Document:

exv10w3

 

Exhibit 10.3

March 30, 2007

Ms. Diane E. Klein 

2173
W Spruce Drive

Chandler, AZ 85248

Dear Diane:

     The purpose of this letter is set forth a new agreement between you and Zila, Inc.
(the “Company”) with respect to your employment.
Accordingly, your March 4, 2005 letter
agreement is hereby revoked in its entirety and shall be of no further force or effect,
and this letter agreement (the “Agreement”) shall be substituted in its place and stead.
The effective date of this Agreement shall be January 1, 2007.

     1. Title. Your title will remain Vice President-Treasurer of the Company.

     2. Reporting Structure. You will report to the Company’s CFO or, in the absence of
someone filling that position, to me in my capacity as CEO of the Company.

     3. Responsibilities. Your responsibilities will be those consistent with the
above-described position and/or as they may be assigned to you by the Company.

     4. Base Salary. Your base salary will be paid at the rate of one hundred sixty
thousand dollars ($160,000.00) per year, less applicable withholdings as may be required
by law, in accordance with the Company’s regular payroll practices (currently bi-weekly).

     5. Auto allowance. You will receive an auto allowance of $700 per month, subject to
Internal Revenue Service regulations and paid in accordance with the Company’s regular
payroll practices.

     6. Eligibility for Performance Bonuses. You will continue to be eligible to
participate in whatever incentive bonus plan(s) the Company maintains, or successor plans
as may be applicable.

     7. Stock Options. Subject to approval of Zila, Inc.’s Board of Directors or its
Compensation Committee, you will continue to be eligible to receive stock option
grants to purchase the Company’s common stock under the Zila, Inc. 1997 Stock Option
Award Plan, as amended and restated September 30, 2004(the “Stock Option Plan”), or such
amended or restated stock option plan as may then be in effect, based on individual
performance and/or as may generally be commensurate with grants to other executive-level
management. All stock option grants shall be governed in all respects by the Stock Option
Plan or such amended or restated stock option plan as may then be in effect.

 

 

Ms. Diane E. Klein

March 30, 2007

Page 2

     8. Insurance. You will receive insurance benefits as generally provided to other
executive-level management. Currently, these consist of medical, dental and vision coverage for you
and your dependents, life insurance and short-term disability coverage for you, and directors and
officers’ liability insurance.

     9. Paid Time Off. You will receive paid time off (“PTO”) in accordance with the Company’s
regular PTO policy. You will also receive paid holidays in accordance with the Company’s regular
holiday policies.

     10. Other Benefits. You will receive other benefits as may generally be commensurate with
those provided to other executive-level management. Currently, these include participation in a
401(k) plan, an employee stock purchase plan, a flexible spending program/Section 125, and
employee recognition programs.

     11. Compensation and Terms of Employment Subject to Change. All terms and conditions of
employment, including all compensation terms, are subject to change at the Company’s discretion.

     12. At-Will Employment. Your employment with the Company is at will, meaning that it lawfully
can be terminated at any time by either you or the Company, with or without cause or notice.
Nothing contained in this Agreement changes the at-will nature of your employment.

     13. Severance Benefits. If the Company terminates your employment, you shall be eligible to
receive severance benefits in accordance with the following:

          13.1 Change in Control. If your employment is terminated because of a change in control of
the Company (“Change in Control”), you shall be entitled to receive severance pay in (i) an amount
equivalent to eighteen (18) months of your annual base salary in effect on the date your
employment is terminated; and (ii) an amount equivalent to the maximum cash bonus(es) (expressed
as a percentage of your annual base salary in effect on the date your employment is terminated)
for which you would have been eligible, during the eighteen (18) months following termination of
your employment had your employment not terminated and had you stayed in the position you occupied
as of termination of your employment, under any employee incentive bonus plan(s) in effect on the
date your employment is terminated. For purposes of this Agreement, “Change in Control” shall be
defined and governed by the definition of “change in control” contained in the Stock Option Plan,
or such amended or restated stock option plan as may then be in effect or, in the absence of such
plan, in the last such plan that was in effect. If the Company terminates your employment within
eighteen (18) months of a Change in Control, a presumption shall arise that the termination was
because of a Change in Control.

 

 

Ms. Diane E. Klein

March 30, 2007

Page 3

This presumption, however, shall be rebutted if a preponderance of the evidence shows that the
reason for your termination was something other than a Change in Control.

          13.2 Termination Without Cause. If the Company terminates your employment without cause
(“Without Cause”) and for a reason other than a Change in Control, you shall be entitled to receive
severance pay in an amount equivalent to eighteen (18) months of your annual base salary in effect
on the date your employment is terminated. For purposes of this Agreement, “Cause” shall mean (i)
your failure to correct a specific conduct or job-performance issue or issues about which you have
been informed in writing and given an opportunity to correct; or (ii) conduct or job performance
that the Company believes is sufficiently willful and/or egregious that providing you with written
notice and an opportunity to correct is an inadvisable business practice; or (iii) your inability
to perform your job (e.g., due to incapacity or death). If your employment terminates for any other
reason (with the exception of a termination because of a Change in Control), such termination shall
be deemed Without Cause and this subpart 13.2 shall apply.

          13.3 Stock Options and Restricted Stock. If your employment is terminated because of a Change
in Control or Without Cause, and upon expiration of any revocation period contained in the release
required by subpart 13.4 below, (i) any stock options granted prior to termination of your
employment shall be deemed immediately vested and exercisable according to their terms; and (ii)
all restrictions applicable to any restricted stock awarded prior to termination shall be deemed
immediately lifted. (Together, the severance pay set forth above and these stock benefits are the
“Severance Benefits”).

          13.4 Release Required. Severance Benefits will be provided and/or take effect only if you
provide the Company and its affiliated entities and persons with a written release, in a form
acceptable to the Company, from legal liability. In no event will any Severance Benefits be
provided or take effect until such release is executed and its revocation period (if any) under
applicable law has expired unexercised. If you fail to execute the release within thirty (30) days
of your receipt of same, your right to execute the release, and your corresponding right to
Severance Benefits, will be extinguished.

          13.5 No Other Right to Severance Benefits. Severance Benefits will not be provided and/or
take effect if you voluntarily resign from your employment, or your employment terminates for a
reason other than a Change in Control or Without Cause, or you do not qualify for Severance
Benefits pursuant to this Agreement for any other reason.

          13.6 Timing of Severance Pay. All sums payable to you pursuant to subparts 13.1 or 13.2 above
shall be paid in a lump sum within six (6) months plus one (1) business day after termination of
your employment (the “Payment Date”). However, if you are a “Specified Employee” of the Company
for purposes of Internal Revenue Code Section 409A (“Code Section 409A”) at the time of any event
that triggers a payment obligation on the part of the

 

 

Ms. Diane E. Klein

March 30, 2007

Page 4

Company pursuant to subparts 13.1 or 13.2, then the required payment shall be made to you by the
Company on the first day such payment may be made without incurring excise taxes under Code Section
409A (without regard to whether that shortens, lengthens or does not affect the time period set
forth in the first sentence of this subpart 13.6) (the “409A Payment Date”). Should this result in
a delay of payments to you beyond the Payment Date, then the Company shall also pay you interest
accrued from the Payment Date to the 409A Payment Date at the rate of interest announced by Bank of
America, Arizona from time to time as its prime rate. For purposes of this provision, the term
Specified Employee shall have the meaning set forth in Section 409A(2)(B)(i) of the Internal
Revenue Code of 1986, as amended, or any successor provision and the treasury regulations and
rulings issued thereunder.

          13.7 Termination of Your Right to Severance Benefits. Your right to receive Severance
Benefits shall immediately terminate if (i) you breach any contractual obligation you owe the
Company or violate any other promise or commitment you have made to the Company or duty you owe
the Company; (ii) you commence employment or other engagement with any person or entity that
competes with the Company or its affiliated companies; or (iii) you solicit, induce, or attempt to
influence any employee of the Company or its affiliated companies to terminate his or her
employment.

     14. Cooperation in Dispute Resolution. During your employment and thereafter (including
following termination of your employment for any reason), you will make yourself reasonably
available to consult with the Company or any of its affiliated companies with regard to any
potential or actual dispute the Company or any of its affiliated companies may have with any third
party concerning matters about which you have personal knowledge, and to testify about any such
matter should such testimony be required, so long as doing so does not unreasonably interfere with
your then-current professional activities.

     15. Applicable Law. You hereby consent to application of Arizona law to this Agreement
without regard to choice-of-law or conflict-of-law rules. However, in recognition of the fact that
the Severance Benefits set forth above are not items of ordinary compensation, and as an
inducement for the Company to agree to those provisions, we have specifically agreed that Arizona
Revised Statute § 23-355 (which provides for the possibility of treble damages for unpaid wages)
shall not apply to Paragraph 13 of this Agreement (or its
subparts), or to any payment(s) arguably
due under Paragraph 13 of this Agreement (or its subparts), or to any dispute arising under
Paragraph 13 of this Agreement (or its subparts). This does not affect your right to Severance
Benefits, but means that if we have a dispute about whether Severance Benefits are owed, you
cannot seek three times the amount of such Severance Benefits in a legal action.

     16. Severability. In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, in whole or in part, the remaining

 

 

Ms. Diane E. Klein

March 30, 2007

Page 5

provisions of this Agreement shall remain in full force and effect to the fullest extent permitted
by law.

     17. Other agreements. Like all Company employees, you may in the future be required, in the
Company’s reasonable discretion, to execute agreements relating to other Company policies or
substantive matters.

     I look forward to continuing to work together.

	 	 	 	 	 
	 

	 	Sincerely,
	 	 
	 
	 

	 		 	 
	 

	 	Douglas D. Burkett, Ph.D.	 	 
	 

	 	CEO and President	 	 

Statement of Acceptance:

     I have read the foregoing Agreement and agree to its terms.

	 	 	 	 	 	 	 	 	 
	Dated:

	 	April 5, 2007
 

	 	 	 	/s/ Diane E. Klein
 

Diane E. Kleinexv10w5

 

Exhibit 10.5

ZILA, INC.

RESTRICTED STOCK AGREEMENT

     This Restricted Stock Agreement (“Agreement”) is between Zila, Inc.
(“Company”), and
                     (“Grantee”), as of the ___ day of                     , 200___
(“Date of Grant”).

RECITALS

     A. The Company has adopted the Zila, Inc. Stock Award Plan (“Plan”) to provide
incentives to attract and retain those individuals whose services are considered unusually valuable
by providing them an opportunity to own stock in the Company.

     B. The Company believes that entering into this Agreement with the Grantee is consistent with
those purposes. Any capitalized term not defined in this Agreement will have the meaning as set
forth in the Plan.

     NOW, THEREFORE, the Company and Grantee agree as follows:

AGREEMENT

     1. GRANT OF RESTRICTED SHARES. Subject to the terms of this Agreement and the Plan,
the Company grants to Grantee
                     shares (“Restricted Shares”) of the Company’s common
stock (“Stock”). The delivery of any document evidencing the Restricted Shares is subject
to the provisions of Section 11 of the Plan.

     2. RIGHTS OF GRANTEE. Subject to the provisions of this Agreement and the Plan, as of
the Date of Grant, Grantee shall be a stockholder with respect to all of such Restricted Shares and
shall have all of the rights of a stockholder in the Company with respect to the Restricted Shares.

     3. RESTRICTIONS ON RESTRICTED SHARES.

          A. Limitations on Transfer. Grantee agrees to not sell, transfer, pledge, exchange,
hypothecate, grant any security interest in, or otherwise dispose of, any Restricted Shares before
the date on which the restrictions lapse under Section 4.A., or enter into any agreement or make
any commitment to do so. Any attempted sale, transfer, pledge, exchange, hypothecation or
disposition of the Restricted Shares shall be null and void, and the Company shall not recognize or
give effect to such transaction on its books and records (including the books and records of the
Company’s transfer agent) or recognize the person or persons to whom such sale, transfer, pledge,
exchange, hypothecation or disposition has been made as the legal or beneficial owner of the
Restricted Shares.

          B. Permitted Transfers. Notwithstanding 3.A., or any other provision of this
Agreement, Grantee may, upon the approval of the Committee, assign and transfer some or all of the
Restricted Shares as provided in Section 11(b) of the Plan, provided the transferee remains subject
to the restrictions and limitations in Section 3.A.

     4. LAPSE OF RESTRICTIONS.

          A. Schedule. Subject to the other conditions in this Agreement, the restrictions on
the Stock set forth in Section 3 will lapse under the following schedule:

          [INSERT SCHEDULE HERE]

          Notwithstanding the above, (i) the restrictions on the Stock shall lapse upon the events
specified in Section 10 of the Plan, and (ii) if the Grantee’s service is terminated for any reason
(whether with or without cause) the Grantee will be required to transfer all shares of Stock (that
remain subject to restrictions under Section 3) back to the Company for no consideration.

          B. Condition That Must be Satisfied Before Restrictions Lapse. Except as set forth in
Section 4.A above, the restrictions on the Stock will not lapse unless the Grantee remains in the
service of the Company (or a Subsidiary) as of the date the restrictions lapse in accordance with
the above schedule.

          C. Issuance of Certificates. The Company shall only be required to issue stock
certificates representing those Restricted Shares on which restrictions have lapsed in accordance
with the provisions of this Agreement. Within 60 days after restrictions on some or all of the
Stock have lapsed, the Company shall issue to Grantee a stock certificate representing those shares
of Stock that have become unrestricted.

 

 

     5. ACKNOWLEDGEMENTS AND REPRESENTATION OF GRANTEE. In connection with Grantee’s
receipt of the Restricted Shares, Grantee hereby acknowledges the following:

          A. Further Limitations on Disposition. Grantee understands and acknowledges that
Grantee may not make any sale, assignment, transfer or other disposition (including transfer by
gift or operation of law) of all or any portion of the Restricted Shares except in accordance with
this Agreement. Further, Grantee agrees to make no sale, assignment, transfer or other disposition
of all or any portion of the Restricted Shares unless there is then in effect a registration
statement under the Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement, or Grantee has obtained an opinion of the Company’s
counsel that such disposition does not require registration under the Securities Act of 1933.

          B. Section 83(b) Election. Grantee understands that Section 83 of the Internal
Revenue Code of 1986, as amended (“Code”) taxes as ordinary income the difference between
the amount paid for the Restricted Shares and the Fair Market Value of the Restricted Shares as of
the date any restrictions on the Restricted Shares lapse. In this context, “restriction” means the
restrictions set forth in Section 3 hereof. Grantee understands that Grantee may elect to be taxed
at the time the Restricted Shares are granted rather than when and as the Restricted Shares vest by
filing an election under Section 83(b) of the Code with the Internal Revenue Service within thirty
(30) days from the Date of Grant. Grantee understands that failure to make this filing timely
shall result in the recognition of ordinary income by Grantee on the Fair Market Value of the
Restricted Shares at the time such restrictions lapse.

THE GRANTEE ACKNOWLEDGES THAT IT IS THE GRANTEE’S SOLE RESPONSIBILITY,
AND NOT THE COMPANY’S, TO FILE TIMELY THE ELECTION UNDER SECTION 83(b)
OF THE CODE, EVEN IF THE GRANTEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVES TO MAKE THIS FILING ON THE GRANTEE’S BEHALF.

     6. FEDERAL AND STATE TAXES. Grantee may incur certain liabilities for Federal, state,
or local taxes in connection with the grant of the Restricted Shares hereunder, and the Company may
be required by law to withhold such taxes. Upon determination of the year in which such taxes are
due and the determination by the Company of the amount of taxes required to be withheld, Grantee
shall pay an amount equal to the amount of Federal, state, or local taxes required to be withheld
to the Company. If Grantee fails to make such payment in a timely manner, the Company may withhold
and set-off against compensation payable to Grantee the amount of such required payment.

     7. ADJUSTMENT OF SHARES. The number of Restricted Shares issued to Grantee pursuant
to this Agreement shall be adjusted by the Committee pursuant to Section 11(c) of the Plan.

     8. AMENDMENT OF AGREEMENT. This Agreement may only be amended with the written
approval of Grantee and the Company.

     9. GOVERNING LAW. This Agreement shall be governed in all respects, whether as to
validity, construction, capacity, performance, or otherwise, by the laws of the State of Arizona,
without regard to conflicts-of-laws principles that would require the application of any other law.

     10. SEVERABILITY. If any provision of this Agreement, or the application of any such
provision to any person or circumstance, is held to be unenforceable or invalid by any court of
competent jurisdiction or under any applicable law, the parties hereto shall negotiate an equitable
adjustment to the provisions of this Agreement with the view to effecting, to the greatest extent
possible, the original purpose and intent of this Agreement, and in any event, the validity and
enforceability of the remaining provisions of this Agreement shall not be affected thereby.

     11. ENTIRE AGREEMENT. This Agreement constitutes the entire, final, and complete
agreement between the parties hereto with respect to the subject matter hereof and supersede all
prior agreements, promises, understandings, negotiations, representations, and commitments, both
written and oral, between the parties hereto with respect to the subject matter hereof. Neither
party hereto shall be bound by or liable for any statement, representation, promise, inducement,
commitment, or understanding of any kind whatsoever not expressly set forth in this Agreement.

     IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly
authorized representative and Grantee has signed this Agreement, in each case as of the day and
year first written above.

	 	 	 	 	 	 	 	 	 
	 	 	ZILA, INC.	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	By:	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 

	 	 	 	Its:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	GRANTEE:  	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 
	 	 

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