PENWEST PHARMACEUTICALS
CO.
Executive Retention
Agreement
THIS EXECUTIVE
RETENTION AGREEMENT (this “Agreement”) by and between
Penwest Pharmaceuticals Co., a Washington corporation (the
“Company”), and [
] (the “Executive”) is made as of [___] (the
“Effective Date”).
WHEREAS, the
Company recognizes that, as is the case with many publicly-held
corporations, the possibility of a change in control of the Company
exists and that such possibility, and the uncertainty and questions
which it may raise among key personnel, may result in the departure
or distraction of key personnel to the detriment of the Company and
its shareholders,
WHEREAS, the
Company desires to reinforce and encourage the continued employment
and dedication of the Company’s key personnel without
distraction from the possibility of a change in control of the
Company and related events and circumstances, and
WHEREAS, the
Company and the Executive are parties to an Executive Retention
Agreement dated as of [
] which is scheduled to expire on December 31, 2008 (the
“Prior Agreement”),
NOW, THEREFORE, as
an inducement for and in consideration of the Executive remaining
in its employ, the Company agrees that the Executive shall receive
the severance benefits set forth in this Agreement in the event the
Executive’s employment with the Company is terminated under
the circumstances described below in connection with or subsequent
to a Change in Control (as defined below).
As used herein,
the following terms shall have the following respective
meanings:
1.1
“ Change in Control ” means an event or
occurrence set forth in any one or more of subsections
(a) through (d) below (including an event or occurrence
that constitutes a Change in Control under one of such subsections
but is specifically exempted from another such
subsection):
(a) 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
1934 Securities Exchange Act, as amended) 50% or more of 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 in
Control: (i) 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), (ii) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the
Company or (iii) any acquisition by any corporation pursuant to a
Business Combination (as defined below) which complies with clauses
(i) and (ii) of subsection (c) of this definition;
or
(b) such
time as the Continuing Directors (as defined below) do not
constitute a majority of the Board of Directors of the Company (or,
if applicable, the Board of Directors of a successor corporation to
the Company) (the “Board”), where the term
“Continuing Director” means at any date a member of the
Board (i) who was a member of the Board on the date of
execution of this Agreement or (ii) 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 (ii) 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
(c) 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 in one or a series of transactions (a “Business
Combination”), unless, immediately following such Business
Combination, each of the following two conditions is satisfied:
(i) all or substantially all of the individuals and entities
who were the beneficial owners of the Outstanding Company Voting
Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 60% the
combined voting power of the then-outstanding securities entitled
to vote generally in the election of directors, 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 Voting Securities immediately prior to such
Business Combination and (ii) no Person (excluding any
employee benefit plan (or related trust) maintained or sponsored by
the Company or by the Acquiring Corporation) beneficially owns,
directly or indirectly, 50% of the combined voting power of the
then-outstanding securities of the Acquiring Corporation entitled
to vote generally in the election of directors (except to the
extent that such ownership existed prior to the Business
Combination); or
(d) the
liquidation or dissolution of the Company.
1.2
“ Cause ” means willful misconduct by the
Executive or willful failure by the Executive to perform his/her
responsibilities to the Company (including, without
limitation,
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breach by the
Executive of any provision of any employment, consulting, advisory,
nondisclosure, non-competition or other similar agreement between
the Executive and the Company), as determined by the Company, which
determination shall be conclusive.
1.3
“ Change in Control Date ” means the first date
during the Term (as defined in Section 2) on which a Change in
Control occurs. Anything in this Agreement to the contrary
notwithstanding, if (a) a Change in Control occurs,
(b) the Executive’s employment with the Company is
terminated prior to the date on which the Change in Control occurs,
and (c) 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 in Control or (ii) otherwise arose in connection with
or in anticipation of a Change in Control, then for all purposes of
this Agreement the “Change in Control” shall mean the
date immediately prior to the date of such termination of
employment.
1.4
“ Disability ” means a condition causing the
Executive to be disabled within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the “Code”), and any regulations promulgated
thereunder.
1.5
“ Good Reason ” means the occurrence, without
the Executive’s written consent, of any of the following
events or circumstances:
(a) the
assignment to the Executive of duties inconsistent in any material
respect with the Executive’s position (including status,
offices, titles and reporting requirements), authority or
responsibilities in effect immediately prior to the earliest to
occur of (i) the Change in Control Date, (ii) the date of
the execution by the Company of the initial written agreement or
instrument providing for the Change in Control or (iii) the
date of the adoption by the Board of a resolution providing for the
Change in Control (with the earliest to occur of such dates
referred to herein as the “Measurement Date”), or any
other action or omission by the Company which results in a material
diminution in such position, authority or responsibilities;
or
(b) a
change by the Company in the location at which the Executive
performs his/her principal duties for the Company to a new location
that increases the distance which the Executive commutes to a
distance that is 35 miles greater than the distance of the
Executive’s commute immediately prior to the Measurement
Date.
Notwithstanding
the occurrence of any event or circumstance set forth in clauses
(a) or (b) above, such occurrence shall not be deemed to
constitute Good Reason if, prior to the Date of Termination
specified in the Notice of Termination (each as defined in
Section 3.2(a)) given by the Executive in respect thereof,
such event or circumstance has been fully corrected and the
Executive has been reasonably compensated for any losses or damages
resulting therefrom (provided that such right of correction by the
Company shall only apply to the first Notice of Termination for
Good Reason given by the Executive).
2. Term
of Agreement . This Agreement, and all rights and obligations
of the parties hereunder, shall take effect upon the Effective Date
and shall expire upon the first to occur of (a) the expiration
of the Term (as defined below) if a Change in Control has not
occurred during the
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Term,
(b) the termination of the Executive’s employment with
the Company prior to the Change in Control Date, (c) the date
12 months after the Change in Control Date, if the Executive
is still employed by the Company as of such later date, or
(d) the fulfillment by the Company of all of its obligations
under this Agreement if the Executive’s employment with the
Company terminates within 12 months following the Change in
Control Date. “Term” shall mean the period commencing
as of the Effective Date and continuing in effect through
December 31, 2011.
3.
Employment Status; Termination Following Change in Control
.
3.1
Not an Employment Contract . The Executive acknowledges that
this Agreement does not constitute a contract of employment or
impose on the Company any obligation to retain the Executive as an
employee and that this Agreement does not prevent the Executive
from terminating employment at any time. If the Executive’s
employment with the Company terminates for any reason and
subsequently a Change in Control shall occur, the Executive shall
not be entitled to any benefits hereunder except as otherwise
provided pursuant to Section 1.3.
3.2
Notice of Termination of Employment .
(a) If
the Change in Control Date occurs during the Term, any termination
of the Executive’s employment by the Company or by the
Executive within 12 months following the Change in Control
Date (other than due to the death of the Executive) shall be
communicated by a written notice to the other party hereto (the
“Notice of Termination”), given in accordance with
Section 9. Any Notice of Termination shall specify the
effective date of the employment termination (the “Date of
Termination”). The Date of Termination set forth in such
Notice of Termination shall not be less than 30 days or more
than 60 days after the date of delivery of such Notice of
Termination, except in the case of termination by the Company for
Cause in which case such termination may be effective
immediately.
(b) If
the Executive seeks to terminate his/her employment with the
Company for Good Reason, then the Notice of Termination shall set
forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Executive’s
employment. Any Notice of Termination for Good Reason given by the
Executive must be given within 30 days of the first occurrence
of the event(s) or circumstance(s) which constitute(s) Good
Reason.
4.
Benefits to Executive . If the Change in Control Date occurs
during the Term and the Executive’s employment is terminated
by the Company (other than for Cause, Disability or death) or by
the Executive for Good Reason within 12 months following the
Change in Control Date, then the Executive shall be entitled to the
following benefits:
(i) The
Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination (A) the
Executive’s base salary through the Date of Termination and
(B) the amount of any compensation previously deferred by the
Executive (together with any accrued interest or earnings thereon)
and any accrued vacation pay,
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in each case to
the extent not previously paid (the sum of the amounts described in
this subsection (i) shall be hereinafter referred to as the
“Accrued Obligations”);
(ii) The
Company shall pay to the Executive an amount equal to [150%/200%]
of the sum of (x) the highest annual base salary of the Executive
during the period of the Executive’s employment with the
Company and (y) the highest annual bonus of the Executive
during the period of the Executive’s employment with the
Company, including for this purpose the target annual bonus of the
Executive for the calendar year during which the Date of
Termination occurs, over a period (the “Payment
Period”) that is equal in length to [24 months for the
Chief Executive Officer] [18 months for all other Executives]
and commences on the Date of Termination, which amount shall be
paid to the Executive in installments, in accordance with the
Company’s regular payroll practices;
(iii) for
the Payment Period, or for such longer period as may be
provid
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