exv10w65



 





Exhibit
10.65




IDM PHARMA, INC.




EMPLOYMENT AGREEMENT



This Employment Agreement (this “Agreement”) is made and entered into effective as of
August 27th, 2007 by and among IDM Pharma Inc., a Delaware corporation (the “Company”) and
Jeffrey W. Sherman, M.D. (the “Executive”). The Company and the Executive are hereinafter
collectively referred to as the “Parties”, and individually referred to as a “Party”.




Recitals




     A. The Company desires assurance of the association and services of the Executive in order to
retain the Executive’s experience, skills, abilities, background and knowledge, and is willing to
engage the Executive’s services on the terms and conditions set forth in this Agreement.



     B. The Executive desires to be in the employ of the Company, and is willing to accept such
employment on the terms and conditions set forth in this Agreement.



Agreement




     In consideration of the foregoing Recitals and the mutual promises and covenants herein
contained, and for other good and valuable consideration, the Parties, intending to be legally
bound, agree as follows:



     1. Employment.



          1.1 Term. The Company hereby employs the Executive, and the Executive hereby accepts
employment by the Company, upon the terms and conditions set forth in this Agreement. The term of
this Agreement shall begin on the Effective Date and shall continue until it is terminated pursuant
to Section 4 herein (the “Term”).




          1.2 Title. The Executive shall have the title of Senior Vice President Research and
Development, Chief Medical Officer (“CMO”) of the Company and shall serve in such other capacity or
capacities as the Board of Directors of the Company (the “Board”) may from time to time prescribe.




          1.3 Duties. The Executive shall do and perform all services, acts or things necessary or
advisable to manage and conduct the business of the Company and which are normally associated with
the position of Senior Vice President Research and Development, Chief Medical Officer. The
Executive shall report to the President and Chief Executive Officer.




          1.4 Policies and Practices. The employment relationship between the Parties shall be governed
by the policies and practices established by the Company and the Board. The Executive will
acknowledge in writing that he has read the Company’s Employee Handbook that will govern the terms
and conditions of his employment with the Company, along with this Agreement. In the event that
the terms of this Agreement differ from or are in conflict with the Company’s policies or practices
or the Company’s Employee Handbook, this Agreement shall control.




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     2. Loyal and Conscientious Performance; Noncompetition.



          2.1 Loyalty. During the Executive’s employment by the Company, the Executive shall devote
Executive’s full business energies, interest, abilities and productive time to the proper and
efficient performance of Executive’s duties under this Agreement.




          2.2 Covenant not to Compete. During the term of this Agreement, and during any period in
which the Executive receives severance benefits from the Company, the Executive shall not engage in
competition with the Company and/or any of its controlled Affiliates (as defined below), either
directly or indirectly, in any manner or capacity, as adviser, principal, agent, affiliate,
promoter, partner, officer, director, employee, stockholder, owner, co-owner, consultant, or member
of any association or otherwise, in any phase of the business of developing, manufacturing and
marketing of products or services that are in the same field of use or which otherwise compete with
the products or services of the Company, except with the prior written consent of the Company’s
Board. For purposes of this Agreement, “Affiliate,” means, with respect to any specific entity,
any other entity that, directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common control with such specified entity. Ownership by the Executive,
in professionally managed funds over which the Executive does not have control or discretion in
investment decisions, or as a passive investment, of less than two percent (2%) of the outstanding
shares of capital stock of any corporation with one or more classes of its capital stock listed on
a national securities exchange or publicly traded on the Nasdaq Stock Market or in the
over-the-counter market shall not constitute a breach of this Section 2.2.




          2.3 Agreement not to Participate in Company’s Competitors. During the Term, the Executive
agrees not to acquire, assume or participate in, directly or indirectly, any position, investment
or interest known by Executive to be adverse or antagonistic to the Company, its business or
prospects, financial or otherwise or in any company, person or entity that is, directly or
indirectly, in competition with the business of the Company or any of its Affiliates. Ownership by
the Executive, in professionally managed funds over which the Executive does not have control or
discretion in investment decisions, or as a passive investment, of less than two percent (2%) of
the outstanding shares of capital stock of any corporation with one or more classes of its capital
stock listed on a national securities exchange or publicly traded on the Nasdaq Stock Market or in
the over-the-counter market shall not constitute a breach of this Section 2.3.




     3. Compensation of the Executive.



          3.1 Base Salary. The Company shall pay the Executive a base salary at the annualized rate of
three hundred thousand dollars ($300,000) per year (“Base Salary”), less payroll deductions and all
required withholdings, payable in regular periodic payments in accordance with the Company’s normal
payroll practices. Such base salary shall be prorated for any partial year of employment on the
basis of a 365-day fiscal year.




          3.2 Discretionary Bonus. Provided the Executive meets the conditions stated in this Section
3.2, the Executive shall be eligible for an annual discretionary bonus (“Bonus”) of up to a maximum
of thirty-five percent (35%) of his annual salary, based on the Board’s determination, in its sole
discretion, of whether the Executive has met such performance milestones as are established for the
Executive by the Board in consultation with the Executive (“Performance Milestones”). The
Performance Milestones will be based on certain factors




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including, but not limited to, the Executive’s performance and the Company’s financial performance. The Board will have the sole discretion
to award any Bonus, to determine the amount of any such Bonus, and to determine the timing of the
payment of any Bonus. The Executive must be employed on the date the Bonus is awarded to be
eligible for the Bonus. No pro-rata Bonus will be available.




          3.3 Stock Options. Subject to approval by the Board, to such shareholder approval as may be
required, and to the terms of the Company’s 2000 Stock Plan, as amended (the “Plan”), the
Executive shall be granted an option to purchase one hundred thousand (100,000) shares of the
Company’s common stock (the “Option”). The exercise price of the Option will be set at the closing
price of the Company’s common stock as quoted on the Nasdaq Global Market on the date of the grant.
The Option will vest daily in equal installments over a period of four (4) years from the
effective date of this Agreement for so long as the Executive provides Continuous Service (as
defined in the Plan) to the Company.




          3.4 Restricted Stock Award. Subject to approval by the Board and the terms of the Plan, the
Executive will be granted a stock award covering twenty thousand (20,000) shares of the Company’s
common stock (the “Stock Award”). Ten thousand (10,000) shares of the Stock Award shall vest on
the first anniversary of the effective date of this Agreement and the remaining ten thousand
(10,000) shares of the Stock Award shall vest on the second anniversary of the effective date of
this Agreement, provided in both instances that the Executive shall have provided Continuous
Service (as defined in the Plan) to the Company through the vesting date(s). The Stock Award
shares shall issue upon the earlier of i) the fifth anniversary of the grant date; or ii) the date
upon which the Executive’s employment by the Company terminates, subject to, in the case of either
termination by the Company of the Executive’s employment without “Cause” (as defined below) or
termination by the Executive of the Executive’s employment for “Good Reason” (as defined below),
the Executive’s delivery of a fully effective waiver and release as provided by Section 4.4.3 of
this Agreement in exchange for any acceleration of shares provided by Section 4.4.3 (iii) or (iv).




          3.5 Signing Bonus. The Executive shall receive a signing bonus of fifteen thousand Dollars
($15,000.00), less payroll deductions and required withholdings, in connection with his assumption
of the duties specified in this Agreement, said bonus to be paid within thirty (30) days of said
assumption of duties.




          3.6 Legal Review. Upon the Executive’s submission of appropriate itemized proof and
verification of reasonable and customary legal fees incurred by the Executive in obtaining legal
advice associated with review of this Agreement, the Company shall pay for such legal fees up to a
maximum of two thousand dollars ($2,000) subject to receipt of appropriate proof and verification
of such legal fees.




          3.7 Changes to Compensation. The Executive’s compensation may be changed from time to time by
mutual agreement of the Executive and the Company.




          3.8 Employment Taxes. All of the Executive’s compensation shall be subject to customary
withholding taxes and any other employment taxes as are commonly required to be collected or
withheld by the Company.




          3.9 Benefits. The Executive shall, in accordance with Company policy and the terms of the
applicable plan documents, be eligible to participate in benefits under any




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executive benefit plan or arrangement which may be in effect from time to time and made available to the Company’s
executive or key management employees, provided however, that the Executive shall be entitled to at
least four (4) weeks of paid vacation annually.




     4. Termination.



          4.1 Termination By the Company. The Executive’s employment with the Company may be terminated
under the following conditions:




                  4.1.1 Termination for Death or Disability. The Executive’s employment with the Company shall
terminate effective upon the date of the Executive’s death or “Complete Disability” (as defined in
Section 4.4.1), provided, however, that this Section 4.1.1 shall in no way limit the Company’s
obligations to provide such reasonable accommodations to Executive as may be required by law.



                  4.1.2 Termination by the Company For Cause. The Company may terminate the Executive’s
employment under this Agreement for “Cause” (as defined in Section 4.5.3) by delivery of written
notice to the Executive specifying the Cause or Causes relied upon for such termination, provided
that such notice is delivered within two (2) months following the occurrence of any event or events
constituting “Cause”. Any notice of termination given pursuant to this Section 4.1.2 shall effect
termination as of the date of the notice or such date as specified in the notice.



                  4.1.3 Termination by the Company Without Cause. The Company may terminate the Executive’s
employment under this Agreement at any time and for any reason, or no reason. Such termination
shall be effective on the date the Executive is so informed or as otherwise specified by the
Company.



          4.2 Termination By The Executive. The Executive may terminate his employment with the Company
at any time and for any reason or no reason, including, but not limited, under the following
conditions:




                  4.2.1 Good Reason. The Executive may terminate his employment under this Agreement for “Good
Reason” (as defined below in Section 4.5.2) by delivery of written notice to the Company specifying
the “Good Reason” relied upon by the Executive for such termination, provided that such notice is
delivered within two (2) months following the occurrence of any event or events constituting Good
Reason.



                  4.2.2 Without Good Reason. The Executive may terminate the Executive’s employment hereunder
for other than Good Reason upon thirty (30) days written notice to the Company.



          4.3 Termination by Mutual Agreement of the Parties. The Executive’s employment pursuant to
this Agreement may be terminated at any time upon a mutual agreement in writing of the Parties.
Any such termination of employment shall have the consequences specified in such agreement.




          4.4 Compensation Upon Termination.




                  4.4.1 Death or Complete Disability. If the Executive’s employment shall be terminated by
death or Complete Disability as provided in Section 4.1.1, the Company



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shall pay to the Executive, and/or Executive’s heirs, the Executive’s Base Salary and accrued and unused vacation benefits
earned through the date of termination at the rate in effect at the time of termination, less
standard deductions and withholdings, and the Company shall thereafter have no further obligations
to the Executive and/or Executive’s heirs under this Agreement, except to the extent that the
Executive and/or Executive’s heirs is/are eligible for benefits pursuant to any insurance policies
maintained by the Company in connection with his death or Complete Disability, and except as
otherwise provided by law.




                  4.4.2 With Cause or Without Good Reason. If the Executive’s employment shall be terminated by
the Company for Cause, or if the Executive terminates employment hereunder without Good Reason, the
Company shall pay the Executive’s Base Salary and accrued and unused vacation benefits earned
through the date of termination at the rate in effect at the time of termination, less standard
deductions and withholdings, and the Company shall thereafter have no further obligations to the
Executive under this Agreement, except as provided by law.



                  4.4.3 Without Cause or For Good Reason. If the Company terminates the Executive’s employment
without Cause or the Executive terminates his employment for Good Reason, the Company shall pay the
Executive’s Base Salary and accrued and unused vacation earned through the date of termination, at
the rate in effect at the time of termination subject to standard deductions and withholdings. In
addition, subject to the limitations stated in Section 4.4.5 herein and upon the Executive’s
furnishing to the Company an effective waiver and release of claims (a form of which is attached
hereto as Exhibit A), the Executive shall be entitled to:



                  (i) the equivalent of the Executive’s annual Base Salary in effect at the time of termination
for a period of six (6) months (the “Severance Period”), less standard deductions and withholdings,
to be paid over a period of six (6) months after the date of termination pursuant to the Company’s
standard payroll practices; and



                  (ii) in the event the Executive elects continued coverage under COBRA, the Company will
reimburse the Executive for the same portion of Executive’s COBRA health insurance premium as the
percentage of health insurance premiums that it paid during the Executive’s employment up until the
earlier of either (i) the last day of the Severance Period or, (ii) the date on which the Executive
begins full-time employment with another company or business entity which provides comparable
health insurance coverage to the Executive; provided, however, that



                  (iii) if such termination shall occur on or after the first anniversary of the effective date
of this Agreement, the Severance Period shall be increased to twelve (12) months for purposes of
calculating the benefits owed to the Executive pursuant to 4.4.3 (i) and (ii).



                  4.4.2 Equity Award Acceleration.



                  (i) Not in connection with a Change in Control. In the event that the Executive’s employment
is terminated without Cause or for Good Reason before the first anniversary of the effective date
of this Agreement, and such termination is not effected within the ninety (90) days
immediately preceding or the twelve (12) months immediately following a Change in Control, the
vesting of the Stock Award shall be accelerated such that twenty



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thousand (20,000) of the Stock Award shares shall be fully vested and immediately exercisable.




                  (ii) In connection with a Change in Control. In the event that the Executive’s employment is
terminated without Cause or for Good Reason within the ninety (90) days immediately preceding or
the twelve (12) months immediately following a Change in Control (as defined below) of the Company
which Change in Control is consummated after the first anniversary of the effective date of this
agreement, the vesting of the Option and the Stock Award shall be fully accelerated such that on
the effective date of such termination one hundred percent (100%) of the Option and Stock Award
shares shall be fully vested and immediately exercisable. Further, in the event that the
Executive’s employment is terminated without Cause or for Good Reason within the ninety (90) days
immediately preceding or the twelve (12) months immediately following a Change in Control of the
Company which Change in Control is consummated on or before the first anniversary of the effective
date of this Agreement, the vesting of the Option and Stock Award shall be accelerated such that on
the effective date of such termination fifty percent (50%) of the Option and Stock Award shares
that are unvested as of the effective date of such termination shall be fully vested and
immediately exercisable.



                  (iii) Release and waiver. Any acceleration pursuant to this Section 4.4.4 shall be
conditioned upon and subject to the Executive’s delivery to the Company of a fully effective
release as specified by Section 4.4.3 hereof and such acceleration shall be in addition to the
benefits provided by Section 4.4.3 hereof.



                  4.4.5 Conditions. Notwithstanding any provisions in this Agreement to the contrary, the
Company’s obligations and the Executive’s rights pursuant to Section 4.4.3 shall cease and be
rendered a nullity immediately should the Executive violate any provision of Section 2.2 herein, or
should the Executive violate the terms and conditions of the Executive’s Proprietary Information
and Inventions Agreement.



          4.5 Definitions. For purposes of this Agreement, the following terms shall have the following
meanings:




                  4.5.1 Complete Disability. “Complete Disability” shall mean the inability of the Executive to
perform the Executive’s duties under this Agreement, whether with or without reasonable
accommodation, because the Executive has become permanently disabled within the meaning of any
policy of disability income insurance covering employees of the Company then in force. In the
event the Company has no policy of disability income insurance covering employees of the Company in
force when the Executive becomes disabled, the term “Complete Disability” shall mean the inability
of the Executive to perform the Executive’s duties under this Agreement, whether with or without
reasonable accommodation, by reason of any incapacity, physical or mental, which the Board, based
upon medical advice or an opinion provided by a licensed physician acceptable to the Board,
determines to have incapacitated the Executive from satisfactorily performing all of the
Executive’s usual services for the Company, with or without reasonable accommodation, for a period
of at least one hundred twenty (120) days during any twelve (12) month period (whether or not
consecutive). Based upon such medical advice or opinion, the determination of the Board shall be
final and binding and the date such determination is made shall be the date of such Complete
Disability for purposes of this Agreement.



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                  4.5.2 Good Reason. “Good Reason” for the Executive to terminate the Executive’s employment
hereunder shall mean the occurrence of any of the following events without the Executive’s consent:



                  (i) a material reduction in the Executive’s duties, position, authority, or responsibilities
relative to the duties, position, authority, or responsibilities in effect immediately prior to
such reduction;



                  (ii) the relocation of the Company’s executive offices or principal business location to a
point more than thirty (30) miles from Irvine, California;



                  (iii) the relocation of the Executive’s principal place of business to a point more than
thirty (30) miles from the Irvine, California; or



                  (iv) a material reduction by the Company of the Executive’s base salary as initially set forth
herein or as the same may be increased from time to time, provided that if such reduction occurs in
connection with a Company-wide decrease in Executive salaries and the percent decrease in the
Executive’s base salary does not exceed the percent decrease in base salary of any other executive
of the Company such reduction will not constitute Good Reason to terminate Executive’s employment
for purposes of this Agreement.


Provided however that, such termination by the Executive shall only be deemed for Good Reason
pursuant to the foregoing definition if (i) the Company is given written notice from the Executive
within thirty (30) days following the first occurrence of the condition that you consider to
constitute Good Reason describing the condition and the Company fails to remedy such condition
within thirty (30) days following such written notice, and (ii) the Executive terminates employment
within thirty (30) days following the end of the period within which the Company was entitled to
remedy the condition constituting Good Reason but failed to do so.




                  4.5.3 Cause. “Cause” for the Company to terminate Executive’s employment hereunder shall mean
the occurrence of any of the following events, as determined reasonably and in good faith by the
Board or a committee designated by the Board:



                  (i) the Executive’s willful and habitual failure to attend to his duties as assigned by the
Board of Directors or officers of the Company to whom he reports;



                  (ii) misconduct by the Executive which materially and adversely reflects upon his ability to
perform his duties for the Company;



                  (iii) the Executive’s conviction of a felony involving moral turpitude that is likely to
inflict or has inflicted material injury on the business of the Company;



                  (iv) the Executive’s engaging or in any manner participating in any activity which violates
any provisions of Section 2 hereof or the Executive’s Proprietary Information and Inventions
Agreement with the Company; or



                  (v) the Executive’s commission of any fraud against the Company, its controlled Affiliates,
employees, agents or customers or use or intentional appropriation for his personal
use or benefit of any funds or properties of the Company not authorized by the Board to be so
used or appropriated.



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                  4.5.4 Change in Control. For purposes of this Agreement, “Change in Control” means: (i) a
sale of all or substantially all of the assets of the Company; (ii) a merger or consolidation in
which the Company is not the surviving entity and in which the holders of the Company’s outstanding
voting stock immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) of the voting power of the entity surviving
such transaction or, where the surviving entity is a wholly-owned subsidiary of another entity, the
surviving entity’s parent; (iii) a reverse merger in which the Company is the surviving entity but
the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of
the merger into other property, whether in the form of securities of the surviving entity’s parent,
cash or otherwise, and in which the holders of the Company’s outstanding voting stock immediately
prior to such transaction own, immediately after such transaction, securities representing less
than fifty percent (50%) of the voting power of the Company or, where the Company is a wholly-owned
subsidiary of another entity, the Company’s parent; or (iv) an acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the
Company or subsidiary of the Company or other entity controlled by the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least seventy five percent (75%) of
the combined voting power entitled to vote in the election of Directors; provided, however, that
nothing in this paragraph shall apply to a sale of assets, merger or other transaction effected
exclusively for the purpose of changing the domicile of the Company.



          4.6 Survival of Certain Sections. Sections 2.2, 4.4.5, 5, and 16 of this Agreement will
survive the termination of this Agreement.




          4.7 Parachute Payment. If any payment or benefit the Executive would receive pursuant to this
Agreement (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G
of the Internal Revenue Code (the “Code”), and (ii) but for this sentence, be subject to the excise
tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to
the Reduced Amount. The “Reduced Amount” shall be either (x) the largest portion of the Payment
that would result in no portion of the Payment being subject to the Excise Tax or (y) the largest
portion of the Payment, which such amount, after taking into account all applicable federal, state
and local employment taxes, income taxes, and the Excise Tax (all computed at the highest
applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the
greater amount of the Payment notwithstanding that all or some portion of the Payment may be
subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute
payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the
following order unless the Executive elects in writing a different order (provided, however, that
such election shall be subject to Company approval if made on or after the effective date of the
event that triggers the Payment): reduction of cash payments; cancellation of accelerated vesting
of stock awards; reduction of employee benefits. In the event that acceleration of vesting of
stock award compensation is to be reduced, such acceleration of vesting shall be cancelled in the
reverse order of the date of grant of the Executive’s stock awards unless the Executive elects in
writing a different order for cancellation.




     The accounting firm then engaged by the Company for general audit purposes shall perform the
foregoing calculations. The Company shall bear all expenses with respect to the determinations by
such accounting firm required to be made hereunder.



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     The accounting firm engaged to make the determinations hereunder shall provide its
calculations, together with detailed supporting documentation, to the Executive and the Company
within fifteen (15) calendar days after the date on which the Executive’s right to a Payment is
triggered (if requested at that time by the Executive or the Company) or such other time as
requested by the Executive or the Company. If the accounting firm determines that no Excise Tax is
payable with respect to a Payment, either before or after the application of the Reduced Amount, it
shall furnish the Executive and the Company with an opinion reasonably acceptable to the Executive
that no Excise Tax will be imposed with respect to such Payment. Any good faith determinations of
the accounting firm made hereunder shall be final, binding and conclusive upon the Executive and
the Company.



          4.8 Application of Internal Revenue Code Section 409A. Severance benefits paid pursuant to
Section 4 above, to the extent of payments made from the date of termination of the Executive’s
employment through March 14th of the calendar year following such termination, are intended to
constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations and
thus payable pursuant to the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the
Treasury Regulations; to the extent such payments are made following said March 14th, they are
intended to constitute separate payments for purposes of Section 1.409A-2(b)(2) of the Treasury
Regulations made upon an involuntary termination from service and payable pursuant to Section
1.409A-1(b)(9)(iii) of the Treasury Regulations, to the maximum extent permitted by said provision.
Notwithstanding the foregoing, if the Company determines that any other payments hereunder fail to
satisfy the distribution requirement of Section 409A(a)(2)(A) of the Internal Revenue Code of 1986,
as amended (the “Code”), the payment of such benefit shall be delayed to the minimum extent
necessary so that such payments are not subject to the provisions of Section 409A(a)(1) of the
Code.




          4.9 Indemnification Agreement. The Company and the Executive will enter into an
indemnification agreement in the Company’s standard form, a copy of which is attached hereto as
Exhibit B.





	 	 	5. Confidential And Proprietary Information.





          As a condition of employment the Executive agrees to execute and abide by the Company’s
standard form of proprietary information and inventions agreement.





	 	 	6. Assignment and Binding Effect.





          This Agreement shall be binding upon and inure to the benefit of the Executive and the
Executive’s heirs, executors, personal representatives, assigns, administrators and legal
representatives. Because of the unique and personal nature of the Executive’s duties under this
Agreement, neither this Agreement nor any rights or obligations under this Agreement shall be
assignable by the Executive. This Agreement shall be binding upon and inure to the benefit of the
Company and its successors, assigns and legal representatives. Any such successor of the Company
will be deemed substituted for the Company under the terms of this Agreement for all purposes. For
this purpose, “successor” means any
person, firm, corporation or other business entity which at any tie, whether by purchase,
merger or otherwise, directly or indirectly acquires all or substantially all of the assets or
business of the Company.




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	 	 	7. Notices.





          All notices or demands of any kind required or permitted to be given by the Company or the
Executive under this Agreement shall be given in writing and shall be personally delivered (and
receipted for) or faxed during normal business hours or mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:



If to the Company:



IDM Pharma Inc.

9 Parker

Suite 100

Irvine, California 92618

Attention: President & Chief Executive Officer



If to the Executive:



Jeffrey W. Sherman, M.D.

c/o IDM Pharma Inc.

9 Parker

Suite 100

Irvine, California 92618





     Any such written notice shall be deemed given on the earlier of the date on which such
notice is personally delivered or three (3) days after its deposit in the United States mail
as specified above. Either Party may change its address for notices by giving notice to the
other Party in the manner specified in this section.




	 	 	8. Choice of Law.





          This Agreement is made in the State of California. This Agreement shall be construed and
interpreted in accordance with the internal laws of the State of California.





	 	 	9. Integration.





          This Agreement, including Exhibit A, the Stock Option Agreement and the Plan, as well as the
Employee Handbook contains the complete, final and exclusive agreement of the Parties relating to
the terms and conditions of the Executive’s employment and the termination of Executive’s
employment, and supersedes all prior and contemporaneous oral and written employment agreements or
arrangements between the Parties.





	 	 	10. Amendment.





          This Agreement cannot be amended or modified except by a written agreement signed by the
Executive and the Company.





	 	 	11. Waiver.





          No term, covenant or condition of this Agreement or any breach thereof shall be deemed waived,
except with the written consent of the Party against whom the wavier is claimed, and any waiver or
any such term, covenant, condition or breach shall not be deemed to




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be a waiver of any preceding or succeeding breach of the same or any other term, covenant, condition or breach.





	 	 	12. Severability.





          The finding by a court of competent jurisdiction of the unenforceability, invalidity or
illegality of any provision of this Agreement shall not render any other provision of this
Agreement unenforceable, invalid or illegal. Such court shall have the authority to modify or
replace the invalid or unenforceable term or provision with a valid and enforceable term or
provision, which most accurately represents the Parties’ intention with respect to the invalid or
unenforceable term, or provision.





	 	 	13. Interpretation; Construction.





          The headings set forth in this Agreement are for convenience of reference only and shall not
be used in interpreting this Agreement. This Agreement has been drafted by legal counsel
representing the Company, but the Executive has been encouraged to consult with, and has consulted
with, Executive’s own independent counsel and tax advisors with respect to the terms of this
Agreement. The Parties acknowledge that each Party and its counsel has reviewed and revised, or
had an opportunity to review and revise, this Agreement, and any rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be employed in the
interpretation of this Agreement.





	 	 	14. Representations and Warranties.





          The Executive represents and warrants that Executive is not restricted or prohibited,
contractually or otherwise, from entering into and performing each of the terms and covenants
contained in this Agreement, and that Executive’s execution and performance of this Agreement will
not violate or breach any other agreements between the Executive and any other person or entity.





	 	 	15. Counterparts.





          This Agreement may be executed in two counterparts, each of which shall be deemed an original,
all of which together shall contribute one and the same instrument.





	 	 	16. Arbitration.





          To ensure the rapid and economical resolution of disputes that may arise in connection with
the Executive’s employment with the Company, the Executive and the Company agree that any and all
disputes, claims, or causes of action, in law or equity, arising from or relating to Executive’s
employment, or the termination of that employment, will be resolved, to the fullest extent
permitted by law, by final, binding and confidential arbitration in Orange County or San Diego
County, California conducted by the Judicial Arbitration and Mediation Services/Endispute, Inc.
(“JAMS”), or its successors, under the then current rules of JAMS for employment disputes; provided
that the arbitrator shall: (a) have the authority to compel adequate discovery for the resolution
of the dispute and to award such relief as would otherwise be permitted by law; and (b) issue a written arbitration
decision including the arbitrator’s essential findings and conclusions and a statement of the
award. Accordingly, the Executive and the Company hereby waive any right to a jury trial. Both
the Executive and the Company shall be entitled to all rights and remedies that either the
Executive or the Company




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would be entitled to pursue in a court of law. The Company shall pay any
JAMS filing fee and shall pay the arbitrator’s fee. Nothing in this Agreement is intended to
prevent either the Executive or the Company from obtaining injunctive relief in court to prevent
irreparable harm pending the conclusion of any such arbitration. Notwithstanding the foregoing,
the Executive and the Company each have the right to resolve any issue or dispute involving
confidential, proprietary or trade secret information, or intellectual property rights, by Court
action instead of arbitration.





	 	 	17. Trade Secrets Of Others.





          It is the understanding of both the Company and the Executive that the Executive shall not
divulge to the Company and/or its subsidiaries any confidential information or trade secrets
belonging to others, including the Executive’s former employers, nor shall the Company and/or its
Affiliates seek to elicit from the Executive any such information. Consistent with the foregoing,
the Executive shall not provide to the Company and/or its Affiliates, and the Company and/or its
Affiliates shall not request, any documents or copies of documents containing such information.





	 	 	18. Advertising Waiver.





          For so long as he remains employed, the Executive agrees to permit the Company, and persons or
other organizations authorized by the Company to use, publish and distribute advertising or sales
promotional literature concerning the products and/or services of the Company, or the machinery and
equipment used in the provision thereof, in which the Executive’s name and/or pictures of the
Executive taken in the course of the Executive’s provision of services to the Company appear. The
Executive hereby waives and releases any claim or right the Executive may otherwise have arising
out of such use, publication or distribution.




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     In
Witness
Whereof, the Parties have executed this Agreement as of the date first above written.



IDM
Pharma
Inc.




	 	 	 	 	 
	By: 

Its:

	 	/s/ Timothy P. Walbert
 

President and Chief Executive Officer
	 	 
	Dated:

	 	August 27, 2007	 	 






	 	 	 
	Executive:
	 	 
	 
	 	 
	/s/ Jeffrey W. Sherman, M.D.
 

JEFFREY W. SHERMAN, M.D.

	 	 
	Dated: August 27, 2007
	 	 







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