EXHIBIT 10.21


 


 


DIGIRAD
CORPORATION


 


 


June 11, 2002


 


David M. Sheehan

Co-Chief Executive Officer


Digirad Corporation

9350 Trade Place


San Diego, CA  92126-6334


 


Dear Mr. Sheehan:


 


The
purpose of this letter is to describe the terms and conditions pursuant to
which you and certain other members of senior management of Digirad Corporation
(the “Company”) will be compensated in connection with your continued
employment with the Company and/or its wholly-owned subsidiary, Digirad Imaging
Solutions, Inc. (“DIS”).


 


1.             Cash
Bonus Awards.


 


a.             Payment
of Cash Bonus.  In the event that
you have continued in Service (as hereinafter defined) to the Company and/or
DIS on each of June 17, 2002, September 30, 2002 and December 31, 2002 (each
date, a “Cash Bonus Eligibility Date”), you will be entitled to be paid a cash
bonus in the amount of Twenty-Five Thousand Dollars ($25,000) (the “Cash
Bonus”) on each of June 17, 2002, October 15, 2002 and January 15, 2003,
respectively (each date, a “Cash Bonus Payment Date”).  As used herein, the term “Service” shall
mean the continuous provision of services to the Company and/or DIS by you in
the capacity of an employee, a non-employee member of the board of directors, a
consultant or an independent advisor.


 


b.             Eligibility
for Cash Bonus.  Should your Service
terminate before any Cash Bonus Eligibility Date by reason of (i) your
voluntary resignation or (ii) a Termination for Cause (as hereinafter defined),
you will not be entitled to receive any further Cash Bonus on any future Cash
Bonus Payment Date pursuant this paragraph 1. 
Should your Service terminate before any Cash Bonus Eligibility Date for
any reason other than (i) your voluntary resignation or (ii) a Termination for
Cause, you will still be entitled to receive a Cash Bonus on each remaining
Cash Bonus Payment Date.  Should the
Company consummate an Acquisition (as hereinafter defined) on or before any
Cash Bonus Eligibility Date, you will not be entitled to receive any further
Cash Bonus on any future Cash Bonus Payment Date pursuant to this paragraph 1.


 

















 


c.             Termination
for Cause.  As used herein,
“Termination for Cause” shall mean the termination of your Service for one or
more of the following reasons:  (i) your
commission of any act of fraud, embezzlement or dishonesty, (ii) your willful
and material misappropriation of the assets of the Company and/or DIS or (iii)
any other intentional misconduct on your part adversely affecting the business
or affairs of the Company and/or DIS in a material manner.  The foregoing definition will not in any way
preclude or restrict the right of the Company and/or DIS to discharge or
dismiss you for any reason, provided, however, that such reasons will not be
deemed, for purposes of this letter agreement, to constitute grounds for Termination
for Cause.


 


2.             Acquisition
Bonus Awards.


 


a.             Payment
of Acquisition Bonus.  In the event
that at any time on or before June 30, 2004, the Company receives Acquisition
Proceeds (as hereinafter defined) in connection with the consummation by the
Company of one or more Acquisitions (as hereinafter defined), you, John
Dahldorf and other members of senior management (as determined by you and John
Dahldorf in your discretion, with the consent and approval of the Compensation
Committee of the Board of Directors) will be entitled to receive an aggregate
bonus (the “Acquisition Bonus”) in connection with the Company’s receipt of
Acquisition Proceeds.  The aggregate
amount of the Acquisition Bonus to be paid to you, Mr. Dahldorf and other
members of senior management shall be a single amount (i) not less than Four
Hundred Thousand Dollars ($400,000) and (ii) not greater than that amount which
is ten percent (10%) of any Acquisition Proceeds received by the Company in
excess of Thirty Million Dollars ($30,000,000).  Any Acquisition Bonus paid may be distributed among you, Mr.
Dahldorf and the other members of senior management in the discretion of you
and Mr. Dahldorf, with the consent and approval of the Compensation Committee
of the Board of Directors.


 


b.             Eligibility
for Acquisition Bonus.  You and any
member of senior management will only be entitled to receive a portion of any
Acquisition Bonus awarded pursuant to this paragraph 3 if you and/or any such
member of senior management have continued in Service through the effective
closing date of such Acquisition. 
Should your Service terminate before the effective closing date of a
transaction constituting an Acquisition by reason of (i) your voluntary
resignation or (ii) a Termination for Cause (as previously defined), you will
not be entitled to receive any Acquisition Bonus in connection with the
respective Acquisition pursuant to this paragraph 3.  In the event that, during the sixty (60) day period prior to the
effective closing date of an Acquisition, your Service should terminate for any
reason other than (i) your voluntary resignation or (ii) a Termination for
Cause, you will still be entitled to receive the Acquisition Bonus to be paid
in connection with the consummation of the respective Acquisition; provided,
however, that you will not be entitled to receive any portion of an Acquisition
Bonus which may be distributed in connection with any future Acquisition which
is consummated on or before June 30, 2004.


 


c.             Form
of Acquisition Bonus.  Any
Acquisition Bonus awarded pursuant to this paragraph 3 will be paid to you and
any members of senior management in the same form and upon the same date as
Acquisition Proceeds are paid to the Company and/or DIS or to the holders of
the outstanding securities of the Company and/or DIS, as the case may be.


 


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d.             Definitions.


 


(i)            “Acquisition”
shall mean any of the following transactions pursuant to which assets or
securities of the Company and/or DIS are acquired for consideration paid in
cash, securities or other property:


 


(a)           a merger, consolidation or other
similar transaction approved by the stockholders of the Company and/or DIS, as
the case may be, unless securities representing more than fifty percent (50%)
of the total combined voting power of the voting securities of the successor
corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the outstanding voting securities of the Company and/or DIS,
as the case may be, immediately prior to such transaction, or


 


(b)           the sale, transfer or other
disposition of all or substantially all of the property or assets of the
Company and/or DIS, as the case may be (including, without limitation, the
sale, transfer or other disposition of all or substantially all of the
Company’s assets used in the design, manufacture and sale of digital gamma
cameras); provided, however, that the foregoing definition shall not apply to the
sale by the Company of its goods (including, without limitation, its digital
gamma cameras) in the ordinary course of business, or


 


(c)           the direct sale by the stockholders
of the Company and/or DIS, as the case may be, of securities possessing more
than fifty percent (50%) of the total combined voting power of the outstanding
securities of the Company or DIS, as the case may be (except in connection with
capital raising transactions), to a person or persons different from the
persons holding those securities immediately prior to such sale.


 


(ii)           “Acquisition
Proceeds” shall mean the following items of consideration (in cash, securities
or other property) paid by the acquiring person or persons in effecting the
Acquisition:


 


(a)           for an Acquisition effected by a
merger, consolidation, or other similar transaction or by the direct purchase
of the outstanding securities of the Company and/or DIS, as the case may be,
the aggregate amount of consideration (valued at fair market value) paid to the
holders of the outstanding securities of the Company and/or DIS, as the case
may be, in acquisition of their stockholder interests, or


 


(b)           for an Acquisition effected by the
purchase of all or a material portion of the assets of the Company and/or DIS,
the portion of the consideration (valued at fair market value) paid to the
Company for those assets.


 


3.             Performance
Bonus Awards.


 


a.             Payment
of Performance Bonus.  Provided that
you have continued in Service to the Company and/or DIS on and through
December 31, 2002, you will be entitled to be paid a cash bonus (the
“Performance Bonus”), in an amount representing a certain percentage


 


 


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of base salary and determined based upon the Company’s
receiving (a) certain amounts of “revenue” during the year ended December 31,
2002 (as indicated below), and (b) certain amounts of “cashflow” during the
third and fourth quarters for the year ended December 31, 2002 (as indicated
below), such amounts of cash flow not to be increased by expanded borrowing or
extended accounts payable outside of the ordinary course of the Company’s
business:


Revenue Achieved
(FY’2002)                            Amount
of Performance Bonus




90% of $38.66MM                                            (45%
of base salary) times 0.5


100% of $38.66MM                                          (50%
of base salary) times 0.5


105% of $38.66MM                                          (62.5%
of base salary) times 0.5


110% of $38.66MM                                          (75%
of base salary) times 0.5


120% of $38.66MM                                          (87.5%
of base salary) times 0.5


125% of $38.66MM                                          (112.5%
of base salary) times 0.5


130% of $38.66MM                                          (125%
of base salary) times 0.5


 


Cashflow Achieved (Q3 -
Q4)                            Amount
of Performance Bonus


 


                $(3.2)MM                                              (45%
of base salary) times 0.5


                $(2.8)MM                                              (50%
of base salary) times 0.5


                $(2.2)MM                                              (62.5%
of base salary) times 0.5


                $(1.5)MM                                              (75%
of base salary) times 0.5


                $(0.9)MM                                              (87.5%
of base salary) times 0.5


                $(0.3)MM                                              (100%
of base salary) times 0.5


                $0.4MM                                                 (112.5%
of base salary) times 0.5


                $1.0MM                                                 (125%
of base salary) times 0.5


 


The determination as to
whether the Company has achieved the foregoing thresholds relating to “revenue”
or “cashflow” (as accounted for in the V1B plan as approved by the Company’s
Board of Directors) shall be made by reference to the Company’s financial
statements for the year ended December 31, 2002, as prepared in accordance with
generally accepted accounting principals (“GAAP”) and the Company’s standard
accounting practices.


 


b.             Eligibility
for Performance Bonus.  Should your
Service terminate on or before December 31, 2002 by reason of (i) your
voluntary resignation or (ii) a Termination for Cause (as previously defined),
you will not be entitled to receive any Performance Bonus pursuant this
paragraph 3.  Should your Service
terminate on or before December 31, 2002 for any reason other than (i) your
voluntary resignation or (ii) a Termination for Cause, you will still be
entitled to receive a Performance Bonus pursuant to this paragraph 3.


 


4.             Stock
Option Grants.  Upon the final
closing of the Company’s sale and issuance of shares of its Series H Preferred
Stock (“Series H Closing”), and following the appropriate increase to the
Company’s stock option pool, you and other members of senior management (as
determined by you and approved by the board of directors) will be granted stock
options to purchase shares of the Company’s common stock under the Company’s
stock option/stock issuance plan pursuant to the following terms and
conditions.


 


 


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a.             Number
of Options.  The number of shares of
common stock underlying the stock option granted to you shall represent
approximately three percent (3%) of the outstanding shares of the Company’s
common stock (on an as-converted basis) following the Series H Closing.


 


b.             Option
Pool.  The Company’s stock
option/stock issuance pool shall constitute approximately ten percent (10%) of
the outstanding shares of the Company’s common stock (on an as-converted basis)
following the final closing of the Company’s sale and issuance of shares of its
Series H Preferred Stock.


 


c.             Exercise
Price.  Each option will have an exercise
price per share equal to ten percent (10%) of the final price per share of the
Company’s Series H Preferred Stock (as reflected in the Company’s Amended and
Restated Certificate of Incorporation and as adjusted for stock splits and
combinations).


 


d.             Option
Type and Term.  The options granted
hereunder will be incentive stock options under the federal tax laws, to the
maximum extent allowable, and the balance will be a non-statutory options.  The options will have a maximum term of ten
(10) years, subject to earlier termination following cessation of employment.


 


e.             Vesting
of Options.  Fifty percent (50%) of
the shares of common stock covered under the option granted to you will vest as
of December 31, 2002 and the remaining fifty percent (50%) will thereafter vest
beginning January 1, 2003 in equal daily installments over the next two (2)
years.  Notwithstanding the foregoing,
however, one hundred percent (100%) of the shares of common stock covered under
the option granted to you and any other member of senior management will
immediately vest upon an Acceleration Event (as hereinafter defined).


 


f.              Acceleration
Event.  As used herein, an
“Acceleration Event” shall mean the consummation of one of the following
transactions pursuant to which assets or securities of the Company and DIS are
acquired for consideration paid in cash, securities or other property:


 


(i)            a
merger, consolidation or other similar transaction approved by the stockholders
of the Company, unless securities representing more than fifty percent (50%) of
the total combined voting power of the voting securities of the successor
corporation are immediately thereafter beneficially owned, directly or
indirectly and in substantially the same proportion, by the persons who
beneficially owned the outstanding voting securities of the Company, as the
case may be, immediately prior to such transaction, or


 


(ii)           the
sale, transfer or other disposition of all or substantially all of the property
or assets of the Company and DIS; or


 


(iii)          the
direct sale by the stockholders of the Company of securities possessing more
than fifty percent (50%) of the total combined voting power of the outstanding
securities of the Company (except in connection with capital raising
transactions), to a person or persons different from the persons holding those
securities immediately prior to such sale.


 


 


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5.             Parachute
Payments.  In the event that any
payments to which you or any member of senior management become entitled in
accordance with the provisions of this letter agreement would otherwise
constitute a parachute payment under Section 280G of the Internal Revenue Code,
then such payments will be subject to reduction to the extent necessary to
assure that you receive the greater of (i) the amount of those
payments which would not constitute such a parachute payment or (ii) the
amount which yields you the greatest after-tax amount of benefits after taking
into account any excise tax imposed on the payments provided to you under this
letter agreement pursuant to Section 4999 of the Internal Revenue
Code.  However, provided certain
conditions are met, payments that would otherwise be subject to the provisions
of Sections 280G and 4999 of the Internal Revenue Code may be exempt from those
rules, if the stockholders approve those payments.


 


6.             Miscellaneous.


 


a.             Limitations.  This letter agreement will in no way affect
the right of the Company and/or DIS to adjust, reclassify, reorganize or
otherwise change its capital or business structure or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.


 


b.             Withholding.  If applicable, all payments under this
letter agreement shall be subject to the Company’s collection of all applicable
federal, state and local income and employment taxes required to be withheld
therefrom.


 


c.             Transfer
of Rights.  Any rights or interests
granted hereunder may not be transferred, assigned, pledged or encumbered,
other than a transfer effected by will or the laws of inheritance following
your death.


 


d.             Amendment
and Termination.  The Board of
Directors may amend or terminate this letter agreement only with your prior
written consent.


 


e.             At
Will Employment.  No provision of
this letter agreement will confer any right upon you to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the right of the Company or your right to terminate your Service at any
time for any reason, with or without cause.


 


f.              Governing
Law.  The provisions of this letter
agreement will be governed by and construed in accordance with the laws of the
State of California without resort to its conflict-of-laws rules.


 


g.             Assignment.  The liabilities and obligations of the
Company under this letter agreement will be binding upon any successor
corporation or entity which succeeds to all or substantially all of the assets
and business of the Company by merger or other transaction, whether or not such
transaction qualifies as an Acquisition.


 


 


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We ask
that you acknowledge your receipt of this letter agreement and your acceptance
of its terms and conditions by signing and dating this letter agreement as soon
as possible.


 


 


	
  Very truly yours,

  
	
   

  
	
  /s/ Timothy J. Wollaeger

  	
   

  
	
   

  
	
  Timothy J. Wollaeger

  
	
  Chairman of the
  Compensation Committee

  The Board of Directors of Digirad Corporation

  
	
   

  
	
   

  
	
  Acknowledged and Agreed:

  
	
   

  
	
   

  
	
  /s/
  David M. Sheehan

  	
   

  
	
  David M. Sheehan

  
	
   

  
	
  Dated: June 11, 2002

  
			



 


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