Exhibit 10.1


 


	
   

  	
   

  	
  November
  5, 2010

  



 


Mr. Brent Bailey


 


[address in Company files]


 


Re:  Contract Terms of Employment


 


Dear Brent:


 


This letter (“Letter Agreement”) confirms Cyanotech
Corporation’s employment offer to you for the position of President and Chief
Executive Officer of Cyanotech Corporation and its subsidiary (“Company”), in accordance with our extensive discussions over
the past several weeks.


 


Upon our respective
acceptances, evidenced by our signatures below, of each term, condition,
promise and affirmative undertaking contained herein, we each shall be fully
bound in consideration of the mutual obligations to each other contained in
this Letter Agreement.  The Letter
Agreement shall be effective on the date you sign this Letter Agreement (“Effective Date”).


 


Term:  This Letter Agreement covers
a period of up to eighty-four months (“Employment Term”)
from your Employment Date, as hereinafter defined, unless sooner terminated as
herein provided.  The Company understands
that your Employment Term may not commence prior to January 2011, but that it
should commence in that month.


 


Position:  President and Chief Executive Officer:  You will report directly to the Board of
Directors (“Board”) and serve at the pleasure
of the Board, subject to the terms and conditions of this Letter
Agreement.  It is anticipated that you
will be appointed to be a member of the Board immediately following the
Effective Date of this Letter Agreement; you will be formally nominated for
election to the Board at the next Annual Meeting of Stockholders projected to
occur in September 2011.  The Company
maintains a policy of officer and director liability insurance under which
coverage will extend to you.


 


Duties:  (a)  In
addition to the terms of this Letter Agreement, you will perform the duties,
functions and responsibilities and execute the authority of your position with
reasonable business judgment pursuant to the Company’s Articles of
Incorporation, Bylaws, committee charters, codes of conduct and resolutions,
policies and directives of the Board, as well as rules, handbooks and policies
generally applicable to all Company


 


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employees (collectively, “Charter Document Requirements and Guidelines”).  Each of the foregoing is available to you
either on the Company’s website or upon request to Ms. Deanna Spooner, Vice
President of Finance and Chief Financial Officer of the Company.  It is your responsibility to familiarize
yourself with each of the Charter Documents and Guidelines.  Subject to the foregoing, you shall have
authority over, and responsibility for, all of the Company’s operations and its
performance.  You will faithfully and
satisfactorily perform your duties, functions, and responsibilities and execute
your authority pursuant to this Letter Agreement in the best interest of the
Company and to the standard reasonably expected of a person in your position.


 


(b)  During your Employment Term, you shall devote
your full time, skill, attention and best efforts to the business and affairs
of the Company to the extent necessary to discharge fully, faithfully and
efficiently the duties, functions and responsibilities of your position, except
for usual, ordinary and customary periods of vacation and absence due to
illness or other disability.


 


(c)  All services that you may render to the
Company in any capacity during the Employment Term shall be deemed to be
services required by this Letter Agreement and the consideration for such
services is that provided for in this Letter Agreement.


 


Salary:  $300,000.00 per twelve-month year, payable
monthly in accordance with normal payroll periods established by the Company,
against which standard federal, state and local deductions and any further
deductions you authorize will be made; your salary will be subject to review
annually by the Compensation Committee.


 


Bonus:  For each full fiscal year during which you
remain employed under this Letter Agreement, you will have an opportunity to
earn a fiscal year-end bonus of equal to 50% of current salary, based upon
performance and earnings targets and other standards to be established by the
Board or the Compensation Committee for each such year and based upon the
Compensation Committee’s and the Board’s evaluations of your fiscal year
results; an additional bonus will be considered upon achievement of stretch
goals measured by compound annual earnings growth significantly exceeding
fiscal year earnings goals; bonuses will be determined and awarded in the Board’s
discretion following completion of the Company’s annual audit by independent
auditors.


 


Stock Option Grants:  The Board will grant you stock options under
the Company’s 2005 Stock Option Plan (“Plan”)
exercisable for shares of common stock of the Company equivalent to
approximately 131⁄2% of the amount of such shares issued and outstanding on the
date you become an “employee” for purposes of the Plan and the Internal Revenue
Code (“Employment Date”) or as soon thereafter
as the Board shall meet to formally authorize the initial grants (“Initial Grant Date”). 
The Plan currently has approximately 371,000 shares available for grants
to other executive officers and employees under the Plan, as well as to you
under this Letter Agreement.  The Company


 


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commits to seek stockholder
approval at the 2011 Annual Stockholder Meeting to amend the Plan to add and
reserve sufficient additional shares under the Plan to fulfill the total option
grants in accordance herewith and for other executives for the remaining life
of this Plan.  The exercise price for the
initial stock option award will be the closing market price on the Initial
Grant Date; any stock option grants which cannot be satisfied until stockholder
approval will be valued at the closing market price on the date the
stockholders approve the Plan amendment to increase the number of shares
available to satisfy the balance of the Company’s stock option commitment
herein (the “Second Grant Date”).  Your total stock option grants will vest and
become exercisable annually on or about the anniversary of your initial grant,
subject to your compliance with the Stock Option Plan Agreement and the Company’s
Insider Trading Policy, in approximately the numbers reflected in this chart:


 


	
  Grant Anniversary

  	
   

  	
  Stock Options Vested (1)

  	
   

  	
  Unvested Stock Options

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2012

  	
   

  	
  81,000

  	
   

  	
  649,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2013

  	
   

  	
  81,000

  	
   

  	
  568,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2014

  	
   

  	
  108,000

  	
   

  	
  460,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2015

  	
   

  	
  108,000

  	
   

  	
  352,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2016

  	
   

  	
  108,000

  	
   

  	
  244,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2017

  	
   

  	
  108,000

  	
   

  	
  136,000

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2018

  	
   

  	
  136,000

  	
   

  	
  -
  0 -

  	
   

  



 


All stock option grants
hereunder will be evidenced by a Cyanotech 2005 Stock Option Plan Agreement (a
copy of which will be provided to you), or such other Cyanotech stock option
plan and customary documentation as may be required to accomplish the
foregoing.


 


Employee Benefit Programs:  You will be eligible to participate in, and
be covered by, the Company’s employee benefit programs, subject to any
preconditions in those programs, upon your Employment Date.  Group or individual life insurance for you
will be arranged in the amount of $500,000.00, also subject to any
preconditions including your cooperation and participation in physical and
medical examinations as may be required by insurance companies.  Other specific programs currently in place
include: health (physician, prescription, dental, vision) insurance; a medical
savings plan; a short


 






(1)  The
actual numbers will depend upon the actual number of shares outstanding on your
Employment Date.  These numbers are based
upon shares outstanding on June 30, 2010 and have been rounded up for purposes
of this chart.


 


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term disability plan; and a
profit sharing plan/401(k) plan (the former is a Company contribution plan for
non-executive employees and the later is contributory by employees without an
employer match beyond the designation of any profit sharing plan contribution
being earmarked for the 401(k) Plan). You will be entitled to four weeks of
vacation for each 12 months you are employed by the Company.  The Company also agrees to pay or reimburse
all of your reasonable business expenses in accordance with Company policies
and procedures and subject to periodic review and approval of such expenditures
by the Compensation Committee.  The Company will pay or reimburse
for suitable accommodations and related costs in Kona, as well as standard
travel expenses to and from Kona, as necessary during your Employment
Term.  The Company will offer you an appropriate
relocation package at the point you have chosen a location, other than your
current permanent residence, which you believe will be the most appropriate for
the performance of your duties and responsibilities hereunder, as well as
suitable for your family.


 


Special Benefit:  The Company will reimburse standard travel
expenses for your wife to and from Kona up to twice a month for the first eight
months of your employment, after which the continuation of this benefit will be
re-evaluated.


 


Termination:  (a) Your employment with the Company will
terminate upon your death, upon expiration of your Employment Term or as
otherwise provided in this Letter Agreement. 
Your employment may be terminated:


 


 (i) upon notice of the Board’s determination
that you are unable to perform the essential functions of your position due to
disability, with or without accommodation, or that any requested accommodation
would impose an undue hardship upon the Company, as provided for under
applicable federal and/or state laws;


 


(ii) concurrent with notice
of the Board’s determination that your employment be terminated for cause,
without prior notice;


 


(iii) following notice of
the affirmative vote of a majority of the Board that your employment be
terminated without cause and upon thirty days prior written notice during which
period you may be suspended from your position with pay or otherwise relieved
of your duties with pay; provided, however, that in the event of termination
under this clause (iii), you would be paid a gross severance payment of
$300,000.00, less standard federal, state and local deductions and any other
deductions you have authorized.


 


In the event of termination
of your employment for any reason, you agree to resign any director positions
with the Company and you hereby presently and irrevocably tender your
resignation(s) as a director of the Company and any of each subsidiary in which
you may become a director, effective upon your date of termination of
employment with the Company.


 


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(b)  Except as otherwise required by law, all
benefit and reimbursement payments unconditionally due you at termination shall
be paid in full within sixty (60) days from date of termination or from the
date all conditions are satisfied or removed; any unconditional severance
entitlement shall be paid over a period of twelve (12) months from date of
termination without cause or from date all conditions are satisfied or removed.


 


“Cause”
shall mean one or more of the following:


 


(a) your willful and
material failure to substantially perform your duties (other than as a result
of physical or mental illness or injury), or other material breach of any
provision of this Letter Agreement;


 


(b) your willful or
negligent failure to adhere to any material provision of our Code of Conduct,
written policy or instruction after you have been given a reasonable
opportunity to comply with the policy or instruction or to cure any failure to
comply and/or which is reasonably expected to materially injure the Company’s
reputation, business or business relationships;


 


(c) the misappropriation (or
attempted misappropriation) of any Company funds or property;


 


(d) your willful breach of
your fiduciary duties or duty of loyalty to the Company; and/or


 


(e) your commission of any
felony or other serious crime involving moral turpitude or your conviction
during the most recent ten years of an offense that has a rational relationship
to the duties and responsibilities of your position and which the Board
determines will have an adverse effect upon its confidence in your ability to
carry out your duties and responsibilities.


 


Change in
Control Payment:  Upon a “change
in control” as defined in the Plan and your termination other than for cause,
you will be paid a severance payment equal to twice your then-annual salary,
less all standard federal, state and local deductions and any other deductions
you have authorized, as of your date of termination.  This severance payment would be in place of,
and not in addition to, any severance payment provided for in clause (iii) of
the “Termination” paragraph, above.


 


Confidentiality:  You agree not to divulge any confidential,
proprietary, personnel, financial and business information of the Company or
that of third parties for which the Company is subject to a duty to maintain
confidentiality, which you may learn or become aware of as a result of your
employment, except to the extent that such disclosure:  (a) is necessary to your performance of this
Letter Agreement and is in furtherance of the Company’s best interests; (b) is
required by applicable law or court order provided that


 


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you notify the Company in
writing immediately after being compelled to disclose so that the Company may
take legal action to protect its interest against disclosure; or (c) is in the
public domain other than as a result of a breach of this provision. This
provision may be waived at any time in writing in response to a specific
written request to the Company.


 


Noncompetition.  You agree that while you are employed by the
Company and for an 18-month period following your Employment Term, you will not
within the State of Hawaii directly or indirectly compete with the Company by
accepting employment or consulting contracts or performing activities for your
own benefit or with or without compensation for the benefit of another where
the activities performed by you are substantially similar to those performed by
you for the Company under this Letter Agreement.


 


Nondisparagement
Obligations.  You agree that
worldwide while you are employed by the Company and for an 18-month period
following your Employment Term, you will not:


 


(a)           accept employment or
consulting contracts or perform activities for your own benefit or with or
without compensation for the benefit of another where the activities performed
by you by their nature are likely to lead to the disclosure of Confidential
Information, including non-public information about Intellectual Property;


 


(b)           disparage the Company, any
products, services, or operations of the Company, or any of the former,
current, or future officers, directors, or employees of the Company;


 


(c)           solicit, induce, persuade or
entice, or endeavor to solicit, induce, persuade, or entice, any person who is
then employed by or otherwise engaged to perform services for the Company to
leave their employment or cease performing those services; or


 


(d)           solicit, induce, persuade,
or entice, or endeavor to solicit, induce, persuade, or entice, any person who
is then a customer, supplier, or vendor of the Company to cease being a
customer, supplier, or vendor of the Company to cease being a customer,
supplier, or vendor of the Company or to divert all or any part of such person’s
or entity’s business from the Company.


 


Intellectual Property:  It is our mutual objective that the Company
shall be the sole owner of all intellectual property developed by you or under
circumstances that, but for this provision, may entitle you to some right,
title or interest in such intellectual property.(2)  You hereby agree to assign, transfer and set over,
and you do hereby assign,


 






(2)  Any and
all inventions, discoveries, improvements, concepts, works of authorship,
patents, copyrights, trade secrets and any other intellectual property rights
therein,


 


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set over and transfer all of
your right, title and interest to such Intellectual Property.  In addition, you agree to promptly tell the
Company about each instance where Intellectual Property is created, invented or
authored, as described in greater detail in the footnote below.(3)  Lastly, throughout your Employment Term and
thereafter, you agree to assist and cooperate with the Company in documenting,
registering, defending and enforcing its Intellectual Property rights, as
described in greater detail in the footnote below.(4)


 


Other Agreements:  You represent that your employment by the
Company does not and will not breach any agreement with any of your former
employers or other third parties.  You
further represent that during your employment by the Company you will not
improperly use or disclose any confidential information or trade secrets of any
former employer or other third party, or bring onto the Company’s premises or
elsewhere use in violation of any lawful agreements to which you are bound with
any former employer or third party, any unpublished documents or property
belonging to such former employer or third party.  You further represent that you have not, and
will not, enter into any agreement or undertaking that might create a conflict
with, be competitive with, or restrict or impair the performance of, and
adherence to, your obligations under this Letter Agreement.


 






whether
conceived, designed, made, reduced to practice, fixed in a tangible medium or
learned by you under any circumstance during your Employment Term and that
relate in any manner to existing or prospective business of the Company
(collectively, “Intellectual Property”).


(3)  You
further agree to promptly disclose to the Company in writing and hold in trust
for the sole right and benefit of the Company all types, forms and stages of
Intellectual Property that you create, invent or author during your Employment
Term.  Without limiting the foregoing,
you acknowledge that all original works of authorship that are made by you,
solely or jointly with others, within the scope of your employment and that are
protectable by copyright are “works made for hire,” as that term is defined in
the United States Copyright Act (17 U.S.C., Section 101), and are therefore
owned by the Company from the time of their creation.


(4)  Commencing
with your Employment Term and thereafter, you agree to assist the Company and
its agents in securing the Company’s rights in any Intellectual Property
worldwide by:   disclosing to them all
known pertinent information and data, including any additional information and
data requested by the Company and its agents; executing all instruments which
the Company and its agents request in order to apply for and obtain registered
Intellectual Property rights; assigning and conveying to the Company the sole
and exclusive rights, title and interest in and to such Intellectual Property;
and otherwise cooperating with the Company and its agents in obtaining,
defending and enforcing its Intellectual Property rights.


 


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Survival:  The expiration or termination of the
Employment Term will not impair the rights or obligations of any party hereto
that accrue hereunder prior to such expiration or termination, except to the
extent specifically stated herein.  In
addition, your obligations under the foregoing provisions covering
Confidentiality, Noncompetition, Nondisparagement Obligations, and Intellectual
Property will survive the expiration or termination of your employment.


 


Arbitration:  Any and all claims, controversies or disputes
arising out of or relating to this Letter Agreement, or the breach thereof,
which remain unresolved after direct negotiations between us, shall first be submitted
to confidential Mediation in Honolulu in accordance with the Rules, Procedures
and Protocols for Mediation of Disputes of Dispute Prevention & Resolution,
Inc. (“DPRI”), then in effect.  If any issues, claims or disputes remain
unresolved after mediation concludes, we agree to submit any such issues to
binding arbitration in Honolulu before one/three arbitrator(s) in accordance
with the Rules, Procedures and Protocols for Arbitration of Disputes of DPRI,
then in effect. However, we agree that the foregoing shall not preclude either
of us from seeking any injunctive or equitable relief from a court of competent
jurisdiction pursuant to any provision of this Letter Agreement.  We each further agree that, subject to
Chapter 658A, Hawaii Revised Statutes, as the same may hereafter be amended or
recodified, the award of the arbitrator(s) shall be binding upon each of us and
that judgment upon the award rendered may be entered in any court of competent
jurisdiction.


 


Miscellaneous:  This Letter Agreement contains the entire
agreement of between us on all matters pertaining to your employment by the
Company.  No modification or amendment
shall be valid unless it is in writing and signed by both of us.  All terms and provisions of this Letter
Agreement shall be binding upon and inure to the benefit of and be enforceable
by each of us and our respective successors and any lawful assigns.  The failure of the Company to require
performance of any provision of this Letter Agreement shall in no manner affect
the right of the Company at a later time to enforce any provision of this
Letter Agreement.  A waiver of a breach
of any term or condition herein shall not be deemed to constitute a waiver of
any subsequent breach of the same or any other term or condition.  This Letter Agreement is intended to be
performed in accordance with, and only to the extent permitted by, all
applicable laws, ordinances, rules and regulations.  The parties intend that this Letter Agreement
shall be governed by and construed in accordance with the laws of the State of
Hawaii, the Corporate Code of the State of Nevada and, as applicable, federal
laws, rules and regulations.  Pending
notification of any change of address by you in writing to the Company to the
attention of its Chairman or Chief Financial Officer, we will rely upon the
address used in this Letter Agreement for sending any notice or other
communication pursuant to the terms of this Letter Agreement.


 


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Employment Date:  Please indicate and initial the date of your
signature to this Letter Agreement and the date upon which we both agree you
shall commence your employment with the Company:


 


January
11, 2011 [       ] (“Employment
Date”)


 


November
5, 2010 [       ] (Effective
Date”)


 


The directors of Cyanotech
Corporation, as well as its Compensation and Stock Option Plan Committee, which
have approved the terms of this Letter Agreement, are very pleased that you
have agreed to join the Company and are enthusiastic about the prospects for
the Company under your leadership. 
Please acknowledge your agreement with, and acceptance of, the foregoing
terms by signing below where indicated. 
A copy of this Letter Agreement will be filed with the Securities and
Exchange Commission as a public document. 
This Letter Agreement is in three duplicate original copies, so that
after signing you can return one to the undersigned and one to Mr. Davis and
retain one for your records.


 


	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CYANOTECH Corporation

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Deanna L. Spooner

  
	
   

  	
  By:

  	
  Deanna L. Spooner

  
	
   

  	
  Its:

  	
  Vice President – Finance
  and Administration

  
	
   

  	
   

  
	
   

  	
   

  
	
  ACKNOWLEDGED AND ACCEPTED

  	
   

  
	
  this fifth day of November
  2010

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Brent Bailey

  	
   

  	
  (      )

  
				



 


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