CHANGE IN CONTROL
AGREEMENT (this “ Agreement ”) dated as of
November 6, 2006, between Kos Pharmaceuticals, Inc., a Florida
corporation (the “ Company ”), and Michael
Jaharis.
WHEREAS
the Board of Directors of the Company (the “ Board
”) considers it essential to the best interests of the
Company and its shareholders to assure that the Company and its
subsidiaries will have the continued dedication of
Mr. Jaharis, notwithstanding the possibility, threat or
occurrence of a Change in Control (as defined below);
NOW,
THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, and intending to be legally bound
hereby, the parties hereto agree as follows:
SECTION
1. Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) “
280G Gross-Up Payment ” shall have the meaning set
forth in Section 5(a).
(b) “
Accounting Firm ” shall have the meaning set forth in
Section 5(b).
(c) “
Affiliate(s) ” means, with respect to any specified
Person, any other Person that, directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under
common control with such specified Person.
(d) “
Change in Control ” means any corporation or other
entity or group (within the meaning of Section 13(d)(3) or
14(d)(2) of the Exchange Act) other than the Controlling
Shareholders becomes the beneficial owner, directly or indirectly,
of all of the outstanding shares of common stock of the
Company.
(e) “
Change in Control Date ” means the date on which a
Change in Control occurs (if any).
(f) “
Code ” means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated
thereunder.
(g) “
Controlling Shareholders ” means, collectively, the
group of shareholders set forth in the Schedule 13D filed with
the Securities and Exchange Commission on September 12, 2006,
consisting of Michael Jaharis, Mary Jaharis, Wilson Point Holdings,
LP, Cubs Management, LLC, Kos Investments, Inc., Kos Holdings,
Inc., Kathryn Jaharis, Steven Jaharis and Jaharis Holdings, Inc,
LLC.
(h) “
Effective Date ” shall have the meaning set forth in
Section 2.
(i) “
Exchange Act ” means the Securities Exchange Act of
1934, as amended from time to time, or any successor statute
thereto.
(j) “
Excise Tax ” means the excise tax imposed by
Section 4999 of the Code, together with any interest or
penalties imposed with respect to such tax.
(k) “
Payment ” means any payment, benefit or distribution
(or combination thereof) by the Company, any of its Affiliates or
any trust established by the Company or its Affiliates, to or for
the benefit of Mr. Jaharis, whether paid, payable,
distributed, distributable or provided pursuant to this Agreement
or otherwise, including any payment, benefit or other right that
constitutes a “parachute payment” within the meaning of
Section 280G of the Code.
(l) “
Person ” means a “person” (as such term is
used in Section 13(d) of the Exchange Act).
(m) “
Protection Period ” means the period commencing on the
Change in Control Date and ending on the first anniversary
thereof.
(n) “
Section 409A Tax ” shall have the meaning set
forth in Section 5.
(o) “
Subsidiary ” means any entity in which the Company,
directly or indirectly, possesses 50% or more of the total combined
voting power of all classes of its stock.
(p) “
Successor ” shall have the meaning set forth in
Section 9(c).
(q) “
Underpayment ” shall have the meaning set forth in
Section 4(b).
SECTION
2. Effectiveness and Term. This Agreement shall become
effective as of the date hereof (“ Effective Date
”) and shall remain in effect until the second anniversary of
the Effective Date. Notwithstanding the foregoing, in the event of
a Change in Control during the term of this Agreement, this
Agreement shall not thereafter terminate, and the term hereof shall
be extended, until the Company and its Subsidiaries have performed
all their obligations hereunder with no future performance being
possible; provided , however , that this Agreement
shall only be effective with respect to the first Change in Control
that occurs during the term of this Agreement.
SECTION
3. Benefits. In the event of a Change in Control,
Mr. Jaharis shall be entitled to the following
benefits:
(a)
Continued Welfare Benefits. The Company shall continue to
provide health and welfare benefits to Mr. Jaharis and
Mr. Jaharis’s spouse and dependents (in each case,
provided in an applicable plan) for a period of three years
following the Change in Control Date, at least equal to the levels
of benefits provided by the Company and its Subsidiaries
immediately prior to the Change in Control Date. Nothing in this
Section 3(a) shall operate to reduce, or be construed as reducing,
Mr. Jaharis’s group
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health plan
continuation rights under the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, in any manner.
(b)
Fringe Benefits. The Company shall provide to
Mr. Jaharis at the Company’s sole expense (i) use
of his current office, (ii) secretarial support,
(iii) car service and driver, and (iv) a cellular phone,
in each case for a period of three years following the Change in
Control Date and on a basis no less favorable than that provided
immediately prior to the Change in Control Date.
SECTION
4. Certain Additional Payments by the Company.
(a) Notwithstanding
anything in this Agreement to the contrary and except as set forth
below, in the event it shall be determined that any Payment that is
paid or payable to or for the benefit of Mr. Jaharis during
the term of this Agreement would be subject to the Excise Tax,
Mr. Jaharis shall be entitled to receive an additional payment
(a “ 280G Gross-Up Payment ”) in an amount such
that, after payment by Mr. Jaharis of all taxes (and any
interest or penalties imposed with respect to such taxes),
including any income and employment taxes and Excise Taxes imposed
upon the 280G Gross-Up Payment, Mr. Jaharis retains an amount
of the 280G Gross-Up Payment equal to the Excise Tax imposed upon
such Payments. At the time of any Payment during the period of this
Agreement’s effectiveness, the Company shall provide
Mr. Jaharis a written description of the application of the
Excise Tax (if any) to such Payment.
(b) Subject
to the provisions of Section 4(c), all determinations required
to be made under this Section 4, including whether and when a
280G Gross-Up Payment is required, the amount of such 280G Gross-Up
Payment and the assumptions to be utilized in arriving at such
determination, shall be made in accordance with the terms of this
Section 4 by a nationally recognized certified public
accounting firm that shall be designated by the Company (other than
the Company’s regular auditor) (the “ Accounting
Firm ”). The Accounting Firm shall provide detailed
supporting calculations both to the Company and Mr. Jaharis
within 15 business days of the receipt of notice from
Mr. Jaharis that there has been a Payment or such earlier time
as is requested by the Company. For purposes of determining the
amount of any 280G Gross-Up Payment, Mr. Jaharis shall be
deemed to pay Federal income tax at the highest marginal rate
applicable to individuals in the calendar year in which any such
280G Gross-Up Payment is to be made and deemed to pay state and
local income taxes at the highest marginal rates applicable to
individuals in the state or locality of Mr. Jaharis’s
residence in the calendar year in which any such 280G Gross-Up
Payment is to be made, net of the maximum reduction in Federal
income taxes that can be obtained from deduction of state and local
taxes, taking into account limitations applicable to individuals
subject to Federal income tax at the highest marginal rate. All
fees and expenses of the Accounting Firm shall be borne solely by
the Company. Any 280G Gross-Up Payment, as determined pursuant to
this Section 4, shall be paid by the Company to
Mr. Jaharis within five business days of the receipt of the
Accounting Firm’s determination. If the Accounting Firm
determines that no Excise Tax is payable by Mr. Jaharis, it shall
so indicate to Mr. Jaharis in writing. Any determination by
the Accounting Firm shall be binding upon the Company and
Mr. Jaharis. As a result of the uncertainty in the application
of the Excise Tax, at the time of the initial determination by the
Accounting Firm hereunder, it is possible that the
amount
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of the 280G
Gross-Up Payment determined by the Accounting Firm to be due to
Mr. Jaharis, consistent with the calculations required to be
made hereunder, will be lower than the amount actually due,
including any interest and penalties (an “
Underpayment ”). In the event the Company exhausts its
remedies pursuant to Section 4(c) and Mr. Jaharis 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 paid by the Company to
Mr. Jaharis within five business days of the receipt of the
Accounting Firm’s determination.
(c) Mr. Jaharis
shall notify the Company in writing of any written claim by the
Internal Revenue Service that, if successful, would require the
payment by the Company of a 280G Gross-Up Payment. Such
notification shall be given as soon as practicable, but no later
than ten business days after Mr. Jaharis is informed in
writing of such claim. Failure to give timely notice shall not
prejudice Mr. Jaharis’s right to 280G Gross-Up Payments
and rights of indemnity under this Section 4. Mr. Jaharis
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. Mr. Jaharis shall
not pay such claim prior to the expiration of the 30-day period
following the date on which Mr. Jaharis gives such notice to
the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company
notifies Mr. Jaharis in writing prior to the expiration of
such period that the Company desires to contest such claim,
Mr. Jaharis shall (i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to
time, including accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim and (iv) permit the Company
to participate in any proceedings relating to such claim;
provided , however , that the Company shall bear and
pay directly all costs and expenses (including additional income
taxes, interest and penalties) incurred in connection with such
contest, and shall indemnify and hold Mr. Jaharis harmless, on
an after-tax basis, for any Excise Tax or income tax (including
interest or penalties) imposed as a result of such representation
and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 4(c), the Company shall
control all proceedings taken in connection with such contest, and,
at its sole discretion, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with
the applicable taxing authority in respect of such claim and may,
at its sole discretion, eithe
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