Exhibit 10.1

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “Agreement”) is made and
entered into effective as of April 30, 2010, by and between Michael P. Miller
(the “Employee”) and VIVUS, Inc., a Delaware corporation (the “Company”).

 

RECITALS

 

A.            It is expected that another company or other entity may from time
to time consider the possibility of acquiring the Company or that a change in
control may otherwise occur, with or without the approval of the Company’s Board
of Directors (the “Board”).  The Board recognizes that such consideration can be
a distraction to the Employee and may cause the Employee to consider alternative
employment opportunities.  The Board has determined that it is in the best
interests of the Company and its shareholders to assure that the Company will
have the continued dedication and objectivity of the Employee, notwithstanding
the possibility, threat or occurrence of a Change of Control (as defined below)
of the Company.  The Board also recognizes that circumstances may arise whereby
the Employee’s employment is terminated other than in connection with a Change
of Control.

 

B.            The Board believes that it is in the best interests of the Company
and its shareholders to provide the Employee with an incentive to continue his
or her employment with the Company.

 

C.            The Board believes that it is imperative to provide the Employee
with certain benefits upon termination of the Employee’s employment in
connection with a Change of Control, which benefits are intended to provide the
Employee with financial security and provide sufficient income and encouragement
to the Employee to remain with the Company notwithstanding the possibility of a
Change of Control.

 

D.            To accomplish the foregoing objectives, the Board of Directors has
directed the Company, upon execution of this Agreement by the Employee, to agree
to the terms provided in this Agreement.

 

E.             Certain capitalized terms used in the Agreement are defined in
Section 3 below.

 

In consideration of the mutual covenants herein contained, and in consideration
of the continuing employment of Employee by the Company, the parties agree as
follows:

 

1.             At-Will Employment.  The Company and the Employee acknowledge
that the Employee’s employment is and shall continue to be at-will, as defined
under applicable law.  If the Employee’s employment terminates for any reason,
the Employee shall not be entitled to any severance payments or benefits, other
than as provided by this Agreement.  The terms of this Agreement shall terminate
upon the earlier of (i) the date that all obligations of the parties hereunder

 

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have been satisfied, or (ii) twenty-four (24) months after a Change of Control. 
A termination of the terms of this Agreement pursuant to the preceding sentence
shall be effective for all purposes, except that such termination shall not
affect the payment or provision of compensation or benefits on account of a
termination of employment occurring prior to the termination of the terms of
this Agreement.

 

2.             Severance Benefits.

 

(a)           Termination Following A Change of Control.  Subject to Sections 4
and 8 below, if the Employee’s employment with the Company is terminated at any
time within twenty-four (24) months after a Change of Control, then the Employee
shall be entitled to receive severance benefits as follows:

 

(i)            Voluntary Resignation; Termination For Cause. If the Employee
voluntarily resigns from the Company (other than for Good Reason (as defined
below)) or if the Company terminates the Employee’s employment for Cause (as
defined below), then the Employee shall not be entitled to receive severance
payments.  The Employee’s benefits will be terminated under the Company’s then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination or as otherwise determined by the Board.

 

(ii)           Involuntary Termination.  If the Employee’s employment is
terminated  (A) by the Company other than for Cause or (B) voluntarily by the
Employee for Good Reason, then Employee shall be entitled to receive the
following benefits:  (i) monthly severance payments during the period from the
date of the Employee’s termination until the date twenty-four (24) months after
the effective date of the termination (the “Severance Period”) equal to the
monthly salary which the Employee was receiving immediately prior to the Change
of Control; (ii) monthly severance payments during the Severance Period equal to
1/12th of the Employee’s “target bonus” (as defined herein) for the fiscal year
in which the termination occurs for each month in which severance payments are
made to the Employee pursuant to subsection (i) above ; (iii) the pro-rated
amount of the Employee’s “target bonus” for the fiscal year in which the
termination occurs, calculated based on the number of months during such fiscal
year in which the Employee was employed by the Company (or a successor
corporation) with such payment being made on the termination date;
(iv) reimbursement for premiums paid for continued health benefits for Employee
(and any eligible dependents) under the Company’s health plans until the earlier
of (a) twenty-four (24) months, payable when such premiums are due (provided
Employee validly elects to continue coverage under the Consolidated Omnibus
Budget Reconciliation Act (“COBRA”), or (b)  the date upon which Employee and
Employee’s eligible dependents become covered under similar plans; and
(v) outplacement services with a total value not to exceed Twenty Thousand
Dollars ($20,000), to be provided within the Severance Period.  The severance
payments described in subsections (i) and (ii) above shall be paid during the
Severance Period in accordance with the Company’s standard payroll practices.

 

(iii)          Disability; Death.  If the Company terminates Employee’s
employment as a result of Employee’s disability, or Executive’s employment
terminates due to his or her death,

 

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then Executive shall not be entitled to receive severance or other benefits
except for those that have been earned but not yet paid under this agreement and
those, if any, as may be established under the Company’s then existing benefit
plans and practices or pursuant to other written agreements with the Company.

 

(b)           Acceleration of Options.  Upon the closing of a Change of Control,
the vesting and exercisability of each option granted to the Employee by The
Company (the Options) shall automatically vest in full and become immediately
exercisable.

 

(c)           Termination Apart from a Change of Control.  Subject to Sections 4
and 8 below, if the Employee’s employment with the Company is terminated at any
time other than as provided in paragraph 2(a), then the Employee shall be
entitled to receive severance benefits as follows:

 

(i)            Voluntary Resignation; Termination For Cause.  If the Employee
voluntarily resigns from the Company (other than for Good Reason (as defined
below)) or if the Company terminates the Employee’s employment for Cause (as
defined below), then the Employee shall not be entitled to receive severance
payments.  The Employee’s benefits will be terminated under the Company’s then
existing benefit plans and policies in accordance with such plans and policies
in effect on the date of termination or as otherwise determined by the Board of
Directors of the Company.

 

(ii)           Involuntary Termination.  If the Employee’s employment is
terminated(A) by the Company other than for Cause, or (B) voluntarily by the
Employee for Good Reason, then the Employee shall be entitled to receive the
following benefits:  (i) monthly severance payments during the period from the
date of the Employee’s termination until the date three (3) months after the
effective date of the termination (the “Severance Period”) equal to the monthly
salary which the Employee was receiving immediately prior to the termination
date; (ii) monthly severance payments during the Severance Period equal to
1/12th of the Employee’s “target bonus” (as defined herein) for the fiscal year
in which the termination occurs for each month in which severance payments are
made to the Employee pursuant to subsection (i) above; (iii) the pro-rated
amount of the Employee’s “target bonus” for the fiscal year in which the
termination occurs, calculated based on the number of months during such fiscal
year in which the Employee was employed by the Company (or a successor
corporation) with such payment being made on the termination date;
(iv) reimbursement for premiums paid for continued health benefits for Employee
(and any eligible dependents) under the Company’s health plans until the earlier
of (a) the end of the Severance Period, payable when such premiums are due
(provided Employee validly elects to continue coverage under COBRA, or (b)  the
date upon which Employee and Employee’s eligible dependents become covered under
similar plans; and (v) outplacement services with a total value not to exceed
Twenty Thousand Dollars ($20,000), to be provided within the Severance Period. 
The severance payments described in subsections (i) and (ii) above shall be paid
during the Severance Period in accordance with the Company’s standard payroll
practices. If termination occurs prior to the second anniversary of the
Employee’s initial day of employment, the monthly severance payments shall
continue for twelve

 

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(12) instead of three (3) months as specified by section (i) of this paragraph.
After the second anniversary of employment, the payments will revert to three
(3) months.

 

(iii)          Disability; Death.  If the Company terminates Employee’s
employment as a result of Employee’s disability, or Executive’s employment
terminates due to his or her death, then Executive shall not be entitled to
receive severance or other benefits except for those that have been earned but
not yet paid under this agreement and for those, if any, as may be established
under the Company’s then existing benefit plans and practices or pursuant to
other written agreements with the Company.

 

3.             Definition of Terms.  The following terms referred to in this
Agreement shall have the following meanings:

 

(a)           Change of Control.  “Change of Control” shall mean the occurrence
of any of the following events:

 

(i)            Ownership.  Any “Person” (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or
becomes the “Beneficial Owner” (as defined in Rule l3d-3 under said Act),
directly or indirectly, of securities of the Company representing fifteen
percent (15%) or more of the total voting power represented by the Company’s
then outstanding voting securities without the approval of the Board; or

 

(ii)           Merger/Sale of Assets.  A merger or consolidation of the Company
whether or not approved by the Board of Directors of the Company, other than a
merger or consolidation which 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) more than fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company’s assets.

 

(iii)          Change in Board Composition.  A change in the composition of the
Board of Directors of the Company, as a result of which fewer than a majority of
the directors are Incumbent Directors.  “Incumbent Directors” shall mean
directors who either (A) are directors of the Company as of July 1, 2007 or
(B) are elected, or nominated for election, to the Board of Directors of the
Company with the affirmative votes of at least a majority of the Incumbent
Directors at the time of such election or nomination (but shall not include an
individual whose election or nomination is in connection with an actual or
threatened Proxy contest relating to the election of directors to the Company).

 

(b)           Cause.  “Cause” shall mean (i) gross negligence or willful
misconduct in the performance of the Employee’s duties to the Company where such
gross negligence or willful

 

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misconduct has resulted or is likely to result in substantial and material
damage to the Company or its subsidiaries, (ii) repeated unexcused absences from
the Company, (iii) commission of any act of fraud with respect to the Company,
or (v) conviction of a felony or a crime involving moral turpitude and causing
material harm to the standing and reputation of the Company, in each case as
determined in good faith by the Board of Directors of the Company.

 

(c)           Disability.  “Disability” shall mean total and permanent
disability as defined in Section 22(e)(3) of the Internal Revenue Code unless
the Company maintain a long-term disability plan at the time of Employee’s
termination, in which case the determination of disability under such plan shall
also be considered “Disability” for purposes of this Agreement.

 

(d)           Good Reason.  “Good Reason” shall mean the Employee’s voluntary
termination, upon 30 days prior written notice to the Company, after any one of
the following events: (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee’s position with
the Company and the Employee’s prior duties, responsibilities and requirements;
(ii) a material reduction of the Employee’s base compensation; or (iii) the
Employee’s refusal to relocate to a facility or location more than 30 miles from
the Company’s current location; provided, however, that a voluntary termination
of Employee for any events listed under this Section (c)(i) through
(c)(iii) shall not constitute “Good Reason” if such event or events are cured by
the Company within thirty (30) days after receipt of written notice from the
Employee of Employee’s intent to terminate employment pursuant to this Section.

 

(e)           Target Bonus.  “Target bonus” shall mean that percentage of the
Employee’s base salary that is prescribed by the Company under its Management
Bonus Program as the percentage of such base salary payable to the Company as a
bonus if the Company pays bonuses at one-hundred percent (100%) of its operating
plan.

 

4.             LIMITATION ON PAYMENTS.  IN THE EVENT THAT THE SEVERANCE AND
OTHER BENEFITS PROVIDED FOR IN THIS AGREEMENT OR OTHERWISE PAYABLE TO EMPLOYEE
(I) CONSTITUTE “PARACHUTE PAYMENTS” WITHIN THE MEANING OF SECTION 280G OF THE
CODE AND, (II) BUT FOR THIS SECTION 4, WOULD BE SUBJECT TO THE EXCISE TAX
IMPOSED BY SECTION 4999 OF THE CODE, THEN EMPLOYEE’S SEVERANCE BENEFITS UNDER
SECTION 2 WILL BE EITHER:

 

(A)           DELIVERED IN FULL; OR

 

(b)           delivered as to such lesser extent which would result in no
portion of such severance benefits being subject to excise tax under
Section 4999 of the Code, whichever of the foregoing amounts, taking into
account the applicable federal, state and local income taxes and the excise tax
imposed by Section 4999, results in the receipt by Employee on an after-tax
basis, of the greatest amount of severance benefits, notwithstanding that all or
some portion of such severance benefits may be taxable under Section 4999 of the
Code.  Unless the Company and Employee otherwise agree in writing, any
determination required under this Section 4 will be made in writing by the
Company’s independent public accountants immediately prior to a Change of
Control (the

 

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“Accountants”), whose determination will be conclusive and binding upon Employee
and the Company for all purposes.  For purposes of making the calculations
required by this Section 4, the Accountants may make reasonable assumptions and
approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of
the Code.  The Company and Employee will furnish to the Accountants such
information and documents as the Accountants may reasonably request in order to
make a determination under this Section.  The Company will bear all costs the
Accountants may incur in connection with any calculations contemplated by this
Section 4.

 

5.             Successors.  Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business and/or assets
shall assume the obligations under this Agreement and agree expressly to perform
the obligations under this Agreement in the same manner and to the same extent
as the Company would be required to perform such obligations in the absence of a
succession.  The terms of this Agreement and all of the Employee’s rights
hereunder shall inure to the benefit of, and be enforceable by, the Employee’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees.

 

6.             Notice.  Notices and all other communications contemplated by
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or when mailed by U.S. registered or certified mail,
return receipt requested and postage prepaid.  Mailed notices to the Employee
shall be addressed to the Employee at the home address which the Employee most
recently communicated to the Company in writing.  In the case of the Company,
mailed notices shall be addressed to its corporate headquarters, and all notices
shall be directed to the attention of its Secretary.

 

7.             Conditions to Receipt of Severance.  The receipt of severance and
any other benefits pursuant to Section 2 will be subject to Employee signing and
not revoking a separation agreement and release of claims in a form acceptable
to the Company.  No severance or other benefits will be paid or provided until
the separation agreement and release agreement becomes effective.

 

8.             Miscellaneous Provisions.

 

(a)           No Duty to Mitigate.  The Employee shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor, except as otherwise
provided in this Agreement, shall any such payment be reduced by any earnings
that the Employee may receive from any other source.

 

(b)           Waiver.  No provision of this Agreement shall be modified, waived
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by an authorized officer of the Company
(other than the Employee).  No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by

 

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the other party shall be considered a waiver of any other condition or provision
or of the same condition or provision at another time.

 

(c)           Whole Agreement.  No agreements, representations or understandings
(whether oral or written and whether express or implied) which are not expressly
set forth in this Agreement have been made or entered into by either party with
respect to the subject matter hereof. This Agreement supersedes any agreement of
the same title and concerning similar subject matter dated prior to the date of
this Agreement, and by execution of this Agreement both parties agree that any
such predecessor agreement shall be deemed null and void.

 

(d)           Choice of Law.  The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California without reference to conflict of laws provisions.

 

(e)           Severability.  If any term or provision of this Agreement or the
application thereof to any circumstance shall, in any jurisdiction and to any
extent, be invalid or unenforceable, such term or provision shall be ineffective
as to such jurisdiction to the extent of such invalidity or unenforceability
without invalidating or rendering unenforceable the remaining terms and
provisions of this Agreement or the application of such terms and provisions to
circumstances other than those as to which it is held invalid or unenforceable,
and a suitable and equitable term or provision shall be substituted therefor to
carry out, insofar as may be valid and enforceable, the intent and purpose of
the invalid or unenforceable term or provision.

 

(f)            Arbitration.  Any dispute or controversy arising under or in
connection with this Agreement may be settled at the option of either party by
binding arbitration in the County of Santa Clara, California, in accordance with
the rules of the American Arbitration Association then in effect.  Judgment may
be entered on the arbitrator’s award in any court having jurisdiction.

 

(g)           Legal Fees and Expenses.  The parties shall each bear their own
expenses, legal fees and other fees incurred in connection with this Agreement.

 

(h)           No Assignment of Benefits.  The rights of any person to payments
or benefits under this Agreement shall not be made subject to option or
assignment, either by voluntary or involuntary assignment or by operation of
law, including (without limitation) bankruptcy, garnishment, attachment or other
creditor’s process, and any action in violation of this subsection (h) shall be
void.

 

(i)            Employment Taxes.  All payments made pursuant to this Agreement
will be subject to withholding of applicable income and employment taxes.

 

(j)            Assignment by Company.  The Company may assign its rights under
this Agreement to an affiliate, and an affiliate may assign its rights under
this Agreement to another affiliate of the Company or to the Company; provided,
however, that no assignment shall be made if

 

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the net worth of the assignee is less than the net worth of the Company at the
time of assignment.  In the case of any such assignment, the term “Company” when
used in a section of this Agreement shall mean the corporation that actually
employs the Employee.

 

(k)           Counterparts.  This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

 

9.             Section 409A.  Notwithstanding anything to the contrary in this
Agreement, if Employee is a “specified employee” within the meaning of
Section 409A of the Code and any final regulations and guidance promulgated
thereunder (collectively “Section 409A”) at the time of Employee’s termination,
and the severance payable to Employee, if any, pursuant to this Agreement, when
considered together with any other severance payments or separation benefits may
be considered deferred compensation under Section 409A (together, the “Deferred
Compensation Separation Benefits”), then only that portion of the Deferred
Compensation Separation Benefits which do not exceed the Section 409A Limit (as
defined herein) may be made within the first six (6) months following Employee’s
termination of employment in accordance with the payment schedule applicable to
each payment or benefit.  Any portion of the Deferred Compensation Separation
Benefits in excess of the Section 409A Limit otherwise due to Employee on or
within the six (6) month period following Employee’s termination will accrue
during such six (6) month period and will become payable in a lump sum payment
on the date six (6) months and one (1) day following the date of Employee’s
termination of employment.  All subsequent Deferred Compensation Separation
Benefits, if any, will be payable in accordance with the payment schedule
applicable to each payment or benefit.  It is the intent of this Agreement to
comply with the requirements of Section 409A so that none of the severance
payments and benefits to be provided hereunder will be subject to the additional
tax imposed under Section 409A, and any ambiguities herein will be interpreted
to so comply.

 

For purposes of this Agreement “Section 409A Limit” will mean the lesser of two
(2) times: (i) Employee’s annualized compensation based upon the annual rate of
pay paid to Employee during the Company’s taxable year preceding the Company’s
taxable year of Employee’s termination of employment as determined under
Treasury Regulation 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service
guidance issued with respect thereto; or (ii) the maximum amount that may be
taken into account under a qualified plan pursuant to Section 401(a)(17) of the
Code for the year in which Employee’s employment is terminated.

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duty authorized officer, as of the day and year first
above written.

 

 

VIVUS, Inc.

 

Employee

 

 

 

 

 

 

 

 

 

Name:

Timothy E. Morris

 

Name:

Michael P. Miller

Title:

Chief Financial Officer

 

Title:

Chief Commercial Officer

Date:

 

 

Date:

 

 

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