CHANGE OF CONTROL EMPLOYMENT
AGREEMENT
AGREEMENT by and
between Schering-Plough Corporation, a New Jersey corporation (the
“Company”) and
, (the “Executive”), is dated as of the ___ day of
,
(the
“Commencement Date”).
The Board of
Directors of the Company (the “Board”), has determined
that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued
dedication of the Executive, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive’s full attention
and dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish these objectives, the Board has caused the Company to
enter into this Agreement.
NOW, THEREFORE, IT
IS HEREBY AGREED AS FOLLOWS:
(a) The
“Effective Date” shall mean the first date during the
Change of Control Period (as defined in Section 1(b)) on which
a Change of Control (as defined in Section 2) occurs. Anything
in this Agreement to the contrary notwithstanding, if a
Section 409A Change in Control Event (as defined in
Appendix A) occurs and if the Executive’s employment
with the Company is terminated prior to the date on which such
Section 409A Change in Control Event occurs, and if it is
reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has
taken steps reasonably calculated to effect a Change of Control or
a Section 409A Change in Control Event or (ii) otherwise
arose in connection with or in anticipation of a Change of Control
or Section 409A Change in Control Event, then for all purposes
of this Agreement the “Effective Date” shall mean the
date immediately prior to the date of such termination of
employment.
(b) The
“Change of Control Period” shall mean the period
commencing on the Commencement Date and ending on the earlier of
(i) the third anniversary of the Commencement Date and
(ii) except as otherwise provided in Section 1(a), the
date the Executive’s employment terminates for any reason
prior to the Effective Date; provided, however, that commencing on
the third anniversary of the Commencement Date, and on each annual
anniversary of such date (such date and each annual anniversary
thereof shall be hereinafter referred to as a “Renewal
Date”), the Change of Control Period shall be automatically
extended so as to terminate on the earlier of (x) the first
anniversary of such Renewal Date and (y) except as otherwise
provided in Section 1(a), the date the Executive’s
employment terminates for any reason prior to the Effective Date,
unless at least three months prior to such Renewal Date the Company
shall have given notice to the Executive that the Change of Control
Period shall not be so extended.
2. Change
of Control . For the purpose of this Agreement, a “Change
of Control” shall mean the happening of any of the following
events:
(a) the
acquisition by any 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 (within the meaning
of Rule 13d 3 promulgated under the Exchange Act) of
securities of the Company where such acquisition causes such Person
to own 20% or more of either (i) the then outstanding shares
of common stock of the Company (the “Outstanding Company
Common Stock”) or (ii) the combined voting power of the
then outstanding voting 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 be deemed to result in a Change of Control: (i) any
acquisition directly from the Company, (ii) any acquisition by
the Company, (iii) any acquisition by any employee benefit
plan (or related trust) sponsored or maintained by the Company or
any corporation controlled by the Company or (iv) any
acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection
(c) of this Section 2; and provided, further, that if any
Person’s beneficial ownership of the Outstanding Company
Voting Securities reaches or exceeds 20% as a result of a
transaction described in clause (i) or (ii) above, and
such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent
acquisition shall be treated as an acquisition that causes such
Person to own 20% or more of the Outstanding Company Voting
Securities; or
(b) individuals
who, as of the Commencement Date, constitute the Board (the
“Incumbent Board”) cease for any reason to constitute
at least a majority of the Board; provided, however, that any
individual becoming a director subsequent to the Commencement Date
whose election, or nomination for election by the Company’s
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered
as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office occurs 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
(c) consummation
of a reorganization, merger, statutory share exchange or
consolidation or similar corporate transaction involving the
Company or any of its subsidiaries, or a sale or other disposition
of all or substantially all of the assets of the Company or the
acquisition of assets or stock of another entity by the Company or
any of its subsidiaries (each, a “Business
Combination”), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals
and entities who were the beneficial owners, respectively, 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,
respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or
substantially all of the Company’s assets either directly or
through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to
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such Business
Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, (ii) no Person
(excluding any corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of the Company or
such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the
combined voting power of the then outstanding voting securities of
such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such Business Combination were members
of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such
Business Combination; or
(d) approval
by the shareholders of the Company of a complete liquidation or
dissolution of the Company.
3.
Employment Period . The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company subject to the terms and
conditions of this Agreement, for the period commencing on the
Effective Date and ending on the earlier of (x) [third] [second]
[first] anniversary of such date and (y) the Executive’s
65th birthday (the “Employment Period”).
(a)
Position and Duties .
(i) During
the Employment Period, (A) the Executive’s position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day
period immediately preceding the Effective Date and (B) the
Executive’s services shall be performed at the location where
the Executive was employed immediately preceding the Effective Date
or any office or location less than 35 miles from, and in the same
state as, such location.
(ii) During
the Employment Period, and excluding any periods of vacation and
sick leave to which the Executive is entitled, the Executive agrees
to devote appropriate attention and time during normal business
hours to the business and affairs of the Company and, to the extent
necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive’s best efforts to
perform faithfully and efficiently such responsibilities. During
the Employment Period it shall not be a violation of this Agreement
for the Executive to (A) serve on corporate, civic or
charitable boards or committees, (B) deliver lectures, fulfill
speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as such activities do
not materially interfere with the performance of the
Executive’s responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been
conducted by the Executive prior to the Effective Date without
materially interfering with the performance of the
Executive’s responsibilities to the Company, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective
Date
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shall not
thereafter be deemed to interfere with the performance of the
Executive’s responsibilities to the Company.
(i)
Base Salary . During the Employment Period, the Executive
shall receive, in accordance with the Company’s normal
payroll practices in effect from time to time for its other
similarly situated peer executives, an annual base salary
(“Annual Base Salary”) at least equal to the highest
annualized rate of base salary paid or payable, including any base
salary which has been earned but deferred, to the Executive by the
Company and its affiliated companies during the twelve-month period
immediately preceding the month in which the Effective Date occurs.
During the Employment Period, the Annual Base Salary shall be
reviewed no more than 12 months after the last salary increase
awarded to the Executive prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so increased.
As used in this Agreement, the term “affiliated
companies” shall include any company controlled by,
controlling or under common control with the Company.
(ii)
Annual Bonus . In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the
Employment Period, an annual bonus in cash at least equal to the
Executive’s highest annual target incentive opportunity under
the Company’s annual incentive plan applicable to the
Executive (the “Incentive Plan”), or any comparable
bonus under any predecessor or successor plan, for any of the
immediately preceding three full fiscal years prior to the
Effective Date (the “Annual Bonus”). Each such Annual
Bonus shall be paid no later than March 15 of the fiscal year
next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of
such Annual Bonus, in accordance with Section 409A of the Code
(“Section 409A”), pursuant to an applicable
deferred compensation plan of the Company.
(iii)
Incentive, Savings and Retirement Plans . During the
Employment Period, the Executive shall be entitled to participate
in all incentive, profit-sharing, stock option, stock award,
savings and retirement plans, practices, policies, programs and
arrangements applicable generally to other similarly situated peer
executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies, programs and
arrangements provide the Executive with incentive opportunities
(cash or equity, and measured with respect to both regular and
special incentive opportunities, to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Executive under such plans,
practices, policies, programs and arrangements as in effect at any
time during the 120-day period immediately preceding the Effective
Date or, if more favorable to the Executive, those provided
generally at any time after the Effective Date to other similarly
situated peer executives of the Company and its affiliated
companies.
(iv)
Welfare Benefit Plans . During the Employment Period, the
Executive and/or the Executive’s family, as the case may be,
shall be eligible for participation in and shall
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receive all
benefits under welfare benefit plans, practices, policies, programs
and arrangements provided by the Company and its affiliated
companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and
travel accident insurance plans, practices, policies, programs and
arrangements) to the extent applicable generally to other similarly
situated peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies,
programs and arrangements provide the Executive with benefits which
are less favorable, in the aggregate, than the most favorable of
such plans, practices, policies, programs and arrangements in
effect for the Executive at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Executive, those provided generally at any time after the
Effective Date to other similarly situated peer executives of the
Company and its affiliated companies. If, however,
Executive’s participation in any such plan, practice, policy,
program or arrangement could result in adverse or unintended tax
consequences to any participant (including the Executive), the
Company shall be entitled to pay to Executive the cost of
equivalent benefits outside such plan, practice policy, program or
arrangement, or provide Executive with substantially equivalent
benefits through a separate program (including the provision of
such benefits through the purchase of insurance), without regard to
the tax treatment applicable to such payment or separate program,
in lieu of permitting the Executive to participate in such plan,
practice, policy, program or arrangement.
(v)
Expenses . The Executive shall be entitled to receive prompt
reimbursement for all reasonable business expenses incurred by the
Executive during the Employment Period in accordance with the most
favorable policies, practices and procedures of the Company and its
affiliated companies in effect for the Executive at any time during
the 120-day period immediately preceding the Effective Date or, if
more favorable to the Executive, as in effect generally at any time
thereafter with respect to other similarly situated peer executives
of the Company and its affiliated companies. Such reimbursement
shall be made no later than March 15 of the year following the
year in which such expense was incurred.
(vi)
Fringe Benefits . During the Employment Period, the
Executive shall be entitled to fringe benefits, including, without
limitation, reimbursement for tax and financial planning services,
payment of club dues, and, if applicable, use of an automobile and
payment of related expenses and use of Company aircraft, in
accordance with the most favorable plans, practices and policies of
the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with
respect to other similarly situated peer executives of the Company
and its affiliated companies. Any reimbursements to the Executive
in connection with fringe benefit costs shall be made no later than
March 15 of the year following the year in which such costs
were incurred. To the extent required by applicable law, such
fringe benefits shall result in imputed income that shall be
subject to withholding from the Executive’s wages in the
amount and manner prescribed by such law.
(vii)
Office and Support Staff . During the Employment Period, the
Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to personal
secretarial and other assistance, at least substantially equivalent
to the most favorable of the foregoing provided to the Executive by
the Company and its affiliated companies at any time during the
120-day period immediately preceding the Effective Date or, if more
favorable to
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the Executive,
as those provided generally at any time thereafter with respect to
other similarly situated peer executives of the Company and its
affiliated companies.
(viii)
Vacation . During the Employment Period, the Executive shall
be entitled to an amount of paid vacation determined in accordance
with the most favorable plans and practices of the Company and its
affiliated companies as in effect for the Executive at any time
during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other similarly situated peer
executives of the Company and its affiliated companies.
5.
Termination of Employment .
(a) Death
or Disability . The Executive’s employment shall
terminate automatically upon the Executive’s death during the
Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below),
it may give to the Executive written notice in accordance with
Section 14(b) of this Agreement of its intention to terminate the
Executive’s employment. In such event, the Executive’s
employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the
“Disability Effective Date”), provided that, within the
30 days after such receipt, the Executive shall not have
returned to full-time performance of the Executive’s duties.
For purposes of this Agreement, “Disability” shall mean
the absence of the Executive from the Executive’s duties with
the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which
is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Executive or the
Executive’s legal representative.
(b)
Cause . The Company may terminate the Executive’s
employment during the Employment Period for Cause. For purposes of
this Agreement, “Cause” shall mean termination
initiated by the Company or by the Executive incident to or
connected with a finding that the Executive has engaged, whether in
connection with Executive’s employment with the Company or
otherwise, in misappropriation, theft, embezzlement, kick-backs,
bribery, or other deliberate, gross or willful misconduct or
dishonest acts or omissions, including, but not limited to,
commission of a felony.
(c) Good
Reason . The Executive’s employment may be terminated by
the Executive for Good Reason. For purposes of this Agreement,
“Good Reason” shall mean any of the events described in
(i)- (iii) below, that occur without the Executive’s
express written consent, if the Company fails to cure such events
within 20 business days after receiving notice thereof from the
Executive:
(i) the
assignment to the Executive of any duties that are materially
inconsistent with the Executive’s education, training and
experience, or a significant diminution in the Executive’s
authorities, responsibilities, status or title (as described in
this Agreement), it being understood that (A) a change in the
person to whom the Executive reports or (B) modifications to
organizational responsibilities resulting in changes to the
Executive’s functional areas of responsibility that do not
significantly diminish Executive’s core role in the Company,
do not constitute “Good Reason”;
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(ii) any
significant reduction by the Company of the Executive’s total
compensation in the aggregate, unless such reduction was part of a
reduction approved by the Company’s Board of Directors (or a
Committee thereof) for one or more similarly situated peer
executives in addition to the Executive;
(iii) any
failure by the Company to comply with any of the provisions of
Section 4 of this Agreement.
(d)
Notice of Termination . Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 14(b) of this Agreement. For purposes of
this Agreement, a “Notice of Termination” means a
written notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination
date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company
to set forth in the Notice of Termination any fact or circumstance
that contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively,
hereunder or preclude the Executive or the Company, respectively,
from asserting such fact or circumstance in enforcing the
Executive’s or the Company’s rights
hereunder.
(e) Date
of Termination . “Date of Termination” means
(i) if the Executive’s employment is terminated by the
Company for Cause, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be,
(ii) if the Executive’s employment is terminated by the
Company other than for Cause or Disability, the Date of Termination
shall be the date on which the Company notifies the Executive of
such termination, (iii) if the Executive’s employment is
terminated by the Executive for Good Reason, the Date of
Termination shall be the close of the thirtieth calendar day after
the Company receives notice from the Executive of the basis for
Good Reason if the Company has failed to cure such basis for Good
Reason, and (iv) if the Executive’s employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be. Notwithstanding the
foregoing, the Date of Termination for purposes of determining the
date that any payment or benefit which is treated as nonqualified
deferred compensation under Section 409A is to be paid or
provided (or in determining whether an exemption to such treatment
applies), and for purposes of determining whether the Executive is
a Specified Employee on the Date of Termination shall be the date
on which the Executive has incurred a “separation from
service” within the meaning of Treasury Regulation section
1.409A-1(h), or in subsequent IRS guidance under Section
409A.
6.
Obligations of the Company upon Termination .
(a)
Involuntary and Good Reason Terminations . If, during the
Employment Period, the Company shall terminate the
Executive’s employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason, then
provided that the Executive signs a Satisfactory Release (as
defined below) within 21 days following the later of the Date
of
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Termination and
the date such Release is presented to the Executive, and does not
revoke it within 7 days after the date he executes such
Release, the Company shall:
(i) pay
to the Executive, within 90 days after the effective date of
the Satisfactory Release, a lump-sum cash payment equal to the
aggregate of the following amounts:
A. the sum of
(1) the Executive’s Annual Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the
product of (x) the Executive’s Annual Bonus and (y) a
fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the
denominator of which is 365 and (3) any accrued vacation pay,
in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be
hereinafter referred to as the “Accrued Obligations”);
and
B. the amount
equal to the product of (1) the lesser of (x) [three] [two]
[one] and (y) the number of days after the Date of Termination and
on or before the Executive’s 65th birthday, divided by 365,
times (2) the sum of (A) the Executive’s Annual
Base Salary, (B) t
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