MANAGEMENT RETENTION AGREEMENT
Exhibit
10.15
A.P.
PHARMA, INC.
This
Management Retention Agreement (the “Agreement”) is dated as of November
8, 2007, by and between Dr. Xxxx Xxxx (“Employee”) and A.P. Pharma, Inc.,
a Delaware corporation (the “Company”). This Agreement is
intended to provide Employee with certain benefits described herein upon the
occurrence of specific events and supercedes an earlier Change of Control
Agreement dated March 23, 2005 between the Company and Employee.
RECITALS
A. The
Company’s Board of Directors believes it is in the best interests of the Company
and its shareholders to retain Employee and provide incentives to Employee
to
continue in the service of the Company.
B. The
Board of Directors further believes that it is imperative to provide Employee
with certain benefits upon certain termination of Employee’s employment in
connection with an Involuntary Termination or with a Change of Control, which
benefits are intended to provide Employee with financial security and provide
sufficient income and encouragement to Employee to remain with the Company,
notwithstanding the possibility of a Change of Control.
D. To
accomplish the foregoing objectives, the Board of Directors has directed the
Company, upon execution of this Agreement by Employee, to agree to the terms
provided in this Agreement.
It
is therefore agreed as
follows
1. At-Will
Employment. The Company and Employee acknowledge that
Employee’s employment is and shall continue to be at-will, as defined under
applicable law, and that Employee’s employment with the Company may be
terminated by either party at any time for any or no reason. If
Employee’s employment terminates for any reason, Employee shall not be entitled
to any payments, benefits, damages, award or compensation other than as provided
in this Agreement or otherwise agreed to by the Company. The terms of
this Agreement shall terminate upon the earliest of: (i) the date on
which Employee ceases to be employed as a corporate officer of the Company,
other than as a result of an Involuntary Termination; (ii) the date that
all obligations of the parties hereunder have been satisfied. A
termination of the terms of this Agreement pursuant to the preceding sentence
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits on account of a
termination of employment occurring prior to the termination of the terms of
this Agreement. The rights and duties created by this Section 1 are
contingent upon the Employee’s release of claims against the Company (at the
time of termination in a form reasonably satisfactory to the Company) and may
not be modified in any way except by a written agreement executed by an officer
of the Company upon direction from the Board of Directors.
2. Benefits Upon
Termination of Employment.
(a) Severance. In
the event that Employee suffers an Involuntary Termination at any
time Employee will be entitled to receive severance benefits as
follows: (i) severance payments during the period from the date of
Employee’s termination until the date twelve months after the effective date of
the termination (the “Severance Period”) equal to the base salary which
Employee was receiving immediately prior to the Involuntary Termination together
with (ii) the average bonus paid by the Company to the Employee for services
during each of the three 12- month periods prior to Involuntary Termination
date, which payments shall be paid during the Severance Period in accordance
with the Company’s standard payroll practices; and (iii) continuation of payment
by the Company of its portion of the health insurance benefits provided to
Employee immediately prior to the Involuntary Termination pursuant to the terms
of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”) or other applicable law through the earlier of the end of the
Severance Period or the date upon which Employee is no longer eligible for
such
COBRA or other benefits under applicable law.
(b) Treatment
of Stock Options Upon Involuntary Termination. In the
event that Employee suffers an Involuntary Termination under circumstances
other
than as covered in paragraph 2(c) below, the Employee’s unvested Company stock
options shall continue to vest for the 12 month Severance Period following
the
Involuntary Termination date in accordance with the provisions of the option
agreement and plan pursuant to which such option was granted.
(c) Treatment
of Stock Options Upon a Change of Control. In the event
that Employee suffers an Involuntary Termination in connection with or within
twelve months following the effective date of a Change of Control, 100% of
Employee’s unvested Company stock options shall become immediately vested on
such termination date. Except for the accelerated vesting provided by
this paragraph 2(c), each such option shall be exercisable in accordance with
the provisions of the option agreement and plan pursuant to which such option
was granted.
(d) Lapse of
Restrictions on Restricted Stock Upon Involuntary
Termination. In the event that Employee suffers an
Involuntary Termination under circumstances other than in connection with or
within twelve months following the effective date of a Change of Control,
relinquishment of all forfeiture and transfer restrictions on stock previously
awarded to the Employee will continue, solely for the duration of the twelve
month Severance Period, in accordance with the provisions of the restricted
stock agreement relating to such restricted stock.
(e) Lapse
of Restrictions on Restricted Stock Upon a
Change of Control. Upon a Change of Control all
forfeiture and transfer restrictions on shares of restricted stock
previously awarded to Employee shall lapse in their
entirety.
(f) Termination
for Cause. Notwithstanding any other provision of this
Agreement, if Employee’s employment is terminated for Cause at any time, then
Employee shall not be entitled to receive payment of any severance benefits
or
any continuation or acceleration of stock option vesting or relinquishment
of
forfeiture and transfer restrictions on restricted stock
awards. Employee will receive payment(s) for all salary, bonuses and
unpaid vacation accrued as of the date of Employee’s termination of
employment.
(g) Voluntary
Resignation. If Employee voluntarily resigns from the
Company under circumstances which do not constitute an Involuntary Termination,
then Employee shall not be entitled to receive payment of any severance
benefits, or option acceleration, or relinquishment of forfeiture and transfer
restrictions. Employee will receive payment(s) for all salary,
bonuses and unpaid vacation accrued as of the date of Employee’s termination of
employment.
3. Definition
of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) “Cause”
means any of the following: (i) Employee’s theft,
dishonesty, willful misconduct, breach of fiduciary duty for personal profit,
or
falsification of any Company or Affiliate documents or records;
(ii) Employee’s material failure to abide by a Company’s or
Affiliate’s code of conduct or other policies (including without limitation,
policies relating to confidentiality and reasonable workplace conduct);
(iii) Employee’s unauthorized use, misappropriation, destruction or
diversion of any tangible or intangible asset or corporate opportunity of the
Company or an Affiliate (including, without limitation, Employee’s
improper use or disclosure of confidential or proprietary information);
(iv) any intentional act by Employee which has a material
detrimental effect on the Company or an Affiliate’s reputation or business;
(v) Employee’s repeated failure or inability to perform any reasonable
assigned duties after written notice from the Company or an
Affiliate (including, without limitation, habitual absence from work
for reasons other than illness), and a reasonable opportunity to cure, such
failure or inability; (vi) any material breach by Employee of
any employment or service agreement between Employee and the Company
or an Affiliate, which breach is not cured pursuant to the terms of such
agreement; or (vii) Employee’s conviction (including any plea of
guilty or nolo contendere) of any criminal act involving fraud, dishonesty,
misappropriation or moral turpitude, or which impairs Employee’s
ability to perform his or her duties with the Company or an
Affiliate.
(b) “Change
in Control” means the occurrence of any of the following:
(i) an
Ownership Change Event or a series of related Ownership Change Events
(collectively, a “Transaction”) in which the stockholders of
the Company immediately before the Transaction do not retain immediately after
the Transaction, in substantially the same proportions as their ownership of
shares of the Company’s voting stock immediately before the Transaction, direct
or indirect beneficial ownership of more than fifty percent (50%) of the total
combined voting power of the outstanding voting securities of the Company or
such surviving entity immediately outstanding after the Transaction, or, in
the
case of an Ownership Change Event the entity to which the assets of the Company
were transferred (the “Transferee”), as the case may be;
or
(ii) the
liquidation or dissolution of the Company.
For
purposes of the preceding sentence, indirect beneficial ownership shall include,
without limitation, an interest resulting from ownership of the voting
securities of one or more corporations or other business entities which own
the
Company or the Transferee, as the case may be, either directly or through one
or
more subsidiary corporations or other business entities. The Board
shall have the right to determine whether multiple sales or exchanges of the
voting securities in the Company or multiple Ownership Change Events are
related, and its determination shall be final, binding and
conclusive. The Board may also, but need not, specify that other
transactions or events constitute a Change in Control.
(c) “Involuntary
Termination” shall include any termination by the
Company other than for Cause and Employee’s voluntary termination within sixty
days following the occurrence of any of the following events without Employee’s
written consent: (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with Employee’s position with the
Company and Employee’s prior duties, responsibilities and requirements or a
change in Employee’s reporting relationship; (ii) a material reduction of
Employee’s base compensation (other than in connection with a general decrease
in base salaries for most officers of the successor corporation); or (iii)
Employee’s refusal to relocate to a facility or location more than forty miles
from the Company’s current location, provided that Employee will not resign due
to such change, reduction or relocation without first providing the Company
with
written notice of the event or events constituting the grounds for his voluntary
resignation within thirty days of the initial existence of such grounds and
a
reasonable cure period of not less than thirty days following the date of such
notice.
(d) “Ownership
Change Event” means the occurrence of any of the following with respect
to the Company: (i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company
of
more than fifty percent (50%) of the voting stock of the Company; (ii) a merger
or consolidation in which the Company is a party; or (iii) the sale,
exchange, or transfer of all or substantially all of the assets of the
Company.
4. Limitation
and Conditions on Payments.
(a) Parachute
Payments. In the event that the severance and other
benefits provided for in this Agreement to the
Employee: (i) constitute “parachute payments” within the meaning
of Section 280G of the Internal Revenue Code of 1986, as amended (the
“Code”); and (ii) but for this Section, would be subject to the
excise tax imposed by Section 4999 of the Code, then the Employee’s
severance benefits under Sections 2(a) and 2(b) shall be payable
either:
(i) in
full; or
(ii) as
to such lesser amount which would result in no portion of such severance
benefits being subject to excise tax under Section 4999 of the Code,
whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the excise tax imposed by Section 4999,
results in the receipt by the Employee on an after-tax basis, of the greatest
amount of severance benefits under Section 2(a) and 2(b), notwithstanding that
all or some portion of such severance benefits may be taxable under
Section 4999 of the Code. Unless the Company and the Employee
otherwise agree in writing, any determination required under this Section 4
shall be made in writing by independent public accountants selected by the
Company (the “Accountants”), whose determination shall be conclusive and
binding upon the Employee and the Company for all purposes. For
purposes of making the calculations required by this Section 4, the
Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the
Code. The Company and the Employee shall furnish to the Accountants
such information and documents as the Accountants may reasonably request in
order to make a determination under this Section. The Company shall
bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 4.
(b) Release
Prior to Receipt of Benefits. Prior to the receipt of
any benefits under this Agreement, Employee shall execute a release of claims
agreement (the “Release”) in the form provided by the
Company. Such Release shall specifically relate to all of Employee’s
rights and claims in existence at the time of such execution and shall confirm
Employee’s obligations under the Company’s standard form of proprietary
information agreement.
5. Section
409A. Notwithstanding any provision of this Agreement to
the contrary, if, at the time of Employee’s termination of employment with the
Company, Employee is a “specified employee” (as defined in Section 409A of the
Code) and the deferral of the commencement of any severance payments or benefits
otherwise payable pursuant to this Agreement as a result of such termination
of
employment is necessary in order to prevent any accelerated income recognition
or additional tax under Section 409A of the Code, then the Company will not
commence any payment of any such severance payments or benefits otherwise
required hereunder (but without any reduction in such payments or benefits
ultimately paid or provided to Employee) that (a) will not and may not under
any
circumstances, regardless of when such termination occurs, be paid in full
by
March 15 of the year following Employee’s termination of employment, and
(b) are in excess of the lesser of (i) two times Employee’s then annual
compensation or (ii) two times the limit on compensation then set forth in
Section 401(a)(17) of the Code and will not be paid by the end of the second
calendar year following the year in which the termination occurs, until
the first payroll date that occurs after the date that is six months
following Employee’s “separation of service” with the Company (as defined under
Code Section 409A). If any payments are delayed due to such
requirements, such amounts will be paid in a lump sum to Employee on the
earliest of (x) the Employee’s death following the date of Employee’s
termination of employment with the Company or (y) the first payroll date that
occurs after the date that is six months following Employee’s “separation of
service” with the Company. For these purposes, each severance payment
or benefit is designated as a separate payment or benefit and will not
collectively be treated as a single payment or benefit. This
paragraph is intended to comply with the requirements of Section 409A of the
Code so that none of the severance payments and benefits to be provided
hereunder will be subject to the additional tax imposed under Section 409A
of
the Code and any ambiguities herein will be interpreted to so
comply. Employee and the Company agree to work together in good faith
to consider amendments to this Agreement and to take such reasonable actions
which are necessary, appropriate or desirable to avoid imposition of any
additional tax or income recognition prior to actual payment to Employee under
Section 409A of the Code. Notwithstanding anything to the contrary
contained herein, to the extent that any amendment to this Agreement with
respect to the payment of any severance payments or benefits would constitute
under Code Section 409A a delay in a payment or a change in the form of payment,
then such amendment must be done in a manner that complies with Code Section
409A(a)(4)(C).
6. Conflicts. Employee
represents that Employee’s performance of all the terms of this Agreement will
not breach any other agreement to which Employee is a party. Employee
has not, and will not during the term of this Agreement, enter into any oral
or
written agreement in conflict with any of the provisions of this
Agreement. Employee further represents that Employee is entering into
or has entered into an employment relationship with the Company of Employee’s
own free will and that Employee has not been solicited as an employee in any
way
by the Company.
7. Successors. Any
successor to the Company (whether direct or indirect and whether by purchase,
lease, merger, consolidation, liquidation or otherwise) to all or substantially
all of the Company’s business and/or assets shall assume the obligations under
this Agreement and agree expressly to perform the obligations under this
Agreement in the same manner and to the same extent as the Company would be
required to perform such obligations in the absence of a
succession. The terms of this Agreement and all of Employee’s rights
hereunder and thereunder shall inure to the benefit of, and be enforceable
by,
Employee’s personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notice. Notices
and all other communications contemplated by this Agreement shall be in writing
and shall be deemed to have been duly given when personally delivered or when
mailed by U.S. registered or certified mail, return receipt requested and
postage prepaid. Mailed notices to Employee shall be addressed to
Employee at the home address which Employee most recently communicated to the
Company in writing. In the case of the Company, mailed notices shall
be addressed to its corporate headquarters, and all notices shall be directed
to
the attention of its Secretary.
9. Miscellaneous
Provisions.
(a) No
Duty to Mitigate. Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether
by
seeking new employment or in any other manner), nor shall any such payment
be
reduced by any earnings that Employee may receive from any other
source.
(b) Waiver. No
provision of this Agreement shall be modified, waived or discharged unless
the
modification, waiver or discharge is agreed to in writing and signed by Employee
and by an authorized officer of the Company (other than Employee). No
waiver by either party of any breach of, or of compliance with, any condition
or
provision of this Agreement by the other party shall be considered a waiver
of
any other condition or provision or of the same condition or provision at
another time.
(c) Whole
Agreement. No agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into
by
either party with respect to the subject matter hereof. This
Agreement supersedes any agreement of the same title and concerning similar
subject matter dated prior to the Effective Date, and by execution of this
Agreement both parties agree that any such predecessor agreement shall be deemed
null and void.
(d) Choice
of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.
(e) Severability. If
any term or provision of this Agreement or the application thereof to any
circumstance shall, in any jurisdiction and to any extent, be invalid or
unenforceable, such term or provision shall be ineffective as to such
jurisdiction to the extent of such invalidity or unenforceability without
invalidating or rendering unenforceable the remaining terms and provisions
of
this Agreement or the application of such terms and provisions to circumstances
other than those as to which it is held invalid or unenforceable, and a suitable
and equitable term or provision shall be substituted therefore to carry out,
insofar as may be valid and enforceable, the intent and purpose of the invalid
or unenforceable term or provision.
(f) Arbitration. Any
dispute or controversy arising under or in connection with this Agreement may
be
settled at the option of either party by binding arbitration in the County
of
San Mateo, California, in accordance with the rules of the American Arbitration
Association then in effect. Judgment may be entered on the
arbitrator’s award in any court having jurisdiction. Punitive damages
shall not be awarded.
(g) Legal
Fees and Expenses. The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this
Agreement.
(h) No
Assignment of Benefits. The rights of any person to
payments or benefits under this Agreement shall not be made subject to option
or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or
other
creditor’s process, and any action in violation of this Section 8(h) shall be
void.
(i) Employment
Taxes. All payments made pursuant to this Agreement will
be subject to withholding of applicable income and employment
taxes.
(j) Assignment
by Company. The Company may assign its rights under this
Agreement to an affiliate, and an affiliate may assign its rights under this
Agreement to another affiliate of the Company or to the Company. In
the case of any such assignment, the term “Company” when used in a section of
this Agreement shall mean the corporation that actually employs the
Employee.
(k)
Counterparts. This
Agreement may be executed in counterparts, each of which shall be deemed an
original, but all of which together will constitute one and the same
instrument.
(l) Renewal. This
Agreement shall remain in effect until December 31, 2008 and shall be
automatically renewed for additional one year periods unless not later than
three months prior to December 31st of any
year either
party gives written notice to the other party of the intention to terminate
the
Agreement effective December 31st of that
year.
The
parties have executed this Agreement on the date first written
above.
A.P.
PHARMA, INC.
By:
Name:
Title:
EMPLOYEE
Signature:
Dr.
Xxxx
Xxxx
Address:
