Exhibit 10.5
CHANGE OF CONTROL
AGREEMENT
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This
Agreement, between Xxxxxxx Pharmaceuticals, Inc., a Delaware corporation with principal
executive offices located at 000 Xxxxx 00 Xxxx, Xxxxxxxxx, Xxx Xxxxxx 00000 (the “Company”),
and Xxxxx Xxxxxx, Ph.D. (“Landau”), is made and entered into as of this 6th day
of December, 2005 (the “Effective Date”).
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R E C I T A L S
WHEREAS,
Landau is currently employed by the Company;
NOW,
THEREFORE, in consideration of the mutual promises and covenants contained herein, the
parties hereto agree as follows:
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1.1
Definition of Change of Control. For purposes of this Agreement, a “Change
of Control” shall mean:
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(a) |
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The
acquisition by an individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”))
(a “Person”) of beneficial ownership of any capital stock of the
Company if, after such acquisition, such Person
beneficially owns (within the meaning of Rule 13d-3
promulgated under the Exchange Act) 50% or more of either (x) the
then-outstanding shares of common stock of the
Company (the “Outstanding Company Common
Stock”) or (y) subject to Section 1.1(d), the combined voting power of the
then-outstanding securities of the Company entitled
to vote generally in the election of directors (the
“Outstanding Company Voting Securities”); provided, however, that
for purposes of this subsection (a), the following
acquisitions shall not constitute a Change of
Control Event: (A) any acquisition directly from the Company (excluding
an acquisition pursuant to the exercise,
conversion or exchange of any security
exercisable for, convertible into or
exchangeable for common stock or voting
securities of the Company, unless the Person
exercising, converting or exchanging such security
acquired such security directly from the Company or an underwriter or
agent of the Company), (B) any acquisition by any
employee benefit plan (or related trust) sponsored
or maintained by the Company or any corporation controlled by the
Company, or (C) any acquisition by any corporation
pursuant to a Business Combination (as defined
below) which complies with clauses (x) and (y) of subsection (c) of this
definition; or |
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(b) |
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Subject
to Section 1.1(d), such time as the Continuing Directors (as defined below)
do not constitute a majority of the Board of
Directors of the Company, where the term “Continuing
Director” means at any date a member of the Board (x) who was a member of
the Board on the date hereof or (y) who was
nominated or elected subsequent to such date by at
least a majority of the directors who were Continuing Directors at the
time of such nomination or election or whose
election to the Board was recommended or endorsed by
at least a majority of the directors who were Continuing Directors at the
time of such nomination or election; provided,
however, that there shall be excluded from this
clause (y) any individual whose initial assumption of office occurred as a
result of an actual or threatened election contest
with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents, by or on behalf of a person other than the
Board; or |
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(c) |
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The
consummation of a merger, consolidation, reorganization, recapitalization or
share exchange involving the Company or a sale
or other disposition of all or substantially all
of the assets of the Company (a “Business Combination”), unless,
immediately following such Business Combination,
each of the following two conditions is satisfied:
(x) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding Company
Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially own,
directly or indirectly, more than 50% of the
then-outstanding shares of common stock and the
combined voting power of the then-outstanding securities entitled to vote
generally in the election of directors,
respectively, of the resulting or acquiring
corporation in such Business Combination (which shall
include, without limitation, a corporation which
as a result of such transaction owns the Company or substantially
all of the Company’s assets either directly
or through one or more subsidiaries) (such
resulting or acquiring corporation is referred to herein as the “Acquiring
Corporation”) in substantially the same
proportions as their ownership of the
Outstanding Company Common Stock and
Outstanding Company Voting Securities,
respectively, immediately prior to such Business
Combination and (y) no Person (excluding the
Acquiring Corporation or any employee benefit plan (or related trust)
maintained or sponsored by the Company or by the
Acquiring Corporation) beneficially owns, directly
or indirectly, 50% or more of the then-outstanding shares of common
stock of the Acquiring Corporation, or of the
combined voting power of the then-outstanding
securities of such corporation entitled to vote generally in the
election of directors (except to the extent that
such ownership existed prior to the Business
Combination). |
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(d) |
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During
the period in which Xxxxxx Xxxxxxxx and his
affiliates own or control a majority of the Company’s
Class B Common Stock entitled to elect the majority
of the Company’s Board of Directors, a
“Change of Control” shall not be
deemed to have occurred if Xx. Xxxxxxxx and
his affiliates caused, either by their
action or inaction, the circumstances
contemplated in either Sections 1.1(a)(y) or
1.1(b) to occur. |
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1.2
Definition of Cause. For purposes of this Agreement, “Cause” shall
mean any of the following:
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(a) |
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Landau’s
conviction for any felony; |
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(b) |
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Landau’s
deliberate and continual refusal to perform
satisfactorily employment duties reasonably requested
by the Company as provided herein after thirty (30)
days’ written notice by certified mail
of such failure, specifying that the failure
constitutes Cause and the particulars of the
failure (other than as a result of vacation,
sickness, illness or injury); |
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(c) |
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Landau’s
commission of fraud or embezzlement determined in
accordance with the Company’s normal, internal
investigative procedures consistently
applied in comparable situations; |
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(d) |
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Landau’s
gross misconduct or gross negligence having a
substantial adverse effect on the Company’s
business; or |
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(e) |
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Landau’s
material breach of this Agreement. |
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1.3
Definition of Good Reason. For purposes of this Agreement, “Good Reason” shall
mean, without Landau’s consent, the occurrence of any of the following circumstances
unless such circumstances are fully corrected prior to the expiration of the thirty (30)
day period following receipt by the Company of Landau’s notice of the existence of
circumstances that provide a basis for Landau to terminate his employment for Good
Reason, describing such circumstances in reasonable detail:
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(a) |
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a
substantial diminution or unreasonable increase in
Landau’s duties, responsibilities or authority,
taken as a whole (except during periods when Landau
is unable to perform all or substantially all
of Landau’s duties or responsibilities
as a result of Landau’s physical or
mental incapacity); |
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(c) |
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a
change in Landau’s principal place of employment
to a location more than 50 miles from its current
location; or |
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(d) |
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a
material breach of this Agreement by the Company. |
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2.
Payment upon a Change of Control. If a Change of Control occurs, and if within twelve
months after the date on which the Change of Control occurs, Landau’s employment is
terminated by either the Company or Landau for any reason, except if by the Company for
Cause, then Landau will be entitled to:
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(a) |
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a
lump sum cash payment, payable within ten (10)
business days after the date of termination of Landau’s
employment equal to the sum of: (i) any accrued but
unpaid salary as of the date of such
termination; (ii) any accrued but unpaid
annual cash bonus payable under the
Company’s EVA Bonus Program for any
annual period ended prior to the date of
such termination; and (iii) all expenses
incurred for which documentation has been or
will be provided in accordance with the
Company’s policies but not yet
reimbursed; |
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(b) |
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a
lump sum cash payment, payable within ten (10)
business days of the date that is six (6) months
following the date of termination (or, if Landau is
not considered a “key employee” within the
meaning of Section 409A of the Internal Revenue Code
of 1986, as amended (“Section 409A of the
Code”) at the time of termination, the
date Landau’s employment terminates),
equal to the amount payable under the
Company’s EVA Bonus Program for the
annual period in which such termination
occurs, as if Landau’s employment had
not been terminated, prorated through the
date of such termination; |
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(c) |
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continuation
of all perquisites and other Company-related benefits to which Landau
was entitled as of the date of his termination,
including, but not limited to, the Company’s
bonus, health, welfare, savings and other benefit and fringe benefit plans,
including, without limitation, the Company’s
EVA Bonus Plan, 401(k) Savings Plan, health,
dental and eye insurance plans, life insurance plans and long-term disability
plans, in which senior executives of the
Company are generally entitled to participate,
subject, at all times, to the terms and conditions of such plans,
through the end of the second calendar year
following the year in which Landau’s
employment terminates, if and to the extent the
provision of such perquisites or benefits
complies with Section 409A of the Code; |
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(d) |
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immediate
vesting of all of Landau’s stock options,
warrants and any other equity awards based on the
Company’s securities, such as restricted stock,
restricted stock units, stock appreciation
rights, performance units, etc., all of
which shall remain exercisable in accordance
with the original terms on the date of
grant, or, if later, the maximum date stock
rights may be extended under Section 409A of
the Code; |
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(e) |
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continued
participation in, and continuation by the Company of
the payment of the relevant premiums applicable to,
the life insurance |
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and
health, welfare and medical insurance plans described
in Section 2(c) or comparable plans at the Company’s
expense (subject to the terms of the
applicable plans) through the end of the
second calendar year following the year in
which Landau’s employment terminates,
if and to the extent the provision of
continued participation and payments of
premiums complies with Section 409A of the
Code; |
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(f) |
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continued
participation, through the end of the second calendar
year following the year in which Landau’s
employment terminates, of Landau and each of his
dependents in all other Company-sponsored
health, welfare and benefit plans or
comparable plans at the Company’s
expense (subject to the terms of the
applicable plans) at the benefit levels in
effect from time to time and with COBRA
benefits commencing thereafter, if and to
the extent the provision of continued
benefits and benefit levels complies with
Section 409A of the Code and any other
applicable laws and regulations. |
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In
addition to the foregoing payments and continuation of benefits, the Company shall pay
Landau a lump sum cash payment, payable within ten (10) business days of the date that is
six (6) months following the date of termination of Landau’s employment (or, if
Landau is not considered a “key employee” within the meaning of Section 409A of
the Code at the time of termination, the date Landau’s employment terminates), an
amount equal to the product of (I) two multiplied by (II) the sum of (1) Landau’s
then current annual salary pursuant and (2) the average amount paid to Landau under the
Company’s EVA Bonus Program with respect to the most recent three calendar years (or
such shorter period to coincide with Landau’s years of employment with the Company
prior to the end of the preceding calendar year). Additionally, immediately prior to a
Change of Control, all outstanding options to purchase the Company’s securities
shall become fully vested.
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Notwithstanding
anything in this Agreement to the contrary, if at the time of termination, Landau is a
“specified employee” or “key employee” who has experienced a “separation
from service,” each within the meaning of Section 409A of the Code, no payments or
benefits pursuant to this Agreement that are considered “deferred compensation” subject
to Section 409A of the Code shall be made prior to the date that is six (6) months after
the date of “separation from service” (or, if earlier, Landau’s date of
death), except as otherwise provided in the Code, Section 409A of the Code or any
regulations promulgated thereunder. In such event, the payments subject to the six (6)
month delay will be paid in a lump sum on the earliest permissible payment date.
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In
addition, to the extent that any payment or distribution of any type to or for Landau by
the Company (which for purposes of this Section 2 includes any parent, subsidiary or
affiliate of the Company), whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (including, without limitation, any
accelerated vesting of stock options or other equity awards based on the Company’s
securities granted pursuant to this Agreement or otherwise) (collectively, the “Total
Payments”) is or will be subject to the excise tax (“Excise Tax”) imposed
under Section 4999 of the Code (or any successor to such Section), the Company shall pay
to Landau, prior to the time any Excise Tax is payable with respect to any of
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such Total Payments (through
withholding or otherwise), an additional amount (a “Gross-Up Payment”) that,
after the imposition of all income, employment, excise and other taxes, penalties and
interest thereon, is equal to the sum of (i) the Excise Tax on such Total Payments plus
(ii) any penalty and interest assessments associated with such Excise Tax. The
determination of whether any portion of the Total Payments is subject to an Excise Tax
and, if so, the amount and time of any Gross-Up Payment pursuant to this Section 2, shall
be made by an independent auditor (the “Auditor”) jointly selected by Landau
and the Company and paid by the Company. If Landau and the Company cannot agree on the
firm to serve as the Auditor, then they shall each select an accounting firm and those
two firms shall jointly select the accounting firm to serve as the Auditor. Unless Landau
agrees otherwise in writing, the Auditor shall be a nationally recognized United States
public accounting firm that has not during the two years preceding the date of its
selection, acted in any way on behalf of the Company. Landau and the Company shall
cooperate with each other in connection with any proceeding or claim relating to the
existence or amount of any liability for Excise Tax. All reasonable expenses relating to
any such proceeding or claim (including attorneys’ fees and other expenses incurred
by Landau in connection therewith) shall be paid by the Company promptly upon demand by
Landau, and any such payment shall be subject to a Gross-Up Payment under this Section 2
in the event that Landau is subject to Excise Tax on it.
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3.
Covenant Not to Compete. Landau agrees that for a period of twelve (12) months
immediately following his termination of employment, Landau shall not directly or
indirectly for his own benefit or the benefit of others:
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(a) |
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render
services as an employee, officer, agent, broker,
consultant, partner or independent contractor for, or
be an owner or stockholder of, a competing
organization in connection with competing products,
including but not limited to organizations
engaged in the provision of dermatology,
podiatry and gastroenterology pharmaceutical
products; provided, however, that Landau may
own five percent (5%) or less of the equity
securities of any publicly-traded company; |
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(b) |
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hire
or seek to persuade any employee of the Company to
discontinue employment or to become employed in a
competing organization or seek to persuade any
independent contractor or supplier to discontinue or
limit its relationship with the Company; and |
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(c) |
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solicit,
direct, take away or attempt to take away any
business or customers of the Company that existed or
did business with the Company at the time of
termination of Landau’s employment or within six
(6) months prior thereto; |
provided, however, that such
restrictions shall not apply if Landau’s employment is (x) terminated without Cause
or (y) Landau terminates his employment for Good Reason, for both (x) and (y) within
twelve months following the date on which a Change of Control occurs.
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Landau
acknowledges that there are no additional compensation payments due him for the
non-competition restrictions set forth in this Section 3.
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4.
Entire Agreement
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The
terms of this Agreement are intended by the parties to be the final and exclusive
expression of their agreement with respect to the subject matter hereof and may not be
contradicted by evidence of any prior or contemporaneous statements or agreements. The
parties further intend that this Agreement shall constitute the complete and exclusive
statement of its terms and that no extrinsic evidence whatsoever may be introduced in any
judicial, administrative, or other legal proceeding involving this Agreement. This
Agreement supersedes any and all prior agreements, written or oral, between Landau and
the Company relating to the subject matter hereof, and all such prior agreements are
hereby terminated and of no further effect.
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5.
Amendments, Waivers
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This
Agreement may not be modified, amended, or terminated except by an instrument in writing,
signed by Landau and by a duly authorized representative of the Company other than
Landau. No failure to exercise and no delay in exercising any right, remedy, or power
under this Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy or power under this Agreement preclude any other or further
exercise thereof, or the exercise of any other right, remedy or power provided herein or
by law or in equity.
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6.
No Employment Contract Created.
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Nothing
contained in this Agreement shall be interpreted or construed as creating a contract of
employment between the Company and Landau or in any way requiring the Company to employ
Landau, or for Landau to remain in the employ of the Company, for any period of time.
Notwithstanding the terms of this Agreement, Landau at all times shall remain an at will
employee of the Company and, as such, either he or the Company may terminate his
employment with the Company at any time for any reason, subject to the terms of this
Agreement.
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7.
Binding Agreement; Assignment
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This
Agreement shall inure to the benefit of and shall be binding upon the Company, its
successors and assigns and Landau and his heirs and representatives. Neither party may
assign any of its rights or obligations under this Agreement without the prior written
consent of the other party.
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8.
Severability; Enforcement
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If
any provision of this Agreement, or the application thereof to any person, place, or
circumstance, shall be held by a court of competent jurisdiction to be invalid,
unenforceable, or void, the remainder of this Agreement and such provisions as applied to
other persons, places, and circumstances shall remain in full force and effect. Such
court shall have the authority to modify or replace the invalid or unenforceable term or
provision with one which most accurately represents the parties’ intention with
respect to the invalid or unenforceable term or provision.
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9.
Governing Law and Remedies
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The
validity, interpretation, enforceability, and performance of this Agreement shall be
governed by and construed in accordance with the laws of the State of New Jersey, without
giving effect to New Jersey’s choice of law rules. Landau hereby irrevocably submits
to the jurisdiction of the federal and state courts within New Jersey for the
determination of all disputes, suits or proceedings arising out of or relating to this
Agreement.
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Landau
acknowledges that a remedy at law for the breach or threatened breach by Landau of the
provision of Section 3 would be inadequate, and that such a breach would cause
irreparable harm to the Company. Landau therefore agrees that the Company shall be
entitled to injunctive relief in case of any such breach or threatened breach.
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10.
Notices
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All
notices or demands of any kind required or permitted to be given by the Company or Landau
to the other under this Agreement shall be given in writing, addressed to the Company at
the address set forth in the Preamble to this Agreement and to Landau at his address as
listed on the Company’s payroll and shall be personally delivered, telecopied or
delivered by hand by a nationally recognized courier service guaranteeing overnight
delivery (in each case receipted for), or mailed by certified mail, return receipt
requested, postage prepaid. Any such written notice shall be deemed received when
personally delivered or three (3) business days after its deposit in the United States
mail as specified above. Either party may change its address for notices by giving notice
to the other party in the manner specified in this Section.
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11.
Representations and Warranties
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Each
of Landau and the Company represents and warrants that he/it is not restricted or
prohibited, contractually or otherwise, from entering into and performing his/its terms
and covenants contained herein, and that his/its execution and performance of this
Agreement will not violate or breach any other agreement between Landau and the Company,
as the case may be, and any other person or entity.
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12.
Section 409A of the Code
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Landau
and the Company hereby agree that it is the intention that any payments or benefits
provided under this Agreement comply in all respects with Section 409A of the Code, and
this Agreement shall be interpreted accordingly. Landau and the Company hereby agree
that, upon the Company’s initiative or upon Landau’s reasonable request, the
parties will amend this Agreement in accordance with Section 5 solely to the extent
necessary and appropriate to avoid adverse tax consequences pursuant to Section 409A of
the Code. Notwithstanding anything in this Agreement to the contrary, the Company does
not guarantee the tax treatment of any payments or benefits hereunder, including without
limitation pursuant to the Code, federal, state or local laws.
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13.
Counterparts
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This
Agreement may be executed in counterparts, each of which shall be deemed an original and
all of which together shall constitute one and the same instrument.
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IN
WITNESS WHEREOF, this Agreement has been executed as of the day and year first above
written.
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XXXXXXX PHARMACEUTICALS,
INC.
By: /s/ Xxxxxx Xxxxxxxx
Name: Xxxxxx Xxxxxxxx
Title: President and Chief Executive Officer
/s/ Xxxxx Xxxxxx
Name: Xxxxx Xxxxxx |
