
property of the Company (collectively, the “Company IP”). The Executive further
acknowledges and agrees that any rights arising in the Executive in any
Invention Invented by the Executive, whether alone or jointly with others,
during the twelve (12) months following the Termination Date and relating in any
way to work performed by the Executive for any member of the Company Group
during the Executive’s employment with or service for any member of the Company
Group (“Post-employment Inventions”), shall hereby be deemed to be Company
Inventions and the sole and exclusive property of the Company; provided,
however, that the Board in its sole discretion may elect to compensate the
Executive for any Post-employment Inventions. For consideration acknowledged and
received, the Executive hereby irrevocably assigns, conveys and sets over to the
Company all of the Executive’s right, title and interest in and to all Company
IP. The Executive acknowledges and agrees that the compensation received by the
Executive for employment or services provided to the Company is adequate
consideration for the foregoing assignment. The Executive further agrees to
disclose in writing to the Board any Company Inventions (including, without
limitation, all Post-employment Inventions), promptly following their conception
or reduction to practice. Such disclosure shall be sufficiently complete in
technical detail and appropriately illustrated by sketch or diagram to convey to
one skilled in the art of which the Company Invention pertains, a clear
understanding of the nature, purpose, operations, and other characteristics of
the Company Invention. The Executive agrees to execute and deliver such deeds of
assignment or other documents of conveyance and transfer as the Company may
request to confirm in the Company or its designee the ownership of the Company
Inventions, without compensation beyond that provided in this Agreement. The
Executive further agrees, upon the request of the Company and at its expense,
that the Executive will execute any other instrument and document necessary or
desirable in applying for and obtaining patents in the United States and in any
foreign country with respect to any Company Invention. The Executive further
agrees, whether or not the Executive is then an employee or other service
provider of any member of the Company Group, upon request of the Company, to
provide reasonable assistance with respect to the perfection, recordation or
other documentation of the assignment of Company IP hereunder, and the
enforcement of the Company’s rights in any Company IP, and to cooperate to the
extent and in the manner reasonably requested by the Company in any litigation
or other claim or proceeding (including, without limitation, the prosecution or
defense of any claim involving a patent) involving any Company IP covered by
this Agreement, without further compensation but all reasonable out-of-pocket
expenses incurred by the Executive in satisfying the requirements of this
Section 4.12 shall be paid by the Company or its designee. The Executive shall
not, on or after the date of this Agreement, directly or indirectly challenge
the validity or enforceability of the Company’s ownership of, or rights with
respect to, any Company IP, including, without limitation, any patent issued on,
or patent application filed in respect of, any Company Invention.

 

 
11

--------------------------------------------------------------------------------

 

 

4.13.     Works for Hire. The Executive also acknowledges and agrees that all
works of authorship, in any format or medium, and whether published or
unpublished, created wholly or in part by the Executive, whether alone or
jointly with others, (i) in the course of, in connection with, or as a result of
the Executive’s employment or other service with any member of the Company Group
(whether before or after the Effective Date), (ii) at the direction or request
of any member of the Company Group, or (iii) through the use of, or that is
related to, facilities, equipment, Confidential Information, other Company
Inventions, intellectual property or other resources of any member of the
Company Group, whether or not during the Executive’s work hours (“Works”), are
works made for hire as defined under United States copyright law, and that the
Works (and all copyrights arising in the Works) are owned exclusively by the
Company and all rights therein will automatically vest in the Company without
the need for any further action by any party. To the extent any such Works are
not deemed to be works made for hire, for consideration acknowledged and
received, the Executive hereby waives any “moral rights” in such Works and the
Executive hereby irrevocably assigns, transfers, conveys and sets over to the
Company or its designee, without compensation beyond that provided in this
Agreement, all right, title and interest in and to such Works, including without
limitation all rights of copyright arising therein or thereto, and further
agrees to execute such assignments or other deeds of conveyance and transfer as
the Company may request to vest in the Company or its designee all right, title
and interest in and to such Works, including all rights of copyright arising in
or related to the Works.

 

4.14.     Cooperation.     During and after the Term of Employment, the
Executive agrees to cooperate with the Company Group in any internal
investigation, any administrative, regulatory, or judicial proceeding or any
dispute with a third party concerning issues about which the Executive has
knowledge or that may relate to the Executive or the Executive’s employment with
the Company. The Executive’s obligation to cooperate hereunder includes, without
limitation, being available to the Company Group upon reasonable notice for
interviews and factual investigations, appearing in any forum at the Company
Group’s request to give testimony (without requiring service of a subpoena or
other legal process), volunteering to the Company Group pertinent information,
and turning over to the Company Group all relevant documents which are or may
come into the Executive’s possession.  The Company shall promptly reimburse the
Executive for the reasonable out of pocket expenses incurred by the Executive in
connection with such cooperation.

 

4.15.     Injunctive Relief. The Executive acknowledges and agrees that the
Company and its Affiliates will have no adequate remedy at law and would be
irreparably harmed if the Executive breaches or threatens to breach any of the
Restrictive Covenants. The Executive agrees that the Company and its Affiliates
shall be entitled to equitable and/or injunctive relief to prevent any breach or
threatened breach of any of the Restrictive Covenants, and to specific
performance of each of the terms thereof, in each case, in addition to any other
legal or equitable remedies that the Company and its Affiliates may have, as
well as the costs and reasonable attorneys’ fees it/they incur in enforcing any
of the Restrictive Covenants. The Executive further agrees that (i) any breach
or claimed breach of the provisions set forth in this Agreement by, or any other
claim the Executive may have against, the Company or any of its Affiliates will
not be a defense to enforcement of any Restrictive Covenant and (ii) the
circumstances of the Executive’s termination of employment with the Company will
have no impact on the Executive’s obligations to comply with any Restrictive
Covenant. The Restrictive Covenants are intended for the benefit of the Company
and each of its Affiliates. Each Affiliate of the Company is an intended third
party beneficiary of the Restrictive Covenants, and each Affiliate of the
Company, as well as any successor or assign of the Company or such Affiliate,
may enforce the Restrictive Covenants. The Executive further agrees that the
Restrictive Covenants are in addition to, and not in lieu of, any
non-competition, non-solicitation, protection of confidential information or
intellectual property, or other similar covenants in favor of the Company or any
of its Affiliates by which the Executive may be bound.

 

4.16.     Tolling During Periods of Breach. The parties hereto agree and intend
that the Restrictive Covenants (to the extent not perpetual) be tolled during
any period that the Executive is in breach of any such Restrictive Covenant,
with such tolling to cease with respect to a Restrictive Covenant once the
Executive is in compliance with such Restrictive Covenant, so that the Company
and its Affiliates are provided with the full benefit of the restrictive periods
set forth herein.

 

 
12

--------------------------------------------------------------------------------

 

 

4.17.     Notification of New Employer. In the event that the Executive is
employed or otherwise engaged by any other Person following the Termination
Date, the Executive agrees to notify, and consents to the notification by
Company and its Affiliates of, such Person of the Restrictive Covenants.

 

 

5.

Miscellaneous.

 

5.1.     Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Virginia, applied without
reference to principles of conflicts of law.

 

5.2.      Mediation. Any controversy, dispute or claim arising out of or
relating to this Agreement, Executive’s employment or service with any member of
the Company Group or the termination thereof shall, if not settled by direct
negotiation between the parties, be subject to non-binding mediation under the
Employment Arbitration Rules and Mediation Procedures of the American
Arbitration Association (“AAA”) as in effect on the date of the notice of demand
for mediation. Any demand for mediation by either party shall be made in writing
and served upon the other party and shall set forth with reasonable specificity
the basis of the dispute and the relief sought. Any mediation hereunder shall be
conducted before an independent mediator mutually selected by the parties. If
the parties are unable to agree to a mediator within ten (10) days after the
receipt of a demand for mediation by either party, the mediator will be chosen
by alternatively striking from a list of five mediators obtained by the Company
from AAA, and the Executive shall have the first strike. The mediation hearing
will occur at a time and place convenient to the parties in Charlottesville,
Virginia. Notwithstanding the foregoing, any claims under Section 4.15 are
exempt from this Section 5.2 and may be brought in any court of competent
jurisdiction without mediation.

 

5.3.      Venue; WAIVER OF JURY TRIAL. In the event that any controversy,
dispute or claim arising out of or relating to this Agreement, Executive’s
employment or service with any member of the Company Group or the termination
thereof is not settled through mediation pursuant to Section 5.2, both the
Executive and the Company agree to appear before and submit exclusively to the
jurisdiction of the federal courts located in Charlottesville, Virginia with
respect to such controversy, dispute or claim (or if such controversy, dispute
or claim may not be brought in federal court, the state courts located in
Charlottesville, Virginia). Both the Executive and the Company also agree to
waive, to the fullest possible extent, the defense of an inconvenient forum or
lack of jurisdiction. THE COMPANY AND THE EXECUTIVE HEREBY WAIVE, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH
RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THE EXECUTIVE’S EMPLOYMENT BY,
OR SERVICE WITH, ANY MEMBER OF THE COMPANY GROUP OR THE TERMINATION THEREOF, OR
THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR
ENFORCEMENT THEREOF (WHETHER ARISING IN CONTRACT, EQUITY, TORT OR OTHERWISE).

 

 
13

--------------------------------------------------------------------------------

 

 

5.4.     Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.

 

5.5.     Notices. All notices and other communications hereunder shall be in
writing, and shall be given by hand-delivery to the other party, by reputable
overnight courier, or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:

 

 

To the Company:

Diffusion Pharmaceuticals Inc.

2020 Avon Court #4

Charlottesville, VA 22902

Attention: Thomas E. Byrne

 

 

 

 

 

 

With a copy (which copy

shall not constitute notice) to:

 

Dechert LLP

1095 Avenue of the Americas.

New York, NY 10036
Attention: David S. Rosenthal

 

 

 

 

 

 

To the Executive:

at the residence address most recently filed with the Company;

 

 

or to such other address as any party shall have furnished to the other in
writing in accordance herewith. All such notices shall be deemed to have been
duly given: (i) when delivered personally to the recipient, (ii) one (1)
business day after being sent to the recipient by reputable overnight courier
service (charges prepaid); or (iii) four (4) business days after being mailed to
the recipient by certified or registered mail, return receipt requested and
postage prepaid.

 

5.6.     Clawback. The Executive expressly acknowledges and agrees that he is
subject to any clawback policy of the Company as in effect from time to time,
and any compensation or benefits provided under this Agreement (whether payable
in cash or equity or equity-based awards) may be reduced or be subject to
recoupment pursuant to any such policy as in effect from time to time.

 

5.7.      Withholding. The Company may withhold from any amounts payable under
this Agreement such federal, state or local income taxes as are required to be
withheld pursuant to any applicable law or regulation.

 

5.8.     Code Section 409A Compliance.

 

5.8.1.     The provisions of this Agreement are intended to comply with
Section 409A of the Code and any final regulations and guidance promulgated
thereunder (“Section 409A”) or an exemption thereunder and shall be construed in
a manner consistent with the requirements for avoiding taxes or penalties under
Section 409A. The Company and Executive agree to work together in good faith to
consider amendments to this Agreement and to take such reasonable actions which
are necessary, appropriate or desirable to avoid imposition of any additional
tax or income recognition prior to actual payment or provision of benefit to
Executive under Section 409A.

 

 
14

--------------------------------------------------------------------------------

 

 

5.8.2.     To the extent that Executive will be reimbursed for costs and
expenses or in-kind benefits, except as otherwise permitted by Section 409A, (a)
the right to reimbursement or in-kind benefits is not subject to liquidation or
exchange for another benefit, (b) the amount of expenses eligible for
reimbursement, or in-kind benefits, provided during any taxable year shall not
affect the expenses eligible for reimbursement, or in-kind benefits to be
provided, in any other taxable year; provided that the foregoing clause (b)
shall not be violated with regard to expenses reimbursed under any arrangement
covered by Section 105(b) of the Code solely because such expenses are subject
to a limit related to the period the arrangement is in effect and (c) such
payments shall be made on or before the last day of the taxable year following
the taxable year in which Executive incurred the expense.

 

5.8.3.     A termination of employment shall not be deemed to have occurred for
purposes of any provision of this Agreement providing for the payment of any
amounts or benefits upon or following a termination of employment unless such
termination constitutes a “Separation from Service” within the meaning of
Section 409A and, for purposes of any such provision of this Agreement
references to a “termination,” “termination of employment” or like terms shall
mean Separation from Service.

 

5.8.4.     Any payments under this Agreement that may be excluded from
Section 409A either as separation pay due to an involuntary separation from
service or as a short-term deferral shall be excluded from Section 409A to the
maximum extent possible. Each installment payable hereunder shall constitute a
separate payment for purposes of Treasury Regulation Section 1.409A-2(b),
including Treasury Regulation Section 1.409A-2(b)(2)(iii). Each payment that is
made within the terms of the “short-term deferral” rule set forth in Treasury
Regulation Section 1.409A-1(b)(4) is intended to meet the “short-term deferral”
rule. Each other payment is intended to be a payment upon an involuntary
termination from service and payable pursuant to Treasury Regulation
Section 1.409A-1(b)(9)(iii), et. seq., to the maximum extent permitted by that
regulation, with any amount that is not exempt from Section 409A being subject
to Section 409A.

 

5.8.5.     Notwithstanding anything to the contrary in this Agreement, if
Executive is a “specified employee” within the meaning of Section 409A at the
time of Executive’s termination, then only that portion of the severance and
benefits payable to Executive pursuant to this Agreement, if any, and any other
severance payments or separation benefits which may be considered deferred
compensation under Section 409A that is payable on account of the Executive’s
termination (other than by reason of death) (together, the “Deferred
Compensation Separation Benefits”) that are due to Executive on or within the
six (6) month period following Executive’s termination will accrue during such
six (6) month period and will become payable in one lump sum cash payment on the
date that is six (6) months and one (1) day following the date of Executive’s
termination of employment. All subsequent Deferred Compensation Separation
Benefits, if any, will be payable in accordance with the payment schedule
applicable to each payment or benefit. Notwithstanding anything herein to the
contrary, if Executive dies following termination but prior to the six (6) month
anniversary of Executive’s termination date, then any payments delayed in
accordance with this paragraph will be payable in a lump sum as soon as
administratively practicable after the date of Executive’s death (but not
earlier than such payment would have been made absent such death) and all other
Deferred Compensation Separation Benefits will be payable in accordance with the
payment schedule applicable to each payment or benefit.

 

 
15

--------------------------------------------------------------------------------

 

 

5.8.6.     Notwithstanding anything herein to the contrary, neither the Company
nor any of its Affiliates shall have any liability to the Executive or to any
other Person if the payments and benefits provided in this Agreement that are
intended to be exempt from or compliant with Section 409A are not so exempt or
compliant.

 

5.9.     Excess Parachute Payments under Code Section 280G. Notwithstanding any
other provisions of this Agreement, if any “payments” (including, without
limitation, any benefits or transfers of property or the acceleration of the
vesting of any benefits) in the nature of compensation under any arrangement
that is considered contingent on a Change of Control for purposes of Section
280G of the Code, together with any other payments that the Executive has the
right to receive from the Company or any corporation that is a member of an
“affiliated group” (as defined in Section 1504(a) of the Code without regard to
Section 1504(b) of the Code) of which the Company is a member or from any other
Person, would constitute a “parachute payment” (as defined in Section 280G(b)(2)
of the Code), such “payments” may, at the Executive’s sole election, be reduced
to the largest amount that will result in no portion of such “payments” being
subject to the excise tax imposed by Section 4999 of the Code. Any such
reduction in “payments” shall be applied first against the latest scheduled cash
payments; then current cash payments; then any equity or equity derivatives that
are included under Section 280G of the Code at full value rather than
accelerated value (with the highest value reduced first); then any equity or
equity derivatives included under Section 280G of the Code at an accelerated
value (and not at full value), with the highest value reduced first (as such
values are determined under Treasury Regulation Section 1.280G-1, Q&A 24); and
finally any other non-cash benefits will be reduced (in the order of latest
scheduled payments to earliest scheduled payments). All calculations hereunder
shall be performed by a nationally recognized independent accounting firm
selected by the Company, with the full cost of such firm being borne by the
Company. Any determinations made by such firm shall be final and binding on the
Executive and the Company.

 

5.10.      Severability. The terms and provisions of this Agreement are intended
to be separate and divisible provisions and if, for any reason, any one or more
of them is held to be invalid or unenforceable, neither the validity nor the
enforceability of any other provision of this Agreement shall thereby be
affected. It is the intention of the parties to this Agreement that the
Restrictive Covenants be reasonable in duration, geographic scope and in all
other respects. The Executive agrees that the Restrictive Covenants, including,
without limitation, the duration, geographic scope and activity restrictions of
each restriction, are reasonable in light of the Executive’s senior position.
However, if for any reason any court of competent jurisdiction shall find any
provisions of the Restrictive Covenants unreasonable in duration or geographic
scope or otherwise, it is the intention of the parties that the restrictions and
prohibitions contained therein shall be modified by the court to be effective to
the fullest extent allowed under applicable law in such jurisdiction.

 

5.11.      Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.

 

 
16

--------------------------------------------------------------------------------

 

 

5.12.     Counterparts. This Agreement may be executed in counterparts and
delivered by facsimile transmission or electronic transmission in “portable
document format,” each of which shall be an original and which taken together
shall constitute one and the same document.

 

5.13.     Entire Agreement. This Agreement contains the entire agreement
concerning the subject matter hereof and supersedes all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties and their Affiliates relating to such subject matter
(including any term sheet or offer letter)

 

5.14.     Survivorship. The provisions of Article 1, Article 5, Section 2.1 and
Sections 4.4 through 4.17 shall survive the termination of the Executive’s
employment with the Company and this Agreement in accordance with their terms.

 

5.15.     Successors and Assigns. The Company may assign, without the
Executive’s consent, its rights and/or delegate its obligations under this
Agreement to any successor of the Company, whether by operation of law,
agreement or otherwise (including, without limitation, any Person who acquires
all or a substantial portion of the business of the Company Group (whether
direct or indirect and whether structured as a stock sale, asset sale, merger,
recapitalization, consolidation or other transaction)) and, in connection with
any such delegation of its obligations hereunder (but only so long as such
assignee or delegee has consented in writing to be bound by the obligations
hereunder) shall be released from such obligations hereunder. This Agreement may
not be assigned by the Executive. Except as otherwise provided herein, this
Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company and their respective successors and permitted assigns.

 

[Signature page follows]

 

 
17

--------------------------------------------------------------------------------

 

 

IN WITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and the
Company has caused this Agreement to be executed in its name on its behalf, all
as of the day and year first above written.

 

 

THE COMPANY:

 

       

Diffusion Pharmaceuticals Inc.

 

 

 

 

 

       

 

 

 

 

 

By:

/s/ David G. Kalergis

 

 

 

Name: David G. Kalergis

 

 

 

Title: Chief Executive Officer

 

 

 

 

EXECUTIVE:

 

 

 

 

 

 

 

 

 

 

/s/ Ben L. Shealy

 

 

Ben L. Shealy

 

 

 

 

 

 

 
18

--------------------------------------------------------------------------------

 

 

 

EXHIBIT A

 

OUTSIDE ACTIVITIES