Exhibit 10.11


 


AFFYMAX
INC.


 


EXECUTIVE
EMPLOYMENT AGREEMENT


for


Paul B.
Cleveland


 


This Employment Agreement (“Agreement”)
is entered into by and between Paul B. Cleveland (“Executive”)
and Affymax Inc., (the “Company”),
effective as of December 17, 2008 (the “Effective
Date”).


 


WHEREAS, the Company retains the
services of Executive pursuant to that certain Executive Employment Agreement
dated November 17, 2005 (the “Employment Agreement”)
and the Company and Executive hereby wish to amend and restate the Employment
Agreement in its entirety as provided herein;


 


WHEREAS, the Company desires to
continue to employ Executive to provide personal services to the Company, and
wishes to continue to provide Executive with certain compensation and benefits
in return for his services; and


 


WHEREAS, Executive wishes to
continue to be employed by the Company and provide personal services to the
Company in return for certain compensation and benefits;


 


NOW, THEREFORE, in consideration
of the mutual promises and covenants contained herein, it is hereby agreed by
and between the parties hereto as follows:


 


1.             EMPLOYMENT BY THE COMPANY.


 


1.1          Position.  Subject to
terms set forth herein, the Company agrees to continue to employ Executive in
the position of Chief Financial Officer and Executive Vice President, Corporate
Development and Executive hereby continues to accept such employment which
commenced effective as of January 3, 2006 (the “Employment
Date”).  During the term
of his employment with the Company, Executive will devote his best efforts and
substantially all of his business time and attention to the business of the
Company, except for vacation periods as set forth herein and reasonable periods
of illness or other incapacities permitted by the Company’s general employment
policies.


 


1.2          Duties and Location. 
Executive shall serve in an executive capacity and shall perform such
duties as are customarily associated with his then current title, consistent
with the Bylaws of the Company and as required by the Company’s Board of
Directors (the “Board”).  Executive will report to the Chief Executive
Officer.  Executive’s primary office
location shall be the Company’s corporate headquarters, currently located in
Palo Alto, California.  The Company
reserves the right to reasonably require Executive to perform his duties at
places other than its corporate headquarters from time to time, and to require
reasonable business travel.


 


1.3          Policies and Procedures. 
The employment relationship between the parties shall also be governed by
the general employment policies and practices of the


 


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Company, including those
relating to protection of confidential information and assignment of
inventions, except that when the terms of this Agreement differ from or are in
conflict with the Company’s general employment policies or practices, this
Agreement shall control.


 


2.                                      COMPENSATION.


 


2.1          Salary.  As of the Effective Date, Executive shall
receive for services to be rendered hereunder an annualized base salary of
$327,600, payable on a semi-monthly
basis, subject to payroll withholding and deductions and payable in accordance
with the Company’s regular payroll schedule. 
Such salary shall be reviewed annually and may be increased as approved
by the Board.


 


2.2          Bonus.  As of the Effective Date, Executive will be
eligible to earn an annual bonus of up to thirty-five percent (35%) of base
salary as determined by the Board of Directors upon the recommendations of its
Compensation Committee and Chief Executive Officer and provided that Executive
remains employed by the Company as of the date the bonus is calculated.  As of the Effective Date, seventy-five (75%)
of the bonus amount will be based on the Company’s performance in meeting its
planned operating objectives and twenty-five percent (25%) of the bonus amount
will be based on the Executive’s performance against expectations of his
position, as determined by the Company in its sole discretion.


 


2.3          Standard Company
Benefits.  Executive shall be entitled
to all rights and benefits for which he is eligible under the terms and
conditions of the standard Company benefits and compensation practices which
may be in effect from time to time and provided by the Company to its employees
generally.


 


2.4          Equity Awards.  The Board will grant equity awards to
Executive in its sole discretion.


 


3.                                      PROPRIETARY
INFORMATION OBLIGATIONS.


 


3.1          Agreement.  As a condition of employment, Executive
agrees to execute and abide by the Proprietary Information and Inventions Agreement
attached hereto as Exhibit A.


 


3.2          Remedies.  Executive’s duties under the Employee
Proprietary Information and Inventions Agreement shall survive termination of
his employment with the Company. 
Executive acknowledges that a remedy at law for any breach or threatened
breach by him of the provisions of the Proprietary Information and Inventions
Agreement would be inadequate, and he therefore agrees that the Company shall
be entitled to injunctive relief in case of any such breach or threatened breach.


 


3.3          Third Party Agreements and Information.  Executive represents and warrants that
Executive’s employment by the Company will not conflict with any prior
employment or consulting agreement or other agreement with any third party, and
that Executive will perform his  duties
to the Company without violating any such agreement.


 


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Executive represents and
warrants that Executive does not possess confidential information arising out
of prior employment, consulting, or other third party relationships, which
would be used in connection with Executive’s employment by the Company, except
as expressly authorized by that third party. 
During Executive’s employment by the Company, Executive will use in the
performance of Executive’s duties only information which is generally known and
used by persons with training and experience comparable to Executive’s own,
common knowledge in the industry, otherwise legally in the public domain, or
obtained or developed by the Company or by Executive in the course of Executive’s
work for the Company.


 


4.                                      OUTSIDE
ACTIVITIES DURING EMPLOYMENT.


 


4.1          Non-Company
Business.  Except with the prior
written consent of the Company’s Board of Directors, Executive will not during
the term of this Agreement undertake or engage in any other employment,
occupation or business enterprise, other than ones in which Executive is a
passive investor, provided that
Executive agrees not to become engaged in any other business activity which, in
the reasonable judgment of the Board, is likely to interfere with Executive’s
ability to discharge his duties and responsibilities to the Company.  Executive may engage in civic and
not-for-profit activities so long as such activities do not materially
interfere with the performance of his duties hereunder.


 


4.2          No Adverse Interests. 
Except as permitted by Section 4.3, Executive agrees not to acquire, assume or participate in,
directly or indirectly, any position, investment or interest known by him  to be adverse or antagonistic to the Company,
its business or prospects, financial or otherwise.


 


4.3          Noncompetition.  During
the term of his employment by the Company, except on behalf of the Company,
Executive will not directly or indirectly, whether as an officer, director,
stockholder, partner, proprietor, associate, representative, consultant, or in
any capacity whatsoever engage in, become financially interested in, be
employed by or have any business connection with any other person, corporation,
firm, partnership or other entity whatsoever which were known by him to compete
directly with the Company, throughout the
world, in any line of business engaged in (or planned to be engaged in)
by the Company; provided, however,
that anything above to the contrary notwithstanding, he may own, as a passive
investor, securities of any competitor corporation, so long as his direct
holdings in any one such corporation shall not in the aggregate constitute more
than one percent (1%) of the voting stock of such corporation.


 


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5.                                      TERMINATION
OF EMPLOYMENT.


 


5.1          At-Will Relationship.  Executive’s employment relationship is
at-will.  Either Executive or the Company
may terminate the employment relationship at any time, with or without cause or
advance notice.


 


5.2          Termination
Without Cause.


 


(a)           The Company may
terminate Executive’s employment with the Company at any time without Cause,
upon notice to Executive.


 


(b)           In the event
Executive’s employment is terminated without Cause and such termination results
in a “separation from service” with the Company within the meaning of Treasury
Regulation Section 1.409A-1(h) (without regard to any permissible
alternative definition thereunder), the Company shall provide Executive the
following severance benefits (the “Severance Benefits”):  (i) a lump sum cash severance payment
equal to six (6) months of Executive’s then current annual base salary,
less applicable withholdings and deductions; (ii) if Executive timely
elects continued Company-provided group health insurance coverage pursuant to
federal COBRA law, the Company will pay Executive’s COBRA premiums sufficient
to maintain his group health insurance coverage in effect as of the date of the
termination for twelve (12) months following the termination, provided that the
Company’s obligation to continue to pay Executive’s COBRA premiums hereunder
will cease immediately upon Executive’s eligibility for equivalent group health
insurance coverage through a new employer; (iii) Executive will have the
ability to exercise any vested stock option shares granted to Executive by the
Company until one (1) year following the date of the termination or the
expiration of the term of any such options, whichever occurs earlier.  As a condition precedent to Executive’s
receipt of the Severance Benefits, Executive must properly execute, and not
revoke or attempt to revoke, the Release described in Section 6.


 


5.3          Termination
for Cause.


 


(a)           The Company may
terminate Executive’s employment with the Company at any time for Cause, upon
notice to Executive.


 


(b)           “Cause” for
termination shall mean: indictment or conviction of any felony or of any crime
involving dishonesty; participation in any fraud against the Company; breach of
Executive’s duties to the Company, including persistent unsatisfactory
performance of job duties; intentional damage to any property of the Company;
conduct by Executive which in the good faith and reasonable determination of
the Board demonstrates gross unfitness to serve; incapacity to perform the
essential functions of Executive’s job for a period of ninety (90) consecutive
days; or death.


 


(c)           In the event
Executive’s employment is terminated at any time with Cause, he shall be
entitled to receive his base salary, and his accrued but unused paid time off
earned through the date of termination; Executive will not be entitled to
severance pay, pay in lieu of notice or any other such compensation, except as
may be 


 


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provided in the Company’s
severance benefit plan, if any, in effect on the termination date, or except as
required by law.


 


5.4          Termination for Good
Reason.


 


(a)           Executive may
voluntarily terminate his employment for “Good Reason” by notifying the Company
in writing that Executive believes that an event described in this Section 5.4(a) has
occurred (the “Constructive Termination Notice”),
within ten (10) days after the initial occurrence of one of the following
events; provided, however, that Executive shall
not have “Good Reason” to terminate employment unless the Company does not cure
the event described in this Section 5.4(a) within thirty (30) days
following receipt by the Company of the Constructive Termination Notice:


 


(i)            the assignment to
Executive of any duties or responsibilities which result in the material
diminution of Executive’s position; provided,
however, that the acquisition of the Company and subsequent
conversion of the Company to a division or unit of the acquiring corporation
will not by itself result in a diminution of Executive’s position;


 


(ii)           a reduction by the
Company in Executive’s annual base salary by greater than fifteen percent
(15%), except to the extent the base salaries of other executive officers of
the Company are accordingly reduced; or


 


(iii)         a relocation of
Executive, or the Company’s principal executive offices by more than forty (40)
miles, except for required travel by Executive on the Company’s business.


 


(b)           In the event
Executive terminates his  employment for
Good Reason, and such termination results in a “separation from service” with
the Company within the meaning of Treasury Regulation Section 1.409A-1(h) (without
regard to any permissible alternative definition thereunder), the Company shall
provide Executive the Severance Benefits described above in Section 5.2(b).


 


5.5          Voluntary
or Mutual Termination.


 


(a)           Executive may
voluntarily terminate his employment with the Company at any time, after which
no further compensation will be paid to Executive.


 


(b)           In the event
Executive voluntarily terminates his 
employment other than for “Good
Reason,” he will not be entitled to severance pay, pay in lieu of notice
or any other such compensation.


 


5.6          Involuntary Termination
Following a Change in Control.


 


(a)           Definition.  For the
purposes of this Agreement, a “Change in Control” shall mean a merger or
consolidation of the Company with, or any sale of all or substantially all of
the assets of the Company, to any other person, corporation or entity, unless
as a result of such merger, consolidation or sale of assets the holders of the 


 


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Company’s voting
securities prior thereto hold at least fifty percent (50%) of the total voting
power represented by the voting securities of the surviving or successor
corporation after such transaction.


 


(b)           Severance Benefits.  In
the event of the termination of Executive’s employment without Cause or
Executive’s resignation for Good Reason, and in each case such termination
results in a “separation from service” with the Company within the meaning of
Treasury Regulation Section 1.409A-1(h) (without regard to any
permissible alternative definition thereunder) (an “Involuntary
Termination”) within twelve (12) months immediately following
the effective date of a Change in Control, in lieu of the Severance Benefits
provided in Sections 5.2 and 5.4 herein, Executive will receive the following
benefits upon such Involuntary Termination (the “Change
in Control Benefits”): (i) a lump sum cash severance
payment equal to twelve (12) months of Executive’s then current annual base
salary, less applicable withholdings and deductions; (ii) a lump sum cash
severance payment equal to one (1) times Executive’s annual target bonus
potential, less applicable withholdings and deductions; (iii) if Executive
timely elects continued Company-provided group health insurance coverage
pursuant to federal COBRA law, the Company will pay Executive’s COBRA premiums
sufficient to maintain his group health insurance coverage in effect as of the
date of the Involuntary Termination for twelve (12) months following the
Involuntary Termination, provided that the Company’s obligation to continue to
pay Executive’s COBRA premiums hereunder will cease immediately upon Executive’s
eligibility for equivalent group health insurance coverage through a new
employer; (iv) Executive will have the ability to exercise any vested
stock option shares granted to Executive by the Company until one (1) year
following the date of the Involuntary Termination or the expiration of the term
of any such option, whichever occurs earlier; and (v) the vesting of all
of Executive’s outstanding equity awards shall be accelerated so that they vest
in full and the Company’s right to repurchase any earlier exercised shares, if
applicable, shall lapse.  As a condition
precedent to Executive’s receipt of the Change in Control Benefits, Executive
must properly execute, and not revoke or attempt to revoke, the Release
described in Section 6.


 


6.             RELEASE.  As a condition of receipt of any benefits
under Section 5 of this
Agreement, Executive shall provide the Company with an executed and effective
general release substantially in the form attached hereto as EXHIBIT B (the “Release”).


 


7.             NONINTERFERENCE.


 


While employed by the Company, and for two (2) years immediately
following the Termination Date, Executive agrees not to interfere with the
business of the Company by:


 


(a)           soliciting,
attempting to solicit, inducing, or otherwise causing any employee of the
Company to terminate employment in order to become an employee, consultant or
independent contractor to or for any other person or entity of the Company; or


 


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(b)           directly or
indirectly soliciting the business of any customer of the Company which at the
time of termination or one year immediately prior thereto was listed on the
Company’s customer list.


 


8.             COOPERATION
WITH COMPANY.


 


8.1          Cooperation
Obligation.  During and after the term of Executive’s
employment, Executive will cooperate with the Company in responding to the
reasonable requests of the Company’s Chairman of the Board, CEO or General
Counsel, in connection with any and all existing or future litigation,
arbitrations, mediations or investigations brought by or against the Company,
or its or their respective affiliates, agents, officers, directors or
employees, whether administrative, civil or criminal in nature, in which the
Company reasonably deems Executive’s cooperation necessary or desirable.  In such matters, Executive agrees to provide
the Company with reasonable advice, assistance and information, including
offering and explaining evidence, providing sworn statements, and participating
in discovery and trial preparation and testimony.  Executive also agrees to promptly send the
Company copies of all correspondence (for example, but not limited to,
subpoenas) received by Executive in connection with any such legal proceedings,
unless Executive is expressly prohibited by law from so doing. The failure by
Executive to cooperate fully with the Company in accordance with this Section 8
will be a material breach of the terms of this Agreement which will result in
all commitments of the Company to make additional payments to Executive under Section 5 becoming null and void.


 


8.2          Expenses
and Fees.  The Company will reimburse Executive for
reasonable out-of-pocket expenses incurred by Executive as a result of his cooperation with the obligations described in Section 8.1, within thirty (30) days of the
presentation of appropriate documentation thereof, in accordance with the
Company’s standard reimbursement policies and procedures. After termination of
Executive’s employment, the Company will also pay Executive a reasonable fee in
the amount of $200 per hour for
the time Executive devotes to matters as requested by the Company under Section 8.1 (the “Fees”).  The Company will not deduct or withhold any
amount from the Fees for taxes, social security, or other payroll deductions,
but will instead issue an IRS Form 1099 with respect to the Fees.  Executive acknowledges that in
cooperating in the manner described in Section 8.1, he will be serving as an independent contractor, not a
Company employee, and he will be entirely responsible for the payment of all
income taxes and any other taxes due and owing as a result of the payment of
Fees.  Executive hereby indemnifies the
Company and its officers, directors, agents, attorneys, employees,
shareholders, subsidiaries, and affiliates and holds them harmless from any
liability for any taxes, penalties, and interest that may be assessed by any
taxing authority with respect to the Fees, with the exception of the employer’s
share of employment taxes subsequently determined to be applicable, if any.


 


9.             DISPUTE RESOLUTION.  To ensure rapid and economical resolution of
any disputes which may arise under this Agreement, Executive and the Company
agree that any and all disputes, claims, or demands in any way arising out of or
relating to this Agreement, Executive’s employment with the Company, or the
termination of Executive’s employment with the Company, shall be resolved by
confidential, final and binding 


 


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arbitration conducted
before a single arbitrator with Judicial Arbitration and Mediation Services, Inc.
(“JAMS”) in San Francisco, California,
under the then-applicable JAMS rules.  The parties  acknowledge that by
agreeing to this arbitration procedure, they waive the right to resolve any
such dispute through a trial by jury, judge or administrative proceeding.  The Company shall bear JAMS’ arbitration fees
and administrative costs.  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. 
The arbitrator, and not a court, shall also be authorized to determine
whether the provisions of this paragraph apply to a dispute, controversy, or
claim sought to be resolved in accordance with these arbitration
procedures.  Notwithstanding the foregoing, Executive and
the Company shall each have the right to resolve any dispute or cause of action
involving Company trade secrets, proprietary information, or intellectual
property (including, without limitation, inventions assignment rights under
California Labor Code Section 2870, and rights under patent, trademark, or
copyright law) by court action instead of arbitration.  Nothing in this Agreement is intended
to prevent either Executive or the Company from obtaining injunctive relief in
court to prevent irreparable harm pending the conclusion of any such
arbitration.


 


10.          TAX PROVISIONS.


 


10.1        Gross-Up Payment.


 


(a)           Subject
to the possible limitation set forth in Section 10.1(b) below, if any
payment or benefit received or to be received by Executive in connection with a
Change in Control or otherwise (“Payment”)
would subject Executive to the excise tax (the “Excise
Tax”) imposed by Section 4999 of the Internal Revenue Code
of 1986, as amended (the “Code”),
then Executive shall be entitled to receive an additional payment from the
Company, in an amount not to exceed two hundred fifty thousand dollars
($250,000) (the “Gross-Up Payment”), such that
after the payment of all taxes (including, without limitation, any income or
employment taxes, any interest or penalties imposed with respect to such taxes,
and any additional excise tax imposed by Section 4999 of the Code) on the
Gross-Up Payment, Executive shall retain an amount equal to the full Excise
Tax.  For purposes of determining the
amount of the Gross-Up Payment, Executive shall be deemed to have (i) paid
federal income taxes at the highest marginal rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made; (ii) paid
federal employment taxes at Executive’s actual marginal rate for the calendar
year in which the Gross-Up Payment is to be made; and (iii) paid
applicable state and local income taxes at the highest rate of taxation for the
calendar year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of
such state and local taxes.  Except as
otherwise provided herein, Executive shall not be entitled to any additional
payments or other indemnity arrangements in connection with the Payment or the
Gross-Up Payment.  Notwithstanding any
other provision in Section 10.1, the aggregate amount of the Gross-Up
Payment shall not exceed two hundred fifty thousand dollars ($250,000).


 


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(b)           Notwithstanding
the foregoing, the amount of the Payment when aggregated with the Gross-Up
Payment (the “Total Parachute Payments”)
shall be equal to the Reduced Amount. 
The “Reduced Amount” shall be either (i) the largest portion of the
Total Parachute Payments that would result in no portion of the Total Parachute
Payments being subject to the Excise Tax, or (ii) the largest portion, up
to and including the total, of the Total Parachute Payments, whichever amount
referenced in the foregoing (i) or (ii), after taking into account all
applicable federal, state and local employment taxes, income taxes, and the
Excise Tax, results in Executive’s receipt of the greatest economic benefit
notwithstanding that all or some portion of the Total Parachute Payments may be
subject to the Excise Tax. If a reduction in payments or benefits constituting “parachute
payments” is necessary so that the Total Parachute Payments equals the Reduced
Amount, reduction shall occur in a manner necessary to provide Executive with
the greatest economic benefit.  If more
than one manner of reduction of payments or benefits necessary to arrive at the
Reduced Amount yields the greatest economic benefit, the payments and benefits
shall be reduced pro rata.


 


(c)           The independent registered public accounting firm engaged
by the Company for general audit purposes as of the day prior to the effective
date of the event described in Section 280G(b)(2)(A)(i) of the Code
shall make all determinations required to be made under this Section 10.1.  If the independent registered public accounting
firm so engaged by the Company is serving as accountant or auditor for the
individual, entity or group effecting such event, the Company shall appoint a
nationally recognized independent registered public accounting firm to make the
determinations required hereunder.  The
Company shall bear all expenses with respect to the determinations by such
independent registered public accounting firm (the “Accounting
Firm”) required to be made hereunder.  The Accounting Firm engaged to make the
determinations hereunder shall provide its calculations, together with detailed
supporting documentation, to the Company and Executive within fifteen (15)
calendar days after the date on which Executive’s right to a Payment is
triggered (if requested at that time by the Company or Executive) or such other
time as requested by the Company or Executive. 
Any good faith determinations of the Accounting Firm made hereunder
shall be final, binding and conclusive upon the Company and Executive.


 


(d)           As
a result of the uncertainty in the application of Section 4999 of the Code
at the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (“Underpayment”),
consistent with the calculations required to be made hereunder.  If the Company exhausts its remedies pursuant
to Section 10.1(e) hereof and Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred, and any such Underpayment,
together with any additional penalties or interest thereon, shall be promptly
paid by the Company to or for the benefit of Executive.


 


(e)           Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of a Gross-Up Payment. 
Such notification shall be given as soon as practicable but no later
than ten (10) business days after Executive is informed in writing of such
claim and shall 


 


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apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid.  Executive shall
not pay such claim prior to the expiration of the thirty (30)-day period
following the date on which Executive has given such notice to the Company (or
such shorter period ending on the date that any payment of taxes with respect
to such claim is due).  If the Company
notifies Executive in writing prior to the expiration of such period that it
desires to contest such claim, Executive shall:


 


(i)            Give the Company any information
reasonably requested by the Company relating to such claim;


 


(ii)           Take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company;


 


(iii)         Cooperate with the Company in good
faith in order effectively to contest such claim; and


 


(iv)          Permit the Company to participate in
any proceedings relating to such claim; provided, however,
that the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax basis, for any
Excise Tax or federal, state, and local income and employment tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses.  Without limitation on the foregoing
provisions of this Section 10.1(e), the Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however,
that if the Company directs Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or federal, state, and local income and
employment tax (including interest or penalties with respect thereto) imposed
with respect to such advance or with respect to any imputed income with respect
to such advance; and provided, further,
Executive shall not be required to extend the statute of limitations relating
to the payment of taxes for the taxable year of Executive with respect to which
such contested amount is claimed to be due, other than an extension limited
solely to such contested amount. Furthermore, the Company’s control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.


 


(f)            If, after the receipt by Executive of any amount paid by
the Company relating to a Gross-up Payment pursuant to Section 10.1(a) hereof
or advanced by the Company pursuant to Section 10.1(e) hereof,
Executive becomes entitled to receive any 


 


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refund with
respect to such amounts, Executive shall (subject to the Company’s complying
with the requirements of Section 10.1(e) hereof) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). 
If, after the receipt by Executive of an amount advanced by the Company
pursuant to Section 10.1(e) hereof, a determination is made that
Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid, and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.


 


(g)           If,
pursuant to regulations issued under Section 280G or 4999 of the Code, the
Company and Executive are required to make a preliminary determination of the
amount of an excess parachute payment and thereafter a redetermination of the
Excise Tax is required or the Company is permitted to make a recalculation with
regard to stock options and elects to do so under the applicable regulations,
the parties shall request the Accounting Firm to make such
redetermination.  If as a result of such
redetermination an additional Gross-Up Payment is required, the amount thereof
shall be paid by the Company to Executive within ten (10) business days of
the receipt of the Accounting Firm’s determination.  If the redetermination of the Excise Tax
results in a reduction of the Excise Tax, Executive shall take such steps as
the Company may reasonably direct in order to obtain a refund of the excess
Excise Tax paid.  If the Company
determines that any suit or proceeding is necessary or advisable in order to
obtain such refund, the provisions of Section 10.1(e) hereof relating
to the contesting of a claim shall apply to the claim for such refund,
including, without limitation, the provisions concerning legal representation,
cooperation by Executive, participation by the Company in the proceedings and
indemnification by the Company.  Upon
receipt of any such refund, Executive shall promptly pay the amount of such
refund to the Company.  If the amount of
the income taxes otherwise payable by Executive in respect of the year in which
Executive makes such payment to the Company is reduced as a result of such
payment, Executive shall, no later than the filing of the income tax return in
respect of such year, pay the amount of such tax benefit to the Company.  In the event there is a subsequent
redetermination of Executive’s income taxes resulting in a reduction of such tax
benefit, the Company shall, promptly after receipt of notice of such reduction,
pay to Executive the amount of such reduction. 
If the Company objects to the calculation or recalculation of the tax
benefit, as described in the preceding two sentences, the Accounting Firm shall
make the final determination of the appropriate amount.  Executive shall not be obligated to pay to
the Company the amount of any further tax benefits that may be realized by him
as a result of paying to the Company the amount of the initial tax benefit.


 


(h)           In the event that the Excise Tax is subsequently
determined to be less than initially determined, Executive shall repay to the
Company at the time that the amount of such reduction in Excise Tax is
determined (but, if previously paid to the taxing authorities, not prior to the
time the amount of such reduction is refunded to Executive or otherwise
realized as a benefit by Executive) the portion of the Gross-Up Payment that
would not have been paid if the Excise Tax as subsequently determined had been
applied initially in calculating the Gross-Up Payment, with the amount of such
repayment determined by the Accounting Firm; provided that the amount of
required repayment by Executive shall be 


 


11

















 


reduced, as the
Accounting Firm may determine, in order to avoid putting Executive in a worse
after-tax position than Executive would have enjoyed had the amount of Excise
Tax been correctly determined in the first instance, such determination to be
made on a basis consistent with the intention of this Section 10.1, which
is to make Executive whole on an after-tax basis on account of any Excise Tax
(including related interest and penalties) up to an aggregate amount of two
hundred fifty thousand dollars ($250,000). 
Executive and the Company shall each have the right at all times to have
the Accounting Firm review and confirm or revise earlier calculations.


 


10.2        Compliance with Section 409A.  All
payments provided under this Agreement are intended to constitute separate
payments for purposes of Treasury Regulation Section 1.409A-2(b)(2).  Any lump sum cash severance payment pursuant
to Sections 5.2(b)(i) or 5.4(b) shall be paid as soon as practicable
following the date of the termination of Executive’s employment without Cause
resulting in a “separation from service” with the Company within the meaning of
Treasury Regulation 1.409A-1(h) (without regard to any permissible
alternative definition thereunder) or Executive’s resignation for Good Reason
resulting in a “separation from service” with the Company within the meaning of
Treasury Regulation 1.409A-1(h) (without regard to any permissible
alternative definition thereunder).  It
is the intention of the preceding sentence to apply the “short-term deferral
rule” set forth in Treasury Regulation Section 1.409A-1(b)(4) to such
payments.  Amounts paid in connection
with group health insurance coverage pursuant to COBRA under Sections 5.2(b)(ii) or
5.4(b) are intended to be paid pursuant to the exception provided by
Treasury Regulation Section 1.409A-1(b)(9)(v)(B).  Amounts paid pursuant to Sections
10.1(a), 10.1(d) and 10.1(h) shall be paid no later than the end of
Executive’s taxable year next following Executive’s taxable year in which
Executive remits the related taxes. 
Amounts paid pursuant to Sections 10.1(e) and 10.1(g) shall be
paid no later than the end of Executive’s taxable year following the Executive’s
taxable year in which the taxes that are the subject of the audit or litigation
are remitted to the taxing authority, or where as a result of such audit or
litigation no taxes are remitted, the end of Executive’s taxable year following
Executive’s taxable year in which the audit is completed or there is a final
and nonappealable settlement or other resolution of the litigation.


 


11.          GENERAL PROVISIONS.


 


11.1        Notices.  Any notices provided hereunder must be in
writing and shall be deemed effective upon the earlier of personal delivery
(including personal delivery by fax) or the next day after sending by overnight
carrier, to the Company at its primary office location and to Executive at his
address as listed on the Company payroll.


 


11.2        Severability.  Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in
any jurisdiction, such invalidity, illegality or unenforceability will not
affect any other provision or any other jurisdiction, but this Agreement will
be reformed, construed and enforced in such jurisdiction to the extent possible
in keeping with the intent of the parties.


 


12

















 


11.3        Waiver.  If either party should waive any breach of
any provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.


 


11.4        Complete Agreement.  This Agreement and Exhibit A, constitute
the entire agreement between Executive and the Company and it is the complete,
final, and exclusive embodiment of their agreement with regard to this subject
matter.  It is entered into without
reliance on any promise or representation other than those expressly contained
herein, and it cannot be modified or amended except in a writing signed by an
officer of the Company.


 


11.5        Counterparts.  This Agreement may be executed in separate
counterparts, any one of which need not contain signatures of more than one
party, but all of which taken together will constitute one and the same
Agreement.


 


11.6        Headings.  The headings of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.


 


11.7        Successors and Assigns.  This Agreement is intended to bind and inure
to the benefit of and be enforceable by Executive and the Company, and their
respective successors, assigns, heirs, executors and administrators, except
that Executive may not assign any of his duties hereunder and he may not assign
any of his rights hereunder without the written consent of the Company, which
shall not be withheld unreasonably.


 


11.8        Attorneys’ Fees.  If either party hereto brings any action to
enforce his or its rights hereunder, the prevailing party in any such action
shall be entitled to recover his or its reasonable attorneys’ fees and costs
incurred in connection with such action.


 


11.9        Choice of Law.  All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the law of
the State of California.


 


IN WITNESS WHEREOF, the parties
have executed this Agreement on the day and year first above written.


 


	
   

  	
  Affymax Inc.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: 

  	
  /s/ Arlene M. Morris

  
	
   

  	
   

  	
  Arlene M. Morris

  
	
   

  	
   

  	
  Chief Executive Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date: December 17, 2008

  



 


13

















 


	
  Accepted and agreed this

  	
   

  	
   

  
	
  17th day of December , 2008.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Paul B. Cleveland, an Individual

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/Paul B. Cleveland

  	
   

  	
   

  



 


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EXHIBIT A


 


EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT


 

















 


EXHIBIT B


 


RELEASE AGREEMENT