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Execution Version Endo Health Solutions Inc. Executive Employment Agreement

Executive Employment Agreement

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ENDO INTERNATIONAL PLC | ENDO HEALTH SOLUTIONS INC

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Title: Execution Version ENDO HEALTH SOLUTIONS INC. EXECUTIVE EMPLOYMENT AGREEMENT
Governing Law: Delaware     Date: 8/9/2016
Industry: Biotechnology and Drugs     Sector: Healthcare

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Exhibit 10.4

 

 

Execution Version

ENDO HEALTH SOLUTIONS INC.

EXECUTIVE EMPLOYMENT AGREEMENT

THIS AGREEMENT (this “ Agreement ”) is hereby entered into as of the 3rd day of August, 2016, by and between Endo Health Solutions Inc. (the “ Company ”), a wholly-owned subsidiary of Endo International plc (“ Endo ”), and Suketu P. Upadhyay (“ Executive ”) (hereinafter collectively referred to as “the parties”).

In consideration of the respective agreements of the parties contained herein, it is agreed as follows:

1.

Term . The term of this Agreement shall be for the period commencing on August 4, 2016 (the “ Effective Date ”) and ending, subject to earlier termination as set forth in Section 6, on the third anniversary thereof (the “ Employment Term ”).

 

2.

Employment . During the Employment Term:

 

(a)

Executive shall serve as Executive Vice President and Chief Financial Officer of Endo and shall be assigned with the customary duties and responsibilities of such position as may reasonably be assigned to Executive from time to time by the Chief Executive Officer of Endo. Executive shall report directly to Endo’s Chief Executive Officer. Executive shall perform the duties, undertake the responsibilities and exercise the authority customarily performed, undertaken and exercised by persons situated in a similar executive capacity. If, at any time, Executive is elected as a director of Endo or as a director or officer of any of Endo’s affiliates, Executive will fulfill Executive’s duties as such director or officer without additional compensation; provided , that at the time of Executive’s termination of employment with the Company for any reason, Executive shall resign from the Board of Directors of Endo (the “ Board ”) and or the board of directors of any of Endo’s affiliates.

 

(b)

Executive shall devote substantially full-time attention to the business and affairs of the Company and its affiliates. Executive may (i) serve on corporate, civil, charitable or non-profit boards or committees, subject in all cases to the prior approval of the Board and other applicable written policies of the Company and its affiliates as in effect from time to time, and (ii) manage personal and family investments, participate in industry organizations and deliver lectures at educational institutions, so long as no such service or activity unreasonably

 

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interferes, individually or in the aggregate, with the performance of his responsibilities hereunder.

(c)

Executive shall be subject to and shall abide by each of the personnel and compliance policies of the Company and its affiliates applicable and communicated in writing to senior executives.

 

3.

Special Equity Compensation .

 

(a)

Initial Performance Share Unit Grant . On August 11, 2016 (the “ Grant Date ”), Executive shall receive performance share units (“ Initial PSUs ”) under Endo’s 2015 Stock Incentive Plan or any successor plan thereto (the “ Plan ”). The number of Initial PSUs shall be equal to $812,500, divided by the Fair Market Value (as defined in the Plan) of an Endo ordinary share as of the Grant Date (rounded down to the nearest whole share). The Initial PSUs shall vest on the third anniversary of the Grant Date, provided Executive is then employed by the Company or one of its affiliates and subject to the achievement of the applicable performance goals, as determined by the Compensation Committee of the Board (the “ Committee ”), which shall be consistent with the methodology used in respect of performance-vested grants made to Executive in 2016, subject to adjustment for a performance period ending on the third anniversary of the Grant Date. All Initial PSUs shall be subject to the terms and conditions of the Plan and applicable award agreement.

 

(b)

Initial Restricted Stock Unit Grant . On the Grant Date, Executive shall receive restricted stock units under the Plan (the “ Initial RSUs ”). The number of Initial RSUs shall be equal to $1,625,000, divided by the Fair Market Value of an Endo ordinary share as of the Grant Date (rounded down to the nearest whole share). The Initial RSUs shall vest ratably over a three-year period, at a rate of one-third (33 1/3%) of the total Initial RSUs on each of the three anniversaries of the Grant Date, provided Executive is employed on such dates by the Company or one of its affiliates. All Initial RSUs shall be subject to the terms and conditions of the Plan and applicable award agreement.

 

(c)

Initial Stock Option Grant . On the Grant Date, Executive shall receive nonqualified stock options under the Plan (the “ Initial Stock Options ”) valued at $812,500 using a Black Scholes valuation based on the closing price of Endo’s ordinary shares on the Grant Date with methodology determined by the Committee in its sole discretion (rounded down to the nearest whole share). The Initial Stock Options shall vest ratably over a three-year period, at a rate of one-

 

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third (33 1/3%) of the total Initial Stock Options on each of the three anniversaries of the Grant Date, provided Executive is employed on such dates by the Company or one of its affiliates. The Initial Stock Options shall be subject to the terms and conditions set forth in the Plan and applicable award agreement.

4.

Annual Compensation .

 

(a)

Base Salary . The Company agrees to pay or cause to be paid to Executive during the Employment Term a base salary at the rate of $655,000 per annum or such increased amount in accordance with this Section 4(a) (hereinafter referred to as the “ Base Salary ”). Such Base Salary shall be payable in accordance with the Company’s customary practices applicable to its executives. Such Base Salary shall be reviewed at least annually by the Board or by the Committee, and may be increased in the sole discretion of the Committee, but not decreased.

 

(b)

Incentive Compensation . For each fiscal year of the Company ending during the Employment Term, beginning with the 2016 fiscal year, Executive shall be eligible to receive a target annual cash bonus of 60% of the Base Salary (such target bonus, as may hereafter be increased, the “ Target Bonus ”) with the opportunity to receive a maximum annual cash bonus in accordance with the terms of the applicable annual cash bonus plan as in effect from time to time, subject to the achievement of performance targets set by the Committee. Such annual cash bonus (“ Incentive Compensation ”) shall be paid in no event later than the 15th day of the third month following the end of the taxable year (of the Company or Executive, whichever is later) in which the performance targets have been achieved. If the parties (following good faith negotiation) fail to enter into a new employment agreement following expiration of the Employment Term and Executive terminates his employment within ninety (90) days following expiration of the Employment Term under circumstances that would have constituted Good Reason (as defined in Section 6(e)) had such termination occurred during the Employment Term or if, during such 90-day period, the Company terminates Executive’s employment under circumstances that would not have constituted Cause (as defined in Section 6(c)) had such termination occurred during the Employment Term, then the Company shall pay Executive a Pro-Rata Bonus (as defined in Section 8(b)(ii) hereof) in a lump sum at the time bonuses are payable to other senior executives of the Company.

 

(c)

Long-Term Compensation . During the Employment Term, Executive shall be eligible to receive equity-based compensation to be awarded, in the sole discretion of the Committee, for each fiscal year or part thereof during the Employment

 

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Term. Beginning with grants made in 2017 with respect to 2016 performance, Executive shall be eligible to receive equity-based compensation with a targeted grant date Fair Market Value equal to 300% of Executive’s Base Salary for such fiscal year, subject to any increase in the Committee’s sole discretion. All such equity-based awards shall be subject to the terms and conditions set forth in the applicable plan and award agreements, and in all cases shall be as determined by the Committee; provided , that such terms and conditions shall be no less favorable than those provided for other senior executives of the Company. If the parties (following good faith negotiation) fail to enter into a new employment agreement following expiration of the Employment Term and Executive terminates his employment within ninety (90) days following expiration of the Employment Term under circumstances that would have constituted Good Reason had such termination occurred during the Employment Term or if, during such 90-day period, the Company terminates Executive’s employment under circumstances that would not have constituted Cause had such termination occurred during the Employment Term, then such termination of employment shall be treated as a termination of employment for Good Reason or without Cause, as applicable, for purposes of the Initial RSUs, the Initial Stock Options and the performance-based restricted stock units held by Executive as of the date of such termination of employment, including the Initial PSUs (and such awards shall be treated in accordance with the terms of the applicable award agreements).

5.

Other Benefits .

 

(a)

Employee Benefits . During the Employment Term, Executive shall be entitled to participate in all employee benefit plans, practices and programs maintained by the Company or its affiliates and made available to employees generally, including, without limitation, all pension, retirement, profit sharing, savings, medical, hospitalization, disability, dental, life or travel accident insurance benefit plans, to the extent Executive is eligible under the terms of such plans. Executive’s participation in such plans, practices and programs shall be on the same basis and terms as are applicable to employees of the Company generally. Executive is responsible for any taxes (other than taxes that are the Company’s responsibility) that may be due based upon the value of the benefits provided.

 

(b)

Executive Benefits . During the Employment Term, Executive shall be entitled to participate in all executive benefit or incentive compensation plans now maintained or hereafter established by the Company or its affiliates for the purpose of providing compensation and/or benefits to comparable executive employees of the Company including, but not limited to, the Company’s deferred

 

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compensation plans and any supplemental retirement, deferred compensation, supplemental medical or life insurance or other bonus or incentive compensation plans. Unless otherwise provided herein, Executive’s participation in such plans shall be on the same basis and terms, as other senior executives of the Company. No additional compensation provided under any of such plans shall be deemed to modify or otherwise affect the terms of this Agreement or any of Executive’s entitlements hereunder. Executive is responsible for any taxes (other than taxes that are the Company’s responsibility) that may be due based upon the value of the benefits provided.

(c)

Fringe Benefits and Perquisites . During the Employment Term, Executive shall be entitled to all fringe benefits and perquisites generally made available by the Company or its affiliates to its senior executives in accordance with current Company policy. For the avoidance of doubt, Executive shall not be entitled to any excise tax gross-up under Section 280G or Section 4999 of the Internal Revenue Code of 1986, as amended (the “ Code ”) (or any successor provision), or any other tax gross-up.

 

(d)

Business Expenses . Upon submission of proper invoices in accordance with the Company’s normal procedures, Executive shall be entitled to receive prompt reimbursement of all reasonable out-of-pocket business, entertainment and travel expenses incurred by Executive in connection with the performance of Executive’s duties hereunder. Such reimbursement shall be made in no event later than the end of the calendar year following the calendar year in which the expenses were incurred.

 

(e)

Office and Facilities . During the Employment Term, Executive shall be provided with an appropriate office at the Company’s headquarters, with such secretarial and other support facilities as are commensurate with Executive’s status with the Company and its affiliates, which facilities shall be adequate for the performance of Executive’s duties hereunder.

 

(f)

Vacation and Sick Leave . Executive shall be entitled, without loss of pay, to absent himself voluntarily from the performance of Executive’s employment under this Agreement, pursuant to the following:

 

(i)

Executive shall be entitled to annual vacation in accordance with the vacation policies of the Company as in effect from time to time, which shall in no event be less than four weeks per year; vacation must be taken at such time or times as approved by the Chief Executive Officer; and

 

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(ii)

Executive shall be entitled to sick leave (without loss of pay) in accordance with the Company’s policies as in effect from time to time.

 

6.

Termination . The Employment Term and Executive’s employment hereunder may be terminated under the circumstances set forth below; provided , however , that notwithstanding anything contained herein to the contrary, Executive shall not be considered to have terminated employment with the Company for purposes of this Agreement unless Executive would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code.

 

(a)

Disability . The Company may terminate Executive’s employment, on written notice to Executive after having reasonably established Executive’s Disability. For purposes of this Agreement, Executive will be deemed to have a “ Disability ” if, as a result of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, Executive is unable to perform the core functions of Executive’s position (with or without reasonable accommodation) or is receiving income replacement benefits for a period of six months or more under the Company’s long-term disability plan. Executive shall be entitled to the compensation and benefits provided for under this Agreement for any period prior to Executive’s termination by reason of Disability during which Executive is unable to work due to a physical or mental infirmity in accordance with the Company’s policies for similarly-situated executives.

 

(b)

Death . Executive’s employment shall be terminated as of the date of Executive’s death.

 

(c)

Cause . The Company may terminate Executive’s employment for Cause (as defined below), effective as of the date of the Notice of Termination (as defined in Section 7 below) and as evidenced by a resolution adopted by two-thirds of the independent members of the Board. “Cause” shall mean, for purposes of this Agreement: (a) the continued failure by Executive substantially to perform Executive’s duties under this Agreement (other than any such failure resulting from Disability or other illness); (b) Executive makes, or is found to have made, a certification relating to the Company’s financial statements that Executive knows is false; (c) the criminal felony indictment of Executive by a court of competent jurisdiction; (d) the engagement by Executive in misconduct that has caused, or in the good faith judgment of the Board may cause if not discontinued, material harm (financial or otherwise) to the Company or any of its affiliates, such harm to include, without limitation, (i) the willful disclosure of material secret or

 

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Confidential Information (as defined in Section 10(d)) of the Company or any of its affiliates, (ii) the debarment of the Company or any of its affiliates by the U.S. Food and Drug Administration or any successor agency (the “ FDA ”), or (iii) the registration of the Company or any of its affiliates with the U.S. Drug Enforcement Administration of any successor agency (the “ DEA ”) to be revoked; (e) the debarment of Executive by the FDA; or (f) the continued material breach by Executive of this Agreement. For purposes of this definition, Cause shall not exist unless written demand is delivered by the Board to Executive which specifically identifies the conduct, events or circumstances that may provide grounds for Cause in reasonable detail within ninety (90) calendar days of the Company’s knowledge of such conduct, events or circumstances. During the thirty (30) day period after receipt of such demand, Executive shall have an opportunity to cure or remedy such conduct, events or circumstances and present his case to the full Board (with the assistance of counsel chosen by Executive) before any termination for Cause is finalized by a vote by at least two-thirds of the independent members of the Board at a meeting of the Board called and held for such purpose. References to the Company in subsections (a) through (f) of this paragraph shall also include affiliates of the Company.

(d)

Without Cause . The Company may terminate Executive’s employment without Cause. The Company shall deliver to Executive a Notice of Termination (as defined in Section 7 below) not less than thirty (30) days prior to the termination of Executive’s employment without Cause and the Company shall have the option of terminating Executive’s duties and responsibilities prior to the expiration of such thirty-day notice period provided the Company pays Base Salary through the end of such notice period.

 

(e)

Good Reason . Executive may terminate employment with the Company for Good Reason (as defined below) by delivering to the Company a Notice of Termination (as defined in Section 7 below) not less than thirty (30) days prior to the termination of Executive’s employment for Good Reason. The Company shall have the option of terminating Executive’s duties and responsibilities prior to the expiration of such thirty-day notice period. For purposes of this Agreement, “ Good Reason ” means any of the following: (i) a diminution in Executive’s Base Salary, Target Bonus (provided that in no event shall a failure to earn a bonus equal or in excess of the Target Bonus by reason of failure to achieve applicable performance goals be deemed Good Reason) or a material diminution in benefits; (ii) a material, adverse change to Executive’s position, duties or responsibilities without Executive’s express written consent; (iii) any change in reporting structure such that Executive is required to report to someone other than Endo’s

 

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Chief Executive Officer, or following a Change in Control (as such term is defined in the Plan), the chief executive officer of Endo’s ultimate parent; (iv) any material breach by the Company of its obligations under this Agreement (including the material failure to pay any amounts due hereunder when due or the failure of the Company to abide by the requirements of Section 14(a)(i) below with respect to successors or permitted assigns); or (v) the Company requiring Executive to be based at any office or location that increases the length of Executive’s commute by more than fifty (50) miles. Executive shall provide notice of the existence of the Good Reason condition within ninety (90) days of the date Executive learns of the condition, and the Company shall have a period of thirty (30) days during which it may remedy the condition, and in case of full remedy such condition shall not be deemed to constitute Good Reason hereunder.

(f)

Without Good Reason . Executive may voluntarily terminate Executive’s employment without Good Reason by delivering to the Company a Notice of Termination not less than thirty (30) days prior to the termination of Executive’s employment and the Company shall have the option of terminating Executive’s duties and responsibilities prior to the expiration of such thirty-day notice period.

 

7.

Notice of Termination . Any purported termination by the Company or by Executive shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a “ Notice of Termination ” shall mean a notice that indicates a termination date, the specific termination provision in this Agreement relied upon and sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment under the provision so indicated. For purposes of this Agreement, no such purported termination of Executive’s employment hereunder shall be effective without such Notice of Termination (unless waived by the party entitled to receive such notice).

 

8.

Compensation Upon Termination . Upon termination of Executive’s employment during the Employment Term, Executive shall be entitled to the following benefits:

 

(a)

Termination by the Company for Cause or by Executive Without Good Reason . If Executive’s employment is terminated by the Company for Cause or by Executive without Good Reason, the Company shall pay Executive all amounts earned or accrued hereunder through the termination date, including:

 

(i)

any accrued and unpaid Base Salary, payable on the next payroll date;

 

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(ii)

any Incentive Compensation earned but unpaid in respect of any completed fiscal year preceding the termination date, payable at the time incentive compensation is paid to other senior executives;

 

(iii)

reimbursement for any and all monies advanced or expenses incurred in connection with Executive’s employment for reasonable and necessary expenses incurred by Executive on behalf of the Company for the period ending on the termination date, which amount shall be reimbursed within thirty (30) days of the Company’s receipt of proper documentation from Executive;

 

(iv)

any accrued and unpaid vacation pay, payable on the next payroll date;

 

(v)

any previous compensation that Executive has previously deferred (including any interest earned or credited thereon), in accordance with the terms and conditions of the applicable deferred compensation plans or arrangements then in effect, to the extent vested as of Executive’s termination date, paid pursuant to the terms of such plans or arrangements; and

 

(vi)

any amount or benefit as provided under any benefit plan or program in accordance with the terms thereof; (the foregoing items in Sections 8(a)(i) through 8(a)(vi) being collectively referred to as the “ Accrued Compensation ”).

 

(b)

Termination by the Company for Disability . If Executive’s employment is terminated by the Company for Disability, the Company shall pay Executive:

 

(i)

the Accrued Compensation;

 

(ii)

an amount equal to the Incentive Compensation that Executive would have been entitled to receive in respect of the fiscal year in which Executive’s termination date occurs, had Executive continued in employment until the end of such fiscal year, which amount, determined based on actual performance for such year relative to the performance goals applicable to Executive (but without any exercise of negative discretion with respect to Executive in excess of that applied to either senior executives of the Company generally or in accordance with the Company’s historical past practice), shall be multiplied by a fraction (A) the numerator of which is the number of days in such fiscal year through the termination date and (B) the denominator of which is 365 (the “ Pro-Rata Bonus ”) and shall be

 

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payable in a lump sum payment at the time such bonus or incentive awards are payable to other participants. Further, upon Executive’s Disability (irrespective of any termination of employment related thereto), the Company shall pay Executive for twenty-four (24) consecutive months thereafter regular payments in the amount by which the monthly Base Salary exceeds Executive’s monthly Disability insurance benefit; and

(iii)

continued coverage for Executive and Executive’s dependents under any health, medical, dental, vision or life insurance program or policy in which Executive was eligible to participate as of the time of Executive’s employment termination, for two (2) years following such termination on the same basis as active employees, which such two year period shall run concurrently with the COBRA period, and which coverage shall become secondary to any coverage provided to Executive by a subsequent employer and to any Medicare coverage for which Executive becomes eligible; provided , however , the parties agree to cooperate such that the continued coverage is, to the extent practicable, provided in a manner so as to minimize adverse tax consequences to the Company.

 

(c)

Termination By Reason of Death . If Executive’s employment is terminated by reason of Executive’s death, the Company shall pay Executive’s beneficiaries:

 

(i)

the Accrued Compensation;

 

(ii)

the Pro-Rata Bonus; and

 

(iii)

continued coverage for Executive’s dependents under any health, medical, dental, vision or life insurance program or policy in which Executive was eligible to participate as of the time of Executive’s employment termination, for two (2) years following such termination on terms no less favorable to Executive’s dependents (including with respect to payment for the costs thereof) than those in effect immediately prior to such termination, which such two year period shall run concurrently with the COBRA period.

 

(d)

Termination by the Company Without Cause or by Executive for Good Reason . If Executive’s employment by the Company shall be terminated by the Company without Cause (other than on account of Executive’s Disability or death) or by Executive for Good Reason, then, subject to Section 14(f) of this Agreement, Executive shall be entitled to the benefits provided in this Section 8(d):

 

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(i)

the Accrued Compensation;

 

(ii)

the Pro-Rata Bonus;

 

(iii)

in lieu of any further Base Salary or other compensation and benefits for periods subsequent to the termination date, an amount in cash, which amount shall be payable in a lump sum payment within sixty (60) days following such termination (subject to Section 9(c)), equal to two (2) times the sum of (A) Executive’s Base Salary and (B) the Target Bonus; and

 

(iv)

accelerated vesting, non-forfeitability and exercisability, as of the termination date, of the Initial RSUs, the Initial Stock Options and, solely to the extent provided for in the applicable award agreement, the Initial PSUs;

 

(v)

continued coverage under any health, medical, dental, vision or life insurance program or policy in which Executive was eligible to participate as of the time of Executive’s employment termination for two (2) years following such termination on the same basis as active employees, which such two year period shall run concurrently with the COBRA period, and which coverage shall become secondary to any coverage provided to Executive by a subsequent employer and to any Medicare coverage for which Executive becomes eligible. Notwithstanding the above, in the event such continued coverage, by reason of change in the applicable law, may, in the Company’s reasonable view, result in tax or other penalties on the Company, this provision shall terminate and the parties shall, in good faith, negotiate for a substitute provision that provides substantially similar benefit to Executive but does not result in such tax or other penalties.

 

(e)

No Mitigation . Executive shall not be required to mitigate the amount of any payment provided for under this Section 8 by seeking other employment or otherwise and, except as provided in Section 8(b)(iii) and 8(d)(v) above, no such payment shall be offset or reduced by the amount of any compensation or benefits provided to Executive in any subsequent employment. Further, the Company’s obligations to make any payments hereunder shall not be subject to or affected by any set-off, counterclaim or defense which the Company may have against Executive.

 

9.

Certain Tax Treatment .

 

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(a)

Golden Parachute Tax . To the extent that the payments and benefits provided under this Agreement and benefits provided to, or for the benefit of, Executive under any other plan or agreement of the Company or any of its affiliates (such payments or benefits are collectively referred to as the “ Payments ”) would be subject to the excise tax (the “ Excise Tax ”) imposed under Section 4999 of the Code or any successor provision thereto, or any similar tax imposed by state or local law, then Executive may, in his sole discretion, (except as provided herein below) waive the right to receive any payments or distributions (or a portion thereof) by the Company in the nature of compensation to or for Executive’s benefit if and to the extent necessary so that no Payment to be made or benefit to be provided to Executive shall be subject to the Excise Tax (such reduced amount is hereinafter referred to as the “ Limited Payment Amount ”), but only if such reduction results in a higher after-tax payment to Executive after taking into account the Excise Tax and any additional taxes (including federal, state and local income taxes, employment, social security and Medicare taxes and all other applicable taxes) Executive would pay if such Payments and benefits were not reduced. If so waived, the Company shall reduce or eliminate the Payments provided under Section 8, to effect the provisions of this Section 9 based upon Section 9(b) below. The determination of the amount of Payments that would be required to be reduced to the Limited Payment Amount pursuant to this Agreement and the amount of such Limited Payment Amount shall be made, at the Company’s expense, by a reputable accounting firm selected by Executive and reasonably acceptable to the Company (the “ Accounting Firm ”). The Accounting Firm shall provide its determination (the “ Determination ”), together with detailed supporting calculations and documentation to the Company and Executive within ten (10) days of the date of termination, if applicable, or such other time as specified by mutual agreement of the Company and Executive, and if the Accounting Firm determines that no Excise Tax is payable by Executive with respect to the Payments, it shall furnish Executive with an opinion reasonably acceptable to Executive that no Excise Tax will be imposed with respect to any such Payments. The Determination shall be binding, final and conclusive upon the Company and Executive, absent manifest error. For purposes of making the calculations required by this Section 9(a), the Accounting Firm may make reasonable assumptions and approximations concerning applicable taxes and rates, and rely on reasonable, good faith interpretations concerning the application of the Code, and other applicable legal authority. In furtherance of the above, to the extent requested by Executive, the Company shall cooperate in good faith in valuing, and the Accounting Firm shall value, services to be provided by Executive (including Executive refraining from performing services pursuant to

 

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any covenant not to compete) before, on or after the date of the transaction which causes the application of Section 4999 of the Code, such that payments in respect of such services may be considered to be “reasonable compensation” within the meaning of the regulations under Section 4999 of the Code.

(b)

Ordering of Reduction . In the case of a reduction in the Payments pursuant to Section 9(a), the Payments will be reduced in the following order: (i) payments that are payable in cash that are valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a) will be reduced (if necessary, to zero), with amounts that are payable last reduced first; (ii) payments and benefits due in respect of any equity valued at full value under Treasury Regulation Section 1.280G-1, Q&A 24(a), with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; (iii) payments that are payable in cash that are valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with amounts that are payable last reduced first, will next be reduced; (iv) payments and benefits due in respect of any equity valued at less than full value under Treasury Regulation Section 1.280G-1, Q&A 24, with the highest values reduced first (as such values are determined under Treasury Regulation Section 1.280G-1, Q&A 24) will next be reduced; and (v) all other non-cash benefits not otherwise described in clauses (ii) or (iv) will be next reduced pro-rata.

 

(c)

Section 409A . The parties intend for the payments and benefits under this Agreement to be exempt from Section 409A of the Code or, if not so exempt, to be paid or provided in a manner which complies with the requirements of such section, and intend that this Agreement shall be construed and administered in accordance with such intention. In the event the Company determines that a payment or benefit under this Agreement may not be in compliance with Section 409A of the Code, subject to Section 5(c) herein, the Company shall reasonably confer with Executive in order to modify or amend this Agreement to comply with Section 409A of the Code and to do so in a manner to best preserve the economic benefit of this Agreement. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, (i) no amounts shall be paid to Executive under Section 8 of this Agreement until Executive would be considered to have incurred a “separation from service” from the Company within the meaning of Section 409A of the Code, (ii) amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Agreement during the six-month period immediately following Executive’s separation from service shall instead be paid on the first business day after the date that is six (6)

 

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months following Executive’s separation from service (or death, if earlier), with interest for any cash payments so delayed, from the date such cash amounts would otherwise have been paid at the short-term applicable federal rate, compounded semi-annually, as determined under Section 1274 of the Code for the month in which the payment would have been made but for the delay in payment required to avoid the imposition of an additional rate of tax on Executive, (iii) each amount to be paid or benefit to be provided under this Agreement shall be construed as a separately identified payment for purposes of Section 409A of the Code, (iv) any payments that are due within the “short term deferral period” a


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