Exhibit 10.1

 

Change In Control Agreement

 

THIS CHANGE IN CONTROL AGREEMENT (this “Agreement”) between Genaera Corporation,
a Delaware corporation (the “Company”), and Roy C. Levitt (the “Employee”) is
executed and effective as of August 27, 2004 (the “Effective Date). Certain
capitalized terms used herein are defined in Section 21.

 

W i t n e s s e t h:

 

WHEREAS, the Company considers it to be in the best interests of its
stockholders to encourage the continued employment of certain key employees of
the Company notwithstanding the possibility, threat or occurrence of a Change in
Control of the Company;

 

WHEREAS, the Employee is a key employee of the Company;

 

WHEREAS, the Company believes that the possibility of a Change in Control may
cause the Employee to leave the Company for other opportunities or distract the
Employee from performance of his/her duties to the Company, in either case to
the detriment of the Company and its stockholders;

 

WHEREAS, the Company recognizes that the Employee could suffer adverse financial
and professional consequences if a Change in Control were to occur; and

 

WHEREAS, the Company wishes to enter into this Agreement to protect the Employee
if a Change in Control occurs, thereby encouraging the Employee to remain in the
employ of the Company and not to be distracted from the performance of his
duties to the Company by the possibility of a Change in Control.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties, intending to be legally bound,
agree as follows:

 

Section 1. Other Employment Arrangements.

 

(a) This Agreement does not affect the Employee’s existing or future employment
arrangements with the Company unless a Change in Control shall have occurred
before the expiration of the term of this Agreement. The Employee’s employment
with the Company shall continue to be governed by the Employee’s existing or
future employment agreements with the Company, if any, or, in the absence of any
employment agreement, shall continue to be at the will of the Board of Directors
or, if the Employee is not an officer of the Company at the time of the
termination of the Employee’s employment with the Company, the will of the Chief
Executive Officer of the Company, except that if (i) a Change in Control shall
have occurred before the expiration of the term of this Agreement and (ii) the
Employee’s employment with the Company is terminated (whether by the Employee or
the Company or automatically as provided in Section 3) after the occurrence of
such Change in Control, then the Employee shall be entitled to receive certain
benefits as provided in this Agreement.

--------------------------------------------------------------------------------

(b) Notwithstanding anything contained in this Agreement to the contrary, if
following the commencement of any discussions with any person that ultimately
results in a Change in Control, (i) the Employee’s employment with the Company
is terminated, (ii) the Employee is removed from any material duties or position
with the Company or (iii) the Employee’s Base Salary is reduced, then for all
purposes of this Agreement, such Change in Control shall be deemed to have
occurred on the date immediately prior to the date of such termination, removal
or reduction.

 

(c) Nothing in this Agreement shall prevent or limit the Employee’s continuing
or future participation in any plan, program, policy or practice of or provided
by the Company or any of its Affiliates and for which the Employee may qualify,
nor shall anything herein limit or otherwise affect such rights as the Employee
may have under any contract or agreement with the Company or any of its
Affiliates. Amounts which are vested benefits or which the Employee is otherwise
entitled to receive under any plan, program, policy or practice of or provided
by, or any contract or agreement with, the Company or any of its Affiliates at
or subsequent to the date of termination of the Employee’s employment with the
Company shall be payable of otherwise provided in accordance with such plan,
program, policy or practice or contract or agreement except as explicitly
modified by this Agreement

 

Section 2. Change in Control of the Company. A “Change in Control” shall have
occurred if, after the Effective Date:

 

(i) Any “person” (as such term is used in sections 13(d) and 14(d) of the
Exchange Act) is or becomes a “beneficial owner” (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 40% or more of the voting power of the then outstanding securities
of the Company;

 

(ii) During any period of two consecutive calendar years there is a change of
25% or more in the composition of the Board of the Company in office at the
beginning of the period except for changes approved by at least two-thirds of
the Directors then in office who were Directors at the beginning of the period;

 

(iii) The stockholders of the Company approve an agreement providing for (A) the
merger or consolidation of the Company with another corporation where the
stockholders of the Company, immediately prior to the merger or consolidation,
will not beneficially own, immediately after the merger or consolidation, shares
entitling such stockholders to 50% or more of all votes (without consideration
of the rights of any class of stock to elect Directors by a separate class vote)
to which all stockholders of the corporation issuing cash or securities in the
merger or consolidation would be entitled in the election of directors, or where
the members of the Board, immediately prior to the merger or

 

-2-

--------------------------------------------------------------------------------

consolidation, would not, immediately after the merger or consolidation,
constitute a majority of the Board of Directors of the corporation issuing cash
or securities in the merger or consolidation, or (B) the sale or other
disposition of all or substantially all of the assets of the Company, or a
liquidation, dissolution or statutory exchange of the Company; or

 

(iv) Any person has commenced, or announced an intention to commence, a tender
offer or exchange offer for 40% or more of the voting power of the
then-outstanding securities of the Company.

 

Section 3. Term of this Agreement. The term of this Agreement shall begin on the
Effective Date and shall expire on the first to occur of:

 

(i) the Employee’s death, the Employee’s Disability or the Employee’s
Retirement, which events shall also be deemed automatically to terminate the
Employee’s employment by the Company; or

 

(ii) the termination by the Employee or the Company of the Employee’s employment
by the Company.

 

The expiration of the term of this Agreement shall not terminate this Agreement
itself or affect the right of the Employee or the Employee’s legal
representatives to enforce the payment of any amount or other benefit to which
the Employee was entitled before the expiration of the term of this Agreement or
to which the Employee became entitled as a result of the event (including the
termination, whether by the Employee or the Company or automatically as provided
in this Section 3, of the Employee’s employment by the Company) that caused the
term of this Agreement to expire.

 

Section 4. Event of Termination for Cause. An “Event of Termination for Cause”
shall have occurred if, after a Change in Control, the Employee shall have
committed:

 

(i) gross negligence or willful misconduct in connection with his duties or in
the course of his employment with the Company;

 

(ii) an act of fraud, embezzlement or theft in connection with his duties or in
the course of his employment with the Company;

 

(iii) intentional wrongful damage to property of the Company;

 

(iv) intentional wrongful disclosure of secret processes or confidential
information of the Company; or

 

(v) an act leading to a conviction of a felony or a misdemeanor involving moral
turpitude.

 

-3-

--------------------------------------------------------------------------------

For purposes of this Agreement, no act, or failure to act, on the part of the
Employee shall be deemed “intentional” if it was due primarily to an error in
judgment or negligence, but shall be deemed “intentional” only if done, or
omitted to be done, by the Employee not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Employee shall not be deemed to have been
terminated as a result of an “Event of Termination for Cause” hereunder unless
and until there shall have been delivered to the Employee a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
Board of Directors then in office at a meeting of the Board of Directors called
and held for such purpose (after reasonable notice to the Employee and an
opportunity for the Employee, together with his counsel, to be heard before the
Board of Directors), finding that, in the good faith opinion of the Board of
Directors, the Employee had committed an act set forth above in this Section 4
and specifying the particulars thereof in detail. Nothing herein shall limit the
right of the Employee or his legal representatives to contest the validity or
propriety of any such determination provided that if the membership of the Board
of has not changed in the manner described in Section 2. (ii) as of the date of
said Board of Directors’ meeting, then the finding of the Board of Directors
shall be final and not subject to contest.

 

Section 5. An Event of Termination for Good Reason. An “Event of Termination for
Good Reason” shall have occurred if after a Change in Control, the Company
shall:

 

(i) assign to the Employee any duties inconsistent with the Employee’s position
(including offices, titles and reporting requirements), authority, duties or
responsibilities with the Company in effect immediately before the occurrence of
the first Change in Control or otherwise make any change in any such position,
authority, duties or responsibilities;

 

(ii) remove the Employee from, or fail to re-elect or appoint the Employee to,
any duties or position with the Company or any of its Affiliates that were
assigned or held by the Employee immediately before the occurrence of the first
Change in Control, except that a nominal change in the Employee’s title that is
merely descriptive and does not affect rank or status shall not constitute such
an event;

 

(iii) take any other action that results in a material diminution in such
position, authority, duties or responsibilities or otherwise take any action
that materially interferes therewith;

 

(iv) reduce the Employee’s annual base salary as in effect immediately before
the occurrence of the first Change in Control or as the Employee’s annual base
salary may be increased from time to time after that occurrence (the “Base
Salary”);

 

(v) relocate the Employee’s principal office outside of the metropolitan area of
Philadelphia, Pennsylvania;

 

-4-

--------------------------------------------------------------------------------

(vi) fail to (x) continue in effect any bonus, incentive, profit sharing,
performance, savings, retirement or pension policy, plan, program or arrangement
(such policies, plans, programs and arrangements collectively being referred to
herein as “Basic Benefit Plans”), including, but not limited to, any deferred
compensation, supplemental executive retirement or other retirement income,
stock option, stock purchase, stock appreciation, or similar policy, plan,
program or arrangement of the Company, in which the Employee was a participant
immediately before the occurrence of the first Change in Control, or any
substitute plan adopted by the Board of Directors and in which the Employee was
a participant immediately before the occurrence of the last Change in Control,
unless an equitable and reasonably comparable arrangement (embodied in a
substitute or alternative benefit or plan) shall have been made with respect to
such Basic Benefit Plan promptly following the occurrence of the last Change in
Control, or (y) continue the Employee’s participation in any Basic Benefit Plan
(or any substitute or alternative plan) on substantially the same basis, both in
terms of the amount of benefits provided to the Employee (which are in any event
always subject to the terms of any applicable Basic Benefit Plan) and the level
of the Employee’s participation relative to other participants, as existed
immediately before the occurrence of the first Change in Control;

 

(vii) fail to continue to provide the Employee with benefits substantially
similar to those enjoyed by the Employee under any of the Company’s other
employee benefit plans, policies, programs and arrangements (the “Other Benefit
Plans”), including, but not limited to, life insurance, medical, dental, health,
hospital, accident or disability plans, in which the Employee was a participant
immediately before the occurrence of the first Change in Control;

 

(viii) take any action that would directly or indirectly materially reduce any
other non-contractual benefits that were provided to the Employee by the Company
immediately before the occurrence of the first Change in Control or deprive the
Employee of any material fringe benefit enjoyed by the Employee immediately
before the occurrence of the first Change in Control;

 

(ix) fail to provide the Employee with the number of paid vacation days to which
the Employee was entitled in accordance with the Company’s vacation policy in
effect immediately before the occurrence of the first Change in Control;

 

(x) fail to continue to provide Employee with office space, related facilities
and support personnel (including, but not limited to, administrative and
secretarial assistance) (y) that are both commensurate with Employee’s
responsibilities to and position with the Company immediately before the
occurrence of the first Change in Control and not materially dissimilar to the
office space, related facilities and support personnel provided to other
employees of the Company having comparable responsibility to the Employee, or
(z) that are physically located at the Company’s principal executive offices;

 

-5-

--------------------------------------------------------------------------------

(xi) require the Employee to perform a majority of his duties outside the
Company’s principal executive offices for a period of more than 21 consecutive
days or for more than 90 days in any calendar year;

 

(xii) fail to honor any provision of any employment agreement Employee has or
may in the future have with the Company or fail to honor any provision of this
Agreement;

 

(xiii) give effective notice of an election to terminate at the end of the term
or extended the term of any employment agreement Employee has or may in the
future have with the Company in accordance with the terms of any such agreement;
or

 

(xiv) purport to terminate the Employee’s employment by the Company unless
notice of that termination shall have been given to the Employee pursuant to,
and that notice shall meet the requirements of, Section 6.

 

Section 6. Notice of Termination. If a Change in Control shall have occurred
before the expiration of the term of this Agreement, any subsequent termination
by the Employee or the Company of the Employee’s employment by the Company, or
any determination of the Employee’s Disability, shall be communicated by notice
to the other party that shall indicate the specific paragraph of Section 7
pursuant to which the Employee is to receive benefits as a result of the
termination. If the notice states that the Employee’s employment by the Company
has been automatically terminated as a result of the Employee’s Disability, the
notice shall (i) specifically describe the basis for the determination of the
Employee’s Disability, and (ii) state the date of the determination of the
Employee’s Disability, which date shall be not more than ten days before the
date such notice is given. If the notice is from the Company and states that the
Employee’s employment by the Company is terminated by the Company as a result of
the occurrence of an Event of Termination for Cause, the notice shall
specifically describe the action or inaction of the Employee that the Company
believes constitutes an Event of Termination for Cause and shall be accompanied
by a copy of the resolution satisfying Section 4. If the notice is from the
Employee and states that the Employee’s employment by the Company is terminated
by the Employee as a result of the occurrence of an Event of Termination for
Good Reason, the notice shall specifically describe the action or inaction of
the Company that the Employee believes constitutes an Event of Termination for
Good Reason. Each notice given pursuant to this Section 6 (other than a notice
stating that the Employee’s employment by the Company has been automatically
terminated as a result of the Employee’s Disability) shall state a date, which
shall be not fewer than 30 days nor more than 60 days after the date such notice
is given, on which the termination of the Employee’s employment by the Company
is effective. The date so stated in accordance with this Section 6 shall be the
“Termination Date”. If a Change in Control shall have occurred before the
expiration of the term of this Agreement, any subsequent

 

-6-

--------------------------------------------------------------------------------

purported termination by the Company of the Employee’s employment by the
Company, or any subsequent purported determination by the Company of the
Employee’s Disability, shall be ineffective unless that termination or
determination shall have been communicated by the Company to the Employee by
notice that meets the requirements of the foregoing provisions of this Section 6
and the provisions of Section 9.

 

Section 7. Benefits Payable on Change in Control and Termination.

 

(a) If (x) a Change in Control shall have occurred before the expiration of the
term of this Agreement, and (y) the Employee’s employment by the Company is
terminated (whether by the Employee or the Company or automatically as provided
in Section 3) after the occurrence of that Change in Control, the Employee shall
be entitled to the following benefits:

 

(i) If the Employee’s employment by the Company is terminated (x) by the Company
as a result of the occurrence of an Event of Termination for Cause, or (y) by
the Employee before the occurrence of an Event of Termination for Good Reason,
then the Company shall pay to the Employee the Base Salary accrued through the
Termination Date but not previously paid to the Employee, and the Employee shall
be entitled to any other amounts or benefits provided under any plan, policy,
practice, program, contract or arrangement of or with the Company, including,
but not limited to, the Basic Benefit Plans and the Other Benefit Plans, which
shall be governed by the terms thereof (except as explicitly modified by this
Agreement).

 

(ii) If the Employee’s employment by the Company is automatically terminated as
a result of the Employee’s death, the Employee’s Disability or the Employee’s
Retirement, then (x) the Company shall pay to the Employee the Base Salary
accrued through the date of the occurrence of that event but not previously paid
to the Employee, and (y) the Employee shall be entitled to any other amounts or
benefits provided under any plan, policy, practice, program, contract or
arrangement of or with the Company, including, but not limited to, the Basic
Benefit Plans and the Other Benefit Plans, which shall be governed by the terms
thereof (except as explicitly modified by this Agreement).

 

(iii) If the Employee’s employment by the Company is terminated (x) by the
Company otherwise than as a result of the occurrence of an Event of Termination
for Cause, or (y) by the Employee after the occurrence of an Event of
Termination for Good Reason, then the Employee shall be entitled to the
following:

 

(1) the Company shall pay to the Employee the Base Salary and compensation for
earned but unused vacation time accrued through the Termination Date but not
previously paid to the Employee;

 

-7-

--------------------------------------------------------------------------------

(2) the Company shall pay to the Employee an amount equal to the product of (A)
the highest aggregate annual bonus, incentive or other payment of cash
compensation in addition to annual base salary pursuant to any bonus, incentive,
profit-sharing performance, discretionary pay or similar policy, plan, program
or arrangement of the Company paid or payable to the Employee (including any
deferred portion thereof) for any fiscal year (or portion thereof) of the
Company ending within three years of the Termination Date (the “Highest Bonus”),
and (B) a fraction, the numerator of which is the number of days in the current
fiscal year of the Company through the Date of Termination and the denominator
of which is 365;

 

(3) the Company shall pay to the Employee, as a lump sum, an amount (the
“Severance Payment”) equal to two (2) times the sum of:

 

(A) the amount (including any deferred portion thereof) of the Base Salary that
would have been paid to the Employee during the fiscal year of the Company in
which the Termination Date occurs based on the assumption that the Employee’s
employment by the Company had continued throughout that fiscal year at the Base
Salary at the highest rate in effect at any time during the term of this
Agreement; plus

 

(B) the amount of the Highest Bonus;

 

(4) the Company (at its sole expense) shall take the following actions:

 

(A) throughout the Relevant Period, the Company shall maintain in effect, and
not materially reduce the benefits provided by, each of the Other Benefit Plans
in which the Employee was a participant immediately before the Termination Date;
and

 

(B) the Company shall arrange for the Employee’s uninterrupted participation
throughout the Relevant Period in each of such Other Benefit Plans,

 

provided that if the Employee’s participation after the Termination Date in any
such Other Benefit Plan is not permitted by the terms of that Other Benefit
Plan, then throughout the Relevant Period, the Company (at its sole expense)
shall provide the Employee with substantially the same benefits that were
provided to the Employee by that Other Benefit Plan immediately before the
Termination Date; and

 

-8-

--------------------------------------------------------------------------------

(5) the Employee shall be entitled to any other amounts or benefits provided
under any plan, policy, practice, program, contract or arrangement of or with
the Company, including, but not limited to, the Basic Benefit Plans and the
Other Benefit Plans, which shall be governed by the terms thereof (except as
explicitly modified by this Agreement).

 

(b) Each payment required to be made to the Employee pursuant to the foregoing
provisions of this Section 7(a) above (i) shall be made by check drawn on an
account of the Company at a bank located in the United States of America, and
(ii) shall be paid (x) if the Employee’s employment by the Company was
terminated as a result of the Employee’s death, the Employee’s Disability or the
Employee’s Retirement, not more than 30 days immediately following the date of
the occurrence of that event, and (y) if the Employee’s employment by the
Company was terminated for any other reason, not more than ten days immediately
following the Termination Date.

 

Section 8. Successors. If a Change in Control shall have occurred before the
expiration of the term of this Agreement,

 

(i) the Company shall not, directly or indirectly, consolidate with, merge into
or sell or otherwise transfer its assets as an entirety or substantially as an
entirety to, any person, or permit any person to consolidate with or merge into
the Company, unless immediately after such consolidation, merger, sale or
transfer, the Successor shall have assumed in writing the Company’s obligations
under this Agreement; and

 

(ii) not fewer than ten days before the consummation of any consolidation of the
Company with, merger by the Company into, or sale or other transfer by the
Company of its assets as an entirety or substantially as an entirety to, any
person, the Company shall give the Employee notice of that proposed transaction.

 

Section 9. Notice. Notices required or permitted to be given by either party
pursuant to this Agreement shall be in writing and shall be deemed to have been
given when delivered personally to the other party or when deposited with the
United States Postal Service as certified or registered mail with postage
prepaid and addressed:

 

(i) if to the Employee, at the Employee’s address last shown on the Company’s
records, and

 

(ii) if to the Company, Genaera Corporation, 5110 Campus Drive, Plymouth
Meeting, Pennsylvania 19462, directed to the attention of the Company’s
Secretary.

 

-9-

--------------------------------------------------------------------------------

or, in either case, to such other address as the party to whom or which such
notice is to be given shall have specified by notice given to the other party.

 

Section 10. Withholding Taxes. The Company may withhold from all payments to be
paid to the Employee pursuant to this Agreement all taxes that, by applicable
federal or state law, the Company is required to so withhold.

 

Section 11. Certain Additional Payments by the Company.

 

(a) Anything in this Agreement to the contrary notwithstanding in the event it
shall be determined that any payment or distribution by, or benefit from, the
Company or any of its Affiliates to or for the benefit of the Employee, whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (any such payments, distributions or benefits being
individually referred to herein as a “Payment,” and any two or more of such
payments, distributions or benefits being referred to herein as “Payments”),
would be subject to the excise tax imposed by Section 4999 of the Code (such
excise tax, together with any interest thereon, any penalties, additions to tax,
or additional amounts with respect to such excise tax, and any interest in
respect of such penalties, additions to tax or additional amounts, being
collectively referred herein to as the “Excise Tax”), then the Employee shall be
entitled to receive an additional payment or payments (individually referred to
herein as a “Gross-Up Payment” and any two or more of such additional payments
being referred to herein as “Gross-Up Payments”) in an amount such that after
payment by the Employee of all taxes (as defined in Section 11(k)) imposed upon
the Gross-Up Payment, the Employee retains an amount of such Gross-Up Payment
equal to the Excise Tax imposed upon the Payments.

 

(b) Subject to the provisions of Section 11(c) through (i), any determination
(individually, a “Determination”) required to be made under this Section 11(b),
including whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall initially be made, at the Company’s expense, by nationally
recognized tax counsel mutually acceptable to the Company and the Employee (“Tax
Counsel”). Tax Counsel shall provide detailed supporting legal authorities,
calculations, and documentation both to the Company and the Employee within 15
business days of the termination of the Employee’s employment, if applicable, or
such other time or times as is reasonably requested by the Company or the
Employee. If Tax Counsel makes the initial Determination that no Excise Tax is
payable by the Employee with respect to a Payment or Payments, it shall furnish
the Employee with an opinion reasonably acceptable to the Employee that no
Excise Tax will be imposed with respect to any such Payment or Payments. The
Employee shall have the right to dispute any Determination (a “Dispute”) within
15 business days after delivery of Tax Counsel’s opinion with respect to such
Determination. The Gross-Up Payment, if any, as determined pursuant to such
Determination shall, at the Company’s expense, be paid by the Company to the
Employee within five business days of the Employee’s receipt of such
Determination. The existence of a Dispute shall not in any way affect the
Employee’s right to receive the Gross-Up Payment in accordance with such
Determination. If there is no Dispute, such Determination shall be binding,
final and conclusive upon the Company and the Employee, subject in all respects,
however, to the provisions of Section 11(c) through (i) below. As a result of
the

 

-10-

--------------------------------------------------------------------------------

uncertainty in the application of Sections 4999 and 280G of the Code, it is
possible that Gross-Up Payments (or portions thereof) which will not have been
made by the Company should have been made (“Underpayment”), and if upon any
reasonable written request from the Employee or the Company to Tax Counsel, or
upon Tax Counsel’s own initiative, Tax Counsel, at the Company’s expense,
thereafter determines that the Employee is required to make a payment of any
Excise Tax or any additional Excise Tax, as the case may be, Tax Counsel shall,
at the Company’s expense, determine the amount of the Underpayment that has
occurred and any such Underpayment shall be promptly paid by the Company to the
Employee.

 

(c) The Company shall defend, hold harmless, and indemnify the Employee on a
fully grossed-up after tax basis from and against any and all claims, losses,
liabilities, obligations, damages, impositions, assessments, demands, judgments,
settlements, costs and expenses (including reasonable attorneys’, accountants’,
and experts’ fees and expenses) with respect to any tax liability of the
Employee resulting from any Final Determination (as defined in Section 11(j))
that any Payment is subject to the Excise Tax

 

(d) If a party hereto receives any written or oral communication with respect to
any question, adjustment, assessment or pending or threatened audit,
examination, investigation or administrative, court or other proceeding which,
if pursued successfully, could result in or give rise to a claim by the Employee
against the Company under this Section 11 (“Claim”), including, but not limited
to, a claim for indemnification of the Employee by the Company under Section
11(c), then such party shall promptly notify the other party hereto in writing
of such Claim (“Tax Claim Notice”).

 

(e) If a Claim is asserted against the Employee (“Employee Claim”), the Employee
shall take or cause to be taken such action in connection with contesting such
Employee Claim as the Company shall reasonably request in writing from time to
time, including the retention of counsel and experts as are reasonably
designated by the Company (it being understood and agreed by the parties hereto
that the terms of any such retention shall expressly provide that the Company
shall be solely responsible for the payment of any and all fees and
disbursements of such counsel and any experts) and the execution of powers of
attorney, provided that:

 

(i) within 30 calendar days after the Company receives or delivers, as the case
may be, the Tax Claim Notice relating to such Employee Claim (or such earlier
date that any payment of the taxes claimed is due from the Employee, but in no
event sooner than five calendar days after the Company receives or delivers such
Tax Claim Notice), the Company shall have notified the Employee in writing
(“Election Notice”) that the Company does not dispute its obligations
(including, but not limited to, its indemnity obligations) under this Agreement
and that the Company elects to contest, and to control the defense or
prosecution of such Employee Claim at the Company’s sole risk and sole cost and
expense; and

 

(ii) the Company shall have advanced to the Employee on an interest-free basis,
the total amount of the tax claimed in order for the Employee, at the

 

-11-

--------------------------------------------------------------------------------

Company’s request, to pay or cause to be paid the tax claimed, file a claim for
refund of such tax and, subject to the provisions of the last sentence of
Section 11(g), sue for a refund of such tax if such claim for refund is
disallowed by the appropriate taxing authority (it being understood and agreed
by the parties hereto that the Company shall only be entitled to sue for a
refund and the Company shall not be entitled to initiate any proceeding in, for
example, United States Tax Court) and shall indemnify and hold the Employee
harmless, on a fully grossed-up after tax basis, from any tax imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and

 

(iii) the Company shall reimburse the Employee for any and all costs and
expenses resulting from any such request by the Company and shall indemnify and
hold the Employee harmless, on fully grossed-up after-tax basis, from any tax
imposed as a result of such reimbursement.

 

(f) Subject to the provisions of Section 11(e) hereof; the Company shall have
the right to defend or prosecute, at the sole cost, expense and risk of the
Company, such Employee Claim by all appropriate proceedings, which proceedings
shall be defended or prosecuted diligently by the Company to a Final
Determination; provided however, that (i) the Company shall not, without the
Employee’s prior written consent, enter into any compromise or settlement of
such Employee Claim that would adversely affect the Employee, (ii) any request
from the Company to the Employee regarding any extension of the statute of
limitations relating to assessment, payment, or collection of taxes for the
taxable year of the Employee with respect to which the contested issues involved
in, and amount of the Employee Claim relate is limited solely to such contested
issues and amount, and (iii) the Company’s control of any contest or proceeding
shall be limited to issues with respect to the Employee Claim and the Employee
shall be entitled to settle or contest, in his sole and absolute discretion, any
other issue raised by the Internal Revenue Service or any other taxing
authority. So long as the Company is diligently defending or prosecuting such
Employee Claim, the Employee shall provide or cause to be provided to the
Company any information reasonably requested by the Company that relates to such
Employee Claim, and shall otherwise cooperate with the Company and its
representatives in good faith in order to contest effectively such Employee
Claim. The Company shall keep the Employee informed of all developments and
events relating to any such Employee Claim (including, without limitation,
providing to the Employee copies of all written materials pertaining to any such
Employee Claim), and the Employee or his authorized representatives shall be
entitled, at the Employee’s expense, to participate in all conferences, meetings
and proceedings relating to any such Employee Claim.

 

(g) If, after actual receipt by the Employee of an amount of a tax claimed
(pursuant to an Employee Claim) that has been advanced by the Company pursuant
to Section 11(e)(ii) hereof the extent of the liability of the Company hereunder
with respect to such tax claimed has been established by a Final Determination,
the Employee shall promptly pay or cause to be paid to the Company any refund
actually received by, or actually credited to, the Employee with respect to such
tax (together with any interest paid or credited thereon by the taxing authority
and any recovery of legal fees from such taxing authority related thereto),
except to the extent that any

 

-12-

--------------------------------------------------------------------------------

amounts are then due and payable by the Company to the Employee, whether under
the provisions of this Agreement or otherwise. If, after the receipt by the
Employee of an amount advanced by the Company pursuant to Section 11(e)(ii), a
determination is made by the Internal Revenue Service or other appropriate
taxing authority that the Employee shall not be entitled to any refund with
respect to such tax claimed and the Company does not notify the Employee in
writing of its intent to contest such denial of refund prior to the expiration
of 30 calendar days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of any Gross-Up Payments and
other payments required to be paid hereunder.

 

(h) With respect to any Employee Claim, if the Company fails to deliver an
Election Notice to the Employee within the period provided in Section 11(e)(i)
hereof or, after delivery of such Election Notice, the Company fails to comply
with the provisions of Section 11(e)(ii) and (iii) and (f) hereof, then the
Employee shall at any time thereafter have the right (but not the obligation),
at his election and in his sole and absolute discretion, to defend or prosecute,
at the sole cost, expense and risk of the Company, such Employee Claim. The
Employee shall have full control of such defense or prosecution and such
proceedings, including any settlement or compromise thereof. If requested by the
Employee, the Company shall cooperate, and shall cause its Affiliates to
cooperate, in good faith with the Employee and his authorized representatives in
order to contest effectively such Employee Claim. The Company may attend, but
not participate in or control, any defense, prosecution, settlement or
compromise of any Employee Claim controlled by the Employee pursuant to this
Section 11(h) and shall bear its own costs and expenses with respect thereto. In
the case of any Employee Claim that is defended or prosecuted by the Employee,
the Employee shall, from time to time, be entitled to current payment, on a
fully grossed-up after tax basis, from the Company with respect to costs and
expenses incurred by the Employee in connection with such defense or
prosecution.

 

(i) In the case of any Employee Claim that is defended or prosecuted to a Final
Determination pursuant to the terms of this Section 11(i), the Company shall
pay, on a fully grossed-up after tax basis, to the Employee in immediately
available funds the full amount of any taxes arising or resulting from or
incurred in connection with such Employee Claim that have not theretofore been
paid by the Company to the Employee, together with the costs and expenses, on a
folly grossed-up after tax basis, incurred in connection therewith that have not
theretofore been paid by the Company to the Employee, within ten calendar days
after such Final Determination. In the case of any Employee Claim not covered by
the preceding sentence, the Company shall pay, on a fully grossed-up after tax
basis, to the Employee in immediately available funds the full amount of any
taxes arising or resulting from or incurred in connection with such Employee
Claim at least ten calendar days before the date payment of such taxes is due
from the Employee, except where payment of such taxes is sooner required under
the provisions of this Section 11(i), in which case payment of such taxes (and
payment, on a fully grossed-up after tax basis, of any costs and expenses
required to be paid under this Section 11(i) shall be made within the time and
in the manner otherwise provided in this Section 11(i).

 

-13-

--------------------------------------------------------------------------------

(j) For purposes of this Agreement, the term “Final Determination” shall mean
(A) a decision, judgment, decree or other order by a court or other tribunal
with appropriate jurisdiction, which has become final and non-appealable; (B) a
final and binding settlement or compromise with an administrative agency with
appropriate jurisdiction, including, but not limited to, a closing agreement
under Section 7121 of the Code; (C) any disallowance of a claim for refund or
credit in respect to an overpayment of tax unless a suit is filed on a timely
basis; or (D) any final disposition by reason of the expiration of all
applicable statutes of limitations.

 

(k) For purposes of this Agreement, the terms “tax” and “taxes” mean any and all
taxes of any kind whatsoever (including, but not limited to, any and all Excise
Taxes, income taxes, and employment taxes), together with any interest thereon,
any penalties, additions to tax, or additional amounts with respect to such
taxes and any interest in respect of such penalties, additions to tax, or
additional amounts.

 

Section 12. Expenses of Enforcement. If a Change in Control shall have occurred
before the expiration of the term of this Agreement, then, upon demand by the
Employee made to the Company, the Company shall reimburse the Employee for the
reasonable expenses (including attorneys’ fees and expenses) incurred by the
Employee in enforcing or seeking to enforce the payment of any amount or other
benefit to which the Employee shall have become entitled pursuant to this
Agreement, including those incurred in connection with any arbitration initiated
pursuant to Section 20. To the extent that any such reimbursement would be
subject to the Excise Tax, then the Employee shall be entitled to receive
Gross-Up Payments in an amount such that alter payment by the Employee of all
taxes imposed on such Gross-Up Payments, the Employee retains an amount equal to
the Excise Tax imposed upon the reimbursement, and the other provisions of
Section 11 hereof shall also apply to such circumstance unless the context
thereof otherwise indicates.

 

Section 13. Employment by Wholly Owned Entities. If, at or after the Effective
Date, the Employee is or becomes an employee of one or more corporations,
partnerships, limited liability companies or other entities that are, directly
or indirectly, wholly owned by the Company (“Wholly Owned Entities”), references
in this Agreement to the Employee’s employment by the Company shall include the
Employee’s employment by any such Wholly Owned Entity.

 

Section 14. No Obligation to Mitigate; No Rights of Offset.

 

(a) The Employee shall not be required to mitigate the amount of any payment or
other benefit required to be paid to the Employee pursuant to this Agreement,
whether by seeking other employment or otherwise, nor shall the amount of any
such payment or other benefit be reduced on account of any compensation earned
by the Employee as a result of employment by another person.

 

(b) The Company’s obligation to make the payments provided for in this Agreement
and otherwise to perform its obligations hereunder shall not be affected by any
set-off, counterclaim, recoupment, defense or other claim, right or action which
the Company may have against the Employee or others.

 

-14-

--------------------------------------------------------------------------------

Section 15. Amendment and Waiver. No provision of this Agreement may be amended
or waived (whether by act or course of conduct or omission or otherwise) unless
that amendment or waiver is by written instrument signed by the parties hereto.
No waiver by either party of any breach of this Agreement shall be deemed a
waiver of any other or subsequent breach.

 

Section 16. Governing Law. The validity, interpretation, construction and
enforceability of this Agreement shall be governed by the laws of the State of
Delaware.

 

Section 17. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

 

Section 18. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together will constitute
the same instrument.

 

Section 19. Assignment. This Agreement shall inure to the benefit of and be
enforceable by the Employee’s legal representative. The Company may not assign
any of its obligations under this Agreement unless (i) such assignment is to a
Successor and (ii) the requirements of Section 8 are fulfilled.

 

Section 20. Arbitration. Except as otherwise explicitly provided in Section 11,
any dispute between the parties arising out of this Agreement, whether as to
this Agreement’s construction, interpretation or enforceability or as to any
party’s breach or alleged breach of any provision of this Agreement, shall be
submitted to arbitration in accordance with the following procedures:

 

(i) Either party may demand such arbitration by giving notice of that demand to
the other party. The notice shall state (x) the matter in controversy, and (y)
the name of the arbitrator selected by the party giving the notice.

 

(ii) Not more than 15 calendar days after such notice is given, the other party
shall give notice to the party who demanded arbitration of the name of the
arbitrator selected by the other party. If the other patty shall fail to timely
give such notice, the arbitrator that the other party was entitled to select
shall be named by the Arbitration Committee of the American Arbitration
Association. Not more than 15 calendar days after the second arbitrator is so
named, the two arbitrators shall select a third arbitrator. If the two
arbitrators shall fail to timely select a third arbitrator, the third arbitrator
shall be named by the Arbitration Committee of the American Arbitration
Association.

 

-15-

--------------------------------------------------------------------------------

(iii) The dispute shall be arbitrated at a hearing that shall be concluded
within ten days immediately following the date the dispute is submitted to
arbitration unless a majority of the arbitrators shall elect to extend the
period of arbitration. Any award made by a majority of the arbitrators (x) shall
be made within ten days following the conclusion of the arbitration hearing, (y)
shall be conclusive and binding on the parties and (z) may be made the subject
of a judgment of any court having jurisdiction.

 

(iv) All expenses of the arbitration shall be borne by the Company.

 

The agreement of the patties contained in the foregoing provisions of this
Section 20 shall be a complete defense to any action, suit or other proceeding
instituted in any court or before any administrative tribunal with respect to
any dispute between the parties arising out of this Agreement

 

Section 21. Interpretation.

 

(a) As used in this Agreement, the following terms and phrases have the
indicated meanings:

 

(i) “Affiliate” and “Affiliates” mean, when used with respect to any entity,
individual, or other person, any other entity, individual, or other person
which, directly or indirectly, through one or more intermediaries controls, or
is controlled by, or is under common control with such entity, individual or
person.

 

(ii) “Base Salary” has the meaning assigned to that term in Section 5.

 

(iii) “Basic Benefit Plans” has the meaning assigned to that term in Section 5.

 

(iv) “Board of Directors” means the Board of Directors of the Company.

 

(v) “Change in Control” has the meaning assigned to that phrase in Section 2.

 

(vi) “Claim” has the meaning assigned to such term in Section 11.

 

(vii) “Code” means the Internal Revenue Code of 1986, as amended from time to
time.

 

(viii) “Commission” means the United States Securities and Exchange Commission
or any successor agency.

 

-16-

--------------------------------------------------------------------------------

(ix) “Company” has the meaning assigned to that term in the preamble to this
Agreement. The term “Company” shall also include any Successor, whether the
liability of such Successor under this Agreement is established by contract or
occurs by operation of law.

 

(x) “Determination” has the meaning assigned to that term in Section 11.

 

(xi) “Dispute” has the meaning assigned to that term in Section 11.

 

(xii) “Effective Date” has the meaning assigned to that term in the preamble to
this Agreement.

 

(xiii) “Election Notice” has the meaning assigned to such term in Section 11.

 

(xiv) “Employee” has the meaning assigned to such term in the preamble to this
Agreement.

 

(xv) “Employee Claim” has the meaning assigned to such term in Section 11.

 

(xvi) “Employee’s Disability” means:

 

(A) if no Change in Control shall have occurred before the date of
determination, the physical or mental disability of the Employee determined in
accordance with the disability policy of the Company at the time in effect and
generally applicable to its salaried employees; and

 

(B) If a Change in Control shall have occurred at that date, the physical or
mental disability of the Employee determined in accordance with the disability
policy of the Company in effect immediately before the occurrence of the first
Change in Control and generally applicable to its salaried employees.

 

The Employee’s Disability, and the automatic termination of the Employee’s
employment by the Company by reason of the Employee’s Disability, shall be
deemed to have occurred on the date of determination, provided that if (1) a
Change in Control shall have occurred before the expiration of the term of this
Agreement, (2) the Company shall have subsequently given notice pursuant to
Section 6 of the Company’s determination of the Employee’s Disability and (3)
the Employee shall have given notice to the Company that the Employee disagrees
with that determination, then (A) whether the Employee’s Disability shall have
occurred shall be submitted to arbitration pursuant to Section 20, and (B) if a
majority of the arbitrators decide that the Employee’s Disability had not
occurred, at the date of determination by the Company, then (I) the Employee’s

 

-17-

--------------------------------------------------------------------------------

Disability, and the automatic termination of the Employee’s employment by the
Company by reason of the Employee’s Disability, shall be deemed not to have
occurred, and (II) on demand by the Employee made to the Company, the Company
shall reimburse the Employee for the reasonable expenses (including attorneys’
fees and expenses) incurred by the Employee in obtaining that decision.

 

(xvii) “Employee’s Retirement” means (x) if no Change in Control shall have
occurred before the date of the Employee’s proposed retirement, the retirement
of the Employee in accordance with the retirement policy of the Company at the
time in effect and generally applicable to its salaried employees, and (y) if a
Change in Control shall have occurred at that date, the retirement of the
Employee from the employ of the Company in accordance with the retirement policy
of the Company in effect immediately before the occurrence of the first Change
in Control and generally applicable to its salaried employees.

 

(xviii) “Event of Termination for Good Reason” has the meaning assigned to that
phrase in Section 5.

 

(xix) “Event of Termination for Cause” has the meaning assigned to that phrase
in Section 4.

 

(xx) “Exchange Act” means the Securities Exchange Act of 1934, as amended from
time to time.

 

(xxi) “Excise Tax” has the meaning assigned to that term in Section 11.

 

(xxii) “Expiration Date” has the meaning assigned to that term in Section 3.

 

(xxiii) “Final Determination” has the meaning assigned to such term in Section
11.

 

(xxiv) “Gross-Up Payment” has the meaning assigned to that term in Section 11.

 

(xxv) “Other Benefit Plans” has the meaning assigned to that term in Section 5.

 

(xxvi) “Payment has the meaning assigned to that term in Section 11.

 

(xxvii) “person” means any individual, corporation, partnership, joint venture,
association, joint-stock company, limited partnership, limited liability
company, trust, unincorporated organization, government, or agency or political
subdivision of any government.

 

-18-

--------------------------------------------------------------------------------

(xxviii) “Relevant Period” means a period beginning on the Termination Date and
ending on the first to occur of (x) the last day of the 24th calendar month
immediately following the calendar month in which the Termination Date occurs,
(y) the date on which the Employee becomes a full time employee of another
person and (z) the Employee’s normal retirement date, determined in accordance
with the retirement policy of the Company in effect on the Termination Date.

 

(xxix) “Severance Payment” has the meaning assigned to that term in Section 7.

 

(xxx) “Successor” means a person with or into which the Company shall have been
merged or consolidated or to which the Company shall have transferred its assets
as an entirety or substantially as an entirety.

 

(xxxi) “Tax” has the meaning assigned to that term in Section 11.

 

(xxxii) “Tax Claim Notice” has the meaning assigned to that term in Section 11.

 

(xxxiii) “Tax Counsel” has the meaning assigned to that term in Section 11.

 

(xxxiv) “Termination Date” has the meaning assigned to that term in Section 6.

 

(xxxv) “this Agreement” means this Change in Control Agreement as it may be
amended from time to time in accordance with Section 15.

 

(xxxvi) “Underpayment” has the meaning assigned to that term in Section 11.

 

(xxxvii) “Voting Stock” means shares of capital stock of the Company the holders
of which are entitled to vote for the election of directors, but excluding
shares entitled to so vote only upon the occurrence of a contingency unless that
contingency shall have occurred.

 

(xxxviii) “Wholly Owned Entities” has the meaning assigned to that term in
Section 13.

 

(b) In the event of the enactment of any successor provision to any statue or
rule cited in this Agreement, references in this Agreement to such statute or
rule shall be to such successor provision.

 

(c) The headings of Sections of this Agreement shall not control the meaning or
interpretation of this Agreement.

 

-19-

--------------------------------------------------------------------------------

(d) References in this Agreement to any Section are to the corresponding Section
of this Agreement unless the context otherwise indicates.

 

IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as
of the date first set forth above to be effective as of the Effective Date.

 

GENAERA CORPORATION

By:

 

/s/ John A. Skolas

--------------------------------------------------------------------------------

Name:

 

John A. Skolas

Title:

 

EVP, CFO and General Counsel

“Employee”

   

/s/ Roy C. Levitt

--------------------------------------------------------------------------------

Name: Roy C. Levitt

APPROVED:

Compensation Committee of the Board of Directors of GENAERA CORPORATION

By:

 

/s/ R. Frank Ecock

--------------------------------------------------------------------------------

Name:

 

R. Frank Ecock

Title:

 

Committee Chairman

 

-20-