Document:

exv10w23

Exhibit 10.23

	 	 	 

	

	 	U.S. Department of Justice

 

December 10, 2010

Carlos F. Ortiz, Esq.

LeClair Ryan

One Riverfront Plaza

1037 Raymond Boulevard

Sixteenth Floor

Newark, New Jersey 07102

Roy K. McDonald, Esq.

DLA Piper US LLP

555 Mission Street, Suite 2400

San Francisco, California 94105-2933

Re:      RAE Systems Inc.

Dear Gentlemen:

     On the understandings specified below, the United States Department of Justice,
Criminal
Division, Fraud Section, and the U.S. Attorney’s Office for the Northern District of
California
(collectively, the “Department”) will not criminally prosecute RAE Systems Inc., and its
subsidiaries and affiliates (collectively, “RAE Systems”) for any crimes (except for criminal
tax violations, as
to which the Department cannot and does not make any agreement) related to RAE Systems’s
knowing violations of the internal controls and books and records provisions of the Foreign
Corrupt
Practices Act (“FCPA”), Title 15, United States Code, Sections 78m(b)(2)(A), 78m(b)(2)(B),
78m(b)(5), and 78ff(a) arising from and related to improper benefits corruptly paid by
employees of two joint ventures majority owned and controlled by RAE Systems to foreign
officials of
departments, agencies, and instrumentalities of the government of the People’s Republic of
China
(“PRC”), as described in Appendix A attached hereto, which is incorporated herein by reference. The
Department enters into this non-prosecution agreement based, in part, on the following factors:
(a) RAE Systems’s timely, voluntary, and complete disclosure of the
facts described in Appendix A; (b) RAE Systems’s thorough, real-time cooperation with the Department and the U.S.
Securities
and Exchange Commission (“SEC”); (c) the extensive remedial efforts already undertaken
and to be undertaken by RAE Systems; and (d) RAE Systems’s commitment to submit periodic
monitoring reports to the Department.

     It is understood that RAE Systems admits, accepts, and acknowledges responsibility for
the conduct set forth in Appendix A and agrees not to make any public statement contradicting
Appendix A.

 

 

     This Agreement does not provide any protection against prosecution for any crimes
except as set forth above, and applies only to RAE Systems and not to any other entities except
as set forth in this Agreement, including Appendix A, or to any individuals. RAE Systems
expressly
understands that the protections provided to RAE Systems under this Agreement shall not apply
to any acquirer or successor entities unless and until such acquirer or successor formally
adopts and executes this Agreement.

     This Agreement shall have a term of three years from the date of this Agreement, except as
specifically provided in the following paragraph. It is understood that for the three-year
term of this
Agreement, RAE Systems shall: (a) commit no crimes whatsoever; (b) truthfully and completely
disclose non-privileged information with respect to the activities of RAE Systems, its
officers and
employees, and others concerning all matters about which the Department inquires of it,
which information can be used for any purpose, except as otherwise limited in this Agreement;
and (c) bring to the Department’s attention all criminal conduct by, or criminal
investigations of, RAE
Systems or any of its employees, that comes to the attention of RAE Systems or its senior
management, as well as any administrative proceeding or civil action brought by any
governmental authority that alleges fraud by or against RAE Systems.

     Until the date upon which all investigations and prosecutions arising out of the
conduct described in this Agreement are concluded, whether or not they are concluded within
the three-year term specified in the preceding paragraph, RAE Systems shall: (a) cooperate
fully with the
Department, the Federal Bureau of Investigation, the SEC, and any other law enforcement agency
designated by the Department; (b) assist the Department in any investigation or prosecution
arising out of the conduct described in this Agreement by providing logistical and technical
support for any meeting, interview, grand jury proceeding, or any trial or other court
proceeding; (c) use its best efforts promptly to secure the attendance and truthful
statements or testimony of any officer, agent, or employee at any meeting or interview or
before the grand jury or at any trial or other court proceeding; and (d) provide the
Department, upon request, all non-privileged information, documents, records, or other tangible
evidence about which the Department or any designated law enforcement agency inquires.

     It is understood that RAE Systems has agreed to pay a monetary penalty of
$1,700,000. RAE
Systems agrees to pay this sum to the United States Treasury within ten days of executing
this
Agreement. RAE Systems acknowledges that no tax deduction may be sought in connection with
this payment.

     It is understood that RAE Systems will strengthen its compliance, bookkeeping, and
internal controls standards and procedures, as set forth in Appendix B. It is further
understood that RAE
Systems will report periodically to the Department regarding its compliance with this
Agreement, as set forth in Appendix C.

     It is understood that, if the Department in its sole discretion determines that RAE
Systems
has committed any crimes after signing this Agreement, that RAE Systems has given false,

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incomplete, or misleading testimony or
information at any time, or that RAE Systems has
otherwise violated any provision of
this Agreement, RAE Systems shall
thereafter be subject to prosecution for any
violation of federal law of which the Department
has knowledge, including perjury and
obstruction of justice. Any such
prosecution that is not time-barred by the
applicable statute of limitations on the
date of the signing of this Agreement may be
commenced against RAE Systems, notwithstanding
the expiration of the statute of limitations
between the signing of this Agreement and the
expiration of the term of this agreement plus
one year. Thus, by signing this Agreement,
RAE Systems agrees that the statute of limitations with respect to any prosecution that is not
time-barred on the date that this Agreement is signed shall be tolled for the term of this
Agreement plus one year.

     It is understood that, if the Department in its sole discretion determines that RAE
Systems has committed any crime after signing this Agreement, that RAE Systems has given
false, incomplete, or misleading testimony or information at any time, or that RAE Systems has
otherwise violated any provision of this Agreement: (a) all statements made by RAE Systems to
the
Department or other designated law enforcement agents, including Appendix A hereto, and
any testimony given by RAE Systems before a grand jury or other tribunal, whether prior or
subsequent to the signing of this Agreement, and any leads from such statements or testimony,
shall be admissible in evidence in any criminal proceeding brought against RAE Systems; and
(b) RAE Systems shall assert no claim under the United States Constitution, any statute, Rule 410
of the
Federal Rules of Evidence, or any other federal rule that such statements or any leads therefrom
arc inadmissible or should be suppressed. By signing this Agreement, RAE Systems waives all
rights in the foregoing respects.

     It is further understood that this Agreement does not bind any federal, state, local, or
foreign prosecuting authority other than the Department. The Department will, however, bring
the cooperation of RAE Systems to the attention of other prosecuting and investigative offices,
if requested by RAE Systems.

     It is further understood that RAE Systems and the Department may disclose this Agreement
to the public.

	 	 	With respect to this matter, from the date of execution of this Agreement forward,
this
Agreement supersedes all prior, if any, understandings, promises, and/or conditions between
the
Department and RAE Systems. No additional promises, agreements, or conditions have been
entered into

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other than those set forth in this Agreement and none will be entered into unless
in writing and signed by all parties.

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APPENDIX A

STATEMENT OF FACTS

     This
Statement of Facts is incorporated by reference as part of the non-prosecution
agreement, dated December 10, 2010, between the United States Department of Justice,
Criminal
Division, Fraud Section, the U.S. Attorney’s Office for the Northern District of California
(collectively, the “Department”), and RAE Systems Inc. and its subsidiaries and affiliates
(collectively, “RAE Systems” or the company). The Department and RAE Systems agree that the
following facts are true and correct:

	I.	 	Background

     1. RAE Systems is a Delaware corporation headquartered in San Jose, California.
During the relevant period, RAE Systems’s common stock was registered pursuant to Section l2(g)
of the Securities Exchange Act of 1934 (“Exchange Act”) and was listed on the New York Stock
Exchange (NYSE Amex: RAE). RAE Systems filed periodic reports with the Securities and
Exchange Commission (“SEC”) pursuant to Section 13 of
the Exchange Act. Accordingly, RAE
Systems was an “issuer” within the meaning of the Foreign Corrupt Practices Act (“FCPA”),
Title
15, United States Code, Sections 78dd-1 and 78m(b)(2). RAE Systems was first listed on
the NYSE
on June 23, 2000, and remains listed on the NYSE.

     2. RAE Systems developed and manufactured rapidly deployable, multi-sensor
chemical
and radiation detection monitors and networks for the global market. Between 2005 and 2008, RAE
Systems had between 678 and 1,324 full-time employees. During the relevant period, the
company had significant operations in the People’s Republic of China (“PRC”), which were organized
under a holding company called RAE Asia, headquartered in Hong Kong. RAE Systems sold
products and

 

 

services in mainland PRC primarily through two second-tier subsidiaries
organized as joint ventures
with local Chinese entities.

     3. One
of the joint ventures, known as RAE-KLH (Beijing) Co., Limited (“RAE-KLH”),
was headquartered in Beijing, PRC. RAE Systems acquired a 64% stake in RAE-KLH in 2004. In
June 2006, RAE Systems negotiated the purchase of an additional 32% stake in RAE-KLH, for a
total ownership stake of approximately 96%. Today, RAE-KLH remains a joint venture, with
its former sole owner owning 4% of the stock. Throughout the relevant time period,
RAE-KLH’s financial results were included in the consolidated financial statements that RAE Systems
filed with the SEC.

     4. RAE
Systems also owned a 70% interest in a joint venture known as RAE
Coal Mine
Safety Instruments (Fushun) Co., Ltd. (“RAE Fushun”), based in Fushun, Liaoning Province,
PRC.
RAE Fushun sold a wide range of portable and fixed-use safety products, primarily for use in
the
Chinese coal mining industry. RAE Systems purchased its interest in
the RAE Fushun joint venture
in December 2006. The other 30% was owned by a coal industry group. Throughout the
relevant time period, RAE Fushun’s financial results were included in the consolidated
financial statements that RAE Systems filed with the SEC.

	II.	 	RAE Systems’s Government Customers in China

     5. A
significant number of RAE-KLH’s and RAE Fushun’s customers were PRC
government departments and bureaus and large state-owned agencies and instrumentalities.

     6. The Lanzhou City Honggu Mining Safety Bureau, for example, was a government
customer. Other government clients included regional fire departments, emergency response
departments, and entities under the supervision of the provincial environmental agency,
among

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others. Accordingly, officers and employees of a significant number of RAE-KLH’s and RAE
Fushun’s customers were “foreign officials” within the meaning of the FCPA, Title 15,
United States
Code, Section 78dd-l(f)(l)(A).

	III.	 	RAE Systems’s Knowing Failure to Implement Systems of
Effective Internal Controls at RAE-KLH and RAE Fushun Post Closing

     7. RAE’s due diligence prior to its joint venture with KLH identified KLH’s principal
clients as the PRC government and PRC owned and controlled agencies and instrumentalities.
RAE’s due diligence further indicated that it was important for KLH to keep excellent
relationships
with those government officials.

     8. As par of its due diligence investigation, a report was prepared and submitted to
the
RAE Systems’s Board of Directors. The report concluded that relying on the current
structure and leadership would be efficient, “[b]ut to some
extent it may lack of [sic]
internal control.” The report went on to make troubling findings:

As the important clients are those related to the government, it is very
important for the company to keep very good relationship [sic] with those government people. In normal practice, KLH will
determine its internal product price, the salesmen can negotiate the
price with the client based on that and can take away the difference
between the internal product price and the final sales price as
commission. It is the salesmen, not the company, who will decide
the [sic] whether and how much amount of the commission they should
give to the clients. The salesmen didn’t get the commission in cash
directly, but instead they get the cash by provide [sic]
different acceptable invoices. These invoices will then be used as
original supporting documents for
accounting records. They are recorded as different expenses in
the financial statements. To some extent, the financial statements have
been distorted by these commissions [sic].

With the change of market regulations in China, the government
influence will be less important, there is a challenge as to whether
KLH could still keep these clients. Although KLH let the salesmen

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to deal
with the kickback, still they are the employees of the company and they
represent the company in the transaction.

     9. Under another heading entitled “Kickbacks,” another report stated:

In
the management accounts, there is no a [sic] separate account to
record kickbacks. As per discussion with the accounting manager
and the administration manager, we were informed that kickbacks were
calculated on the sales value and collection performance and these
kickbacks were paid directly to salesmen by reimbursement on variety
invoices. How to allocate these kickbacks in the management accounts
is determined on which kind of invoices provided by the salesmen,
i.e. if the salesmen provides [sic] meal invoices, it will be
charged to meal expense or if the salesmen provides transportation
invoices, will be charged to transportation expense and so on. In
the practice, KLH doesn’t provide the kickback directly to those
customers, but through the salesmen. Salesmen arrange these
kickbacks directly to customers of whom they take charge. Due
to the fact that it is a confidential business practice, we could
not obtain the supplemental records for those kickbacks.

     10. In
May 2004, a RAE Systems employee from the United States met with KLH
personnel, and following her inspection of KLH operations, the RAE Systems employee reported
to high-ranking executives at RAE Systems that they “discussed the sales commission/incentive
structure, under table greasing to get deals regardless if profitable/collectible or not,
kosher or not etc. KLH sales team is good at and used to selling cycle that is highly
dependent on ‘guanxi’ — whatever it takes to spec and close deal. . . .” The RAE Systems
employee continued:

They said openly the “travel&entertainment” expense incurred
is essential to build relationship/guanxi and commonly practiced
by all and thus, somewhat gray and therefore, can be rationalizable [sic] as not “illegal.” If you want them to be aggressive and grow
business per goals set, they will do whatever it takes. To draw
boundary limits, our goals have to be clearly articulated as “clean,
profitable sales orders/revenue ie “cager” metrics of both top line
and bottom line, not just market share and growth terms — this
will be a challenge to change their business operational models to
be more transparent.

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The employee then turned to a discussion about implementing a compliance program, cautioning
that
implementing an effective compliance program could hurt sales:

It will be a challenge to restructure because it changes the way they
have been “successful” and rewarded in the past. As you know, KLH
sales guy (sic) behave/get compensated as distributors and get
“discretionary discount structure” (any residual = compensation to
keep or to dispense as they see fit to close deal. To kill the
sales model that has worked for them all these years is to kill the
JV deal value or hurt sales momentum.

So we need to tread carefully in designing something halfway that
won’t choke the sales engine and cause a distraction for the sales
guys. We knew this risk all along and have accepted it upon entering
the JV deal.

     11. Not long after, the employee stated to a high-ranking RAE Systems executive in the
United States that “at the minimum we evidence we told them
[about the FCPA], spell out in JV
contract which we did and that’s all we can do.” In response, the high-ranking RAE Systems
executive responded, “We can either increase cost or follow local practices with board
blessing and knowing how much risk we are taking.”

     12. Two months later, following acquisition of RAE- KLH, the employee reiterated
to the
high-ranking RAE Systems executive that implementing an effective systems of internal controls
would hurt business:

KLH does not have internal controls in the context of the western
world and we canNOT forcefit [sic] with U.S. practices and expect
[sic] done overnight at that.

* * *

Plus, the current sales model/cycle (sales guys act as
distributors, heavily dependent on relationships to sell, incentive
scheme, sales guy is AR [accounts receivable] and collection management)
is the
heart of what makes KLH tick so if you do major surgery too quick,

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the patient will die, whole acquisition
value falls apart real quick. . . .so we need to be careful how we say what needs to be said to RAE
BOD.

     13. Following
these exchanges, RAE Systems personnel did provide some FCPA training
to RAE-KLH personnel and did tell RAE-KLH personnel to stop paying bribes and providing other
improper benefits, but such steps were half-measures. RAE Systems did not impose sufficient
internal controls or make sufficient changes to high-risk practices, such as sales personnel
obtaining cash advances. Indeed, in the middle of 2006, the former manager of RAE-KLH, who had
recently been terminated for reasons unrelated to
corruption, emailed certain members of RAE Systems’s senior management at its U.S.
headquarters. In this email, the manager reported that RAE-KLH had been entering into certain
arrangements to hide the fact that it had been paying bribes to government officials for the
purposes of retaining or obtaining business. Once again, RAE Systems’s senior management
directed that such arrangements should stop, but there was no effective efforts made
to actually stop this practice. In fact, while RAE Systems’s financial controller in China was
directed to perform an internal audit to provide findings and to recommend how to keep such
issues from occurring in the future, he never provided any findings or recommendations on
these issues.

     14. RAE Systems did not conduct pre-acquisition corruption due diligence of RAE
Fushun. Given RAE Systems’s experience with KLH described above, the high-risk nature of the
location, and the existence of numerous government customers, pre-acquisition
corruption-focused due diligence was merited. Indeed, as was later confirmed, improper
business practices had occurred at RAE Fushun before the acquisition and continued
post-acquisition, as RAE Systems failed to implement an effective system of internal controls at
RAE Fushun.

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     15. In light of the foregoing facts and circumstances, RAE Systems knowingly failed
to
implement a system of effective internal accounting controls at
RAE-KLH and RAE Fushun
sufficient to provide reasonable assurances that: (i) transactions were executed in accordance
with management’s general or specific authorization; (ii) transactions were recorded as necessary
to (I)
permit preparation of financial statements in conformity with
generally accepted accounting principles or any other criteria applicable to such statements, and (II) maintain
accountability for assets; (iii) access to assets were permitted only in accordance with
management’s general or specific authorization; and (iv) the recorded accountability for assets was
compared with the existing assets at reasonable intervals, and appropriate action taken with
respect to any differences.

	IV.	 	Lack of Effective Internal Accounting Controls Permitted
Improper Payments to Continue at RAE-KLH and RAE Fushun After Acquisition

     16. RAE-KLH and RAE Fushun primarily utilize a direct sales force for their sales
operations in mainland China.

     17. The
direct sales representatives at RAE- KLH and RAE Fushun historically financed
their sales activities and sales-related travel throughout mainland China using cash advances
and reimbursements. RAE-KLH and RAE Fushun each had policies and procedures for cash advances and
reimbursements requiring different levels of management approval depending on the amount of money
the salesperson sought to have advanced or reimbursed. Finance staff generally did not
question the propriety of cash advance or reimbursement requests that appeared to have the
requisite management approvals.

     18. In
order to write off sales expenses for tax accounting purposes, both RAE-KLH
and
RAE Fushun required sales representatives to obtain government-issued tax receipts (known as
“fapiao”) for all sales expenses. When fapiao were unavailable or insufficient to cover the
expenses

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incurred,
salespeople from both RAE-KLH and RAE Fushun often submitted “substitute”
fapiao, that is, fapiao that were genuine but that were not issued for the specific expense
incurred. As a result, the records of cash advances and reimbursements at both RAE-KLH and
RAE Fushun often lacked adequate support for the purported business purpose.

	 	A.	 	RAE-KLH

     19. From 2004 through 2008, certain sales representatives at RAE-KLH used cash
advances and reimbursements for improper purposes, including the corrupt giving of gifts and
paying
for entertainment, as well as direct or indirect payments, to customers. Some customers who
received gifts, money, or entertainment from RAE- KLH sales representatives were foreign
officials who worked at the agencies, instrumentalities, and departments of the PRC government
that were
RAE-KLH’s customers. The expenditures were made as part of corrupt efforts to obtain or retain
business from those entities. The gifts provided included, among other things, a notebook computer
for the son of the deputy director of a state-owned chemical plant as part of efforts to
obtain business from that entity.

     20. In 2006 and 2007, RAE-KLH made payments under two contracts with a purported
consultant located in Beijing, China. The 2006 contract purported to be for technical
services
rendered in connection with a single government-affiliated oil project contract, for which
RAE-KLH
paid RMB 688,000 (approximately $86,195). Some or all of the payments under the 2006
contract
were funneled to officials of a state-owned enterprise doing business in the Dagang Oil Field.

     21. Under the second contract purporting to be for general consulting services throughout
the 2007 calendar year, RAE-KLH paid a total of RMB 2 million (approximately $262,564).
Some or all of the money for these alleged consulting services was improperly used to help RAE-KLH

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obtain or retain business from customers, including large state-owned enterprises and government
departments, by directly and indirectly making payments and providing things of value to
foreign
officials.

	 	B.	 	RAE Fushun

     22. From
2007 though 2008, certain sales representatives at RAE Fushun used cash
advances and reimbursements for improper purposes including the corrupt giving of gifts and
paying for entertainment, as well as making direct or indirect payments, to officers and
employees of customers. Some who received gifts, money, or entertainment from RAE Fushun
sales
representatives were foreign officials who worked at the agencies, instrumentalities, and
departments
of the PRC government that were RAE Fushun’s customers. The expenditures were made as
part of corrupt efforts to obtain or retain business from those entities. These gifts to
certain officials of state-owned enterprises and government departments included, among
other things, a variety of
luxury items, such as jade, fur coats, kitchen appliances, business suits, and high-priced
liquor.

	V.	 	Lack of Effective Internal Controls and Continued Improper Payments Led to Inaccurate Books and Records

     23. The above-described payments identified by RAE Systems were typically recorded
on the books of RAE-KLH and RAE Fushun as “business fees” or “travel and entertainment”
(“T&E”) expenses. They appear to have been classified for U.S. Generally Accepted Accounting Principles (“GAAP”) purposes as T&E expenses.

     24. During
the relevant time period, both RAE-KLH and RAE Fushun had internal
accounting staff that maintained records for each respective subsidiary. The accounting
staff at both
RAE-KLH and RAE Fushun were required to make certain periodic adjustments to conform their
financials with U.S. GAAP standards. They then provided those conformed numbers to the U.S.

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accounting staff for integration into the consolidated financials for U.S. reporting
purposes. As such, during the relevant time period, RAE-KLH and RAE Fushun’s respective
financial results were included in the consolidated financial statements that RAE Systems
filed with the SEC.

     25. As
an issuer, RAE Systems was — and is — required, among other things, to make
and
keep books, records, and accounts, which, in reasonable detail, accurately and fairly
reflected the
transactions and dispositions of the assets of the issuer. RAE Systems was aware that
RAE-KLH
and RAE Fushun were failing to properly classify the above-described payments in their
respective books, records, and accounts, and thus, RAE Systems knowingly permitted its books,
records, and accounts to be falsified.

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APPENDIX B

CORPORATE COMPLIANCE PROGRAM

     In order to address any deficiencies in its internal controls, policies, and
procedures regarding
compliance with the Foreign Corrupt Practices Act (“FCPA”), Title 15, United States
Code, Sections
78dd-1, et seq., and other applicable anti-corruption laws, RAE Systems Inc., and its
subsidiaries
(collectively, “RAE Systems” or the “company”) agree to continue to conduct, in a manner
consistent with all of its obligations under this Agreement, appropriate reviews of its
existing internal controls, policies, and procedures.

     Where necessary and appropriate, RAE Systems agrees to adopt new or to modify existing
internal controls, policies, and procedures in order to ensure that it maintains: (a) a
system of internal accounting controls designed to ensure that RAE Systems makes and keeps
fair and accurate books, records, and accounts; and (b) a rigorous anti-corruption compliance
code, standards, and procedures designed to detect and deter violations of the FCPA and other
applicable anti-corruption laws. At a minimum, this should include, but not be limited to,
the following elements to the extent they are not already part of the company’s existing internal
controls, policies, and procedures:

     1. RAE Systems will develop and promulgate a clearly articulated and visible corporate
policy against violations of the FCPA, including its anti-bribery, books and records, and
internal controls provisions, and other applicable foreign law counterparts (collectively, the
“anti-corruption laws,”), which policy shall be memorialized in a written compliance code.

     2. RAE Systems will ensure that its senior management provide strong, explicit, and
visible support and commitment to its corporate policy against violations of the anti-corruption laws
and its compliance code.

 

 

     3. RAE Systems will develop and promulgate compliance standards and procedures
designed to reduce the prospect of violations of the anti-corruption laws and RAE Systems’s
compliance code, and RAE Systems will take appropriate measures to encourage and support the
observance of ethics and compliance standards and procedures against foreign bribery by
personnel at all levels of the company. These anti-corruption standards and procedures shall
apply to all directors, officers, and employees and, where necessary and appropriate, outside
parties acting on behalf of RAE Systems in a foreign jurisdiction, including but not limited
to, agents and intermediaries, consultants, representatives, distributors, teaming partners,
contractors and suppliers, consortia, and joint venture partners (collectively, “agents and
business partners”), to the extent that agents and business partners may be employed under
RAE Systems’s corporate policy. RAE
Systems shall notify all employees that compliance with the standards and procedures is the
duty of
individuals at all levels of the company. Such standards and procedures shall include
policies
governing:

          a. gifts;

          b. hospitality, entertainment, and expenses;

          c. customer travel;

          d. political contributions;

          e. charitable donations and sponsorships;

          f. facilitation payments; and

          g. solicitation and extortion.

     4. RAE Systems will develop these compliance standards and procedures, including
internal controls, ethics, and compliance programs on the basis of a risk assessment
addressing the

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individual circumstances of the company, in particular the foreign bribery
risks facing the company,
including, but not limited to, its geographical organization, interactions with various types and
levels
of government officials, industrial sectors of operation, involvement in joint venture
arrangements,
importance of licenses and permits in the company’s operations, degree of governmental
oversight and inspection, and volume and importance of goods and personnel clearing through customs
and immigration.

     5. RAE Systems shall review its anti-corruption compliance standards and procedures,
including internal controls, ethics, and compliance programs, no less than annually, and
update them as appropriate, taking into account relevant developments in the field and evolving
international and industry standards, and update and adapt them as necessary to ensure their
continued effectiveness.

     6. RAE Systems will assign responsibility to one or more senior corporate executives
of RAE Systems for the implementation and oversight of RAE Systems’s anti-corruption
policies,
standards, and procedures. In addition to any other direct reporting required by the company,
such
corporate official(s) shall have direct reporting obligations to independent monitoring
bodies,
including internal audit, RAE Systems’s Board of Directors, or any appropriate committee of
the
Board of Directors, and shall have an adequate level of autonomy from management as well as
sufficient resources and authority to maintain such autonomy.

     7. RAE Systems will ensure that it has a system of financial and accounting
procedures,
including a system of internal controls, reasonably designed to ensure the maintenance of fair
and
accurate books, records, and accounts to ensure that they cannot be used for the purpose of
foreign
bribery or concealing such bribery.

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     8. RAE Systems will implement mechanisms designed to ensure that its anti-corruption
policies, standards, aid procedures are effectively communicated to all directors, officers,
employees, and, where appropriate, agents and business partners. These mechanisms shall
include:
(a) periodic training for all directors, officers, and employees, and, where necessary and
appropriate, agents and business partners; and (b) annual certifications by all such
directors, officers, and employees, and, where necessary and appropriate, agents, and
business partners, certifying compliance with the training requirements.

     9. RAE Systems will maintain, or where necessary establish, an effective system for:

          a. Providing guidance and advice to directors, officers, employees, and,
where
appropriate, agents and business partners, on complying with RAE Systems’s anti-corruption
compliance policies, standards, and procedures, including when they need advice on an urgent
basis or in any foreign jurisdiction in which the company operates;

          b. Internal and, where possible, confidential reporting by, and protection
of,
directors, officers, employees, and, where appropriate, agents and business partners, not
willing to
violate professional standards or ethics under instructions or pressure from hierarchical
superiors, as well as for directors, officers, employee, and, where appropriate, agents and
business partners, willing to report breaches of the law or professional standards or ethics
concerning anti-corruption occurring within the company, suspected criminal conduct, and/or
violations of the compliance policies, standards, and procedures regarding the anti-corruption
laws for directors, officers,
employees, and, where necessary and appropriate, agents and business partners; and

          c. Responding to such requests and undertaking appropriate action in response
to such reports.

- 4 -

 

     10. RAE Systems will institute appropriate disciplinary procedures to address, among other
things, violations of the anti-corruption laws and RAE Systems’s anti-corruption compliance
code, policies, and procedures by RAE Systems’s directors, officers, and employees. RAE
Systems shall implement procedures to ensure that where misconduct is discovered, reasonable
steps are taken to remedy the harm resulting from such misconduct, and to ensure that appropriate
steps are taken to prevent further similar misconduct, including assessing the internal
controls, ethics, and compliance program and making modifications necessary to ensure the program
is effective.

     11. To
the extent that the use of agents and business partners is permitted at all by
RAE Systems, it will institute appropriate due diligence and compliance requirements pertaining to
the retention and oversight of all agents and business partners, including:

          a. Properly documented risk-based due diligence pertaining to the hiring and
appropriate and regular oversight of agents and business partners;

          b. Informing agents and business partners of RAE Systems’s commitment to
abiding by laws on the prohibitions against foreign bribery, and of
RAE Systems’s ethics and
compliance standards and procedures and other measures for preventing and detecting such
bribery; and

          c. Seeking a reciprocal commitment from agents and business partners.

     12. Where
necessary and appropriate, RAE Systems will include standard provisions in
agreements, contracts, and renewals thereof with all agents and business partners that are
reasonably
calculated to prevent violations of the anti-corruption laws, which may, depending upon the
circumstances, include: (a) anti-corruption representations and undertakings relating to
compliance with the anti-corruption laws; (b) rights to
conduct audits of the books and records of the agent or

- 5 -

 

business partner to ensure compliance with the foregoing; and (c) rights to
terminate an agent or business partner as a result of any breach of anti-corruption laws, and
regulations or representations and undertakings related to such matters.

     13. RAE Systems will conduct periodic review and testing of its anti-corruption
compliance code, standards, and procedures designed to evaluate and improve their
effectiveness in preventing and detecting violations of anti-corruption laws and RAE Systems’s
anti-corruption code, standards and procedures, taking into account relevant developments in
the field and evolving international and industry standards.

- 6 -

 

APPENDIX C

CORPORATE COMPLIANCE REPORTING

     1. RAE Systems Inc. (“RAE Systems”) agrees that it will report periodically, at no less
than 12-month intervals, in accordance with the schedule described in Paragraph 3 below,
during the three-year term of this Agreement, to the United States Department of Justice,
Criminal Division,
Fraud Section, and the U.S. Attorney’s Office for the Northern District of California
(collectively,
the “Department”) regarding remediation and implementation of the compliance program and
internal controls, policies, and procedures described in Appendix B.

     2. Should RAE Systems discover credible evidence, not already reported to the
Department, that questionable or corrupt payments or questionable or corrupt transfers of
property or interests may have been offered, promised, paid, or authorized by any RAE Systems
entity or person, or any entity or person working directly for RAE Systems, or that related false
books and records have been maintained, RAE Systems shall promptly report such conduct to
the Department.

     3. During the three-year term
of this Agreement, RAE Systems shall: (1) conduct an
initial review and prepare an initial report, and (2) conduct and prepare two
follow-up reviews and reports, as described below:

          a.
By no later than May 1, 2011,
RAE Systems shall issue a written report
covering calendar year 2010 and setting forth a complete description of its remediation
efforts to
date, its proposals reasonably designed to improve the policies and procedures of RAE
Systems for
ensuring compliance with the FCPA and other applicable anticorruption laws, and the parameters
of the subsequent reviews. The report shall be transmitted to Deputy Chief — FCPA Unit, Fraud
Section, Criminal Division, U.S. Department of Justice, 1400 New York Avenue, N.W., Bond

 

 

Building, Fourth Floor, Washington, D.C. 20005. RAE Systems may extend the time period for
issuance of the report with prior written approval of the Department.

          b. RAE Systems shall undertake two follow-up reviews, incorporating any comments
provided by the Department on its initial review and report, to further monitor and assess
whether the policies and procedures of RAE Systems are reasonably designed to detect and
prevent violations of the FCPA and other applicable anticorruption laws.

          c. The first follow-up review and report shall be completed by no more
than one-year after the initial review. The second follow-up review and report shall be completed by
no more
than one-year after the completion of the first follow-up review.

          d.
RAE Systems may extend the time period for submission of the follow-up
reports with prior written approval of the Department.

- 2 -Exhibit 10.13

Exhibit 10.13

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (“Agreement”) is made as of January 1, 2011 by and between Cyclacel
Pharmaceuticals, Inc., a Delaware corporation, (“Company”) and Spiro Rombotis (“the Executive”).

WHEREAS, Company and the Executive were parties to an Employment Agreement date January 1,
2008, as amended by the First Amendment to Employment Agreement of Spiro Rombotis, which expires by
its terms on January 1, 2011;

WHEREAS, Company desires to continue to retain the Executive’s services as its President and
Chief Executive Officer; and

WHEREAS, Company and the Executive are desirous of agreeing the terms and conditions of the
Executive’s employment with the Company as set forth herein.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and conditions
herein contained, the parties hereby agree as follows:

1. Employment. Company hereby employs the Executive and the Executive accepts such
employment according to the terms and conditions set forth in this Agreement.

2. Term. Except for earlier termination as hereinafter provided for, the term of the
Executive’s employment hereunder shall be for a period commencing on January 1, 2011 (“Commencement
Date”) and continuing through January 1, 2014; the third anniversary of the Commencement Date.
Notwithstanding the foregoing, the Executive’s employment by the Company hereunder may be earlier
terminated, subject to Section 9 hereof, upon the occurrence of any one of the following events:
(i) the Company’s decision to terminate the Executive, (ii) the Executive’s decision to voluntarily
resign or retire at any time or (iii) the parties’ mutual agreement in writing to terminate the
Executive’s employment hereunder at any time. The period of time between the Commencement Date and
termination of the Executive’s employment hereunder shall be referred to herein as the “Employment
Period”.

3. Position and Services.

(a) The Executive will hold the position of President and Chief Executive Officer of the
Company. The Executive will report directly to the Board of Directors of the Company (the “Board”)
and shall have such duties, responsibilities and authority with respect to such positions as are
set forth in the Bylaws of the Company, which duties and responsibilities shall in all events
include, but not be limited to, overall management responsibility for the operations and
administration of the Company.

(b) The Executive will be expected to be in the full-time employment of the Company, to devote
substantially all of his business time, attention and efforts to the performance of his duties
hereunder. Notwithstanding the foregoing, the Executive may make and manage personal business
investments of his choice and serve in any capacity with any civic, educational or charitable
organization, or any trade association, without seeking or
obtaining approval by the Board, provided such activities and service do not materially
interfere or conflict with the performance of his duties hereunder or violate the non-competition
provisions of Section 12 hereof.

 

 

 

(c) The Executive expressly agrees that during the Employment Period he will not be
interested, directly or indirectly, in any form, fashion or manner, as a partner, officer,
director, advisor, employee, consultant, controlling stockholder or in any other form or capacity,
in any other business or company, except that he would not be prohibited by Section 12 hereof to
serve as (a) member of one other Board of Directors of a commercial organization, or (b) a member
of one or more Boards of Directors or Trustees of a charitable organization, as may, upon advance
notice from the Executive be approved by the Board in its discretion after consideration of
possible conflicts, reputation(al) effects, time requirements and other interests of the Company.

In addition effective upon the Commencement Date, the Executive will be nominated to the Board for
a term ending at the 2014 annual meeting. The Board will use its best efforts to cause the
nomination of the Executive thereafter for reelection to the Board for successive terms, at every
time at which directors are nominated to the stockholders for election, as long as the Executive
serves as President and Chief Executive Officer unless the Executive declines such nomination in
writing to the Board. As with all members of the Board, the Executive’s continuation as a director
requires election as a director by the stockholders whenever directors are to be elected by the
stockholders.

4. Base Salary. Company shall pay to the Executive an initial base salary at an
annual rate of $490,383, subject to applicable income and employment tax withholdings and all other
required and authorized payroll deductions and withholdings. The Executive’s salary shall be
payable at the same time and basis as the Company pays its payroll in general. Increases in the
Executive’s annual base salary during the Employment Period may be effected from time to time based
upon the review and approval of the Compensation Committee of the Board (the “Compensation
Committee”). During the Employment Period, the Executive’s base salary rate shall not be reduced
below the initial base salary rate provided hereunder, nor below any increased base salary rate
that may be effected as provided hereunder, except if the Board, in response to exceptionally
adverse business circumstances makes a general temporary reduction in the compensation of the
executives of the Company.

5. Annual Incentive Bonus. In addition to the Executive’s base salary as provided
above, the Executive will be eligible for an annual cash incentive bonus for each calendar year of
the Employment Period. The bonus for which the Executive is eligible for each such year will be
based on a percentage of base salary and may be increased for above-plan performance as established
by the Compensation Committee in its discretion and upon consultation with the Executive at the
beginning of each year. The annual bonus hereunder will be payable based upon the satisfaction of
performance criteria that will be established by the Compensation Committee in its discretion and
upon consultation with the Executive at the beginning of each year, subject to the approval of the
Board. Such performance criteria will include corporate performance goals consistent with the
Company’s business plan for the year, as well as individual objectives for the Executive’s
performance that may be separate
from, but are consistent with, the Company’s business plan. The final determinations as to
the actual corporate and individual performance against the pre-established goals and objectives,
and the amount of the bonus payout in relationship to such performance, will be made by the
Compensation Committee in its sole discretion. To the extent the Company awards the Executive a
cash bonus, the bonus, if payable, shall be calculated and paid no later than two and a half months
following the later of the close of the calendar or Company fiscal year to which such bonus
relates.

 

2

 

6. Executive Benefits. The Executive shall be entitled to receive employment benefits
in accordance with the Company’s benefit policies in effect from time to time, including, without
limitation, 401(k) plan, medical, dental and life insurance, accidental death, travel accident,
short and long-term disability insurance, profit sharing, long-term incentive plans and 15 working
days of paid vacation annually.

7. Expenses. The Company shall reimburse the Executive for all reasonable and
necessary expenses incurred by him in connection with the performance of his services for the
Company upon submission of expense reports and documentation in accordance with the Company’s
policies. The Company may request additional documentation or a further explanation to substantiate
any expense submitted for reimbursement, and retains the discretion to approve or deny a request
for reimbursement. If an expense reimbursement is not exempt from Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), any reimbursement in one calendar year shall not
affect the amount that may be reimbursed in any other calendar year and a reimbursement (or right
thereto) may not be exchanged or liquidated for another benefit or payment. Any expense
reimbursements subject to Section 409A of the Code shall be made no later than the end of the
calendar year following the calendar year in which such business expense is incurred by the
Executive.

8. Indemnification. The Company shall indemnify the Executive in accordance with the
Company’s By-laws. The Company agrees that it will make all commercially reasonable efforts to
keep in full force and effect, for the duration of all applicable statute of limitations periods,
directors and officers liability insurance policies on terms at least as favorable to the Executive
as those in effect on the date hereof.

9. Termination. This Agreement does not grant the Executive any right or entitlement
to be retained by the Company. In the event of termination by the Company of the Executive’s
employment under the circumstances described below in this Section 9, the Executive shall be
entitled to the severance pay and benefits so specified.

(a) Certain Definitions. For purposes of this Section 9, the following terms shall
have the meanings given below:

(i) Termination For Cause. The employment of the Executive hereunder shall be deemed
to have been terminated “For Cause” if the Company shall have terminated the Executive as a result
of any of the following: (A) any act committed by the Executive which shall represent a breach in
any material respect of any of the terms of this Agreement and which breach is not cured within 30
days of receipt by the Executive of written notice
from the Company of such breach; (B) improper conduct, consisting of any willful act or
omission with the intent of obtaining, to the material detriment of the Company, any benefit to
which the Executive would not otherwise be entitled; (C) gross negligence, consisting of wanton and
reckless acts or omissions in the performance of the Executive’s duties to the material detriment
of the Company; (D) addiction to drugs or chronic alcoholism or (E) any conviction of, or plea of
nolo contendere to, a crime (other than a traffic violation) under the laws of the United States or
any political subdivision thereof provided that the Executive receives a copy of a resolution duly
adopted by a two thirds majority affirmative vote of the membership of the Board excluding the
Executive, at a meeting of the Board called and held for such purpose after the Executive has been
given reasonable notice of such meeting and has been given an opportunity, together with his
counsel, to be heard by the Board, finding that in the good faith opinion of the Board the
Executive was guilty of the conduct set forth and specifying the particulars thereof in detail.

 

3

 

(ii)  Termination Without Cause. The employment of the Executive hereunder shall be
deemed to have been terminated “Without Cause” upon (A) termination of employment by the Company
for any reason other than the reasons specified in Section 9(a)(i) hereof as termination “For
Cause” or (B) termination of employment by the Executive within 30 days following a “Constructive
Termination” event. For purposes hereof, the following shall constitute Constructive Termination
events: (1) any removal of the Executive from the position of President or Chief Executive Officer,
(2) any substantive reduction of the Executive’s duties, responsibilities or authority, including
any change in the Executive’s positions as President or Chief Executive Officer that results in
such a reduction, (3) a reduction by the Company in the Executive’s base salary in effect on the
date hereof or as may be increased from time to time except if the Board in response to exceptional
adverse business circumstances makes a general temporary reduction in the compensation of the
executives of the Company, (4) a failure by the Company to continue any bonus plans in which the
Executive is presently entitled to participate (the “Bonus Plans”) as the same may be modified from
time to time but substantially in the form currently in effect, or a failure by the Company to
continue the Executive as a participant in the Bonus Plans on at least the same basis as the
Executive presently participates in accordance with the Bonus Plans (other than for customary
yearly variations), (5) the Company’s requiring the Executive without the Executive’s express
written consent to be based anywhere other than within 50 miles of the Executive’s present office
location, except for required travel on the Company’s business to an extent substantially
consistent with the Executive’s present business travel obligations, (6) a failure by the Company
to offer Executive all benefits offered to all Company employees and (7) any purported termination
of the Executive’s employment which is not effected pursuant to the terms of this Agreement. No
such purported termination shall be effective.

The foregoing shall be treated as Constructive Termination events hereunder following the
expiration of 30 days from the date the Executive has notified Company (within 90 days) of the
occurrence of such event and the Executive’s intention to treat such event as a constructive
termination and terminate the Executive’s employment on the basis thereof, provided that Company
has not cured the constructive termination event before the expiration of such 30-day period.

 

4

 

(iii) Disability. The Executive shall be treated as having suffered a “Disability” if
the Executive is prevented from performing his duties hereunder by reason of illness or injury for
a period of either (A) six or more consecutive months from the First Date of Disability (as defined
below) or (B) eight months in the aggregate during any 12-month period. The date as of which the
Executive is first absent from employment as a result of such illness or injury shall be referred
to herein as the “First Date of Disability”. Notwithstanding the foregoing, if and only to the
extent that Executive’s disability is a trigger for the payment of deferred compensation, as
defined in Section 409A of the Code, “disability” shall have the meaning set forth in Section
409A(a)(2)(C) of the Code.

(iv) Change in Control. A “Change in Control” shall be deemed to have taken place if:

(A) there shall be consummated any consolidation or merger of the Company in which Company is
not the continuing or surviving corporation or pursuant to any transaction in which shares of the
Company’s capital stock are converted into cash, securities or other property, or any sale, lease,
exchange or other transfer in one transaction or a series of transactions contemplated or arranged
by any party as a single plan of all or substantially all of the assets of the Company, or the
approval of a plan of complete liquidation or dissolution of the Company adopted by the
stockholders of the Company; or

(B) any person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)) shall after the date hereof become the
beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more of the voting power of all then
outstanding securities of the Company having the right under ordinary circumstances to vote in an
election of the Board (including, without limitation, any securities of the Company that any such
person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise, shall be deemed beneficially owned by such person); or

(C) individuals who at the date hereof constitute the entire Board and any new directors
whose election by the Board, or whose nomination for election by the Company’s stockholders, shall
have been approved by a vote of at least a majority of the directors then in office who either were
directors at the date hereof or whose election or nomination for election shall have been so
approved (the “Continuing Directors”) shall cease for any reason to constitute a majority of the
members of the Board.

(b) Termination Without Cause. In the event of termination of the Executive’s
employment hereunder by Company “Without Cause” (other than for a Termination for a Change of
Control hereinafter separately provided for) the Executive shall be entitled to the following
severance pay and benefits:

(i) Severance Pay — severance payments in the form of continuation of the Executive’s base
salary as in effect immediately prior to such termination for a period of 12 months commencing on
the sixtieth (60th) day following the effective date of such
termination.

 

5

 

(ii) Benefits Continuation — continued coverage under the Company’s medical care and life
insurance benefit plans in which the Executive is participating at the time of termination, on the
same terms as applicable to other executive employees of the Company from time to time, over the
same period with respect to which the Executive’s base salary is continued as provided in Section
9(b)(i) hereof; provided, however, that the Company’s obligation to provide such coverages shall be
terminated if the Executive obtains substitute coverage from another employer of the Executive at
any time during the continuation period; the Executive shall be obligated to notify Company of any
such substitute coverage and the date of commencement thereof promptly upon obtaining any such
coverage; the Executive shall be entitled, at the expiration of the period of benefits continuation
under this Section 9(b)(ii), to elect continued medical coverage upon timely election of COBRA
continuation coverage, in accordance with Section 4980B of the Internal Revenue Code of 1986, as
amended (or any successor provision thereto) with the Company premiums paid at the same percentage
as prior to the Executive’s termination; provided that, if COBRA continuation coverage is otherwise
earlier terminated under applicable law, then, in lieu of coverage, the Company will pay its share
of the monthly Company premium in effect prior to the termination of COBRA continuation coverage
directly to the Executive each month for the remainder of the relevant period. Any amounts paid by
the Company on Executive’s behalf under this Section 9(b)(ii) to continue the Executive’s medical
care and life insurance benefits shall be recorded as additional income pursuant to Section 6041 of
the Code and shall not be entitled to any tax qualified treatment; and

(iii) Stock Options — all options to purchase shares of the Company’s common stock held by the
Executive and which are vested immediately prior to termination of employment shall become
exercisable for a period of six months following the effective date of termination of employment.

(c) Termination following Change in Control. In the event of termination of the
Executive’s employment within six months following a Change of Control the Executive shall be
entitled to the following severance pay and benefits:

(i) Severance Pay — Severance payments in the form of continuation as the Executive’s base
salary as in effect immediately prior to such termination for a period of 24 months commencing on
the sixtieth (60th) day following the effective date of termination.

(ii) Benefits Continuation — continued coverage under the company’s medical care and life
insurance benefit plans in which the Executive is participating at the time of termination, or the
same terms as applicable to other executives of employees of the Company from time to time over the
same period with respect to which the Executive’s base salary is continued as provided in Section
9(c)(i) hereof provided, however that the Company’s obligation to provide such coverages shall be
terminated if the Executive attains substitute coverage from another employer at any time during
the continuation period; the Executive shall be obligated to notify Company of any such substitute
coverage and the date of commencement thereof promptly upon attaining any such coverage; the
Executive shall be
entitled after the expiration of the period of benefit continuation under the Section
9(c)(ii). Any amounts paid by the Company on Executive’s behalf under this Section 9(c)(ii) to
continue the Executive’s medical care and life insurance benefits shall be recorded as additional
income pursuant to Section 6041 of the Code and shall not be entitled to any tax qualified
treatment.

 

6

 

(iii) Stock Options — all options to purchase shares of the Company’s common stock held by the
Executive shall be vested and be exercisable for a period of 18 months following the effective date
of termination.

(iv) Return to London — the Company will reimburse Executive for out of pocket expenses
reasonably incurred by the Executive in connection with the relocation of Executive’s family and
household goods from the New York-New Jersey metropolitan area to London. Provided, however, that
the expenses are incurred on or before the last day of the second taxable year following the year
in which the Executive’s employment terminated.

(v) 280G Excise Tax — it is the intention of Executive and the Company that no payments made
or benefits provided by the Company to or for the benefit of Executive under this Agreement or any
other agreement or plan pursuant to which Executive is entitled to receive payments or benefits
shall be non-deductible to the Company by reason of the operation of Section 280G of the Code (the
“280G Excise Tax”), relating to golden parachute payments.

(A) The Company agrees that in the event any payments to Executive pursuant to this Agreement
would result in a payment to Executive that would trigger any 280G Excise Tax, if appropriate and
permissible, the Company shall first submit to its stockholders for approval the transaction that
may result in the imposition of the 280G Excise Tax upon Executive in accordance with the
regulations of the Internal Revenue Code governing shareholder approval of transactions giving rise
to 280G Excise Tax liability.

(B) If the procedure set forth in Section 9(c)(v)(A) is not available, if any payment, award,
benefit or distribution by the Company to or for the benefit of Executive would be subject to the
280G Excise Tax or any corresponding provisions of state or local tax laws as a result of payment
to Executive, or any interest or penalties are incurred by Executive with respect to such 280G
Excise Tax, then Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”) in an amount such that after payment by Executive of all taxes (including any interest or
penalties imposed with respect to such taxes) imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the 280G Excise Tax imposed upon the payments.

(d) Termination Upon Disability or Death. In the event of termination of the
Executive’s employment hereunder on account of the Executive’s “Disability” or death, the Executive
or the Executive’s heirs, estate or personal representatives under law, as applicable, shall be
entitled to the following severance pay and benefits:

(i) Severance Pay — severance payments in the form of continuation of the
Executive’s base salary as in effect immediately prior to such termination for a period of 12
months commencing on the sixtieth (60th) day following the effective date of the
termination, reduced by any amounts paid to the Executive in the time period following the First
Date of Disability and until the date of termination, and any payments received from any short-term
or long-term disability plan of the Company;

 

7

 

(ii) Benefits Continuation — the same benefits as provided in Section 9(c)(ii) above, to be
provided during the Employment Period while the Executive is suffering from Disability and for a
period of 12 months following the effective date of termination of employment by reason of
Disability; and

(iii) Stock Options — all options to purchase shares of the Company’s common stock held by the
Executive which are exercisable immediately prior to termination of employment shall remain
exercisable for a period of 12 months following the effective date of termination of employment.

(e) Other Terminations. In the event of termination of the Executive’s employment
hereunder for any reason other than those specified in subsections (b) through (d) of this Section
9, the Executive shall not be entitled to any severance pay, benefits continuation or stock option
rights contemplated by the foregoing provisions of this Section 9, except as otherwise provided in
the applicable benefit plans of the Company that cover the Executive.

(f) Accrued Rights. Notwithstanding the foregoing provisions of this Section 9, in
the event of termination of the Executive’s employment hereunder for any reason, the Executive
shall be entitled to payment of any unpaid portion of his base salary, computed on a pro-rata basis
through the effective date of termination, and payment of any accrued but unpaid rights in
accordance with the terms of any incentive bonus or employee benefit plan or program of the
Company.

(g) Conditions to Severance Benefits. (i) As conditions of the Executive’s
entitlement and continued entitlement to the severance payments and benefits provided by this
Section 9, the Executive is required to (i) honor in accordance with their terms the provisions of
Sections 10, 11 and 12 hereof and (ii) execute and honor the terms of a waiver and release of
claims against the Company substantially in the form attached hereto as Exhibit A (and as may be
modified consistent with the purposes of such waiver and release to reflect changes in law
following the date hereof), which must be effective and irrevocable prior to the sixtieth
(60th) day following the effective date of the termination of the Executive’s
employment. The parties hereto agree that the Executive is under no affirmative obligation to seek
to mitigate or offset the severance payments and benefits provided by this Section 9.

(ii) For purposes only of this Section, the Executive shall be treated as having failed to
honor the provisions of Sections 10, 11 or 12 hereof only upon the passing of a resolution by a
majority of the Board making such a determination following notice of the alleged failure by
Company to the Executive, an opportunity for the Executive to cure the
alleged failure for a period of 30 days from the date of such notice and the Executive’s
opportunity to be heard on the issue by the Board.

 

8

 

(iii) Stock Options. Notwithstanding any other provisions of this Agreement to the
contrary, in the event that the Executive continues to serve as a member of the Board following his
termination of employment from the Company, his rights with respect to vesting and exercisability
of his then outstanding options shall continue under the same terms and conditions as if the
Executive had not terminated employment until such time as the Executive is no longer providing
services to the Company as a non-executive member of the Board. In addition, any option which is
deemed to be an Incentive Stock Option pursuant to Section 422 of the Code, shall become a
Nonqualified Stock Option on the date that is three months after termination of Executive’s
employment.

10. Confidentiality. The Executive agrees that he will not at any time during the
term hereof or thereafter for any reason, in any fashion, form or manner, either directly or
indirectly, divulge, disclose or communicate to any person, firm, corporation or other business
entity, in any manner whatsoever, any confidential information or trade secrets concerning the
business of the Company (including the business of any unit thereof), including, without limiting
the generality of the foregoing, the names of any of its customers, the prices at which it obtains
or has obtained any products or services, the techniques, methods or systems of its operation or
management, any customer proposals or other business opportunities, any information regarding its
financial matters, or any other material information concerning the business of the Company, its
manner of operation, its plans or other material data. The provisions of this paragraph shall not
apply to (i) information disclosed in the performance of the Executive’s duties to the Company
based on his good faith belief that such a disclosure is in the best interests of the Company; (ii)
information that is public knowledge; (iii) information disseminated by the Company to others in
the ordinary course of the Company’s business, in order to further such business, provided the
recipient of such information agrees to be subject to a confidentiality obligation at least
comparable to that herein; (iv) information or knowledge lawfully received by the Executive from a
third party who, based upon due inquiry by the Executive, is not bound by a confidential
relationship to the Company; or (v) information disclosed under a requirement of law or as directed
by applicable legal authority having jurisdiction over the Executive.

11. Inventions. (i) To the extent that any of the Company’s current or future
products or services relate to, embody or incorporate concepts, technology or products of any kind
relevant to the Company or its subsidiaries or affiliates that the Executive directly or indirectly
conceived or developed prior to the date hereof during the period of his employment by Company
(“Prior Technology”), the Executive assigns in perpetuity to Company any and all of his rights,
title and interests, if any, to utilize, without any cost to the Company, such Prior Technology,
and the Executive agrees to assist Company in taking all action that may be reasonably required, at
the Company’s expense, to secure for the Company the benefits of the Executive’s ownership or
rights, if any, to use all such Prior Technology.

 

9

 

(ii) The Executive is hereby retained in a capacity such that the Executive’s responsibilities
include the making of technical, managerial and promotional contributions of
value to the Company. The Executive hereby assigns to Company all rights, title and interest in
such contributions and inventions made or conceived by the Executive alone or jointly with others
which relate to the business of the Company. This assignment shall include (a) the right to file
and prosecute patent applications on such inventions in any and all countries, (b) the patent
applications filed and patents issuing thereon, and (c) the right to obtain copyright, trademark or
trade name protection for any such work product. The Executive shall promptly and fully disclose
all such contributions and inventions to the Company and assist the Company in obtaining and
protecting the rights therein (including patents thereon), in any and all countries; provided,
however, that said contributions and inventions will be the property of the Company, whether or not
patented or registered for copyright, trademark or trade name protection, as the case may be.
Inventions conceived by the Executive which are not related to the business of the Company (as
determined in good faith by the Board), will remain the property of the Executive.

12. Non-Competition. (i) the Executive agrees that he shall not during the
Employment Period and for a period of one year after the termination or end thereof for any reason,
without the approval of the Board which, after the end of the Employment Period, shall not
unreasonably be withheld or delayed, directly or indirectly, alone or as partner, joint venturer,
officer, director, employee, consultant, agent, independent contractor or controlling stockholder
(other than as provided below) of any Company or business, engage in any “Competitive Business”
within the United States. For purposes of the foregoing, the term “Competitive Business” shall
mean any business involved in the research, development, or sale of anticancer targeted
therapeutics that are nucleoside analogues, CDK inhibitors or Aurora/VEGFR2 inhibitors and/or
medicines for the treatment of radiation dermatitis or xerostomia or any other business in which
the Company has been engaged up to and until the relevant time (as determined by the Board of
Directors); provided that, this provision shall in no way prevent the Executive, after the end of
the Employment Period, from being employed as a consultant.

(ii) Notwithstanding the provisions of clause (i) above or any other provision of this
Agreement to the contrary, the Executive shall not be prohibited during the period applicable under
clause (i) above from acting as a passive investor where (a) in the case of a Competitive Business
being a public corporation, the Executive owns not more than five percent (5%) of the issued and
outstanding capital stock or such higher percentage or amount as may be approved by the Board upon
notice from the Executive prior to obtaining such interest; provided, however, that the Executive
shall not be treated as having violated the provisions of this Section 12 if in good faith he is
unaware that an entity in which he has an investment interest would be treated as a Competitive
Business and, upon becoming aware of such involvement, the Executive makes reasonable efforts to
divest himself of his interest in such business; (b) in the case of any employer or entity other
than a Competitive Business that is engaged in, or whose affiliates are engaged in, the development
or marketing of products or technologies that are directly or indirectly competitive with any
product or technology that is developed or marketed or proposed to be developed or marketed by
Company during the Employment Period, the Executive owns not more than five percent (5%) of the
issued and outstanding capital stock; or (c) receiving stock, options or warrants from any entity
with
which the Executive can have a relationship pursuant to clause (i) above as part of the Executive’s
compensation for services rendered or to be rendered.

 

10

 

13. Breach of Restrictive Covenants. The parties agree that a breach or violation of
Sections 10, 11 or 12 hereof will result in immediate and irreparable injury and harm to the
innocent party, who shall have, in addition to any and all remedies of law and other consequences
under this Agreement, the right to an injunction, specific performance or other equitable relief to
prevent the violation of the obligations hereunder.

14. Non-Disparagement. The Executive agrees that he will not, whether during his
provision of services to the Company or thereafter, directly or indirectly, make, cause to be made,
or ratify any statement, public or private, oral or written, to any person that disparages, either
professionally or personally, the Company or any of its affiliates, past and present, and each of
them, as well as its and their trustees, directors, officers, agents, attorneys, insurers,
employees, stockholders, representatives, assigns, and successors, past and present, and each of
them.

15. Notices. Any notice required to be given pursuant to the provisions of this
Agreement shall be in writing and, if mailed, sent by registered mail, postage prepaid, to the
party named at the address set forth below, or at such other address as each party may hereafter
designate in writing to the other party:

	 	 	 
	

	Company:	200 Connell Drive #1500
	 

	 	Berkeley Heights, NJ 07922
	 

	 	Attention: Chairman of the Board
	 
	 	 
	

	Executive:	c/o Cyclacel Pharmaceuticals, Inc.
	 

	 	200 Connell Drive #1500
	 

	 	Berkeley Heights, NJ 07922

Any such notices shall be deemed to have been delivered when served personally in the manner
specified above.

16. Dispute Resolution. The parties shall waive trial by jury in any dispute between
them.

17. Entire Agreement.

(a) Change, Modification, Waiver. No change or modification of this Agreement shall
be valid unless it is in writing and signed by each of the parties hereto. No waiver of any
provision of this Agreement shall be valid unless it is in writing and signed by the party against
whom the waiver is sought to be enforced. The failure of a party to insist upon strict performance
of any provision of this Agreement in any one or more instances shall not be construed as a waiver
or relinquishment of the right to insist upon strict compliance with such provision in the future.

(b) Integration of All Agreements. This Agreement constitutes the entire
Agreement between the parties and is intended to be an integration of all agreements between
the parties with respect to the Executive’s service with Company. Except as provided in Section 8
hereof concerning the Indemnification Agreement, any and all prior agreements between the Executive
and the Company with respect to the Executive’s service with the Company are hereby revoked.

 

11

 

(c) Severability of Provisions. If for any reason any provision of this Agreement
should be declared void or invalid, such declaration shall not affect the validity of the rest of
this Agreement, which shall remain in force as if executed with the void or invalid provision
eliminated.

18. Binding Effect. This Agreement shall be binding upon all parties hereto and their
heirs, successors and assigns. This Agreement shall be assignable by Company to any entity
acquiring all or substantially all of the assets of the Company.

19. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New Jersey.

20. Miscellaneous.

(a) Form. As employed in this Agreement, the singular form shall include, if
appropriate, the plural.

(b) Headings. The headings employed in this Agreement are solely for the convenience
and reference of the parties and are not intended to be descriptive of the entire contents of any
paragraph and shall not limit or otherwise affect any of terms, provisions, or construction
thereof.

 

12

 

21. Compliance with Section 409A of the Code.

(a) The benefits set forth in this Agreement do not constitute non-qualified deferred
compensation subject Section 409A of the Code pursuant to Treas. Reg. §1.409A-(1)(b)(9)(iii). If
any of the benefits set forth in this Agreement are deemed to constitute non-qualified deferred
compensation subject to Section 409A of the Code, the following provisions shall apply: (i) any
termination of employment triggering payment of such benefits must constitute a “separation from
service” under Section 409A of the Code before distribution of such benefits can commence. For
purposes of clarification, this paragraph shall not cause any forfeiture of benefits on the part of
the Executive, but shall only act as a delay until such time as a “separation from service” occurs;
(ii) if the Executive is a “specified employee” (as that term is used in Section 409A of the Code
and regulations and other guidance issued thereunder) on the date his separation from service
becomes effective, any benefits payable under Section 9 that constitute non-qualified deferred
compensation subject to Section 409A of the Code shall be delayed until the earlier of (A) the
business day following the six-month anniversary of the date his separation from service becomes
effective, and (B) the date of the Employee’s death, but only to the extent necessary to avoid the
imposition of accelerated or increased income taxes, excise taxes or other penalties under
Section 409A of the Code. On the earlier of (A) the business day following the six-month
anniversary of the date his separation from service becomes effective, and (B) the Executive’s
death, the Company shall pay the Executive in a lump sum the aggregate value of the non-qualified
deferred compensation that the Company otherwise would have paid the Executive prior to that date
under Section 9 of this Agreement; (iii) it is intended that each installment of the payments and
benefits provided under this Agreement shall be treated as a separate “payment” for purposes of
Section 409A of the Code; and (iv) neither the Company nor Executive shall have the right to
accelerate or defer the delivery of any such payments or benefits except to the extent specifically
permitted or required by Section 409A of the Code.

(b) Notwithstanding any other provision of this Agreement to the contrary, if any term in the
Agreement is ambiguous, such term or terms shall be interpreted in a manner that avoids the
inclusion of compensation in income under Section 409A(a)(1) of the Code. For purposes of
clarification, this Section 20 shall be a rule of construction and interpretation and nothing in
this Section 20 shall cause a forfeiture of benefits on the part of the Executive.

[signature page follows]

 

13

 

IN WITNESS WHEREOF, this Agreement is executed as of the date first above written.

	 	 	 	 	 	 	 	 	 
	 	 	CYCLACEL PHARMACEUTICALS, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	/s/ Dr. David U’Prichard	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Name:	Dr. David U’Prichard	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	Title:	Chairman of the Board of Directors	 	 	 
	 

	 	 	 	 	 	 

	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	SPIRO ROMBOTIS	 	 
	 
	 	/s/ Spiro Rombotis	 	 	 	 	 	 
	 	 	 	 	 

 

14

 

EXHIBIT A

1. Your Release of Claims. You hereby agree and acknowledge that by signing this
Agreement, and for other good and valuable consideration, you are waiving your right to assert any
and all forms of legal claims against the Company1/ of any kind whatsoever, whether
known or unknown, arising from the beginning of time through the date you execute this Agreement
(the “Execution Date”). Except as set forth below, your waiver and release herein is intended to
bar any form of legal claim, complaint or any other form of action (jointly referred to as
“Claims”) against the Company seeking any form of relief including, without limitation, equitable
relief (whether declaratory, injunctive or otherwise), the recovery of any damages, or any other
form of monetary recovery whatsoever (including, without limitation, back pay, front pay,
compensatory damages, emotional distress damages, punitive damages, attorneys fees and any other
costs) against the Company, for any alleged action, inaction or circumstance existing or arising
through the Execution Date.

Without limiting the foregoing general waiver and release, you specifically waive and release
the Company from any Claim arising from or related to your prior employment relationship with the
Company or the termination thereof, including, without limitation:

	 	**	 	Claims under any state or federal discrimination, fair employment practices or
other employment related statute, regulation or executive order (as they may have been
amended through the Execution Date) prohibiting discrimination or harassment based upon
any protected status including, without limitation, race, national origin, age, gender,
marital status, disability, veteran status or sexual orientation. Without limitation,
specifically included in this paragraph are any Claims arising under the Age
Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Americans With Disabilities Act and any similar Federal and
state statute.

	 	**	 	Claims under any other state or federal employment related statute, regulation
or executive order (as they may have been amended through the Execution Date) relating
to wages, hours or any other terms and conditions of employment.

	 	**	 	Claims under any state or federal common law theory including, without
limitation, wrongful discharge, breach of express or implied contract, promissory
estoppel, unjust enrichment, breach of a covenant of good faith and fair dealing,
violation of public policy, defamation, interference with contractual relations,
intentional or negligent infliction of emotional distress, invasion of privacy,
misrepresentation, deceit, fraud or negligence.

	 	**	 	Any other Claim arising under state or federal law.

 

	 	 	 
	1/	 	For purposes of this Agreement, the Company includes
the Company and any of its divisions, affiliates (which means all persons and
entities directly or indirectly controlling, controlled by or under common
control with the Company), subsidiaries and all other related entities, and its
and their directors, officers, employees, trustees, agents, successors and
assigns.

 

15

 

Notwithstanding the foregoing, nothing contained in this Release constitutes a waiver of any
Claims you may have against the Company arising from or related to the Indemnification Agreement
and By-laws provisions referenced in Section 8 of the Employment Agreement, dated January 1, 2011,
entered into between you and the Company.

You acknowledge and agree that, but for providing this waiver and release, you would not be
receiving the economic benefits being provided to you under the terms of this Agreement.

It is the Company’s desire and intent to make certain that you fully understand the provisions
and effects of this Agreement. To that end, you have been encouraged and given the opportunity to
consult with legal counsel for the purpose of reviewing the terms of this Agreement. Also, because
you are over the age of 40 and consistent with the provisions of the Age Discrimination in
Employment Act (“ADEA”), which prohibits discrimination on the basis of age, the Company is
providing you with twenty-one (21) days in which to consider and accept the terms of this Agreement
by signing below and returning it to me at: [name], [address].

You may rescind your assent to this Agreement if, within seven (7) days after you sign this
Agreement, you deliver by hand or send by mail (certified, return receipt and postmarked within
such 7 day period) a notice of rescission to me at the Company. The eighth day following your
signing of this Agreement is the Effective Date.

Also, consistent with the provisions of Federal and state discrimination laws, nothing in this
release shall be deemed to prohibit you from challenging the validity of this release under such
discrimination laws (the “ Discrimination Laws”) or from filing a charge or complaint of age or
other employment related discrimination with the Equal Employment Opportunity Commission (“EEOC”)
or state equivalent, or from participating in any investigation or proceeding conducted by the EEOC
or state equivalent. Further, nothing in this release or Agreement shall be deemed to limit the
Company’s right to seek immediate dismissal of such charge or complaint on the basis that your
signing of this Agreement constitutes a full release of any individual rights under the
Discrimination Laws, or to seek restitution to the extent permitted by law of the economic benefits
provided to you under this Agreement in the event that you successfully challenge the validity of
this release and prevail in any claim under the Discrimination Laws.

	 	 	 	 	 	 	 	 	 
	 

	 	By: 	 	 	 	 	 	 
	 	 	 	 	 	 
	 	 	 	Spiro Rombotis	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	Date signed:	 	 	 	 
	 

	 	 	 	 	 	 

	 	 

 

16

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