Exhibit 10.2

 

AMENDED AND RESTATED CONSULTING AGREEMENT

 

This AMENDED AND RESTATED CONSULTING AGREEMENT (the “Agreement”) is made and
entered into as of the 1st day of February 2010 by and between Gabriele M.
Cerrone (“Consultant”) and Synergy Pharmaceuticals, Inc., a Florida corporation
(the “Company”).

 

WHEREAS, the Consultant guided the Company’s simultaneous acquisition of Synergy
Pharmaceuticals, Inc. a Delaware corporation (“Synergy”) from Callisto
Pharmaceuticals, Inc., a Delaware corporation (“Callisto”), its recapitalization
and financing in July 2008,

 

WHEREAS, the Consultant has and will continue to serve as a consultant and
Chairman of the Board of Callisto, which owns more than a majority of the
Company’s common stock; and

 

WHEREAS, the Company desires to engage Consultant to provide certain consulting
services, and Consultant is willing to be engaged by the Company to provide such
services, on the terms and conditions set forth below;

 

WHEREAS, the Company and Callisto desire to allocate the cost of the
Consultant’s services between them consistent with the cost of such services and
relative benefits derived therefrom;

 

WHEREAS, the Consultant has previously entered into a consulting agreement with
the Company as of March 11, 2009 (the “Consulting Agreement”); and

 

WHEREAS, the parties wish to amend and restate the Consulting Agreement between
the Consultant and the Company in its entirety, on the terms and conditions
contained in this Agreement.

 

NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:

 

1.                                       Purpose: The Company hereby engages
Consultant for the term specified in Paragraph 2 hereof to render consulting
advice to the Company relating to business development, corporate finance and
capital markets matters upon the terms and conditions set forth herein.

 

2.                                       Effective Date and Term:

 

2.1                                 Effective Date.  This Agreement shall become
effective as of August 1, 2008 (the “Effective Date”)

 

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2.2                                 Term.  Unless earlier terminated pursuant to
Section 10 hereof, the term of this Agreement shall commence on the Effective
Date and shall continue from the Effective Date to December 31, 2012 (the
“Initial Term”).  This Agreement shall thereafter be automatically renewed for
successive one year periods unless either party shall notify the other in
writing of its intention not to renew this Agreement (a “Non-renewal Notice”),
which notice shall be given at least 90 days prior to the end of the then
current term (the “Expiration Date”).  The period from the Effective Date to the
Expiration Date, including the Renewal Term, if any, is referred to herein as
the “Term.”

 

3.     Duties of Consultant:  During the term of this Agreement, the Consultant
shall devote such portion of his business time and attention to affairs of the
Company reasonably necessary to provide the Company with such regular and
customary business development, strategic planning, capital markets and
corporate finance consulting advice as is reasonably requested by the Company’s
management and Board of Directors, provided that Consultant shall not be
required to undertake duties not reasonably within the scope of this
Agreement.   So long as the Consultant serves as a member of the Company’s Board
of Directors,  Consultant shall serve as Chairman of the Board; provided, at the
request of all of the members of the Board of Directors (not counting the
Consultant), the Consultant will relinquish his title as Chairman to the
Company’s duly appointed chief executive officer, and accept the title of Vice
Chairman.

 

3.1.  Permissible Services.         The Consultant’s services will include
advising the Company’s Board of Directors and senior management on the following
matters:

 

(i)

in-licensing and out-licensing technologies and compounds;

(ii)

capitalization and corporate organization of the Company;

(iii)

structure and pricing of offerings of the Company’s securities in public and
private transactions;

(iv)

alternative uses of corporate assets;

(v)

structure and use of debt;

(vi)

application and maintenance of listing of the Company’s stock in securities
exchanges and other appropriate markets;

(vii)

strategic planning

(viii)

management recruitment and compensation; and

(ix)

presentations to institutional and professional individual investors in the U.S.
and Europe.

 

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3.2                                 Prohibited Services.  The services to be
rendered by the Consultant to the Corporation shall not (unless the Consultant
is appropriately licensed, registered or there is an exemption available from
such licensing or registration) include, directly or indirectly: any activities
which require the Consultant to register as a broker-dealer under the Securities
Exchange Act of 1934.

 

4.                                       Compensation:  :

 

4.1.                                                      Base Compensation.

 

(a)                                  In consideration for the services rendered
by Consultant to the Company pursuant to this Agreement, the Company agrees to
pay Consultant the annual sum of $295,000 at the rate of $24,583.33 per month
commencing on the Effective Date (“Base Compensation”). The Consultant’s Base
Compensation may be increased, but not decreased by the Compensation Panel. 
Once increased, such increased amount shall constitute the Consultant’s Base
Compensation and shall not be decreased. The Company will include the shares of
equity securities of the Company which may be issued upon the exercise of the
options held by Consultant in any registration statement under the Securities
Act of 1933 which includes securities issuable to any other executive officer of
the Company.

 

(b)                                 It is expressly acknowledged that
Consultant’s Base Compensation shall be allocated between the Company and
Callisto, so that the aggregate Base Compensation payable to the Consultant
during the Employment Term from the Company and Callisto will not exceed
$295,000 (or such higher amount as is determined by the committee of Callisto’s
and/or the Company’s Board of Directors empowered to fix or review compensation
of the other executive officers of the Company (the “Compensation Panel”).  The
current estimate of such allocation is that 75% of the Consultant’s Base
Compensation shall be payable by the Company and 25% of such Base Compensation
shall be paid by Callisto, however such allocation may change, no more
frequently than once each fiscal quarter as determined in good faith by the
Company’s Chief Financial Officer.  At any time if Callisto is not obligated to
or does not pay its allocated share of Consultant’s Base Compensation, the
Company shall pay Consultant’s Base Compensation in full, irrespective of any
accounting allocation.   The overall cap of $295,000 shall not be diminished by
any bonus or accelerated payment benefit given to Consultant by Callisto.

 

(c)                                  In the event Callisto is obligated to pay
any item of compensation or reimburse expenses to Consultant under this
Agreement, Callisto fails to do so and the Company makes payment to the
Consultant

 

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pursuant to Section 4.1(b) of this Agreement, the Company shall be subrogated to
all claims of the Consultant against Callisto arising from Callisto’s failure to
make payment to the extent of such payments made to the Consultant.

 

4.2.                                                      Incentive
Compensation.

 

(a)                                  Annual Bonus.               Consultant
shall be eligible to earn a cash bonus of up to 50% of his Base Compensation per
full calendar year during the Term (and a pro rated bonus for the period from
August 1, 2008 to December 31, 2008) based on meeting performance objectives and
bonus criteria to be mutually identified by Consultant and the Compensation
Panel.  Bonuses, if any, shall be subject to all applicable tax and payroll
withholdings.

 

(b)                                 Realization Bonus.

 

(i)                                     In the event during the Term of this
Agreement the Company enters into either a out-license agreement for any of its
technology that grants exclusive marketing rights to a third party or enters
into a joint venture in which the Company contributes such rights to the joint
venture, in each case where the Enterprise Value (defined below) equals or
exceeds the minimum value of $150 million, $200 million and $250 million in the
first, second, third years of the Term or any years beyond the third year of the
Term, respectively, and, in the case of a financing transaction, the Company
receives not less than $20 million of gross proceeds; or the license fees the
Company contracts to receive (disregarding any contingencies to such payment)
equal or exceeds $50 million, the Consultant shall accrue a bonus in an amount
determined by multiplying the Enterprise Value (defined below) in the case of a
joint venture or financing or the sum of the license fees actually received, in
the case of an out-license, as the case may be, by 0.5% (one half percent).

 

(ii)                                  In the event during the Term of this
Agreement the Company engages in a merger transaction or a sale of substantially
all of the assets of the Company where the Enterprise Value equals or exceeds a
minimum value of $400 million, the Consultant shall accrue a bonus in an amount
determined by multiplying the Enterprise Value by 2.5% (a “Sale Transaction”).

 

(iii)                               The accrued bonuses shall be payable to
Consultant: (a) in cash in full 5 business days after the closing of any Sale
Transaction or joint venture, notwithstanding that the consideration for such
merger or sale or joint venture consists in whole or in part of securities of
the acquiring company or joint venture company, as the case may be; (b) in cash
5 full business days after the Company’s receipt of

 

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license fees at the rate of 0.5% of license fees actually received; or, in
connection with one or more bonuses with respect to financing transactions, at
the time set forth in Section 4.2(b)(v) below.  The expiration or termination of
this Agreement shall not terminate or diminish the Consultant’s right to receive
bonus payments with respect to out licenses fees collected after the termination
or expiration of this Agreement

 

(iv)  The “Enterprise Value” in the case of a Change in Control in which
consideration is payable to the Company in respect of its assets or business,
shall mean the total cash and non-cash (including, without limitation, the
assumption of debt) consideration received by the Company or in the case of a
Change in Control in which consideration is payable to the Company’s
stockholders, the total cash and non-cash (including, without limitation, the
assumption of debt) consideration payable to the Company’s stockholders.
“Enterprise Value” shall also include, if applicable, any cash or non-cash
consideration payable to the Company or to the Company’s stockholders on a
contingent, earnout or deferred basis. To the extent that any consideration in a
transaction is not received in cash upon the consummation of the Change in
Control, the value of such non-cash consideration for purposes of calculating
the Enterprise Value will be determined by the Board of Directors of the Company
prior to the Change in Control in good faith. In the event that less than 100%
of the stock or assets of the Company is purchased in the Change in Control
transaction, the Enterprise Value shall be extrapolated from the percentage of
the Company’s capital stock or assets impacted in such Change in Control
transaction to determine if the $400 million threshold was exceeded, but the
Transaction Fee shall be calculated based on the actual consideration received
by the Company or shareholders, as the case may be. Section 4.2(b)(i), however,
shall not apply to any event resulting in a Change in Control in which neither
the Company nor its stockholders receives consideration either upon, or in
connection with, the occurrence or consummation of the event resulting in a
Change in Control.

 

(v)                                 The Enterprise Value in a financing
transaction shall be determined on the basis of the pre-money valuation of the
Company for financing purposes, provided the bonus shall accrue in full but only
be payable: (1) concurrently with the closing of the financing, to the extent of
3% of the gross proceeds received by the Company in the financing; and (2) the
balance of such accrued bonus, the earlier of the end of the calendar year in
which such bonus is accrued or on the tenth business day after termination of
this Agreement without Cause or for Good Reason.

 

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(c)                                  Options.  The Compensation Panel will
consider grants of options to the Consultant no less frequently than annually
commencing February 1, 2010.

 

5.                                       Expenses and Services:

 

5.1                                 Consultant is authorized to incur reasonable
expenses in carrying out his duties and responsibilities under this Agreement,
including, without limitation, expenses for travel (at the fare class no less
favorable than that of other executive officers of the Company), cellular
telephone (including access charges and business calls), electronic market data
services consisting of a full office-based and portable Bloomberg information
services, the cost associated with accessing office facilities and
administrative assistance outside of the Company’s principal executive offices
at such times that the Consultant is attending to matters within the scope of
this Agreement and business entertainment.  Additionally, the Consultant is
authorized to incur reasonable expenses for the attendance of conferences in
fields relate to technology of interest to the Company, finance of biotechnology
ventures, and similar events related to Consultant’s duties and responsibilities
as Consultant deems necessary.  Company will reimburse Consultant for all such
expenses upon presentation by Consultant of appropriately itemized accounts of
such expenditures or the Company will pay such expenses directly.

 

5.2                                 During the Term, the Company will at its
sole expense provide the Consultant with computing hardware and software tools,
office facilities and qualified, access to Company information and financial
records and an experienced administrative assistant and such legal and
accounting support services as is deemed appropriate by the Consultant.  Such
services and facilities will not be diminished without the Consultant’s prior
consent.

 

5.3                                 In the event this Agreement is terminated
other than for Cause or voluntarily by the Consultant, the Company, in addition
to any other termination benefit, will make a lump sum payment to Consultant
equal to the amount of reimbursable expenses accrued for the services and
accommodations set forth in Sections 5.1 and 5.2 during the 12 full calendar
months preceding the date of termination.  In the event 12 full calendar months
of the Term shall not have elapsed as of the date of termination, the lump sum
payment shall equal the average monthly expenses accrued for the full calendar
months of the Term completed as of the date of termination times 12.  Such lump
sum payments shall be made no later than 30 days after termination. In the event
of a disagreement between the Company as to the amount of such lump sum

 

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payment, the Company shall pay the amount as to which there is no dispute,
pending the settlement of any amounts as to which there is a dispute.

 

6.                                       Liability of Consultant:  The Company
acknowledges that all opinions and advice (written or oral) given by Consultant
to the Company in connection with Consultant’s engagement are intended solely
for the benefit and use of the Company in considering the transaction to which
they relate, and the Company agrees that no person or entity other than the
Company shall be entitled to make use of or rely upon the advice of Consultant
to be given hereunder, and no such opinion or advice shall be used for any other
purpose or reproduced, disseminated, quoted or referred to at any time, in any
manner or for any purpose, nor may the Company make any public references to
Consultant, or use Consultant’s name in any annual reports or any other reports
or releases of the Company without Consultant’s prior written consent. 
Consultant’s maximum liability shall not exceed the cash compensation received
from the Company.

 

7.                                       Consultant’s Services to Others:  The
Company acknowledges that Consultant and its affiliates are in the business of
investing and providing financial services and consulting advice to others. 
Nothing herein contained shall be construed to limit or restrict Consultant in
conducting such business with respect to others, or in rendering such advice to
others.

 

8.                                       Company Information:

 

a.                                       The Company recognizes and confirms
that, in advising the Company and in fulfilling his engagement hereunder,
Consultant will use and rely on data, material and other information furnished
to Consultant by the Company.  The Company acknowledges and agrees that in
performing his services under this engagement, Consultant may rely upon the
data, material and other information supplied by the Company without
independently verifying the accuracy, completeness or veracity of same.  The
Company agrees to notify Consultant in writing via overnight courier, facsimile
or e-mail of any material event and/or change with in twenty-four hours of its
occurrence.

 

b.                                      Consultant recognizes and acknowledges
that by reason of Consultant’s retention by and service to the Company before,
during and, if applicable, after the Term, Consultant will have access to
certain confidential and proprietary information relating to the Company’s
business, which may include, but is not limited to, trade secrets, trade
“know-how,” product development techniques and plans, formulas, customer lists
and addresses,  financing services, funding programs, cost and pricing
information, marketing and sales techniques, strategy and programs, computer
programs and software and financial information relating to the field of in
which the Company is actually engaged in research, development, collaboration or
sales at the time of such disclosure (collectively referred to as “Confidential
Information”).  Consultant acknowledges that such

 

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Confidential Information is a valuable and unique asset of the Company and
Consultant covenants that it will not, unless expressly authorized in writing by
the Company, at any time during the Consulting Term use any Confidential
Information or divulge or disclose any Confidential Information to any person,
firm or corporation except in connection with the performance of Consultant’s
duties for the Company and in a manner consistent with the Company’s policies
regarding Confidential Information.  Consultant also covenants that at any time
after the termination of this Agreement, directly or indirectly, it will not use
any Confidential Information or divulge or disclose any Confidential Information
to any person, firm or corporation, unless such information is in the public
domain through no fault of Consultant or except when required to do so by a
court of law, by any governmental agency having supervisory authority over the
business of the Company or by any administrative or legislative body (including
a committee thereof) with apparent jurisdiction to order Consultant to divulge,
disclose or make accessible such information.  All written Confidential
Information (including, without limitation, in any computer or other electronic
format) which comes into Consultant’s possession during the Consulting Term
shall remain the property of the Company.  Except as required in the performance
of Consultant’s duties for the Company, or unless expressly authorized in
writing by the Company, Consultant shall not remove any written Confidential
Information from the Company’s premises, except in connection with the
performance of Consultant’s duties for the Company and in a manner consistent
with the Company’s policies regarding Confidential Information.  Upon
termination of this Agreement, the Consultant agrees to return immediately to
the Company all written Confidential Information (including, without limitation,
in any computer or other electronic format) in Consultant’s possession.  .

 

9.                                       Consultant an Independent Contractor: 
Consultant shall perform its services hereunder as an independent contractor and
not as an employee of the Company or an affiliate thereof.  It is expressly
understood and agreed to by the parties hereto that Consultant shall have no
authority to act for, represent or bind the Company or any affiliate thereof in
any manner, except as may be agreed to expressly by the Company in writing from
time to time.

 

10.                                 Termination:

 

10.1                           Termination Without Cause or for Good Reason.

 

(a)                                  If this Agreement is terminated by the
Company other than for Cause (as defined in Section 10.4 hereof) or as a result
of Consultant’s death or Permanent Disability (as defined in Section 10.2
hereof), or if Consultant terminates his employment for Good Reason (as defined
in Section 10.1 (b) hereof) prior to the Expiration Date, Consultant shall
receive or commence receiving as soon as practicable in accordance with the
terms of this Agreement:

 

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(i)                                     a severance payment (the “Severance
Payment”), which amount shall be paid in a cash lump sum within ten (10) days of
the date of termination, in an amount equal to the higher of the aggregate
amount of the Consultant’s Base Compensation for the then remaining term of this
Agreement or twelve times the average monthly Base Compensation paid or accrued
during the three full months immediately preceding such termination;

 

(ii)                                  expense compensation, which shall be paid
in a lump sum payment within ten (10) days of the date of termination, in an
amount equal to twelve times the sum of average monthly cost during the three
full months immediately preceding such termination of providing the services to
Consultant set forth in Section 5.1 and Consultant’s reimbursed expenses set
forth in Section 5.2;

 

(ii)                                  immediate vesting of all unvested stock
options and the extension of the exercise period of such options to the later of
the longest period permitted by the Company’s stock option plans or ten years
following the Termination Date;

 

(iii)                               payment in respect of compensation earned
but not yet paid (the “Compensation Payment”) which amount shall be paid in a
cash lump sum within ten (10) days of the date of termination; and

 

(iv)                              payment of the cost of comprehensive medical
insurance for consultant for a period of twelve months following the
termination.

 

(b)                                 For purposes of this Agreement, “Good
Reason” shall mean any of the following (without Consultant’s express prior
written consent):

 

(i)                                     Any material breach by Company of any
provision of this Agreement, including any material reduction by Company of
Consultant’s duties or responsibilities (except in connection with the
termination of Consultant’s employment for Cause, as a result of Permanent
Disability, as a result of Consultant’s death or by Consultant other than for
Good Reason);

 

(ii)                                  A reduction by the Company in Consultant’s
Base Compensation or any failure of the Company to reimburse Consultant for
material expenses described in Section 5.1 or provide the services described in
Section 5.2 of this Agreement;

 

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(iii)                               The failure by the Company to obtain the
specific assumption of this Agreement by any successor or assign of Company as
provided for in Section 11 hereof;

 

(iv)                              Moving the principal offices of Company to a
location outside of the Metropolitan New York Area; or

 

(v)                                 Upon a Change of Control of Company (as such
term is hereinafter defined).

 

(c)                                  The following provisions shall apply in the
event compensation provided in Section 10.1 (a) becomes payable to the
Consultant:

 

(i)                                     In the event the severance compensation
provided for in subsection 10.1(a)  above cannot be finally determined on or
before the tenth day following such termination, the Company shall pay to the
Consultant on such day an estimate, as determined in good faith by the Company
of the minimum amount of such compensation and shall pay the remainder of such
compensation (together with interest at the Federal short-term rate provided in
Section 1274(d)(7)(C)(1) of the Code) as soon as the amount thereof can be
determined but in no event later than the thirtieth day after the Date of
Termination. In the event the amount of the estimated payment exceeds the amount
subsequently determined to have been due, such excess shall constitute a loan by
the Company to the Consultant payable on the fifth day after demand by the
Company (together with interest at the Federal short-term rate provided in
Section 1274(d)(7)(C)(1) of the Code).

 

(ii)                                  If the payment of the Total Payments (as
defined below) will be subject to the tax (the “Excise Tax”) imposed by
Section 4999 of the Code, the Company shall pay the Consultant on or before the
tenth day following the Date of Termination, an additional amount (the “Gross-Up
Payment”) such that the net amount retained by the Consultant, after deduction
of any Excise Tax on Total Payments and any federal and state and local income
tax and Excise Tax upon the payment provided for by this paragraph, shall be
equal to the Total Payments. For purposes of determining whether any of the
payments will be subject to the Excise Tax and the amount of such Excise Tax,
(A) any payments or benefits received or to be received by the Consultant in
connection with a Change in Control of the Company or the Consultant’s
termination of

 

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employment, whether payable pursuant to the terms of Section 10 of this
Agreement or any other plan, arrangement or agreement with the Company, its
successors, any person whose actions result in a Change in Control of the
Company or any corporation affiliated (or which, as a result of the completion
of transaction causing such a Change in control, will become affiliated) with
the Company within the meaning of Section 1504 of Code (the “Total Payments”)
shall be treated as “parachute payments” within the meaning of
Section 28OG(b)(2) of the Code, and all “excess parachute payments” within the
meaning of Section 28OG(b)(1) shall be treated as subject to the Excise Tax,
unless, in the opinion of tax counsel selected by the Company’s independent
auditors and acceptable to the Consultant, the Total Payments (in whole or in
part) do not constitute parachute payments, or such excess parachute payments
(in whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 28OG(b)(4) of the Code either in their
entirety or in excess of the base amount within the meaning of
Section 28OG(b)(3) of the Code, or are otherwise not subject to the Excise Tax,
(B) the amount of the Total Payments that shall be treated as subject to the
Excise Tax shall be equal to the lesser of (I) the total amount of the Total
Payments or (II) the amount of excess parachute payments or benefit shall be
determined by the Company’s independent auditors in accordance with the
principles of Section 28OG(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Consultant shall be deemed
to pay federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Consultant’s residence an 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. In the event the Excise Tax is
subsequently determined to be less than the amount taken into account hereunder
at the time of termination of the Consultant’s employment, the Consultant shall
repay to the Company at the time the amount of such reduction in Excise Tax is
finally determined the portion of the Gross-Up Payment that can be repaid such
that the Consultant remains whole on an after-tax basis following such repayment
(taking into account any reduction in income or excise taxes to the

 

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Consultant from such repayment) plus interest on the amount of such repayment at
the Federal short-term rate provided in Section 1274(d)(1)(C)(i) of the Code. In
the event the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of the Consultant’s employment
(including by reason of any payment the existence or amount of which cannot be
determined at the time of the Gross-Up Payment), the Company shall make an
additional gross-up payment in respect of such excess (plus any interest payable
with respect to such excess) at the time that the amount of such excess is
finally determined.

 

10.2                           Permanent Disability. If Consultant becomes
totally and permanently disabled (as defined in the Company’s disability benefit
plan applicable to senior executive officers as in effect on the date thereof)
(“Permanent Disability”), Company or Consultant may terminate this Agreement on
written notice thereof, and Consultant shall receive or commence receiving, as
soon as practicable:

 

(i)                                     amounts payable pursuant to the terms of
the disability insurance policy or similar arrangement which Company maintains
for the Consultant, if any, during the term hereof;

 

(ii)                                  the Compensation Payment which shall be
paid to Consultant as a cash lump sum within 30 days of such termination; and

 

(iii)                               immediate vesting of all unvested stock
options.

 

10.3                           Death. In the event of Consultant’s death during
the term of his employment hereunder, Consultant’s estate or designated
beneficiaries shall receive or commence receiving, as soon as practicable in
accordance with the terms of this Agreement:

 

(i)                                     compensation equal to one year’s Base
Compensation which shall be paid within 30 days of such termination;

 

(ii)                                  any death benefits provided under the
Consultant benefit programs, plans and practices in which the Consultant has an
interest, in accordance with their respective terms;

 

(iii)                               the Compensation Payment which shall be paid
to Consultant’s estate as a cash lump sum within 30 days of such termination;
and

 

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(iv)                              such other payments under applicable plans or
programs to which Consultant’s estate or designated beneficiaries are entitled
pursuant to the terms of such plans or programs.

 

10.4                           Voluntary Termination by Consultant: Discharge
for Cause.  The Company shall have the right to terminate this Agreement for
Cause (as hereinafter defined). In the event that Consultant’s employment is
terminated by Company for Cause, as hereinafter defined, or by Consultant other
than for Good Reason or other than as a result of the Consultant’s Permanent
Disability or death, prior to the Termination Date, Consultant shall be entitled
only to receive, as a cash lump sum within 30 days of such termination, the
Compensation Payment.  As used herein, the term “Cause” shall be limited to
(i) willful malfeasance or willful misconduct by Consultant in connection with
the services to the Company in a matter of material importance to the conduct of
the Company’s affairs which has a material adverse affect on the business of the
Company, or (ii) the conviction of Consultant for commission of a felony.  For
purposes of this subsection, no act or failure to act on the Consultant’s part
shall be considered “willful” unless done, or omitted to be done, by the
Consultant not in good faith and without reasonable belief that his action or
omission was in the best interest of the Company.  Termination of this Agreement
pursuant to this Section 10.4 shall be made by delivery to Consultant of a copy
of a resolution duly adopted by the affirmative vote of all of the members of
the Board of Directors called and held for such purpose (after 30 days prior
written notice to Consultant and reasonable opportunity for Consultant to be
heard before the Board of Directors prior to such vote), finding that in the
good faith business judgment of such Board of Directors, Consultant was guilty
of conduct set forth in any of clauses (i) through (ii) above and specifying the
particulars thereof.

 

11.                               Assignment:

 

This Agreement shall be binding upon and inure to the benefit of the heirs and
representatives of Consultant and the assigns and successors of Company, but
neither this Agreement nor any rights or obligations hereunder shall be
assignable or otherwise subject to hypothecation by Consultant (except by will
or by operation of the laws of intestate succession or by Consultant notifying
the Company that cash payment be made to an affiliated investment partnership in
which Consultant is a control person) or by Company, except that Company may
assign this Agreement to any successor (whether by merger, purchase or
otherwise) to all or substantially all of the stock, assets or businesses of
Company, if such successor expressly agrees to assume the obligations of Company
hereunder.

 

12.                               Change In Control:

 

12.1                           Definition.    For purposes of this Agreement, a
“Change in Control” shall be deemed to have occurred if (i) there shall be
consummated (A) any consolidation or merger of the Company in which the Company
is not the

 

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continuing or surviving corporation or pursuant to which shares of the Company’s
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company’s Common Stock
immediately prior to the merger have substantially the same proportionate
ownership of common stock of the surviving corporation immediately after the
merger, or (B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all the assets of
the Company, or (ii) the stockholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company, or (iii) any person
(as such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934 (the “Exchange Act”)), other than the Company or any Consultant
benefit plan sponsored by the Company, or such person on the Effective Date
hereof is a 20% or more beneficial owner, shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company representing 20% or more of the combined voting power of the Company’s
then outstanding securities ordinarily (and apart from rights accruing in
special circumstances) having the right to vote in the election of directors, as
a result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, or (iv) at any time during a period of two
consecutive years, individuals who at the beginning of such period, constituted
the Board of Directors of the Company shall cease for any reason to constitute
at least a majority thereof, unless the election or the nomination for election
by the Company’s stockholders of each new director during such two-year period
was approved by a vote of at least two-thirds of the directors then still in
office, who were directors at the beginning of such two-year period.

 

12.2                           Rights and Obligations.                  If a
Change in Control of the Company shall have occurred while the Consultant is
director of the Company, the Consultant shall be entitled to the compensation
provided in Section 10.1 of this Agreement upon the subsequent termination of
this Agreement by either the Company, or the Consultant within two years of the
date upon which the Change in Control shall have occurred, unless such
termination is a result of (i) the Consultant’s death; (ii) the Consultant’s
Disability; (iii) the Consultant’s Retirement; or (iv) the Consultant’s
termination for Cause.

 

7.                                      Indemnification:

 

Consultant, as such and as a Director of the Company, shall be indemnified by
the Company against all liability incurred by the Consultant in connection with
any proceeding, including, but not necessarily limited to, the amount of any
judgment obtained against Consultant, the amount of any settlement entered into
by the Consultant and any claimant with the approval of the Company, attorneys’
fees, actually and necessarily incurred by him in connection with the defense of
any action, suit, investigation or proceeding or similar legal activity,
regardless of whether criminal, civil, administrative or investigative in nature
(“Claim”), to which he is made a party or is otherwise

 

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subject to, by reason of his being or having been a director, officer, agent or
employee of the Company, to the full extent permitted by applicable law and the
Certificate of Incorporation of the Company.  Such right of indemnification will
not be deemed exclusive of any other rights to which Consultant may be entitled
under Company’s Certificate of Incorporation or By-laws, as in effect from time
to time, any agreement or otherwise.

 

14.                                 Miscellaneous:

 

(a)                                  This Agreement between the Company and
Consultant constitutes the entire agreement and understanding of the parties
hereto, and supersedes any and all previous agreements and understandings,
whether oral or written, between the parties with respect to the matters set
forth herein.

 

(b)                                 Any notice or communication permitted or
required hereunder shall be in writing and shall be deemed sufficiently given if
hand-delivered or sent (i) postage prepaid by registered mail, return receipt
requested, or (ii) by facsimile, to the respective parties as set forth below,
or to such other address as either party may notify the other in writing.

 

If to the Company,
to:                                                                           
Synergy Pharmaceuticals, Inc.

420 Lexington Avenue, Suite 1609

New York, New York 10170

Attention:  Gary S. Jacob, CEO

 

If to Consultant,
to:                                                                                       
Gabriel M. Cerrone

c/o Panetta Partners Ltd.

1275 First Avenue, Suite 296

New York, New York 10021

Attention:  Gabriele M. Cerrone, Managing Partner

 

With a required copy to:

 

Sommer & Schneider LLP

595 Stewart Avenue, Suite 710

Garden City, NY 11530

Attention: Herb Sommer, Partner

 

(c)                                  This Agreement may be executed in any
number of counterparts, each of whom together shall constitute one and the same
original document.

 

(d)                                 This Agreement may not be changed orally,
but only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge is sought.

 

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(e)                                  The invalidity of all or any part of any
provision of this Agreement shall not render invalid the remainder of this
Agreement or the remainder of such provision.  If any provision of this
Agreement is so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable.

 

(f)                                    This Agreement shall be governed by and
construed in accordance with the law of the State of New York without giving
effect to the principles of conflicts of law thereof.  The parties hereto each
hereby submits herself or itself for the sole purpose of this Agreement and any
controversy arising hereunder to the exclusive jurisdiction of the state courts
in the State of New York.

 

(d)                                 Any amounts due hereunder to Consultant
which remain unpaid after their due date, shall bear interest from the due date
until paid at a rate of the prime rate (in effect on the date thereof for
Citibank).

 

(e)                                  The Company’s obligations to make payments
under Section 10 and 12 shall survive termination or expiration of this
Agreement.

 

(f)                                    Consultant shall not be required to
mitigate damages or the amount of any payment provided for under this Agreement
by seeking other employment or otherwise after the termination of this
Agreement.

 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, as of the date first above written.

 

 

 

CONSULTANT

 

 

 

 

 

/s/ Gabriele M. Cerrone

 

Gabriele M. Cerrone

 

 

 

 

 

SYNERGY PHARMACEUTICALS, INC.

 

 

 

 

 

By:

/s/ Gary S. Jacob

 

 

Name:

Gary S. Jacob

 

 

Title:

President and CEO

 

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