**Exhibit10.89**

 

**EMPLOYMENT AGREEMENT**

 

THIS AGREEMENT is made by and betweenSynbiotics Corporation, a California corporation (“EMPLOYER”) and Paul Richard Hays (“EMPLOYEE”) effective as of December 30, 2002. 

 

**RECITALS:**

 

WHEREAS, EMPLOYER and EMPLOYEE wish to set forth in this Agreement the terms and conditions under which EMPLOYEE is to be employed byEMPLOYER. 

 

NOW, THEREFORE, EMPLOYER and EMPLOYEE,in consideration of the mutual promises set forth herein, agree as follows: 

 

**ARTICLE 1**

 

**TERM OF AGREEMENT**

 

1.1    Term. The term of this Agreement shall commence on the date first written above and shall continue until terminated pursuant to Article 6. 

 

**ARTICLE 2**

 

**EMPLOYMENT DUTIES**

 

2.1    Title/Responsibilities. EMPLOYEE shall serve as an employee of EMPLOYER andhold the position of President of EMPLOYER, having the powers and responsibilities consistent with such position and reporting to EMPLOYER’s Board of Directors, all subject to ultimate direction and management of EMPLOYER’s Board ofDirectors. EMPLOYEE shall also perform all duties that from time to time are assigned to him by EMPLOYER’s Board of Directors, and shall provide the Board with periodic reports upon request. EMPLOYEE’s Job location shall be San Diego, CA.

 

2.2    Full TimeAttention. EMPLOYEE shall perform his duties hereunder in a diligent and professional manner and devote substantially all of his business time and attention, best efforts, energy and skills to EMPLOYER during the time he is employed hereunder asPresident of EMPLOYER. During the term of this Agreement EMPLOYEE shall not without the express consent of EMPLOYER’s Board of Directors serve or act as a shareholder (except passive holdings of less than 1 % of the stock), employee, agent,consultant, officer, director, partner, representative or owner of any other business entity, nor (if it would require more than an insubstantial amount of business time or attention) of any non-profit entity. 

 

2.3    Compliance with Rules.EMPLOYEE shall comply with all applicable governmental laws, rules and regulations and with all of EMPLOYER’s policies, rules and/or regulations applicable to all employees of EMPLOYER. 

 

**ARTICLE 3**

 

**COMPENSATION**

 

3.1    Base Salary. EMPLOYER shallpay semi-monthly to EMPLOYEE a salary of $250,000 per annum until such time or times as it may discretionarily be raised (but not lowered) upon annual performance/salary review by EMPLOYER’s Board (upon recommendation of its CompensationCommittee). 

 

3.2    Additional Compensation (Stock Option). In addition to the salary provided in Section 3.1, once Employee has relocated to the San Diego area, EMPLOYER shall grant to EMPLOYEE as additionalcompensation for EMPLOYEE’s services (but not for any capital-raising purposes or in connection with any capital-raising activities), a non-qualified stock option to purchase 

 

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1,600,000 shares of EMPLOYER Common Stock under EMPLOYER’s 1995 Stock Option/Stock Issuance Plan, with an exercise price equal to $.08such option to vest in sixteen (16) equal quarterly installments or upon sale of Employer. In addition on each of the first three anniversary dates of this Agreement Employer shall grant to Employee options to purchase an additional 400,000 sharesof Common Stock with an exercise price equal to the fair market value on the date of grant, to vest in sixteen (16) equal quarterly installments or upon sale of Employer. 

 

3.3    Performance Bonus. In addition to the salary provided in Section 3.1,Employer shall pay Employee a Performance Bonus based on the audited financial results of Employer for the calendar years 2003, 2004 and 2005. The amount of the Performance shall be calculated as follows; four percent (4.0%) of the first $1,000,000of EBITDA in excess of $2,000,000 plus six percent (6.0%) of EBITDA in excess of $3,000,000. The Performance Bonus shall be paid within ten days of completion of Employers audited year-end report. EBITDA is defined as earnings before; interest,income taxes, depreciation, amortization and any settlements/awards resulting from existing litigation. 

 

**ARTICLE 4**

 

4.1    Fringe Benefits. EMPLOYEE shall be entitled during the term of his employment under this Agreement to all other fringe benefits made available from time to time byEMPLOYER to its executives generally and/or its employees generally, including without limitation participation in EMPLOYER’s 401 (k) plan and group health insurance plan. 

 

4.2    Expenses. EMPLOYER shall reimburse EMPLOYEE, not less often than monthly,for reasonable out-of-pocket business expenses incurred by EMPLOYEE in the course of his duties hereunder upon submission by EMPLOYEE of appropriate expense account reports and substantiating receipts. 

 

4.3    Vacation. EMPLOYEE shall beentitled to four (4) weeks paid vacation per full year of service, in accordance with and subject to EMPLOYER’s vacation accrual plan and policies. EMPLOYEE acknowledges the “cap” on vacation accruals set forth in such plan andpolicies. 

 

4.4    Relocation. EMPLOYER shall reimburse EMPLOYEE a maximum total of $85,000 for the following expenses associated with the relocation of Employee; moving service, packing/unpacking, real estate closingcosts/real estate commissions including any income tax liability associated therewith, and commutes to and from Missouri. 

 

In addition, Employer shall provide Employee a two-bedroom condo in San Diego for up to six months from the date of this Agreement.

 

**ARTICLE 5**

 

**FORMER EMPLOYMENT**

 

5.1    No Conflict. EMPLOYEErepresents and warrants that the execution and delivery by him of this Agreement, his employment by EMPLOYER and his performance of duties under this Agreement will not conflict with and will not be constrained by any prior employment or consultingagreement or relationship, or any other contractual obligation. 

 

5.2    No Use of Prior Confidential Information. EMPLOYEE will not intentionally disclose to EMPLOYER or use on its behalf any confidential information belonging to any of his former employers, but duringhis employment by EMPLOYER he will use in the performance of his duties all information (but only such information) which is generally known and used by persons with training and experience comparable to his own or is common knowledge in theindustry or otherwise legally in the public domain. 

 

**TERMINATION**

 

6.1    Term. This Agreement (including EMPLOYEE’S employment) shall continue until terminated by either EMPLOYER or EMPLOYEE. Such termination (including termination of EMPLOYEE’s employment)shall be effected by written notification and may be effected at any time, with or without Cause, for any reason or no reason. Notwithstanding, this Agreement shall terminate on December 30, 2005 if not terminated earlier as provided above.

 

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6.2    Severance. If this Agreement and/or EMPLOYEE’s employment is terminated as a result of Cause, EMPLOYEE shall be entitled to no severance pay. If this Agreement and/or EMPLOYEE’s employmentis terminated other than for Cause, EMPLOYEE shall be entitled to twelve (12) months’ severance pay if terminated during the first eighteen months of this Agreement and six (6) months’ severance pay if terminated during the second eighteenmonths of this Agreement. However, if this Agreement and/or EMPLOYEE’S employment is terminated other than for Cause and as a result of a change of control of Employer, then the Employee shall be entitled to twelve months severance pay.

 

“Cause” shall be defined to mean:

 

(a)    Death; 

 

(b)    Voluntary resignation (other thanbecause of a material breach by EMPLOYER of its obligations under this Agreement, or reassignment of EMPLOYEE to a location outside of San Diego County); 

 

(c)    EMPLOYEE’s repudiation of this Agreement; 

 

(d)    Permanent disability (defined as EMPLOYEE’s inability to perform, with orwithout reasonable accommodation, the essential functions of his position for any 50 business days—exclusive of vacation days taken—within any continuous period of 200 days by reason of physical or mental illness or incapacity);

 

(e)    EMPLOYEE beingformally charged with the commission of a felony, or being convicted of a misdemeanor involving moral turpitude; 

 

(f)    EMPLOYEE’s demonstrable fraud or dishonesty; 

 

(g)    EMPLOYEE’s use of alcohol, drugs or any illegal substance in such a manner asto interfere with the performance of his duties under this Agreement; 

 

(h)    EMPLOYEE’s intentional, reckless or grossly negligent action materially detrimental to the best interest of the EMPLOYER, including any misappropriation or unauthorized use of EMPLOYER’sproperty or improper use or disclosure of confidential information (but excluding any good faith exercise of business judgment); 

 

(i)    EMPLOYEE’s intentional failure to perform material duties under this Agreement if such failure hascontinued for 15 days after EMPLOYEE has been notified in writing by EMPLOYER of the nature of EMPLOYEE’s failure to perform; 

 

(j)    EMPLOYEE’s chronic absence from work for reasons other than illness or permitted vacation; 

 

or 

 

(k)    EMPLOYEE’s violation of policies in EMPLOYER’s official EmployeeHandbook, as it may be amended from time to time. 

 

Termination for Cause shall be without prejudice to any other right or remedy to which EMPLOYER may be entitled at law, in equity, or under this Agreement. 

 

**ARTICLE 7**

 

**ARBITRATION**

 

7.1    Final and Binding Arbitration. Any controversy, claim or dispute between(a) a party to this Agreement, on the one hand, and (b) the other party to this Agreement and/or such second party’s parents, subsidiaries or affiliates and/or any of their directors, officers, employees, agents, successors, assigns, heirs,executors, administrators, or legal representatives, on the other hand, arising out of, in connection with, or in relation to (t) the interpretation, validity, performance or breach of this Agreement, (u) EMPLOYEE’s stock options and theunderlying shares, (v) EMPLOYEE’s employment by EMPLOYER, (w) any termination of such employment, (x) any actions during or with respect to EMPLOYEE’s work for EMPLOYER, (y) any claims for breach of contract, tort, 

 

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or breach of the covenant of good faith and fair dealing, or (z) any claims of discrimination or other claims under any federal, state orlocal law or regulation now in existence or hereinafter enacted and as amended from time to time concerning in any way the subject of EMPLOYEE’s employment with EMPLOYER or its termination, shall, at the request of either party, be resolved tothe exclusion of a court of law by binding arbitration in San Diego, California, in accordance with Exhibit A hereto. Each of EMPLOYEE and EMPLOYER understands and agrees that the arbitration shall be instead of any civil litigation and that thearbitrator’s decision shall be final and binding to the fullest extent permitted by law and enforceable by any court having jurisdiction thereof. The only claims not covered by this Section 7.1 are claims for benefits under the workers’compensation laws, claims for unemployment insurance benefits, and matters within the jurisdiction of the California Labor Commissioner, which will be resolved pursuant to those laws. 

 

**ARTICLE 8**

 

**GENERAL PROVISIONS**

 

8.1    Governing Law. This Agreement and the rights of the parties thereundershall be governed by and interpreted under California law. 

 

8.2    Assignment. EMPLOYEE may not delegate, assign, pledge or encumber his rights or obligations under this Agreement or any part thereof. 

 

8.3    Notice. Any notice required or permitted to be given under this Agreementshall be sufficient if it is in writing and is sent by registered or certified mail, postage prepaid, or personally delivered, to the following addresses, or to such other addresses as either party shall specify by giving notice under this section:

 

TO EMPLOYER:
  
Synbiotics Corporation
   
Attn: Board of Directors
   
11011 Via Frontera
   
San Diego, CA 92127

Copy to:
  
Hayden J. Trubitt
   
Brobeck, Phleger & Harrison LLP
   
12390 El Camino Real
   
San Diego, CA 92130

TO EMPLOYEE:
  
Paul Richard Hays
   
C/o Synbiotics Corporation
   
11011 Via Frontera
   
San Diego, CA 92127

 

8.4    Amendment. This Agreement may be waived, amended or supplemented only by an express writing signed by both of the parties hereto. To be valid, EMPLOYER’S signature must be by a person speciallyauthorized by EMPLOYER’S Board of Directors to sign such particular document. 

 

8.5    Waiver. No waiver of any provision of this Agreement shall be binding unless and until set forth expressly in writing and signed by the waiving party. To be valid,EMPLOYER’S signature must be by a person specially authorized by EMPLOYER’S Board of Directors to sign such particular document. The waiver by either party of a breach of any provision of this Agreement shall not operate or be construed asa waiver of any preceding or succeeding breach of the same or any other term or provision, or a waiver of any contemporaneous breach of any other term or provision, or a continuing waiver of the same or any other term or provision. No failure ordelay by a party in exercising any right, power, or privilege hereunder or other conduct by a party shall operate as a waiver thereof, in the particular case or in any past or future case, and no single or partial exercise thereof shall preclude thefull exercise or further exercise of any right, power, or privilege. No action taken pursuant to this Agreement shall be deemed to constitute a waiver by the party taking such action of compliance with any representations, warranties, covenants oragreements contained herein. 

 

8.6    Severability. All provisions contained herein are severable and in the event that any of them shall be held to be to any extent invalid or otherwise unenforceable by any court of competentjurisdiction, such provision shall be construed as if It were 

 

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written so as to effectuate to the greatest possible extent the parties’ expressed intent; and in every case the remainder of thisAgreement shall not be affected thereby and shall remain valid and enforceable, as if such affected provision were not contained herein. 

 

8.7  Headings. Article and section headings are inserted herein for convenience of reference only and in no way are to beconstrued to define, limit or affect the construction or interpretation of the terms of this Agreement. 

 

8.8    Drafting Party. The provisions of this Agreement have been prepared, examined, negotiated and revised byeach party hereto, and no implication shall be drawn and no provision shall be construed against either party by virtue of the purported identity of the drafter of this Agreement, or any portion thereof. 

 

8.9    No Outside Representations.No representation, warranty, condition, promise, understanding or agreement of any kind with respect to the subject matter hereof has been made by either party, nor shall any such be relied upon by either party, except those contained herein. Therewere no inducements to enter into this Agreement, except for what is expressly set forth in this Agreement. 

 

8.10    Entire Agreement. This Agreement, together with EMPLOYER’s standard Proprietary Information andInventions Agreement, constitutes the entire agreement between the parties pertaining to the subject matter hereof and completely supersedes all prior or contemporaneous agreements, understandings, arrangements, commitments, negotiations anddiscussions of the parties, whether oral or written (all of which shall have no substantive significance or evidentiary effect). Each party acknowledges, represents and warrants that he or it has not relied on any representation, agreement,understanding, arrangement or commitment which has not been expressly set forth in this Agreement. Each party acknowledges, represents and warrants that this Agreement is fully integrated and not in need of parol evidence in order to reflect theintentions of the parties. The parties specifically intend that the literal words of this Agreement shall, alone, conclusively determine all questions concerning the parties’ intent. 

 

IN WITNESS WHEREOF, the parties have executed and delivered this Employment Agreement in San Diego,California as of the date first written above. 

 

 

SYNBIOTICS CORPORATION

/s/    CHRISTOPHER P.HENDY

Christopher P. Hendy, Director

 
 
/s/    PAUL RICHARDHAYS    

Paul Richard Hays

 

Attachment:Exhibit A (Arbitration Procedures) 

 

 

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**EXHIBIT A**

 

**ARBITRATION PROCEDURES**

 

1.    Agreement toArbitrate

 

In the event that there is anydispute relating to, regarding or arising in connection with EMPLOYEE’s employment with EMPLOYER which cannot be resolved through direct discussion or mediation, regardless of the kind or type of dispute (excluding claims for workers’compensation, unemployment insurance or any matters within the jurisdiction of the California Labor Commissioner), all such disputes shall be submitted exclusively to final and binding arbitration pursuant to the provisions of the FederalArbitration Act or, if inapplicable, the Uniform Arbitration Act (California Code of Civil Procedure § 1280 et seq.), upon request submitted in writing to the President within one year from the date the dispute first arose, or within one yearof the date of termination of employment, whichever occurs first. This procedure shall be the exclusive method for resolving all claims relating to the termination of EMPLOYEE’s employment, including but not limited to any alleged violations offederal, state and/or local statutes; all claims based upon any purported breach of duty arising in contract or tort, including but not limited to breach of contract, breach of the covenant of good faith and fair dealing, or violation of publicpolicy; and any other alleged violation of an employee’s statutory, contractual or common law rights. 

 

Any failure to request arbitration in accordance with the foregoing provisions shall constitute a waiver of all rights to raise or presentany claims in any form, in any forum, arising out of any dispute that was subject to arbitration. 

 

2.    Selection of Arbitrator

 

All disputes subject to arbitration will be resolved by a single arbitrator selected from a list provided bythe California Mediation and Conciliation Service from its Employment Arbitration Panel. The parties shall select the arbitrator by alternately striking names from the list, and the last name remaining on the list shall be the arbitrator selected toresolve the dispute. The arbitrator must be selected within thirty (30) days of receipt of the written request for arbitration. The arbitration hearing shall be held in San Diego, California, at a neutral location selected by the parties or, in theevent the parties are unable to agree, at a location designated by the arbitrator. 

 

3.    Authority of Arbitrator

 

The arbitrator shall only be authorized to exercise the powers specifically enumerated by this procedure and to decide the dispute inaccordance with governing principles of law and equity. The arbitrator shall have no authority to modify the powers granted by the terms of this procedure or to modify the terms of the employee handbook, except as required by law. The arbitratorshall have the authority to rule on motions by the parties, to issue protective orders upon motion of any party or third party, and to determine only the disputes submitted by the parties based upon the grounds presented. Any dispute or argument notpresented by the parties is outside the scope of the arbitrator’s jurisdiction and any award invoking such disputes or arguments is subject to a motion to vacate; provided, however, the arbitrator shall have exclusive authority to resolve anydispute relating to the validity, interpretation and enforcement of these arbitration procedures. 

 

4.    Discovery

 

The arbitrator shall have the power, in addition to determining the merits of the dispute submitted, to permit discovery regarding thesubject matter of arbitration and to enforce the rights, remedies, procedures, duties, liabilities and obligations of discovery by the imposition of the same terms, conditions, consequences, liabilities, sanctions and penalties as may be imposed inlike circumstances by a Superior Court under the California Code of Civil Procedure. All discovery must be completed thirty (30) days prior to the date set for the arbitration hearing. 

 

5.    Hearing Procedure

 

The issue(s) submitted to the arbitrator must be set forth inthe request for arbitration. The arbitrator shall have no authority to frame the statement of the issue(s). Unless otherwise agreed by the parties, the arbitration hearing shall be governed by the formal rules of evidence contained in the CaliforniaEvidence Code. The parties shall mutually agree on the number of days required for hearing. The hearing shall be recorded and transcribed verbatim by a certified shorthand reporter. Each party shall bear 

 

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its own costs with respect to a copy of the transcript of the hearing; however, the parties shall each be responsible for one-half the costof the court reporters fee and the arbitrator’s copy of the hearing transcript. 

 

6.    Post-Hearing Procedure

 

Each party shall have the right to present closing argument at the conclusion of all sworn testimony and, in addition to or in lieu ofclosing argument, either party shall have the right to submit post-hearing briefs. The due date and procedure for exchanging post-hearing briefs shall be mutually agreed upon by the parties or as directed by the arbitrator. 

 

7.    Opinion and Award

 

The arbitrator shall issue a written opinion andaward within sixty (60) days of closing arguments or the receipt of post-hearing briefs, whichever is later. The arbitration award and opinion shall be signed and dated by the arbitrator and shall decide all issues submitted and set forth the legalprinciples supporting each aspect of the opinion and award. The arbitrator shall only be permitted to award those remedies in law or equity which are requested by the parties and which are supported by the credible, relevant evidence. The arbitratorshall have no authority to award punitive or exemplary damages under any circumstances or for any reason. 

 

8.    Fees and Costs

 

Each party shall be responsible for its own attorney’s fees, except as provided by law, and for all costs associated with discoveryunless otherwise ordered by the arbitrator. Each party shall also be responsible for one-half of the arbitrator’s fee and one half of any costs associated with the facilities for the arbitration hearing. 

 

9.    Severability

 

In the event that any provision of this procedure isdetermined by the arbitrator or by a court of competent jurisdiction to be illegal, invalid, or unenforceable to any extent, such term or provision shall be enforced to the extent permissible under law and all remaining terms and provisions hereofshall continue in full force and effect. 

 

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