EXHIBIT 10.2
EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT
This EXECUTIVE CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement")
is dated and effective as of ___________________, 2004, between GUILFORD
PHARMACEUTICALS INC., (the "Employer"), and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the "Executive").
WHEREAS, the Executive has been engaged to serve as President
and Chief Executive Officer of the Employer by an Offer Letter dated November
16, 2004( the "Offer Letter"), and in that role is expected to be important in
developing and expanding the business and operations of the Employer and
possesses valuable knowledge and skills with respect to such business; and
WHEREAS, the Board of Directors of the Employer (the "Board")
believes that it is in the best interests of the Employer to encourage the
Executive's continued employment with and dedication to the Employer, including
in the face of potentially distracting circumstances arising from the
possibility of a change in control of the Employer; and
WHEREAS, the Board has adopted a policy which authorizes the
Employer to enter into this Agreement with the Executive; and
WHEREAS, the parties desire to enter into this Agreement
setting forth the terms and conditions for the payment of compensation to the
Executive in the event of a termination of the Executive's employment during the
term of this Agreement due to a Change in Control;
NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and agreements of the parties contained herein and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows:
1. DEFINITIONS.
The following capitalized terms are defined in the sections of this
Agreement listed beside such terms:
TERM SECTION TERM SECTION
------------------------- -------- -------------------------- -------
Agreement Preamble Current Annual Base Salary 6
Annual Base Salary 6 Date of Termination 4.1
Accounting Firm 5.2 Exchange Act 9
Board Preamble Excise Tax 5.1
Cause 7 Good Reason 8
Change in Control 9 Gross Up Payment 5.1
Change in Control Event 9 Payment 5.1
Change in Control Period 4 Underpayment 5.2
2. TERM.
The term of this Agreement shall be for a period commencing as
of the date set forth above and will remain in effect until the earlier of the
date on which (a) all obligations of the parties hereto shall have been
satisfied, (b) the agreement is terminated by the mutual written agreement of
the parties, or (c) the agreement is terminated pursuant to terms contained
elsewhere herein.
3. TERMINATION OF EMPLOYMENT OTHER THAN FOLLOWING A CHANGE IN CONTROL
EVENT.
If, prior to a Change in Control Event (as defined in SECTION
9), the Executive's employment is terminated by the Employer with or without
Cause (as defined in SECTION 7) during the term of this Agreement or the
Executive voluntarily terminates his employment with or without Good Reason (as
defined in SECTION 8), this Agreement shall, subject to the provisions contained
in SECTION 17 below, terminate.
4. TERMINATION OF EMPLOYMENT FOLLOWING A CHANGE IN CONTROL EVENT.
Subject to the terms of this Agreement, including without
limitation SECTION 17 below, the Executive shall be entitled to receive
severance payments from the Employer for services previously rendered to the
Employer and its affiliates if a Change in Control Event occurs during the term
of this Agreement and the Executive's employment is terminated by the Executive
for Good Reason or by the Employer other than for Cause during the period
commencing upon such Change in Control Event and ending two years after a Change
in Control (as defined in SECTION 9)(the "Change in Control Period").
4.1. GOOD REASON; OTHER THAN FOR CAUSE.
If a Change in Control Event occurs during the term of this
Agreement and the Employer terminates the Executive's employment other than for
Cause or the Executive terminates employment for Good Reason during the Change
in Control Period:
(i) the Employer shall pay to, or provide, the Executive the
following amounts and benefits:
A. all payments and benefits due the Executive
pursuant to the terms of paragraph 6(a) of the Offer Letter,
together with outplacement support through Right Management
Consultants' CEO level program, provided that Executive
initiates participation in the program within 60 days of the
date of such termination of employment; and
B. the amount equal to three (3) times the
Executive's Annual Base Salary, which amount shall be payable
in full in a lump sum in cash no later than 10 days following
the date of termination.
(ii) for three (3) years after the date on which the
Executive's employment with the Employer is terminated, by the Employer
or by the Executive, for any reason (the "Date of Termination"), or
such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Employer shall continue benefits
to the Executive and/or the Executive's family at least equal to those
which would have been provided to them in accordance with the welfare
benefit plans, practices, policies and programs provided by the
Employer and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, Executive life, group life,
accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other executive-level Executives of
the Employer and its affiliated companies, as if the Executive's
employment had not been terminated; provided, that such benefits shall
be provided to the Executive in a manner that does not cause him to be
liable for federal income tax thereon in
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an amount in excess of that which he would be liable for as an employee
(or the Employer shall gross up such amounts to so that the Executive
has no additional after tax cost; and further provided, however, that
if the Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under another
employer provided plan, the medical and other welfare benefits
described herein shall be secondary to those provided under such other
plan during such applicable period of eligibility.
4.2. CAUSE; OTHER THAN FOR GOOD REASON.
IF THE EXECUTIVE'S EMPLOYMENT IS TERMINATED FOR CAUSE DURING THE CHANGE
IN CONTROL PERIOD, THIS AGREEMENT SHALL TERMINATE WITHOUT FURTHER
OBLIGATIONS TO THE EXECUTIVE HEREUNDER. FURTHERMORE, IF THE EXECUTIVE
VOLUNTARILY TERMINATES EMPLOYMENT DURING THE CHANGE IN CONTROL PERIOD
OTHER THAN FOR GOOD REASON, THIS AGREEMENT SHALL TERMINATE WITHOUT
FURTHER OBLIGATIONS TO THE EXECUTIVE HEREUNDER.
5. CERTAIN ADDITIONAL PAYMENTS BY EMPLOYER.
5.1. GENERAL
Notwithstanding anything in this Agreement to the contrary and
except as set forth in this SECTION 5, in the event it shall be determined that
any payment or distribution by the Employer to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this SECTION 5) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Code or any interest or
penalties are incurred by the Executive with respect to such excise tax (such
excise tax, together with any such interest and penalties, are hereinafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes, including, without
limitation, any income and payroll taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
(including any interest or penalties imposed with respect to such taxes) imposed
upon the Payments.
5.2. PROCEDURES
Subject to the provisions of SECTION 5.3, all determinations
required to be made under this SECTION 5, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by KPMG LLP or
such other certified public accounting firm as may be designated by the
Executive and reasonably acceptable to the Employer (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Employer and
the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested by
the Employer. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change in Control, the
Executive may appoint another nationally recognized accounting firm and
reasonably acceptable to the Employer to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Employer. Any Gross-Up Payment, as determined pursuant to this
SECTION 5, shall be paid by the
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Employer to the Executive within five business days of the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm shall
be binding upon the Employer and the Executive, subject to any determination
otherwise by the Internal Revenue Service. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the initial determination
by the Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the Employer should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Employer exhausts its remedies pursuant to SECTION 5.3 and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Employer to or for the
benefit of the Executive. In addition, in certain instances an election may be
made to recalculate the Excise Tax under applicable law. The Employer may
exercise such election and cause a recalculation to be made by the Accounting
Firm, subject to the other provisions hereof.
5.3. NOTIFICATION OF CLAIMS
The Executive shall notify the Employer in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Employer of the Gross-Up Payment. The Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
which it gives such notice to the Employer (or such shorter period ending on the
date that any payment of taxes with respect to such claim is due). If the
Employer notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(i) give the Employer any information reasonably requested by
the Employer relating to such claim,
(ii) take such action in connection with contesting such claim
as the Employer shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by attorneys reasonably selected by the Employer,
(iii) cooperate with the Employer in good faith in order
effectively to contest such claim, and
(iv) permit the Employer to participate in any proceedings
relating to such claim;
provided, however, that the Employer shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this SECTION 5.3, the Employer shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and ▇▇▇ for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Employer shall
determine; provided, however, that if the Employer directs the Executive to pay
such claim and ▇▇▇ for a refund, the
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Employer shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Employer's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
5.4. REFUNDS
If, after the receipt by the Executive of an amount advanced
by the Employer pursuant to SECTION 5.3, the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall (subject to
the Employer's complying with the requirements of SECTION 5.3) promptly pay to
the Employer the amount of such refund (together with any interest actually paid
or credited thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Employer pursuant to SECTION 5.3, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Employer does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
5.5 ▇▇▇▇▇▇▇▇-▇▇▇▇▇ ACT
No provision of this Section 5 is intended to be in violation
of the loan prohibitions of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act and to the extent any payment
would be in violation thereof, such amounts shall be deemed a payment to the
Executive with no obligation to refund or otherwise repay.
6. DEFINITION OF ANNUAL BASE SALARY.
Annual base salary ("Annual Base Salary") means the greater of
(a) the annual base salary payable to the Executive by the Employer and its
affiliates as of the Date of Termination of employment (the "Current Annual Base
Salary") or (b) the amount equal to twelve times the highest monthly base salary
paid or payable, including any base salary which has been earned but deferred,
to the Executive by the Employer and its affiliated companies in respect of the
twelve-month period immediately preceding the month in which the Date of
Termination occurs.
7. DEFINITION OF CAUSE.
"CAUSE" shall have the meaning such term is given in the offer letter.
8. DEFINITION OF GOOD REASON.
"Good Reason" shall have the meaning such term is given in the
Offer Letter.
9. DEFINITION OF CHANGE IN CONTROL AND CHANGE IN CONTROL EVENT.
A "Change in Control" shall be deemed to have occurred if:
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(a) any "person" (including, without limitation, any
individual, sole proprietorship, partnership, trust, corporation, association,
joint venture, pool, syndicate, or other entity, whether or not incorporated),
or any two or more persons acting as a syndicate or group or otherwise acting in
concert with regard to the ownership of securities of the Employer and thereby
deemed collectively to be a "person") as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
becomes, after the date hereof, the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Employer
representing thirty percent (30%) or more of the combined voting power of the
Employer's then outstanding securities, unless, in transaction in which a
"person" becomes, after the date hereof, the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the
Employer representing less than fifty percent (50%) of the combined voting power
of the Employer's then outstanding securities, prior to the acquisition by such
person of securities of the Employer which causes such person to have such
beneficial ownership, the full Board shall by at least a two-thirds vote have
specifically approved such acquisition and determined that such acquisition
shall not constitute a Change in Control for purposes of this Agreement despite
such beneficial ownership;
(b) during any two (2) year period, individuals who at the
beginning of such period constitute the Board, together with any new directors
elected or appointed during the period whose election or appointment resulted
from a vacancy on the Board caused by retirement, death , or disability of a
director and whose election or appointment was approved by a vote of at least
two-thirds (2/3rds) of the directors then still in office who were directors at
the beginning of the period, cease for any reason to constitute a majority
thereof; or
(c) the Employer consolidates with, or merges with or into
another entity or sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets to any person, or any entity
consolidates with, or merges with or into, the Employer (a "Transaction"), in
any such event pursuant to a Transaction in which the owners of outstanding
voting stock of the Employer immediately prior to such Transaction do not
represent at least a majority of the voting power in the surviving entity after
the Transaction in approximately in the same proportions; or
(d) the shareholders of the Employer approve a plan of
liquidation or dissolution.
A "Change in Control Event" shall mean the earlier of (i) a
Change in Control or (ii) the execution and delivery by the Employer of an
agreement providing for a Change in Control.
10. EXPENSES.
The Employer shall pay any and all reasonable legal fees and
expenses incurred by the Executive in seeking to obtain or enforce, by bringing
an action against the Employer, any right or benefit provided in this Agreement
if the Executive is successful in whole or in part in such action.
11. WITHHOLDING.
Notwithstanding anything in this Agreement to the contrary,
all payments required to be made by the Employer hereunder to the Executive or
his estate or beneficiaries shall be subject to the withholding of such amounts
relating to taxes as the Employer reasonably may determine it should withhold
pursuant to any applicable law or regulation. In lieu of withholding such
amounts,
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in whole or in part, the Employer may, in its sole discretion, accept other
provisions for the payment of taxes and any withholdings as required by law,
provided that the Employer is satisfied that all requirements of law affecting
its responsibilities to withhold compensation have been satisfied.
12. NO DUTY TO MITIGATE.
The Executive's payments received hereunder shall be
considered severance pay in consideration of past service, and pay in
consideration of continued service from the date hereof and entitlement thereto
shall not be governed by any duty to mitigate damages by seeking further
employment or otherwise and Employer shall not be entitled to any offset for any
amounts Executive earns while receiving payments hereunder.
13. AMENDMENTS OR ADDITIONS; ACTION BY THE BOARD OF DIRECTORS.
No amendments or additions to this Agreement shall be binding
unless in writing and signed by both parties hereto. The prior approval of the
Board shall be required in order for the Employer to authorize any amendments or
additions to this Agreement, unless this requirement is specifically waived in
writing by the Executive in any document affecting any such amendment.
14. GOVERNING LAW; JURISDICTION.
This Agreement shall be governed by the laws of United States
to the extent applicable and otherwise by the laws of the State of
Maryland,
excluding any choice of law rules. In the event that an unresolved dispute
arises over the enforcement, interpretation, construction or breach of this
Agreement, the parties agree that it shall be litigated in the U.S. District
Court for the District of
Maryland or in the circuit courts of Baltimore City,
Maryland, and the parties hereby irrevocably submit to the exclusive
jurisdiction of such courts for all purposes with respect to any legal action or
proceeding in connection with this Agreement.
15. ASSIGNMENT.
The rights and obligations of the Employer under this
Agreement shall be binding upon its successors and assigns and may only be
assigned by the Employer to the successor in interest of the Employer provided
that such successor executes a written assumption agreement, which is promptly
delivered to the Executive. The rights and obligations of the Executive under
this Agreement shall be binding upon his heirs, legatees, personal
representatives, executors or administrators. This Agreement may not be assigned
by the Executive, but any amount owed to the Executive upon his death shall
inure to the benefit of his heirs, legatees, personal representatives,
executors, or administrators.
16. NOTICE.
For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when hand delivered, sent by overnight courier,
or mailed by first-class, registered or certified mail, return receipt
requested, postage prepaid, or transmitted by telegram, telecopy, or telex
(against receipt of answerback confirming delivery), addressed as follows:
If to the Employer:
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▇▇▇▇▇▇▇▇ Pharmaceuticals Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: General Counsel
Fax: 410/▇▇▇-▇▇▇▇
If to the Executive, at the address maintained by the
Executive as set forth in the Employer's records or to such other address as
either party may have furnished to the other in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
In the case of notices sent by telegram or telecopy, which notice shall be
deemed duly given if made pursuant to the provisions of this SECTION 16 above,
the notifying party shall also send a confirmation copy of any such notice to
the other party by first class-mail.
17. OTHER AGREEMENTS.
This Agreement may not constitute the entire agreement between
the parties hereto providing for severance payments in connection with a
termination of employment following a Change in Control Event; provided,
however, that if the Executive is entitled to severance payments pursuant to
this Agreement and pursuant to any other oral or written agreements, commitments
or understandings calling for severance payments in connection with a
termination of employment following a Change in Control Event, the severance
payments paid to the Executive by the Employer in connection with such
termination of employment shall be limited to the greater of (i) severance
payments provided pursuant to this Agreement and any share option agreements and
restricted share agreements between the Employer and the Executive or (ii)
severance payments provided by the Employer pursuant to such other oral or
written agreements, commitments or understandings. If the Executive is entitled
to severance payments pursuant to this Agreement and any share option agreements
and restricted share agreements between the Employer and the Executive, on the
one hand, and pursuant to any other oral or written agreements, commitments or
understandings calling for severance payments in connection with a termination
of employment following a Change in Control Event, on the other hand, the
Executive shall determine, in the Executive's sole discretion, by notice given
in writing to the Employer, which payments are greater. For the avoidance of
doubt, the parties agree the terms of this Agreement shall in no way be deemed
to diminish or otherwise modify any terms set forth in any other oral or written
agreements, commitments or understandings related to the payment of severance
amounts to the Executive in connection with a termination of employment that are
not conditioned on a Change in Control Event, including without limitation the
letter agreement between the Employer and the Executive, dated November 16, 2004
(a copy of the form of which agreement is attached hereto for reference
purposes).
18. SEVERABILITY.
If any part of any provision of this Agreement shall be
invalid or unenforceable under applicable law, such part shall be ineffective to
the extent of such invalidity or unenforceability only, without in any way
affecting the remaining parts of such provision or the remaining provisions of
this Agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement, or have caused this Agreement to be executed and delivered, to be
effective as of the date first written above.
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GUILFORD PHARMACEUTICALS INC.
By:
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Senior Vice President, General Counsel
and Secretary
EXECUTIVE
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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