**Exhibit 10.5**

 

**PHOTOGEN TECHNOLOGIES, INC.**

140 Union Square Drive

New Hope, PA 18938

 

 

Photogen Technologies, Inc.

140 Union Square Drive

New Hope, PA 18938

 

 

July 23, 2003

 

 

Taffy J. Williams, Ph.D.

103 Colwyn Terrace

Landsdale, PA  19446

 

Dear Dr. Williams:

 

As of July 23,2003, we agree that the terms of your employment and your relationship withPhotogen Technologies, Inc. (the “Company”) will be as specified in thisletter, and that all previous terms and agreements governing your employment(including the letter agreement dated October 28, 2002 between you and theCompany) are no longer effective except that all stock options in effect, willremain in effect, but shall terminate in accordance with their terms.

 

**I.****                                         Title,Reporting Relationship and Duties**

 

Your title andreporting will remain unchanged until a new President and Chief ExecutiveOfficer is hired:  You will continue asPresident, Chief Executive Officer and Chairman of the Board, reportingdirectly to the Board of Directors. Until the new President and CEO is hired and actively assumes his/herduties, you will be expected to work full-time for the Company out of the NewHope, PA office (with appropriate travel as the Company’s business requires)and your duties will remain the same, with the addition of participating as amember of the Search Committee for a new President and CEO.  Once a new President and CEO is hired andactively assumes his/her duties, you will resign as President and CEO but youwill remain a Board member, retain the title of Chairman of the Board andcontinue as an employee of the Company. Your duties as a Chairman although non-executive in nature, will be topreside at all Board meetings.  Yourduties as an employee will be to actively participate in the transition of yourmanagement of the operations of the Company to the new President and CEO.  You will continue as Chairman of the Boardfor six months after a new President and CEO is hired.  The Company will also recommend and supportyour election as a member of the Board of Directors for at least years 2004 and2005.  The shareholders signing belowagree to vote the shares opposite their names for you as a Board member foryears 2004 and 2005.

 

If a newPresident/CEO is not hired within six months from the date of this Agreement,then you will have the option, upon written notice at that time to the Companyto terminate your

 

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employment sixty (60) dayshence, and the same will be deemed a termination for Good Reason.  You will receive all benefits accrued to thedate of termination and will be eligible to receive the bonuses under SectionIV(a), IV(b) and the stock options under Section III if the financing and/orsale of assets referred to in these sections occur within 12 months after youcease employment with the Company.

 

**II.****                                     Salaryand Benefits**

 

Your currentannual salary of $275,000 (less applicable withholding and deductions) andbenefits described in clauses (i) through (v) below, will remain in effectuntil the new President and CEO is hired. Thereafter, your annual salary will be increased to a rate of $290,000per year for a transition period lasting for at least the six months followingthe hiring and assumption of duties by the new President and CEO and for anylonger period the Board of Directors believes is necessary for your activeparticipation in the transition of your management of the operations of theCompany to the new President and CEO. You will also receive the benefits described below.  During the transition period, you willcontinue to be a salaried employee. Salary payments will be made on a semi-monthly basis in accordance withthe Company’s policies.  Bonuses, ifany, will be at the sole discretion of the Board of Directors except for theone-time bonuses referred to in Paragraph IV below.  Your expenses for Company-approved travel and similar items willbe reimbursed, subject to proper documentation.

 

The Companywill provide you with the following benefits while you are a salaried employee:

 

##### (i)                                     Vacation of 4weeks annually of which only one week can be carried into the following year;

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##### (ii)                                  Nine Companyholidays plus two discretionary “floating” days;

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##### (iii)                               Company-paidmedical and dental coverage for you and eligible dependents;

#####  

##### (iv)                              Salary deferralunder 401K plan (currently the Company does not make any contributions to the401K Plan); and

#####  

##### (v)                                 Other benefitsat the discretion of the Board and its Compensation Committee.

#####  

At the time ofyour termination as a salaried employee, you will receive severance paymentssubject to the terms set forth in Paragraph V below.

 

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**III.****                                 StockOptions**

 

You currentlyhold the following options for shares of Common Stock of the Company:

 

##### (i)                                     Options for750,000 shares granted on May 17, 2000, with an exercise price of $60 pershare;

#####  

##### (ii)                                  Options for300,000 shares granted on December 1, 2000, with an exercise price of $11 pershare; and

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##### (iii)                               Options for1,233,450 shares granted on November 12, 2002, with an exercise price of $1.08per share.

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The Companyagrees to grant you an additional new non-qualified option for 1,050,000 ofCommon Stock shares for a 10-year term at an exercise price of $1.08 pershare.  This option will fully vest atthe earlier of a Change of Control or at such time as you cease to be asalaried employee of the Company.

 

In addition,the option award under clause (iii) above shall be amended to fully vest at theearlier of a Change of Control or at such time as you cease to be a salariedemployee of the Company and shall be exercisable for 10 years from the newdate of vesting.

 

In addition,if the Company closes a financing transaction (or series of related financings)during the next 12 months, the Company will grant you an additionalnon-qualified option for 10 years, exercisable at the deal price of thenew financing.  This option will alsofully vest at the earlier of a Change of Control or such time as you cease tobe a salaried employee of the Company and shall remain exercisable for theremainder of the 10-year term.  Thenumber of shares covered by this option will be for an amount that, when addedto your current options (other than the options referred to in clauses (i) and(ii) above), will equal 6% of the Company’s outstanding common stock on a fullydiluted basis excluding in such computation the options covered by clauses (i)and (ii) above.

 

The optionagreements covering these new options will follow the format currently used bythe Company; and with terms consistent with this letter and any other termsmutually acceptable to the parties, which acceptance will not be unreasonablywithheld.

 

To the extentshareholder approval is required for the grant of the foregoing optionspursuant to newly adopted rules of NASDAQ, the Company will seek approval atits next shareholders’ meeting.  In thatevent, the Company will recommend approval by the shareholders and theshareholders noted below, constituting a majority of the outstanding shares ofthe Company, agree that they will support and vote for such approval.

 

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Within ninety(90) days of the close of the financing, an S-8 Registration will be filed bythe Company to cover options of all employees, including any new option grantsyou may receive before your employment with the Company ceases.  If legally required, the Company will alsofile an S-1 or S-3 Registration.

 

A “Change ofControl” shall occur when the Company is required to file a Form 8-K,Item 1 or the Company is required to disclose a change of control under anyother SEC form.

 

**IV.****                                SpecialIncentives**

 

## (a)                                  The Companywill pay you a one-time bonus of 75% of your annual salary at the closing of afinancing (or the first closing on a series of related financings) which occuras a result of the Company’s current efforts associated with its recentacquisition of certain Alliance imaging assets.

##  

## (b)                                 The Companywill pay you an additional one-time bonus at the closing of the sale of theCompany, including the sale of substantially all of its assets or the sale ofeither the Company’s imaging assets recently acquired from Alliance or any partthereof, or the Company’s PH-50 and/or N-1177 assets or any part thereof, ineither case, other than inventory in the ordinary course of business, in thefollowing amounts:

##  

### (i)                                     25% of yourannual salary for the sale of any such assets in the range of  $50 million to $65 million;

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### (ii)                                  50% of yourannual salary for the sale of any such assets in the range of more than $65million to $99 million; and

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### (iii)                               75% of yourannual salary for the sale of such assets in excess of $100 million.

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In valuing the sale price, assumed debt of the Company shall beincluded as part of the purchase price.

 

For purposesof this paragraph, the term “sale” includes a lease, license or similartransaction, whether for cash or other property, and if for property, valued atits fair market value.

 

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**V.****                                    Severance**

 

Youremployment as a salaried employee beyond six months (including 60 days hence,when applicable) after the new President and CEO is hired is at-will and can beterminated by you or the Company at any time with or without Cause.  If before or after a new President and CEOis hired the Company terminates you for any reason other than for Cause, theCompany will pay you severance equal to one year of your then-current salaryplus so much of the six months transition period (including 60 days hence, whenapplicable) that you have not been paid for (less applicable withholding anddeductions).  All severance paymentswill be paid on a semi-monthly basis by the Company in accordance with theCompany’s regular payroll schedule.  Ifbefore a new President and CEO is hired you terminate your employment withoutGood Reason or are terminated by the Company for Cause, the Company will notmake any severance payments.  “Cause”means:

 

##### (i)                                     A materialbreach of this Agreement by you where such breach, if curable, is not remediedto the Company’s reasonable satisfaction within 30 days after written notice toyou (and termination shall be effective as of the end of such 30-day period);or

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##### (ii)                                  Committing anact of fraud, embezzlement, theft or another act involving moral turpitude thatmaterially and adversely affects the Company (and termination shall beeffective upon written notice to you).

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“Good Reason”includes:  a material breach of thisAgreement by the Company where such breach, if curable, is not remedied to yourreasonable satisfaction within 30 days after written notice to the Company (andtermination shall be effective as of the end of such 30-day period) andtermination by you pursuant to the last paragraph of Section I of thisAgreement.

 

**VI.****                                OtherItems**

 

As promptly aspracticable after the date hereof and as a condition to this letter, theparties shall enter into commercially reasonable and otherwise standardagreements mutually acceptable to the parties, which acceptance will not beunreasonably withheld by either party, regarding the following, to the extentrequired:  indemnification, mutualreleases of claims, nondisclosure of confidential information, noncompetition,nondisparagement, business goodwill and similar provisions.

 

The Companywill pay your reasonable legal expenses for your counsel in connection with thenegotiation and preparation of this and its related agreements.

 

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As promptly aspracticable after the date hereof, the parties will prepare a press releasemutually acceptable to the Company (and its counsel) and you regarding the subjectmatter of this agreement and its related agreements and make a public releasethereof at a mutually acceptable time. A full disclosure of the management changes of the Company will be madeto all prospective and final investors in the Company’s contemplated financingat a time and in content mutually acceptable to the Company (and its counsel)and you (and your counsel).

 

Pleaseindicate your acceptance of the foregoing by signing below.

 
|   | Photogen Technologies, Inc. |
|--------|-----------------------------|
|   |                        |
|   |                        |
|   | By:                         |  /s/ Brooks Boveroux |
|   |                        | Brooks Boveroux |
|   |                        | Chief Financial Officer |
|        |                             |  |  |

 

 

Accepted and agreed to as ofJuly 23, 2003

 

 
| /s/ Taffy J. Williams    |   |
|--------------------------|--------|
| Taffy J. Williams, Ph.D. |

 

The following shareholders constituting a majority of the outstandingshares of the Company, agree to vote for you as a member of the Board for theyears 2004 and 2005 and to approve the new options referred to in Paragraph IIIabove.

 

 
| Robert J. Weinstein, M.D., individually and as General Partner of the  W.F. Investment Enterprises Limited Partnership, as Director of the Robert  and Lois Weinstein Family Foundation, Inc. and as Trustee of the Robert and  Lois Weinstein Joint Revocable Trust |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                 |
| Stuart Levine, individually and as General Partner of SL Investment  Enterprises, L.P. and as President of the Stuart and Sherri Levine Family  Foundation, Inc.                                                                                                     |
|                                                                                                                                                                                                                                                                 |
| Tannebaum, LLC                                                                                                                                                                                                                                                       |
| Mi3 L.P.                                                                                                                                                                                                                                                             |
| Oxford Bioscience Partners IV L.P.                                                                                                                                                                                                                                   |
| MRNA Fund II L.P.                                                                                                                                                                                                                                                    |

 

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