CHANGE OF CONTROL
AGREEMENT
This Change of
Control Agreement (the “ Agreement ”) is made
and entered into by and between David A. Stamler, M.D.
(the “ Executive ”) and XenoPort, Inc. , a Delaware
corporation (the “ Company ”), effective as of
July 14, 2008.
It is expected
that the Company from time to time may consider the possibility of
an acquisition by another company or other change of control. The
Board of Directors of the Company (the “ Board
”) recognizes that such consideration can be a distraction to
the Executive and can cause the Executive to consider alternative
employment opportunities. The Board has determined that it is in
the best interests of the Company and its stockholders to assure
that the Company will have the continued dedication and objectivity
of the Executive, notwithstanding the possibility, threat or
occurrence of a Change of Control (as defined below) of the
Company.
The Board believes
that it is in the best interests of the Company and its
stockholders to provide the Executive with an incentive to continue
his employment and to motivate the Executive to maximize the value
of the Company upon a Change of Control for the benefit of its
stockholders.
Certain
capitalized terms used in the Agreement are defined in
Section 5 below.
The parties hereto
agree as follows:
1. Term of
Agreement . This Agreement shall terminate upon the date that
all obligations of the parties hereto with respect to this
Agreement have been satisfied.
2. At-Will
Employment . The Company and the Executive acknowledge that the
Executive’s employment is and shall continue to be at-will.
If the Executive’s employment terminates for any reason,
including (without limitation) any termination prior to a Change of
Control, the Executive shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by
this Agreement, or as may otherwise be available in accordance with
written plans or agreements with the Company, including the
Executive’s offer letter, dated May 27, 2008 (the
“ Offer Letter ”) with respect to severance
arrangements in the absence of a Change of Control (as defined
below).
3.
Termination Following a Change of Control .
(a)
Termination Without Cause or Voluntary Termination For Good
Reason . In the event that a Change of Control of the Company
occurs, and during the period beginning on the closing date of the
transaction giving rise to such Change of Control and ending twelve
(12) months after such closing date, the Executive’s
employment with the Company (or the successor entity in such Change
of Control transaction) is either (1) terminated by the
Company (or its successor entity) without Cause (as defined below)
or (2) terminated by the Executive for Good Reason (as
defined
1
below), then
the Executive shall be entitled to receive Termination Benefits (as
defined below); provided, however , that in order for the
Executive to terminate for Good Reason, (i) the Executive must
provide written notice to the Company (or the successor entity in
the Change of Control transaction) of the existence of the Good
Reason condition within ninety (90) days following the initial
existence of the Good Reason condition, and (ii) the Company
(or the successor entity in the Change of Control transaction)
shall not be required to provide Termination Benefits if it is able
to remedy the Good Reason condition within a period of thirty
(30) days following such notice.
(b)
Payment of Termination Benefits . If the Executive becomes
entitled to receive Termination Benefits pursuant to
Section 3(a), the continued payments of (i) base salary
and/or (ii) housing assistance benefits (if any) as set forth
in Section 6(b)(ii) of the Offer Letter, to the extent of
payments made from the date of the Executive’s termination of
employment through March 15 of the calendar year following
such termination, are intended to constitute separate payments for
purposes of Section 1.409A-2(b)(2) of the Treasury Regulations
and thus payable pursuant to the “short-term deferral”
rule set forth in Section 1.409A-1(b)(4) of the Treasury
Regulations; to the extent such payments are made following said
March 15, they are intended to constitute separate payments
for purposes of Section 1.409A-2(b)(2) of the Treasury
Regulations made upon an involuntary termination from service and
payable pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury
Regulations, to the maximum extent permitted by such provision,
with any excess amount being regarded as subject to the
distribution requirements of Section 409A(a)(2)(A) of the Internal
Revenue Code of 1986, as amended (the “ Code ”),
including, without limitation, the requirement of
Section 409A(a)(2)(B)(i) of the Code that payment be delayed
until six (6) months after the Executive’s termination
of employment if the Executive is a “specified
employee” within the meaning of Section 409A(a)(2)(B)(i)
of the Code at the time of such termination.
4. Certain
Additional Payments by the Company .
(a) If any
payment or benefit the Executive would receive pursuant to a Change
of Control from the Company or otherwise would (i) constitute
a “parachute payment” within the meaning of Section
280G of the Code (collectively, the “ Payment ”)
and (ii) but for this sentence, be subject to the excise tax
imposed by Section 4999 of the Code or any interest or
penalties payable 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 such Payment shall be reduced to an amount that results in no
portion of the Payment being subject to the Excise Tax, provided
that such reduction would not result in a ten percent (10%) or
greater reduction in the amount of the Payment.
If such reduction
would result in a ten percent (10%) or greater reduction in the
amount of the Payment, then there shall be no such reduction and
the Executive shall be entitled to receive from the Company 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 employment taxes and
any interest and penalties imposed with respect thereto resulting
from any improper reporting by the Company for employment tax
purposes) imposed upon the Gross-Up Payment, the Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed
upon the Payment; provided, however , that the maximum
amount of any such Gross-Up Payment shall be $3,000,000.
2
(b) For
purposes of determining the amount of the Gross-Up Payment:
(1) the Executive shall be deemed to have paid federal income
taxes calculated at the lower rate between: (i) 35% (which
represents the highest marginal rate of federal income taxation
applicable to ordinary income for the 2007 calendar year (the
“ 2007 Federal Tax Rate ”)); and (ii) the
highest marginal rate of federal income taxation applicable to
ordinary income then in effect for the calendar year in which the
Gross-Up Payment is to be made; (2) the Executive shall be
deemed to have paid applicable state income taxes calculated at the
lower rate between: (i) 10.3% (which represents the highest
marginal rate of California state income taxation applicable to
ordinary income for the 2007 calendar year, net of the maximum
reduction in federal income taxes that could be obtained from
deduction of such state taxes in the 2007 calendar year (the
“ 2007 State Tax Rate ”)); and (ii) the
highest marginal rate of California state income taxation
applicable to ordinary income for the calendar year in which the
Gross-Up Payment is to be made, net of the maximum reduction in
federal income taxes that could be obtained from deduction of such
state taxes; and (3) the Excise Tax rate shall be deemed to
equal the lower rate between: (i) 20% (which represents the
Excise Tax rate in effect for the 2007 calendar year (the “
2007 Excise Tax Rate ”)); and (ii) the actual
excise tax rate imposed by Section 4999 of the Code, or by
comparable laws and regulations, then in effect for the calendar
year in which the Gross-Up Payment is to be made. Any Gross-Up
Payment shall be paid to the Executive by the end of the calendar
year following the calendar year in which the Executive remits the
applicable taxes.
|
