Exhibit 10.2

 

RETENTION AND CHANGE IN CONTROL AGREEMENT

 

This RETENTION AND CHANGE IN CONTROL AGREEMENT (the “Agreement”), is effective
as of February 8, 2013 (the “Effective Date”) by and between TRANZYME, INC., a
Delaware corporation (the “Company”), and RHONDA L. STANLEY, an individual
residing in Raleigh, North Carolina (the “Executive”).

 

WHEREAS, the Company employs the Executive and wishes to provide certain
benefits to the Executive in the event (i) the Executive’s remains employed by
the Company until September 30, 2013 (the “Retention Bonus Date”) or,
alternatively, the Company terminates the Executive’s employment without Cause
termination prior to the Retention Bonus Date, or (ii) the Company terminates
the Executive’s employment without Cause or the Executive resigns for Good
Reason in connection with a Change of Control.

 

NOW, THEREFORE, the Company and the Executive, each intending to be legally
bound hereby, do mutually covenant and agree as follows:

 

1.             Conditions to Payment of Retention Bonus.  To earn any part of
the Retention Bonus (as defined below), the Executive must remain employed with
the Company in a full-time capacity through the Retention Bonus Date. For the
avoidance of doubt, except as otherwise provided in this Agreement, if the
Executive’s employment ends for any reason prior to the Retention Bonus Date,
the Executive will not be entitled to any part the Retention Bonus.

 

2.             Retention Bonus.  If the Executive remains employed by the
Company until the Retention Bonus Date, she will be entitled to a retention
bonus in an amount equal to 50% of Employee’s then annual base salary (the
“Retention Bonus”).  The Retention Bonus shall be less applicable deductions and
withholdings and, if earned, shall be paid on the Company’s first payroll date
after the Retention Bonus Date.

 

3.             Eligibility for Severance Benefits Pursuant to this Agreement. 
The Executive shall be eligible for certain Severance Benefits under this
Agreement if the Executive’s employment is terminated:  (i) by the Company
without Cause (other than by reason of her death or disability) either prior to
the Retention Bonus Date or in immediate anticipation of, concurrently with, or
within twelve months following a Change of Control; or (ii) by the Executive for
Good Reason in immediate anticipation of, concurrently with, or within twelve
months following a Change of Control.  For the avoidance of doubt, in no event
shall the Executive be entitled to severance pay and benefits pursuant to this
Agreement and any other contract, plan or program.

 

4.             Definitions.

 

(a)           For purposes of this Agreement, a “Change of Control” shall be
deemed to have occurred:

 

(i)            If any person (as such term is used in sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))
(other than the

 

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Company or any trustee or fiduciary holding securities under an employee benefit
plan of the Company) becomes a beneficial owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing more than 50% of the voting power of the then outstanding
securities of the Company; provided that, a Change of Control shall not be
deemed to occur as a result of a transaction in which the Company becomes a
subsidiary’ of another corporation and in which the stockholders of the Company,
immediately prior to the transaction, will beneficially own, immediately after
the transaction, shares entitling such stockholders to more than 50% of all
votes to which all stockholders of the parent corporation would be entitled in
the election of directors (without consideration of the rights of any class of
stock to elect directors by a separate class vote).

 

(ii)           Upon the consummation of (A) a merger or consolidation of the
Company with another corporation where the stockholders of the Company,
immediately prior to the merger or consolidation, will beneficially own,
immediately after the merger or consolidation, shares entitling such
stockholders to less than 50% of all votes to which all stockholders of the
surviving corporation would be entitled in the election of directors (without
consideration of the rights of any class of stock to elect directors by a
separate class vote), or (B) a sale or other disposition of all or substantially
all of the assets of the Company.  For purposes of clarity, any change in the
majority ownership of the Company that results solely from an equity financing
event (i.e., an event pursuant to which existing stockholders are not
transferring or selling existing shares), shall in no event constitute a Change
of Control hereunder.

 

(b)           For purposes of this Agreement “Cause” shall be determined by the
Company and shall mean:

 

(i)            The Executive’s continued or repeated failure to perform in any
material respect the duties assigned to the Executive which is not corrected by
the Executive within thirty (30) days after written notice of such breach is
provided to the Executive by the Company and Executive is granted an opportunity
to review such notice, in person or telephonically with the Company;

 

(ii)           Embezzlement or theft of money or material property by the
Executive from the Company;

 

(iii)          The Executive’s conviction of a felony or serious misdemeanor or
other crime involving moral turpitude during the term of Executive’s employment
with the Company;

 

(iv)          Material dishonesty by the Executive which is materially
detrimental to the interest and well-being of the Company; or

 

(v)           Gross negligence, recklessness or willful misconduct of the
Executive directly related to the performance of the Executive’s duties
hereunder that causes, or could reasonably be expected to cause, material harm
to the Company.

 

(c)           For purposes of this Agreement, “Good Reason” shall mean the
existence, concurrently with or following a Change of Control, without the
consent of the Executive, of any of the following events:  (1) the Executive’s
duties and responsibilities or salary are substantially

 

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reduced or diminished; (2) the Company materially breaches its obligations under
this Agreement; or (3) the Executive’s place of employment is relocated by more
than 50 miles.  In addition to any requirements set forth above, in order for
any of the above events to constitute “Good Reason”, (A) the Executive must
provide the Company with written notice of the existence of the event with
reasonable specificity within 90 days of the initial existence of the event,
(B) the Company shall not have fully cured the existence of such event within 30
days following receipt of such written notice, and (C) the Executive must
terminate her employment with the Company for such “Good Reason” no later than
the tenth business day immediately following the expiration of the applicable
cure period without the Company curing.

 

5.             Severance Benefits.

 

(a)           Upon a Termination by the Company without Cause Prior to the
Retention Bonus Date and not in Connection with a Change of Control.  Upon the
termination of the Executive’s employment by the Company without Cause (other
than by reason of her death or disability) prior to the Retention Bonus Date
that is not in immediate anticipation of, concurrent with or within twelve
months following a Change of Control, and provided that the Executive timely
enters into, does not revoke and complies with a separation agreement in a form
provided by the Company that shall include a general release against the Company
and related persons and entities, a non-disparagement provision and a
reaffirmation of any Restrictive Covenant Agreements (as defined below) (a
“Release”), the following shall occur:

 

(i)            the Company shall pay to the Executive severance in the form of
salary continuation (“Salary Continuation”) for the six (6) month period
immediately following the date of termination (the “Salary Continuation Period),
such Salary Continuation to commence within 60 days of the date of termination,
provided, however, that if the 60-day period begins in one calendar year and
ends in a second calendar year, the Salary Continuation shall commence in the
second calendar year.  Each Salary Continuation payment is intended to
constitute a separate payment for purposes of Treasury Regulation
Section 1.409A-2(b)(2) and the initial installment shall include a catch-up
payment to cover amounts retroactive to the day immediately following the date
of termination.  The above notwithstanding, if the Executive receives or is
entitled to receive compensation in connection with any employment or consulting
relationship with any other person or entity during the Salary Continuation
Period (“Outside Compensation”), the Salary Continuation shall be reduced on a
dollar for dollar basis by the Outside Compensation.  The Executive agrees to
report promptly any Outside Compensation to the Company and reimburse promptly
the Company in the event of an overpayment of Salary Continuation; and

 

(ii)           if the Executive was participating in the Company’s group health
plan immediately prior to the date of termination and elects health continuation
under 29 U.S.C. §1161 et seq. (commonly known as “COBRA”), then the Company
shall pay to the Executive a monthly cash payment until the earlier of (i) the
date that is the end of the Salary Continuation Period, or (ii) the date the
Executive obtains new employment or otherwise becomes ineligible for COBRA (in
any event, the “Benefit Continuation Period”), in an amount equal to the monthly
employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company
through the end of the Benefit Continuation Period.

 

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For the avoidance of doubt in no event shall the Executive be entitled to
(i) the Retention Bonus and to Severance Benefits pursuant to this Section 5(a);
or (ii) to Severance Benefits pursuant to this Section 5(a) and to severance pay
or benefits pursuant to any other provision(s) of this Agreement or pursuant to
any other contract, plan or program.

 

(b)           Upon a Termination by the Company without Cause, or by the
Executive for Good Reason, in Connection with a Change of Control.  Upon the
termination of the Executive’s employment by the Company for any reason other
than for Cause (other than by reason of her death or disability), or by the
Executive for Good Reason, in immediate anticipation of, concurrently with, or
within twelve months following a Change of Control, and provided that the
Executive timely enters into, does not revoke and complies with a Release, the
Company shall pay the Executive:

 

(i)            an amount equal to six months’ of her then-current base salary
payable in a single lump sum;

 

(ii)           an amount equal to:  (i) the percentage of her annual base salary
that Executive received as a bonus payment for the calendar year immediately
preceding the year of termination, multiplied by (ii) the base salary the
Executive received in the year of termination (excluding payments made pursuant
to Section 2(b)(i) hereof), such amount to be paid in a single lump sum; and

 

(iii)          an amount equal to the cost of the premium for continued health
insurance coverage at the same average level and on the same terms and
conditions which applied immediately prior to the date of the Executive’s
termination for six months from the date of termination; provided, however, the
Executive must properly elect and maintain continued health insurance coverage. 
Such payments shall be made directly to the Company’s health insurance provider
at the times provided for pursuant to the Company’s health insurance plan.  If
the Executive was not participating in the Company’s group health insurance plan
at the time of her termination of employment, the Company shall pay the
Executive an amount equal to the monthly payment the Executive is making to
obtain individual health insurance coverage at the same average level and on the
same terms and conditions which applied immediately prior to the date of the
Executive’s termination, such amount to be paid no later than the last business
day of each month commencing the month immediately following the month in which
the Executive’s employment terminated and continuing for five months thereafter
(i.e., a total of six monthly payments).  The Executive shall be required to
provide satisfactory proof of her payment of such premiums in accordance with
the Company’s normal expense reimbursement policy.

 

If all conditions necessary to establish the Executive’s entitlement to the
payments specified in this Section 5(b) have been satisfied, such payments shall
be paid in full within five business days after the effective date of the
Release, and in any event no later than March 15 of the calendar year following
the calendar year in which the Executive’s employment terminated.

 

For the avoidance of doubt, and notwithstanding anything in this Agreement to
the contrary, in no event shall the Executive be entitled (i) to receive
Severance Benefits under Section 5(a) and Section 5(b) of this Agreement; or
(ii) to receive severance pay or benefits pursuant to this Agreement and
pursuant to any other contract, plan or program.

 

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6.             Additional Limitation.

 

(a)           Anything in this Agreement to the contrary notwithstanding, in the
event that the amount of any compensation, payment or distribution by the
Company to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise, calculated in a manner consistent with Section 280G of the Code and
the applicable regulations thereunder (the “Severance Payments”), would be
subject to the excise tax imposed by Section 4999 of the Code, the following
provisions shall apply:

 

(i)            If the Severance Payments, reduced by the sum of (A) the Excise
Tax and (B) the total of the federal, state, and local income and employment
taxes payable by the Executive on the amount of the Severance Payments which are
in excess of the Threshold Amount, are greater than or equal to the Threshold
Amount, the Executive shall be entitled to the full amount of Severance
Payments.

 

(ii)           If the Threshold Amount is less than (x) the Severance Payments,
but greater than (y) the Severance Payments reduced by the sum of (A) the Excise
Tax and (B) the total of the federal, state, and local income and employment
taxes on the amount of the Severance Payments which are in excess of the
Threshold Amount, then the Severance Payments shall be reduced (but not below
zero) to the extent necessary so that the sum of all Severance Payments shall
not exceed the Threshold Amount.  In such event, the Severance Payments shall be
reduced in the following order:  (1) cash payments not subject to Section 409A
of the Code; (2) cash payments subject to Section 409A of the Code;
(3) equity-based payments and acceleration; and (4) non-cash forms of benefits. 
To the extent any payment is to be made over time (e.g., in installments, etc.),
then the payments shall be reduced in reverse chronological order.

 

(b)           For the purposes of this Section 3, “Threshold Amount” shall mean
three times the Executive’s “base amount” within the meaning of
Section 280G(b)(3) of the Code and the regulations promulgated thereunder less
one dollar ($1.00); and “Excise Tax” shall mean the excise tax imposed by
Section 4999 of the Code, and any interest or penalties incurred by the
Executive with respect to such excise tax.

 

(c)           The determination as to which of the alternative provisions of
Section 3(a) above shall apply to the Executive shall be made by a nationally
recognized accounting firm selected by the Company (the “Accounting Firm”),
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the Date of Termination, if applicable, or
at such earlier time as is reasonably requested by the Company or the
Executive.  For purposes of determining which of the alternative provisions of
Section 3(a) above shall apply, the Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation applicable
to individuals for the calendar year in which the determination is to be made,
and state and local income taxes at the highest marginal rates of individual
taxation in the state and locality of the Executive’s residence on the Date of
Termination, net of the maximum reduction in federal income taxes which could be
obtained from deduction of such state and local taxes.  Any determination by the
Accounting Firm shall be binding upon the Company and the Executive.

 

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7.             Section 409A.

 

(a)           Anything in this Agreement to the contrary notwithstanding, if at
the time of the Executive’s “separation from service” within the meaning of
Section 409A of the Code, the Company determines that the Executive is a
“specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code,
then to the extent any payment or benefit that the Executive becomes entitled to
under this Agreement on account of the Executive’s separation from service would
be considered deferred compensation subject to the 20 percent additional tax
imposed pursuant to Section 409A(a) of the Code as a result of the application
of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and
such benefit shall not be provided until the date that is the earlier of (A) six
months and one day after the Executive’s separation from service, or (B) the
Executive’s death.

 

(b)           The parties intend that this Agreement will be administered in
accordance with Section 409A of the Code.  To the extent that any provision of
this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder
comply with Section 409A of the Code.  The parties agree that this Agreement may
be amended, as reasonably requested by either party, and as may be necessary to
fully comply with Section 409A of the Code and all related rules and regulations
in order to preserve the payments and benefits provided hereunder without
additional cost to either party.

 

(c)           All in-kind benefits provided and expenses eligible for
reimbursement under this Agreement shall be provided by the Company or incurred
by the Executive during the time periods set forth in this Agreement.  All
reimbursements shall be paid as soon as administratively practicable, but in no
event shall any reimbursement be paid after the last day of the taxable year
following the taxable year in which the expense was incurred.  The amount of
in-kind benefits provided or reimbursable expenses incurred in one taxable year
shall not affect the in-kind benefits to be provided or the expenses eligible
for reimbursement in any other taxable year.  Such right to reimbursement or
in-kind benefits is not subject to liquidation or exchange for another benefit.

 

(d)           To the extent that any payment or benefit described in this
Agreement constitutes “non-qualified deferred compensation” under Section 409A
of the Code, and to the extent that such payment or benefit is payable upon the
Executive’s termination of employment, then such payments or benefits shall be
payable only upon the Executive’s “separation from service.”  The determination
of whether and when a separation from service has occurred shall be made in
accordance with the presumptions set forth in Treasury Regulation
Section 1.409A-1(h).

 

(e)           The Company makes no representation or warranty and shall have no
liability to the Executive or any other person if any provisions of this
Agreement are determined to constitute deferred compensation subject to
Section 409A of the Code but do not satisfy an exemption from, or the conditions
of, such Section.

 

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8.             Withholding.  All payments made by the Company to the Executive
under this Agreement shall be net of any tax or other amounts required to be
withheld by the Company under applicable law.

 

9.             Consent to Jurisdiction.  To the extent that any court action is
permitted consistent with or to enforce this Agreement, including any
Restrictive Covenant Agreement (as defined below), the parties hereby consent to
the jurisdiction of the federal and state courts of Wake County, North
Carolina.  Accordingly, with respect to any such court action, the Executive
(a) submits to the personal jurisdiction of such courts; (b) consents to service
of process; and (c) waives any other requirement (whether imposed by statute,
rule of court, or otherwise) with respect to personal jurisdiction or service of
process.

 

10.          Integration.  This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes in
all respects all prior agreements between the parties concerning such subject
matter, including, without limitation, any offer letter or employment agreement;
provided, this Agreement shall not affect the Executive’s obligations under any
agreement that the Executive executed with respect to noncompetition,
nonsolicitation and/or assignment of inventions (“Restrictive Covenant
Agreements”), the terms of which are in full force and effect and incorporated
by reference herein; provided further, this Agreement shall not affect the
Executive’s rights and obligations under the Company’s stock plan or any stock
option agreement(s) applicable to equity grants made to the Executive
(collectively the “Equity Documents”), all of which shall remain in full force
and effect.

 

11.          Enforceability.  If any portion or provision of this Agreement
(including, without limitation, any portion or provision of any Section of this
Agreement) shall to any extent be declared illegal or unenforceable by a court
of competent jurisdiction, then the remainder of this Agreement, or the
application of such portion or provision in circumstances other than those as to
which it is so declared illegal or unenforceable, shall not be affected thereby,
and each portion and provision of this Agreement shall be valid and enforceable
to the fullest extent permitted by law.

 

12.          Waiver.  No waiver of any provision hereof shall be effective
unless made in writing and signed by the waiving party.  The failure of any
party to require the performance of any term or obligation of this Agreement, or
the waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term or obligation or be deemed a waiver of any
subsequent breach.

 

13.          Notices.  Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by a nationally recognized overnight currier service of by
registered or certified mail, postage prepaid, return receipt requested, to the
Executive at the last address the Executive has filed in writing with the
Company, or to the Company at its main office, attention of the Board of
Directors.

 

14.          Amendment.  This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Company.

 

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15.          Governing Law.  This is a North Carolina contract and shall be
construed under and be governed in all respects by the laws of the State of
North Carolina, without giving effect to the conflict of laws principles of such
State.  With respect to any disputes concerning federal law, such disputes shall
be determined in accordance with the law as it would be interpreted and applied
by the United States Court of Appeals for the Fourth Circuit.

 

16.          Successor to Company.  This Agreement (including, to the extent
applicable, obligations with respect to the Retention Bonus and Severance
Benefits) shall be binding on any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company.  For the avoidance of doubt and
notwithstanding anything in this Agreement to the contrary, the Employee shall
not be entitled to any Severance Benefits under this Agreement solely as a
result of the ending of the Employee’s employment with the Company in connection
with a transaction if the Employee becomes an employee of any such direct or
indirect successor.

 

17.          Counterparts.  This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be taken to be
an original; but such counterparts shall together constitute one and the same
document.

 

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IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.

 

 

COMPANY:

 

 

 

TRANZYME, INC.

 

 

 

 

 

By:

/s/ Vipin K. Garg, Ph.D.

 

Printed Name:

Vipin K. Garg, Ph.D.

 

Title:

President & CEO

 

 

 

 

 

EXECUTIVE:

 

 

 

/s/ Rhonda L. Stanley

 

Rhonda L. Stanley

 

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