Exhibit 4.26
FIRST AMENDMENT
CONTROL DELIVERY SYSTEMS, INC.
SEVERANCE AGREEMENT
This First Amendment to Severance Agreement (this "Amendment") made this
17th day of August, 2004 (the "Amendment Effective Date"), by and between Paul
Ashton ("Executive") and Control Delivery Systems, Inc. (the "Company").
Reference is made to (a) that certain Severance Agreement dated February
20, 2004, by and between Executive and the Company (the "Severance Agreement"),
and (b) that certain Control Delivery Systems, Inc. 2001 Incentive Plan
Restricted Stock Award Agreement dated August 16, 2004 between Executive and the
Company (the "August 2004 Restricted Stock Award Agreement").
Whereas, the Board of Directors of the Company (the "Board") has determined
that Executive's salary should be reduced below Base Salary;
Whereas, Executive has agreed to such reduction in salary under the terms
and conditions set forth in this Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual promises, terms
and conditions contained herein, the parties hereto agree as follows:
1. Restricted Stock.
a. Section 11 of the August 2004 Restricted Stock Award Agreement is
hereby deleted in its entirety and the following is substituted in
place thereof: "Right of Repurchase of Vested Shares. Notwithstanding
anything in this Agreement to the contrary, the Company agrees that it
will not exercise any right that the Company has to purchase,
repurchase or reacquire all or any part of Employee's Vested Shares."
2. Bonus. Subject to the occurrence of the Bonus Date and provided that
Executive is employed by the Company on the Bonus Date, Executive shall be
eligible for a bonus equal to Bonus Amount.
"Bonus Amount" means that amount equal to the product of (a) $301.37
multiplied by (b) the number of calendar days that have elapsed during the
period beginning on August 16, 2004 and ending on the Bonus Date.
"Bonus Date" means the earliest date that the Board reasonably determines
that the Company has the financial resources to pay Executive a bonus equal
to the Bonus Amount.
The parties acknowledge and agree that any obligation to pay a bonus is
solely that of the Company and that none of the directors or officers of
the Company shall have any personal liability with respect thereto.
3. Amendment to Section 1 of Severance Agreement. Section 1 of the Severance
Agreement is hereby deleted in its entirety and the following is
substituted in place thereof:
a. "1. Severance Benefits.
i. Severance Benefits in the event of termination on or before
December 31, 2006. If on or before December 31, 2006, the Company
terminates Executive's employment without Cause, or Executive
terminates his or her employment for Good Reason, the Company
will provide severance benefits to Executive as follows:
1. Notwithstanding anything to the contrary in any agreement
between Executive and Company, including without limitation
Section 6 of the August 2004 Restricted Stock Award
Agreement, all unvested shares of restricted stock granted
to Executive will automatically and immediately vest on the
Separation Date and no longer be subject to forfeiture,
including without limitation the following shares: 20,000
shares of restricted stock granted on August 16, 2004.
2. All options to purchase Company stock held by Executive will
automatically and immediately vest and become exercisable on
the Separation Date and remain exercisable for a period of
six months following the Separation Date (or three months in
the case of incentive stock options).
3. The Company will pay to Executive a lump-sum cash amount
equal to the Severance Payment within 30 days following the
later of (a) the Separation Date, and (b) the date Executive
delivers to Company a release of claims in accordance with
Section 16 of this Agreement. Notwithstanding the foregoing,
in the event the Separation Date occurs after March 31,
2005, the Company shall have the right to defer payment of
the Severance Payment until the Deferment Date, provided
that the Severance Payment will accrue simple interest at
the rate of 3 % per year, payable on the Deferment Date. The
parties acknowledge and agree that the obligation to pay the
Severance Payment is solely that of the Company and that
none of the directors or officers of the Company shall have
any personal liability with respect thereto.
4. The Company will continue for a period of six months from
the Separation Date to provide Executive with the following
benefits: (1) the Company's group medical plan, and (2) life
insurance arrangements or disability plan arrangements
provided to executive-level employees of the Company. To the
extent that the Company is unable to provide such benefits
to Executive under its existing plans and arrangements, it
will pay Executive cash amounts equal to the cost the
Company would have incurred to provide those benefits.
4. Amendment to Section 2 of the Severance Agreement. Section 2 of the
Severance Agreement is hereby deleted in its entirety and the following is
substituted in place thereof:
a. "2. Definitions.
i. "Applicable Base Salary" means: (a) for that period beginning
August 16, 2004 and ending on that date which is 30 days
following the Base Salary and Bonus Date, $140,000 and (b) for
that period beginning on that date which is 31 days following the
Base Salary and Bonus Date and ending on December 31, 2006, Base
Salary.
ii. "Base Salary" means $250,000 provided that in the event the Board
in its sole discretion increases Executive's Base Salary above
$250,000, the Base Salary as so increased will be referred to as
"Base Salary."
iii. "Base Salary and Bonus Date" means the first date on which both
of the following conditions are met (a) the sum of all royalty
payments received by the Company from Bausch & Lomb after
December 31, 2004 under that certain Amended and Restated License
Agreement between the Company and Bausch & Lomb dated December 9,
2003 equals five million dollars ($5,000,000), and (b) the sum of
(i) cash, cash equivalents and short term investments, plus (ii)
accounts receivable equals five million dollars ($5,000,000).
iv. "Bonus Amount" means that amount equal to the product of (a)
$301.37 multiplied by (b) the number of calendar days that have
elapsed during the period beginning on August 16, 2004 and ending
on the Base Salary and Bonus Date.
v. "Cause" means only (a) willful malfeasance or gross negligence in
the performance by Executive of his or her duties, resulting in
material harm to the Company, (b) fraud or dishonesty by
Executive with respect to the Company, or (c) Executive's
conviction of any felony involving deception, fraud or moral
turpitude. The Company may treat a termination of Executive's
employment as termination for
Cause only after (i) giving Executive written notice of the
intention to terminate for Cause and of his or her right to a
hearing by the Board, (ii) at least 30 days after giving the
notice, conducting a hearing by the Board at which Executive may
be represented by counsel, and (iii) giving Executive 30 days'
written notice of the results of the hearing, which shall require
a vote of a majority of the Directors then in office other than
Executive. For purposes of this definition of Cause, no act or
omission shall be considered to have been "willful" unless it was
not in good faith and Executive had knowledge at the time that
the act or omission was not in the best interest of the Company.
Any act or failure to act based on authority given pursuant to a
resolution duly adopted by the Board or based on the advice of
counsel of the Company shall be conclusively presumed to be done,
or omitted to be done, by Executive in good faith and in the best
interest of the Company. Cause shall not include willful failure
due to incapacity resulting from physical or mental illness or
any actual or anticipated failure after Notice of Termination for
Good Reason.
vi. "Deferment Date" means the earliest to occur of the date (a) the
Company files for protection under the bankruptcy laws, makes an
assignment for the benefit of creditors, appoints or suffers
appointment of a receiver or trustee over its property, files a
petition under any bankruptcy or insolvency act or has any such
petition filed against it, (b) the sum of all amounts paid to the
Company from any source (including without limitation from Bausch
& Lomb, financing sources or under any new or existing license or
other commercial arrangement) after March 31, 2005 equals two
million dollars ($2,000,000) and (c) December 31, 2005.
vii. "Good Reason" means (i) failure by the Company to maintain
Executive in the positions of Chief Executive Officer and
President including holding the title of and serving as Chief
Executive Officer and President of the Company and having
responsibility for performing all duties typically undertaken by
such offices or assignment to Executive of duties materially
inconsistent with such positions, (ii) the diminution in any
material respect of Executive's positions or authority, excluding
for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by
Executive, (iii) failure by the Company to (a) provide Executive
with the Applicable Base Salary, (b) pay Executive a bonus equal
to Bonus Amount within thirty (30) days following the Base Salary
and Bonus Date, or (c) provide Executive with the benefits and
other compensation (including without limitation bonus and other
incentive compensation) Executive was receiving as of the date of
this Agreement, or (iv) relocation of Executive's principal place
of work to
a location more than 30 miles from its current location without
Executive's consent. For purposes of this definition of Good
Reason, "Company" means Control Delivery Systems and any
successor of Control Delivery Systems, provided if any such
successor has a parent, then Company shall mean the ultimate
parent corporation.
viii. "Maximum Bonus" means the maximum bonus payable in any year and
is calculated assuming all bonus targets or formulas for
determining the bonus in such year had been met if Executive and
Board had, prior to the Separation Date, agreed on such targets
or formulas. If no such targets or formulas have been set as of
the Separation Date, then the maximum bonus shall be deemed to be
the actual bonus paid to Executive during the preceding fiscal
year. Notwithstanding anything herein to the contrary, Maximum
Bonus shall not include the Bonus Amount.
ix. "Reduced Base Salary" means $140,000.
x. "Separation Date" means the date the Employee's employment with
the Company ends.
xi. "Severance Payment" means the sum of (x) an amount equal to
twelve months' Base Salary plus (y) a pro-rated portion of the
Maximum Bonus that would otherwise be payable in the year that
the Separation Date occurs, if any.
5. Remainder of Severance Agreement Unaffected. In all other respects, the
provisions of the Severance Agreement shall remain in full force and
effect.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.
By: /s/ Paul Ashton
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Name: Paul Ashton
CONTROL DELIVERY SYSTEMS, INC.
By: /s/ Lori Freedman
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Name: Lori Freedman
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Title: VP, Corporate Affairs & General
Counsel
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