July 10, 2001
David Benn
c/o Ascent Pediatrics, Inc.
187 Ballardvale Street - Suite B125
Wilmington, MA 01877
Re: Retention Payment Plan
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Dear David:
I am writing on behalf of Ascent Pediatrics, Inc. (the "Company") in
connection with the adoption by the Board of Directors of the Company of the
2001 Retention Payment Plan to set forth the terms under which the Company will
make a payment to you upon the consummation of a Company Sale (as defined
below):
1. Company Sale Payment.
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If you are an employee of the Company upon the date of the consummation of
a Company Sale (the "Company Sale Date"), then upon the consummation of the
Company Sale, the Company will pay you an amount (the "Payment Amount") based on
(a) the total consideration received by the Company or the stockholders of the
Company, as the case may be, from such third party in the Company Sale under
Section 3(b)(i) below or (b) the total value of all outstanding shares of
capital stock of the Company based on the per share consideration in a Company
Sale under Section 3(b)(ii) below (each as determined in good faith by the Board
of Directors of the Company) as set forth in the table below. Notwithstanding
the foregoing, if your employment was terminated less than 12 months prior to
the Company Sale Date either (i) by the Company without Cause (as defined below)
or (ii) by you for Good Reason (as defined below), the Company shall pay to you,
upon the consummation of a Company Sale, the Payment Amount as if you were an
employee of the Company on the Company Sale Date, unless during the period
between your date of termination and the Company Sale Date you have breached the
terms of any agreement between you and the Company, including without limitation
any employment, consulting, non-competition or confidentiality agreement.
Total Consideration/Value Payment Amount
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Less than $60.0 million $150,000
At least $60.0 million $175,000
but less than $75.0 million
At least $75.0 million $250,000
2. Form of Payment.
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The Company shall pay the Payment Amount to you in cash; provided that if
the consideration paid to the Company or the stockholders of the Company, as the
case may be, by the acquiring party consists in whole or in part of securities
or other property of such party (or an affiliate of such party), the Company may
elect, in its sole discretion, to pay the Payment Amount to you in whole or in
part through the issuance to you of such securities or other property, such
securities or other property being valued in the manner determined in good faith
by the Board of Directors of the Company.
3. Definitions.
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1. "Cause" shall mean (i) conviction of any felony or any crime involving
moral turpitude or dishonesty; (ii) participation in a fraud or act of
dishonesty against the Company; (iii) willful and material breach of the
Company's policies; (iv) intentional and material damage to the Company's
property; or (v) material breach of your obligations or duties under any
agreement between you and the Company, including without limitation any
employment, consulting, non-competition or confidentiality agreement.
2. "Company Sale" shall mean:
(i) the sale of all or substantially all of the assets of the Company to
another corporation or entity, or the merger, consolidation or reorganization of
the Company into or with another corporation or entity, with the result that,
upon conclusion of the transaction, the voting securities of the Company
immediately prior thereto do not represent (either by remaining outstanding or
by being converted into voting securities of the surviving entity) more than 50%
of the combined voting power of the voting securities of the acquiring entity or
the continuing or surviving entity of such consolidation, merger or
reorganization; or
(ii) the acquisition after the date hereof by an individual, entity or group
(within the meaning of Section 13(d)(3) or Section 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 Exchange Act) 50% or more of either (x) the
then-outstanding Depositary Shares of the Company (the "Outstanding Depositary
Shares") or (y) 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 the following
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acquisitions shall not constitute a Company Sale: (A) 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 Depositary Shares 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), (B) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company, (C) any
acquisition by any corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportion as their ownership of the
Outstanding Depositary Shares or the Outstanding Company Voting Securities, or
(D) any acquisition in one or more related transactions of less than 2% of the
Outstanding Depositary Shares or the Outstanding Company Voting Securities.
3. Termination for "Good Reason" shall occur if (i) you terminate your
employment upon written notice given promptly but in no event more than 10
business days after the Company's taking any of the actions described below, and
(ii) such written notice provides that such termination will become
effective 30 days following such notice if the Company has not cured such
actions within such 30-day period:
1. the principal place of the performance of your responsibilities (the
"Principal Location") is changed to a location outside a thirty (30) mile radius
from the Principal Location prior to the Company Sale;
2. there is a material diminution in your duties and authority (it being
understood that the failure to retain a position with the Company by itself (and
without any associated diminution in duties and authority) shall not be deemed
to constitute a material diminution in duties and authority); or
3. there is a material reduction in your compensation (other than bonus or
other discretionary elements of your compensation).
4. Tax Implications.
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The Payment Amount shall be paid without regard to whether the
deductibility of such payment (or any other "parachute payments", as the term is
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"), to or for your benefit) would be limited or precluded by Section 280G
and without regard to whether such payments (or any other "parachute payments"
as so defined) would subject you to the federal excise tax levied on certain
"excess parachute payments" under Section 4999 of the Code; provided that if the
total of all "parachute payments" to or for your benefit, after reduction for
all federal taxes (including the tax described in Section 4999 of the Code, if
applicable) with respect to such payments (the "Total After-Tax Payments"),
would be increased by the limitation or elimination of the Payment Amount, the
Payment Amount shall be reduced to the extent, and only to the extent, necessary
to maximize the Total After-Tax Payments. The determination as to whether and
to what extent the Payment Amount is required to be reduced in accordance with
the preceding sentence shall be made at the Company's expense by
PriceWaterhouseCoopers LLP, or by such other certified public accounting firm as
the Board may designate prior to a Company Sale. In the event that the Payment
Amount is to be reduced pursuant to this Section 4, you shall designate which
such payments shall be reduced. In the event of any underpayment or overpayment
as determined by PriceWaterhouseCoopers LLP (or such other firm as may have been
designated in accordance with the preceding sentence), the amount of such
underpayment or overpayment shall forthwith be paid to you or refunded to the
Company, as the case may be, with interest at the applicable federal rate
provided for in Section 1274(d) of the Code.
5. Termination.
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This letter and the Company's obligations to you under this letter shall
terminate and be of no further force or effect upon the third anniversary of the
date hereof (the "Letter Termination Date"); provided, however, that if your
employment was terminated prior to the Letter Termination Date by the Company
without Cause or by you for Good Reason, then the Company's obligation to pay to
you the Payment Amount under the second sentence of Section 1, if applicable,
shall survive the Letter Termination Date.
6. Miscellaneous.
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The Company has agreed to pay you the Payment Amount on the terms contained
in this letter in consideration of your continued employment with the Company,
and the Company agrees to comply with the terms of this letter as such terms
mature.
Please note, however, that this letter should not be construed as an agreement,
either express or implied, to employ you for any stated term, and in no way
alters the Company's policy of employment at will or any employment agreement
between you and the Company. Both you and the Company remain free to terminate
the employment relationship at any time, with or without cause, and with or
without notice or as otherwise specified in your employment agreement. Upon any
such termination, you will cease to be eligible for the payment contemplated by
this letter, except as otherwise provided in this letter.
Please acknowledge your receipt of this letter and your understanding of the
terms of this letter by signing in the place indicated below.
ASCENT PEDIATRICS, INC.
By: /s/ Emmett Clemente, Ph.D.
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Emmett Clemente, Ph.D.
Title: President
Acknowledged:
/s/ David Benn
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David Benn