Exhibit (10)(a)
Execution Copy
CHANGE-IN-CONTROL AGREEMENT
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THIS IS A CHANGE-IN-CONTROL AGREEMENT (the "Agreement"), dated as of June
3, 2002 (the "Effective Date"), between West Pharmaceutical, Services, Inc., a
Pennsylvania corporation, (the "Company") and Richard D. Luzzi ("Executive").
Background
The Board of Directors of the Company and the Compensation Committee of the
Board have determined that it is in the best interests of the Company and its
shareholders for the Company to make the following arrangements with Executive.
These arrangements provide for compensation in the event Executive should leave
the employment of the Company under the circumstances described in this
Agreement.
Agreement
In consideration of Executive's assuming the position of Vice President,
Human Resources, and the mutual covenants and agreements herein, and intending
to be legally bound, the Company and Executive agree as follows:
1. Definitions. As used in this Agreement, the following terms will have
the meanings set forth below:
(a) An "Affiliate" of any Person means any Person directly or
indirectly controlling, controlled by or under common control with such
Person.
(b) "Change in Control" means a change in control of a nature that
would be required to be reported in response to Item 1 of a Current Report
on Form 8-K as in effect on the date of this Agreement pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934, as amended, (the
"Act"), provided, that, without limitation, a Change in Control shall be
deemed to have occurred if:
(i) Any Person, other than:
(1) the Company,
(2) any Person who on the date hereof is a director or
officer of the Company, or
(3) a trustee or fiduciary holding securities under an
employee benefit plan of the Company,
is or becomes the "beneficial owner," (as defined in Rule 13-d3
under the Act), directly or indirectly, of securities of the
Company representing more than 50% of the combined voting power
of the Company's then outstanding securities; or
(ii) During any period of two consecutive years during the term
of this Agreement, individuals who at the beginning of such
period constitute the Board of Directors of the Company cease for
any reason to constitute at least a majority thereof, unless the
election of each director who was not a director at the beginning
of such period has been approved in advance by directors
representing at least two-thirds of the directors then in office
who were directors at the beginning of the period; or
(iii) The shareholders of the Company approve: (A) a plan of
complete liquidation of the Company; or (B) an agreement for the
sale or disposition of all or substantially all of the Company's
assets; or (C) a merger, consolidation, or reorganization of the
Company with or involving any other corporation, other than a
merger, consolidation, or reorganization (collectively, a
"Transaction"), that would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity), at least 50% of
the combined voting power of the voting securities of the Company
(or the surviving entity, or an entity which as a result of the
Transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more
subsidiaries) outstanding immediately after the Transaction.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) The "Company's Business" means: (i) the manufacture and sale of
stoppers, closures, containers, medical-device components and assemblies
made from elastomers, metal and plastic for the health-care and
consumer-products industries; (ii) the clinical trial and OTC switch
business carried on by the Company's Clinical Services Group; (iii) the
development of proprietary drug-delivery technologies that provide
optimized therapeutic effects for challenging drug molecules, such as
peptides and proteins, carbohydrates, oligonucleotides, as well as systems
for vaccines, gene therapy and diagnostic applications; and (iv) any other
business conducted by the Company or any of its Subsidiaries or Affiliates
during the term of this Agreement and in which Executive has have been
actively involved.
(e) "Constructive Termination" means the occurrence of any of the following
events:
(i) The Company requires Executive to assume any duties inconsistent
with, or the Company makes a significant diminution or reduction in
the nature or scope of Executive's authority or duties from, those
assigned to or held by Executive on the Effective Date;
(ii) A material reduction in Executive's annual salary or incentive
compensation opportunities;
(iii) A relocation of Executive's site of employment to a location
more than 50 miles from Executive's site of employment on the
Effective Date;
(iv) The Company fails to provide Executive with substantially the
same fringe benefits that were provided to Executive as of the
Effective Date, or with a package of fringe benefits that, although
one or more of such benefits may vary from those in effect as of the
Effective Date, is substantially at least as beneficial to Executive
in all material respects as such fringe benefits taken as a whole; or
(v) A successor of the Company does not assume the Company's
obligations under this Agreement, expressly or as a matter of law.
Notwithstanding the foregoing, no Constructive Termination will be
deemed to have occurred under any of the following circumstances:
(1) Executive will have consented in writing or given a written
waiver to the occurrence of any of the events enumerated in
clauses (i) through (v) above;
(2) Executive will have failed to give the Company written notice
stating Executive's intention to claim Constructive Termination
and the basis for that claim at least 10 days in advance of the
effective date of Executive's resignation; or
(3) The event constituting a Constructive Termination has been
cured by the Company prior to the effective date of Executive's
resignation.
(f) "Payment" means
(i) any amount due or paid to Executive under this Agreement,
(ii) any amount that is due or paid to Executive under any plan,
program or arrangement of the Company and any of its Subsidiaries, and
(iii) any amount or benefit that is due or payable to Executive under
this Agreement or under any plan, program or arrangement of the
Company and any of its Subsidiaries not otherwise covered under clause
(i) or (ii) hereof which must reasonably be taken into account under
section 280G of the Code and the Regulations in determining the amount
of the "parachute payments" received by Executive, including, without
limitation, any amounts which must be taken into account under the
Code and Regulations as a result of (1) the acceleration of the
vesting of any option, restricted stock or other equity award granted
under any equity plan of the Company or otherwise, (2) the
acceleration of the time at which any payment or benefit is receivable
by Executive or (3) any contingent severance or other amounts that are
payable to Executive.
(g) "Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
(h) "Regulations" means the proposed, temporary and final regulations under
section 280G of Code or any successor provision thereto.
(i) "Restrictive Period" means the period of time that commences on the
Effective Date hereof and ends on the first anniversary of the Termination
Date.
(j) "Retirement Plan" means the West Pharmaceutical Services, Inc.
Employees' Retirement Plan and any successor plan thereto.
(k) "Savings/Deferred Comp Plan" means The Company's Salaried Employees'
Savings Plan, The Company's Non-Qualified Deferred Compensation Plan for
Designated Executive Officers and any other similar plan established from
time to time that may allow executive officers to defer taxation of
compensation.
(l) "Subsidiary" has the meaning ascribed to the term by section 425(f) of
the Code.
(m) "Termination Date" is the date on which Executive ceases to be employed
by the Company or any of its Subsidiaries or Affiliates for any reason.
2. Termination Following a Change in Control.
(a) Executive will be entitled to the benefits specified in Section 3
(Benefits Payable Upon Termination of Employment) if,
(i) at any time within two years after a Change in Control has
occurred, Executive's employment by the Company is terminated:
(1) by the Company, other than by reason of death, disability,
continuous willful misconduct to the detriment of the Company, or
retirement at Executive's normal retirement date under the
Retirement Plan, or
(2) as a result of Executive's resignation at any time following
Executive's Constructive Termination; or
(ii) Executive resigns for any reason within 30 days following the
first anniversary of a Change in Control.
Except as otherwise set forth in Section 2(b), Executive will not be
entitled to the benefits specified in Section 3 hereof if Executive's
employment terminates for any other reason or if, at any time
thereafter, Executive is in breach of any of Executive's obligations
under this Agreement.
(b) If the Company executes an agreement, the consummation of which
would result in the occurrence of a Change in Control, then, with
respect to a termination
(i) by the Company, other than by reason of death, disability,
continuous willful misconduct to the detriment of the Company, or
retirement at Executive's normal retirement date under the
Retirement Plan, or
(ii) as a result of Executive's resignation at any time following
Executive's Constructive Termination occurring after the date of
such agreement (and, if such agreement expires or is terminated
prior to consummation, prior to the expiration or termination of
such agreement),
a Change in Control shall be deemed to have occurred as of the
date of the execution of such agreement and Executive will be
entitled to the severance compensation specified in Section 3
hereof.
3. Benefits Payable Upon Termination of Employment. Upon termination of
employment as set forth in Section 2 (Termination Following a Change in
Control), Executive will be entitled to the following benefits:
(a) Severance Compensation. Executive will be entitled to severance
compensation in an amount equal to three times the sum of
(i) Executive's highest annual base salary rate in effect during the
year of the termination of Executive's employment, plus
(ii) the aggregate amount of the annual bonuses paid or payable to
Executive for the three fiscal years immediately preceding a Change in
Control divided by the number of fiscal years as to which such bonuses
were paid or payable;
provided, however, that if at any time before the third anniversary of
the Termination Date, Executive either (x) elects retirement under the
Retirement Plan, or (y) could have been compelled to retire under the
Retirement Plan if Executive had remained employed by the Company,
Executive's severance compensation under this Section 3(a) will be
reduced by an amount equal to the product obtained by multiplying such
severance compensation by a fraction the numerator of which is the
number of days elapsed from the Termination Date until the date on
which either of the events described in clauses (x) or (y) first
occurs, and the denominator of which is 1095.
The severance compensation paid hereunder will not be reduced to the
extent of any other compensation for Executive's services that
Executive receives or is entitled to receive from any other employment
consistent with the terms of this Agreement.
(b) Equivalent of Vested Savings/Deferred Comp Plan Benefit. The Company
will pay to Executive the difference, if any, between
(i) the benefit Executive would be entitled to receive under the
Savings/Deferred Comp Plan if the Company's contributions to the
Savings/Deferred Comp Plan were fully vested upon the termination of
Executive's employment, and
(ii) the benefit Executive is entitled to receive under the terms of
the Savings/Deferred Comp Plan upon termination of Executive's
employment.
Any such benefit will be payable at such time and in such manner as
benefits are payable to Executive under the Savings/Deferred Comp
Plan.
(c) Unvested Equity Awards. All stock options, other equity-based awards
and shares of the Company's stock granted or awarded to Executive pursuant
to any Company compensation or benefit plan or arrangement, but which are
unvested, will vest immediately upon termination of Executive's employment.
The provisions of this Section 3(c) will supersede the terms of any such
grant or award made to Executive under any such plan or arrangement to the
extent there is an inconsistency between the two.
(d) Employee and Executive Benefits. Executive will be entitled to a
continuation of all hospital, major medical, medical, dental, life and
other insurance benefits not otherwise addressed in this Agreement in the
same manner and amount to which Executive was entitled on the date of a
Change in Control or on the date of Constructive Termination of Executive's
employment (whichever benefits are more favorable to Executive) until the
earlier of
(i) a period of 36 months after termination of Executive's employment,
(ii) Executive's retirement under the Retirement Plan, or
(iii) Executive's eligibility for similar benefits with a new employer.
Assistance in finding new employment will be made available to Executive by
the Company if Executive so requests. Upon termination of Executive's
employment, Company cars must be returned to the Company.
4. Additional Payments.
(a) Gross-Up Payment. Notwithstanding anything herein to the contrary, if
it is determined that any Payment would be subject to the excise tax
imposed by section 4999 of the Code or any interest or penalties with
respect to such excise tax (such excise tax, together with any interest or
penalties thereon, is herein referred to as an "Excise Tax"), then
Executive shall be entitled to an additional payment (a "Gross-Up Payment")
in an amount that will place Executive in the same after-tax economic
position that Executive would have enjoyed if the Excise Tax had not
applied to the Payment.
(b) Determination of Gross-Up Payment. Subject to the provisions of Section
4(c), all determinations required under this Section 4, including whether a
Gross-Up Payment is required, the amount of the Payments constituting
excess parachute payments, and the amount of the Gross-Up Payment, shall be
made by the accounting firm that was the Company's independent auditors
immediately prior to the Change in Control (or, in default thereof, an
accounting firm mutually agreed upon by the Company and Executive) (the
"Accounting Firm"), which shall provide detailed supporting calculations
both to Executive and the Company within fifteen days of the Change in
Control, the Termination Date or any other date reasonably requested by
Executive or the Company on which a determination under this Section 4 is
necessary or advisable. The Company shall pay to Executive the initial
Gross-Up Payment within 5 days of the receipt by Executive and the Company
of the Accounting Firm's determination. If the Accounting Firm determines
that no Excise Tax is payable by Executive, the Company shall cause the
Accounting Firm to provide Executive with an opinion that the Accounting
Firm has substantial authority under the Code and Regulations not to report
an Excise Tax on Executive's federal income tax return. Any determination
by the Accounting Firm shall be binding upon Executive and the Company. If
the initial Gross-Up Payment is insufficient to cover the amount of the
Excise Tax that is ultimately determined to be owing by Executive with
respect to any Payment (hereinafter an "Underpayment"), the Company, after
exhausting its remedies under Section 4(c) below, shall promptly pay to
Executive an additional Gross-Up Payment in respect of the Underpayment.
(c) Procedures. Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notice shall be given as
soon as practicable after Executive knows of such claim and shall apprise
the Company of the nature of the claim and the date on which the claim is
requested to be paid. Executive agrees not to pay the claim until the
expiration of the thirty-day period following the date on which Executive
notifies the Company, or such shorter period ending on the date the Taxes
with respect to such claim are due (the "Notice Period"). If the Company
notifies Executive in writing prior to the expiration of the Notice Period
that it desires to contest the claim, Executive shall: (i) give the Company
any information reasonably requested by the Company relating to the claim;
(ii) take such action in connection with the claim as the Company may
reasonably request, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company and reasonably acceptable to Executive; (iii)
cooperate with the Company in good faith in contesting the claim; and (iv)
permit the Company to participate in any proceedings relating to the claim.
Executive shall permit the Company to control all proceedings related to
the claim and, at its option, permit the Company to pursue or forgo any and
all administrative appeals, proceedings, hearings, and conferences with the
taxing authority in respect of such claim. If requested by the Company,
Executive agrees either to pay the tax claimed and sue for a refund or
contest the claim in any permissible manner and to prosecute such contest
to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts as the Company
shall determine; provided, however, that, if the Company directs Executive
to pay such claim and pursue a refund, the Company shall advance the amount
of such payment to Executive on an after-tax and interest-free basis (the
"Advance"). The Company's control of the contest related to the claim shall
be limited to the issues related to the Gross-Up Payment and Executive
shall be entitled to settle or contest, as the case may be, any other
issues raised by the Internal Revenue Service or other taxing authority. If
the Company does not notify Executive in writing prior to the end of the
Notice Period of its desire to contest the claim, the Company shall pay to
Executive an additional Gross-Up Payment in respect of the excess parachute
payments that are the subject of the claim, and Executive agrees to pay the
amount of the Excise Tax that is the subject of the claim to the applicable
taxing authority in accordance with applicable law.
(d) Repayments. If, after receipt by Executive of an Advance, Executive
becomes entitled to a refund with respect to the claim to which such
Advance relates, Executive shall pay the Company the amount of the refund
(together with any interest paid or credited thereon after Taxes applicable
thereto). If, after receipt by Executive of an Advance, a determination is
made that Executive shall not be entitled to any refund with respect to the
claim and the Company does not promptly notify Executive of its intent to
contest the denial of refund, then the amount of the Advance shall not be
required to be repaid by Executive and the amount thereof shall offset the
amount of the additional Gross-Up Payment then owing to Executive.
(e) Further Assurances. The Company shall indemnify Executive and hold
Executive harmless, on an after-tax basis, from any costs, expenses,
penalties, fines, interest or other liabilities ("Losses") incurred by
Executive with respect to the exercise by the Company of any of its rights
under this Section 4, including, without limitation, any Losses related to
the Company's decision to contest a claim or any imputed income to
Executive resulting from any Advance or action taken on Executive's behalf
by the Company hereunder. The Company shall pay, or cause the Trust to pay,
all legal fees and expenses incurred under this Section 4 and shall
promptly reimburse Executive, or cause the Trust to reimburse Executive,
for the reasonable expenses incurred by Executive in connection with any
actions taken by the Company or required to be taken by Executive
hereunder. The Company shall also pay all of the fees and expenses of the
Accounting Firm, including, without limitation, the fees and expenses
related to the opinion referred to in Section 4(b).
5. Payment of Severance Compensation.
(a) The severance compensation set forth in Section 3 (a) will be payable
in 36 equal monthly installments commencing on the first day of the month
following the month in which Executive's employment terminates. However,
Executive may elect in writing, in accordance with the provisions of this
Section, to receive Executive's severance compensation in a lump sum at a
later time or in installments in amounts and at times elected by Executive,
but Executiv's election will not entitle Executive to receive severance
compensation sooner than permitted by the preceding sentence.
(b) Executive must elect to receive amounts in installments or to defer
payments by filing a written election with the Company, which specifies the
time at which payments are to be made and the amounts of such payments.
Executive's election to receive installment payments or to defer payments
will not be valid unless it is made prior to the time Executive is entitled
to receive any payments under this Agreement. The last such election in
effect on the day before a termination of employment will be controlling.
No election may be made on or after termination of employment.
(c) The payment of deferred amounts must commence no earlier than the first
business day of the calendar year following the termination of Executive's
employment and no later than the third calendar year following the
attainment of normal retirement age under the Retirement Plan.
6. Non-Disclosure and Confidentiality.
(a) Executive agrees that Executive will keep secret and maintain in
confidence all confidential information of the Company and will not use
such information other than for the Company's benefit or disclose such
information to anyone outside of the Company, either during or after
Executive's employment with the Company.
(b) Executive will promptly deliver to the Company on the termination of
Executive's employment with the Company, or at any time the Company
requests, all memoranda, notes, records and other documents (and all copies
thereof) relating to the Company's business or confidential matters which
Executive then has or controls.
(c) All inventions, improvements, new ideas and techniques which relate to
the Company's business which Executive makes or conceives during
Executive's employment with the Company or within six months thereafter
will be the Company's property. Without additional compensation to
Executive, Executive will promptly inform the Company of such inventions,
improvements, ideas and techniques, and will assist the Company in
preserving them and will not disclose them to anyone else without the
Company's consent.
(d) Executive understands that, as used in this Section, the phrase
"confidential information of the Company" includes all information of a
technical, commercial or other nature of or about the Company (such as
formulae, trade secrets, customer lists and know-how) not made available to
the general public.
7. Legal Fees. The Company will pay all legal fees and expenses which Executive
may incur as a result of the Company's contesting the validity or enforceability
of this Agreement.
8. Payments Final. In the event of a termination of Executive's employment under
the circumstances described in this Agreement, the arrangements provided for by
this Agreement, and any other agreement between the Company and Executive in
effect at that time and by any other applicable plan of the Company in which
Executive then participates, will constitute the entire obligation of the
Company to Executive, and performance of that obligation will constitute full
settlement of any claim that Executive might otherwise assert against the
Company on account of such termination. The Company's obligation to pay
Executive under this Agreement will be absolute and unconditional and will not
be affected by any circumstance, including without limitation, any set-off,
counterclaim, defense or other rights the Company may have against Executive or
anyone else as long as Executive is not in beach of Executive's obligations
under this Agreement.
9. Non-Competition.
(a) During the Restrictive Period, Executive will not, and will not permit
any of Executive's Affiliates, or any other Person, directly or indirectly,
to:
(b) engage in competition with, or acquire a direct or indirect interest or
an option to acquire such an interest in any Person engaged in competition
with, the Company's Business in the United States (other than an interest
of not more than 5 percent of the outstanding stock of any publicly traded
company);
(i) serve as a director, officer, employee or consultant of, or
furnish information to, or otherwise facilitate the efforts of, any
Person engaged in competition with the Company's Business in the
United States;
(ii) solicit, employ, interfere with or attempt to entice away from
the Company any employee who has been employed by the Company or a
Subsidiary in an executive or supervisory capacity in connection with
the conduct of the Company's Business within one year prior to such
solicitation, employment, interference or enticement; or
(iii) approach, solicit or deal with in competition with the Company
or any Subsidiary any Person which at any time during the 12 months
immediately preceding the Termination Date:
(1) was a customer, client, supplier, agent or distributor of the
Company or any Subsidiary;
(2) was a customer, client, supplier, agent or distributor of the
Company or any Subsidiary with whom employees reporting to or
under the direct control of Executive had personal contact on
behalf of the Company or any Subsidiary; or
(3) was a Person with whom Executive had regular, substantial or
a series of business dealings on behalf of the Company or any
Subsidiary (whether or not a customer, client, supplier, agent or
distributor of the Company or any Subsidiary).
(c) For the avoidance of doubt, Executive agrees that the phrase "Person
engaged in competition with the Company's Business" as used in this Section
includes, without limitation, the companies listed on Exhibit "A" to this
Agreement, their Affiliates and subsidiaries.
10. Vesting in the Event of a Change in Control. In the event of a Change in
Control, all stock options, equity-based awards and shares of the Company's
stock granted or awarded to Executive pursuant to any Company compensation or
benefit plan or arrangement, but which are unvested at that time, will vest
immediately upon such Change in Control. The provisions of this Section 10 will
supersede the terms of any such grant or award made to Executive under any such
plan or arrangement to the extent there is an inconsistency between the two.
11. Duration of Agreement. This Agreement shall commence on the Effective Date
and shall continue until terminated as provided in this Section. This Agreement
may be terminated only under the following circumstances:
(i) At any time by the mutual written consent of Executive and the
Company; and
(ii) By the Company at the end of each successive two-year periods
commencing on the date of this Agreement by giving Executive written
notice at least one year in advance of such termination, except that
such termination and written notice will not be effective unless
Executive will be employed by the Company on the Termination Date.
12. Miscellaneous.
(a) In consideration for the benefit of having the protection afforded by
this Agreement, Executive agrees that the provisions of Section 6
(Non-Disclosure and Confidentiality) and Section 9 (Non-Competition) of
this Agreement apply to Executive, and Executive will be bound by them,
whether or not a Change in Control occurs or Executive actually receives
the benefits specified in Section 3 hereof.
(b) This Agreement will be binding upon and inure to the benefit of
Executive, Executive's personal representatives and heirs and the Company
and any successor of the Company, but neither this Agreement nor any rights
arising hereunder may be assigned or pledged by Executive.
(c) Executive acknowledges that a breach of the covenants contained in
Section 6 (Non-Disclosure and Confidentiality) and Section 9
(Non-Competition) will cause the Company immediate and irreparable harm for
which the Company's remedies at law (such as money damages) will be
inadequate. The Company shall have the right, in addition to any other
rights it may have, to obtain an injunction to restrain any breach or
threatened breach of such Sections. The Company may contact any Person with
or for whom Executive works after Executive's employment by the Company
ends and may send that Person a copy of this Agreement.
(d) Should any provision of this Agreement be adjudged to any extent
invalid by any competent tribunal, that provision will be deemed modified
to the extent necessary to make it enforceable.
(e) This Agreement will be governed and construed in accordance with the
laws of the Commonwealth of Pennsylvania.
(f) This Agreement constitutes the entire agreement and understanding
between the Company and Executive with respect to the subject matter hereof
and merges and supersedes all prior discussions, agreements and
understandings between the Company and Executive with respect to such
matters.
(g) This Agreement may be executed in one or more counterparts, which
together shall constitute a single agreement.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
WEST PHARMACEUTICAL SERVICES, INC.
/s/ Richard D. Luzzi By: /s/ D. E. Morel
RICHARD D. LUZZI Donald E. Morel, Jr. Ph.D.
President and Chief Executive Officer
Exhibit "A"
List of Persons Engaged In Competition With the Company's Business
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Stelmi Trading International, including its subsidiary American Stelmi,
Inc.
Pharmaceutical packaging division of Swiss Group Datwyler, including its
subsidiary Helvoet Pharma, Inc.
Comar, Inc.
Alusuisse SA, including its subsidiary Lawson Mardon Wheaton, Inc.
Sharp Ivers-Lee Corporation
Accupac
Anderson Packaging, Inc.
Packaging Coordinators, Inc. (PCI)
Pharmaceutical Packaging Specialties, Inc.
Nastech, Inc.
Cardinal Health, Inc.
CIMA Labs, Inc.
SkyePharma
Alkermes, Inc.
Flamel Technologies, Inc.
Biovail Pharmaceuticals Inc.