Exhibit 10.3

 

FOURTH AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT

 

This FOURTH AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the
“Agreement”) dated January 7, 2015 by and between Synergy Pharmaceuticals Inc.,
a company incorporated under the laws of Delaware (the “Company”), and Gary S.
Jacob, Ph.D., an individual (the “Executive”) with reference to the following
facts:

 

WHEREAS, Executive serves as the President and Chief Executive Officer of the
Company which is engaged in the business of developing and marketing drug
products;

 

WHEREAS, the Executive has previously entered into an employment agreement with
the Company as of March 11, 2009 , as amended by the Amended and Restated
Employment Agreement with the Company as of February 10, 2010, the Second
Amended and Restated Employment Agreement with the Company as of May 2, 2011 and
the Third Amended and Restated Employment Agreement with the Company as of
December 28, 2012 (collectively, the “Prior Employment Agreement”); and

 

WHEREAS, the parties wish to enter into a new Agreement between the Executive
and the Company in its entirety, on the terms and conditions contained in this
Agreement, which will supersede the Prior Employment Agreement and all prior
agreements and understandings between the parties, oral or written.

 

NOW THEREFORE, in consideration of the foregoing facts and mutual agreements set
forth below, the parties, intending to be legally bound, agree as follows:

 

1.                                      Employment.                      The
Company hereby agrees to employ Executive, and Executive hereby accepts such
employment and agrees to perform Executive’s duties and responsibilities in
accordance with the terms and conditions hereinafter set forth.

 

1.1                               Duties and
Responsibilities.                     Executive shall serve as Chief Executive
Officer and President. During the Employment Term, Executive shall perform all
duties and accept all responsibilities incident to such positions and other
appropriate duties as may be assigned to Executive by the Company’s Board of
Directors (the “Board”) from time to time. Executive shall also serve as a
director of the Company if requested by the Board, and as an officer of one or
more of the Company’s subsidiaries without any additional compensation. The
Company shall retain full direction and control of the manner, means and methods
by which Executive performs the services for which he is employed hereunder and
of the place or places at which such services shall be rendered. The Executive
also agrees that in the absence of a Chief Accounting Officer, he will sign
various federal and state securities filings as the Company’s principal
accounting officer.

 

1.2                               Employment
Term.                                      The term of Executive’s employment
under this Agreement commences as of January 1, 2013 (the “Effective Date”) and
shall continue until December 31, 2016, unless earlier terminated in accordance
with Section 4 hereof. The term of Executive’s employment shall be automatically
renewed for

 

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successive one (1) year periods until the Executive or the Company delivers to
the other party a written notice of their intent not to renew the “Employment
Term,” such written notice to be delivered at least sixty (60) days prior to the
expiration of the then-effective “Employment Term” as that term is defined
below. The period commencing as of the Effective Date and ending December 31,
2016 or such later date to which the term of Executive’s employment under the
Agreement shall have been extended is referred to herein as the “Employment
Term” and the end of the Employment Term is referred to herein as the
“Expiration Date.”

 

1.3                               Extent of Service.                       
During the Employment Term, Executive agrees to use Executive’s best efforts to
carry out the duties and responsibilities under Section 1.1 hereof and to devote
substantially all Executive’s business time, attention and energy thereto.
Executive further agrees not to work either on a part-time or independent
contracting basis for any other business or enterprise during the Employment
Term without the prior written consent of the Board, which consent shall not be
unreasonably withheld.

 

1.4                               Base Salary.                            The
Company shall pay Executive a base salary (the “Base Salary”) at the annual rate
of $500,000 (U.S.) payable at such times as the Company customarily pays its
other senior level executives (but in any event no less often than monthly). The
Base Salary shall be subject to all state, federal, and local payroll tax
withholding and any other withholdings required by law. The Executive’s Base
Salary may be increased, but not decreased by the Board or the Compensation
Committee of the Board (the “Compensation Committee”) Once increased, such
increased amount shall constitute the Executive’s Base Salary and shall not be
decreased.

 

1.5                               Incentive Compensation.

 

(a)                                 Bonus.  Executive shall be eligible to earn
a cash bonus of up to 50% of his Base Salary per full calendar year during the
Employment Term based on meeting performance objectives and bonus criteria to be
mutually identified by Executive and the Compensation Committee.  Bonuses, if
any, shall be subject to all applicable tax and payroll withholdings.  The bonus
shall be determined on or before March 1 of each year of the Employment Term
commencing January 1, 2013 and paid on or before April 14 of each year.

 

(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 (and the
license fees the Company contracts to receive (disregarding any contingencies to
such payment) equals or exceeds $50 million) 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 $250 million, the Company shall accrue a bonus determined by

 

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multiplying the Enterprise Value (defined below) in the case of a joint venture
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

 

(A)       engages in (i) a merger transaction as a result of which the
stockholders of the Company existing immediately before the consummation of such
merger beneficially own less than 20% of the stock of the ultimate parent of the
surviving entity immediately after the consummation of the merger, where the
Enterprise Value equals or exceeds a minimum value of $400 million or (ii) 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 Executive shall
accrue a bonus in an amount determined by multiplying the Enterprise Value by
2.5% (a “Sale Transaction”); or

 

(B)       engages in (i) a merger transaction as a result of which the
stockholders of the Company existing immediately before the consummation of such
merger beneficially own less than 20% of the stock of the ultimate parent of the
surviving entity immediately after the consummation of the merger, where the
Enterprise Value equals or exceeds a minimum value of $1 billion or (ii) a Sale
Transaction where the Enterprise Value equals or exceeds a minimum value of $1
billion, the Executive shall accrue a bonus in an amount determined by
multiplying the Enterprise Value by 3.5% ; or

 

(C)       engages in (i) a merger transaction, as a result of which the
stockholders of the Company existing immediately before the consummation of such
merger beneficially own 20% or more of the stock of the ultimate parent of the
surviving entity immediately after the consummation of the merger, where the
Enterprise Value of the Company (either at the effective date of the transaction
or 12 months after the effective date of the transaction) equals or exceeds a
minimum value of $250 million or (ii) a sale of substantially all of the assets
of the Company, where the Enterprise Value equals or exceeds a minimum value of
$250 million, the Executive shall accrue a bonus in an amount determined by
multiplying the Enterprise Value by 2.5% (a “Combination Transaction”).

 

(iii)                               The accrued bonuses shall be payable to
Executive (a) in the same form of the consideration received by the Company’s
stockholders in full contemporaneously at the closing of any joint venture, Sale
Transaction or Combination Transaction; or (b) in cash 5 business days after the
Company’s receipt of license fees at the rate of 0.5% of license fees actually
received.  The expiration or termination of this Agreement shall not terminate
or diminish the Executive’s right to receive bonus payments with respect to out
license fees collected or the consummation of any joint venture, Sale
Transaction or Combination Transaction after the termination or expiration

 

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of this Agreement provided the Company has entered into an agreement for such a
transaction any time during the Employment Term or 90 days thereafter.

 

(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 independent Board of Directors of
the Company prior to the Change in Control in good faith in consultation with an
independent investment bank or financial advisor retained by Board of Directors
in connection with the Change in Control transaction. 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 applicable 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 1.5(b),
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)                                 For purposes of Section 1.5(b)(ii)(C),
Enterprise Value at any time subsequent to the effective date of a transaction
shall be computed by reference to the market capitalization of the combined
entity (based on an average closing price of the combined entities common stock
for a period of 20 consecutive trading days) multiplied by the quotient of the
number of combined entities shares of common stock and common stock equivalents
issued to the Company’s stockholders in the transaction divided by the total
number of shares of the common stock and common stock equivalents outstanding on
the effective date of the transaction, on a fully diluted basis.

 

(c)                                  Options.
                                                The Compensation Committee will
consider grants of options to the Executive no less frequently than annually
commencing January 1, 2013.

 

(d)                                 Executive
Benefits.                                       The Executive shall be entitled
to participate in all executive benefit or incentive compensation plans now
maintained or hereafter established by the Company for the purpose of providing
compensation and/or benefits to executives of the Company and any supplemental
retirement, salary continuation, stock option, deferred compensation,
supplemental medical or life insurance or other bonus or incentive compensation
plans. Unless otherwise provided herein, the Executive’s participation in such
plans shall be on the same basis and terms as other similarly situated
executives of the Company. No additional compensation provided under any of such

 

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plans shall be deemed to modify or otherwise affect the terms of this Agreement
or any of the Executive’s entitlements hereunder.

 

1.6                               Other Benefits.               During the
Employment Term, Executive shall be entitled to participate in all employee
benefit plans and programs made available to the Company’s senior level
executives as a group or to its employees generally, as such plans or programs
may be in effect from time to time (the “Benefit Coverages”), including, without
limitation, medical, dental, hospitalization, short-term and long-term
disability and life insurance plans, accidental death and dismemberment
protection and travel accident insurance. Executive shall be provided office
space and staff assistance appropriate for Executive’s position and adequate for
the performance of his duties.

 

1.7                               Reimbursement of Expenses; Vacation; Sick Days
and Personal Days.  Executive shall be provided with reimbursement of expenses
related to Executive’s employment by the Company on a basis no less favorable
than that which may be authorized from time to time by the Board, in its sole
discretion, for senior level executives as a group. Executive shall be entitled
to vacation and holidays in accordance with the Company’s normal personnel
policies for senior level executives, but not less than three (3) weeks of
vacation per calendar year, provided Executive shall not utilize more than ten
(10) consecutive business days without the express consent of the Board of
Directors. Unused vacation time will be forfeited as of December 31 of each
calendar year of the Employment Term. Executive shall be entitled to no more
than an aggregate of ten (10) sick days and personal days per calendar year.

 

1.8                               No Other Compensation.         Except as
expressly provided in Sections 1.4 through 1.7, Executive shall not be entitled
to any other compensation or benefits.

 

2.                                      Confidential Information. Executive
recognizes and acknowledges that by reason of Executive’s employment by and
service to the Company before, during and, if applicable, after the Employment
Term, Executive 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
(collectively referred to as “Confidential Information”). Executive acknowledges
that such Confidential Information is a valuable and unique asset of the Company
and Executive covenants that he will not, unless expressly authorized in writing
by the Company, at any time during the course of Executive’s employment use any
Confidential Information or divulge or disclose any Confidential Information to
any person, firm or corporation except in connection with the performance of
Executive’s duties for the Company and in a manner consistent with the Company’s
policies regarding Confidential Information. Executive also covenants that at
any time after the termination of such employment, directly or indirectly, he
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 Executive or except when
required to do so by a court of law, by any governmental agency having
supervisory

 

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authority over the business of the Company or by any administrative or
legislative body (including a committee thereof) with apparent jurisdiction to
order Executive 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 Executive’s possession during the
course of Executive’s employment shall remain the property of the Company.
Except as required in the performance of Executive’s duties for the Company, or
unless expressly authorized in writing by the Company, Executive shall not
remove any written Confidential Information from the Company’s premises, except
in connection with the performance of Executive’s duties for the Company and in
a manner consistent with the Company’s policies regarding Confidential
Information. Upon termination of Executive’s employment, the Executive agrees to
return immediately to the Company all written Confidential Information
(including, without limitation, in any computer or other electronic format) in
Executive’s possession. As a condition of Executive’s continued employment with
the Company and in order to protect the Company’s interest in such proprietary
information, the Company shall require Executive’s execution of a
Confidentiality Agreement and Inventions Agreement in the form attached hereto
as Exhibit “B”, and incorporated herein by this reference.

 

3.                                      Non-Competition; Non-Solicitation.

 

3.1                              
Non-Compete.                                        The Executive hereby
covenants and agrees that during the term of this Agreement and for a period of
one year following the end of the Employment Term, the Executive will not,
without the prior written consent of the Company, directly or indirectly, on his
own behalf or in the service or on behalf of others, whether or not for
compensation, engage in any business activity, or have any interest in any
person, firm, corporation or business, through a subsidiary or parent entity or
other entity (whether as a shareholder, agent, joint venturer, security holder,
trustee, partner, Executive, creditor lending credit or money for the purpose of
establishing or operating any such business, partner or otherwise) with any
Competing Business in the Covered Area. For the purpose of this Section 3.1,
(i) “Competing Business” means any biotechnology or pharmaceutical company, any
contract manufacturer, any research laboratory or other company or entity
(whether or not organized for profit) that has, or is seeking to develop, one or
more products or therapies that is related to guanylyl cyclase receptor agonists
and (ii) “Covered Area” means all geographical areas of the United States and
foreign jurisdictions where the Company then has offices and/or sells its
products directly or indirectly through distributors and/or other sales agents.
Notwithstanding the foregoing, the Executive may own shares of companies whose
securities are publicly trades, so long as such securities do not constitute
more than one percent (1%) of the outstanding securities of any such company.

 

3.2                               Non-Solicitation. The Executive further agrees
that as long as the Agreement remains in effect and for a period of one (1) year
from its termination, the Executive will not divert any business of the Company
and/or its affiliates or any customers or suppliers of the Company and/or the
Company’s and/or its affiliates’ business to any other person, entity or
competitor, or induce or attempt to induce,

 

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directly or indirectly, any person to leave his or her employment with the
Company.

 

3.3                               Remedies. The Executive acknowledges and
agrees that his obligations provided herein are necessary and reasonable in
order to protect the Company and its affiliates and their respective business
and the Executive expressly agrees that monetary damages would be inadequate to
compensate the Company and/or its affiliates for any breach by the Executive of
his covenants and agreements set forth herein. Accordingly, the Executive agrees
and acknowledges that any such violation or threatened violation of this
Section 3 will cause irreparable injury to the Company and that, in addition to
any other remedies that may be available, in law, in equity or otherwise, the
Company and its affiliates shall be entitled to obtain injunctive relief against
he threatened breach of this Section 3 or the continuation of any such breach by
the Executive without the necessity of proving actual damages.

 

4.                                      Termination.

 

4.1                               Termination Without Cause or for Good Reason.

 

(a)                                 If this Agreement is terminated by the
Company other than for Cause (as defined in Section 4.4 hereof) or as a result
of Executive’s death or Permanent Disability (as defined in Section 0 hereof),
or if Executive terminates his employment for Good Reason (as defined in
Section 0 hereof) prior to the Expiration Date, Executive shall receive or
commence receiving as soon as practicable in accordance with the terms of this
Agreement:

 

(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 Executive’s Base
Salary for the then remaining term of this Agreement or twelve times the average
monthly Base Salary paid or accrued during the three full calendar 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 the
higher of the aggregate amount of the sum of average monthly cost during the
three full months immediately preceding such termination of Consultant’s
reimbursed expenses set forth in Section 1.7 for the then remaining term of this
Agreement or twelve times the sum of average monthly cost during the three full
months immediately preceding such termination of Consultant’s reimbursed
expenses set forth in Section 1.7;

 

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(iii)          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;

 

(iv)          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

 

(v)           payment of the cost of comprehensive medical insurance for
Executive for the greater of the then remaining term of this Agreement or for a
period of twelve months following the termination.

 

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

 

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

 

(ii)           A reduction by the Company in Executive’s Base Salary or any
failure of the Company to reimburse Executive for material expenses described in
Section 1.7;

 

(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 8.6 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 0 becomes payable to the Executive:

 

(i)            if the severance compensation provided for in subsection 0 above
cannot be finally determined on or before the tenth day following such
termination, the Company shall pay to the Executive 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

 

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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 Executive 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 Executive 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 Executive, 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 Executive in connection with a Change in
Control of the Company or the Executive’s termination of 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 Executive, 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

 

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Gross-Up Payment, the Executive 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 Executive’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
Executive’s employment, the Executive 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 Executive remains whole on an
after-tax basis following such repayment (taking into account any reduction in
income or excise taxes to the Executive 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 Executive’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.

 

4.2                               Permanent
Disability.                            If Executive 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 Executive may terminate this Agreement on
written notice thereof, and Executive shall receive or commence receiving, as
soon as practicable:

 

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

 

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

 

(b)                                 immediate vesting of all unvested stock
options.

 

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

 

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(a)                                 compensation equal to one year’s Base Salary
(calculate by multiplying the average monthly Base Salary paid or accrued for
the three full calendar months immediately such event, which shall be paid
within 30 days of such termination;

 

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

 

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

 

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

 

4.4                               Voluntary Termination by Executive: Discharge
for Cause.                  The Company shall have the right to terminate this
Agreement for Cause (as hereinafter defined). In the event that Executive’s
employment is terminated by Company for Cause, as hereinafter defined, or by
Executive other than for Good Reason or other than as a result of the
Executive’s Permanent Disability or death, prior to the Termination Date,
Executive 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 (a) willful malfeasance or willful misconduct by Executive
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 (b) the conviction of Executive for
commission of a felony.  For purposes of this subsection, no act or failure to
act on the Executive’s part shall be considered “willful” unless done, or
omitted to be done, by the Executive 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 for Cause pursuant to this Section 0 shall be made
by delivery to Executive 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 Executive and reasonable
opportunity for Executive 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, Executive was guilty of conduct set forth in any of clauses
(a) through (b) above and specifying the particulars thereof.

 

5.                                      Change In Control.

 

5.1                              
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 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

 

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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 executive
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.

 

5.2                               Rights and Obligations.                   If a
Change in Control of the Company shall have occurred while the Executive is
director of the Company, the Executive shall be entitled to the compensation
provided in Section 0 of this Agreement upon the subsequent termination of this
Agreement by either the Company, or the Executive within two years of the date
upon which the Change in Control shall have occurred, unless such termination is
a result of (i) the Executive’s death; (ii) the Executive’s Disability;
(iii) the Executive’s Retirement; or (iv) the Executive’s termination for Cause.

 

6.                                      Assignment.                             
This Agreement shall be binding upon and inure to the benefit of the heirs and
representatives of Executive 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 Executive (except by will or
by operation of the laws of intestate succession or by Executive notifying the
Company that cash payment be made to an affiliated investment partnership in
which Executive 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.

 

7.                                      Indemnification.

 

Executive, as such and as a Director of the Company, shall be indemnified by the
Company against all liability incurred by the Executive in connection with any
proceeding,

 

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including, but not necessarily limited to, the amount of any judgment obtained
against Executive, the amount of any settlement entered into by the Executive
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 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 Executive may be entitled under Company’s Certificate of
Incorporation or By-laws, as in effect from time to time, any agreement or
otherwise.

 

8.                                      General Provisions.

 

8.1                               Modification: No Waiver. No modification,
amendment or discharge of this Agreement shall be valid unless the same is in
writing and signed by all parties hereto. Failure of any party at any time to
enforce any provisions of this Agreement or any rights or to exercise any
elections hall in no way be considered to be a waiver of such provisions, rights
or elections and shall in no way affect the validity of this Agreement. The
exercise by any party of any of its rights or any of this elections under this
Agreement shall not preclude or prejudice such party from exercising the same or
any other right it may have under this Agreement irrespective of any previous
action taken.

 

8.2                               Notices. All notices and other communications
required or permitted hereunder or necessary or convenient in connection
herewith shall be in writing and shall be deemed to have been given when hand
delivered or mailed by registered or certified mail as follows (provided that
notice of change of address shall be deemed given only when received):

 

If to the Company, to:

 

Synergy Pharmaceuticals Inc.

420 Lexington Avenue, Suite 2012

New York, NY 10070

 

If to Executive, to:

Gary S. Jacob, Ph.D.

171 East 84th Street, #16J

New York, NY 10028

 

Or to such other names or addresses as the Company or Executive, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.

 

8.3                               Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York.

 

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8.4                               Further Assurances. Each party to this
Agreement shall execute all instruments and documents and take all actions as
may be reasonably required to effectuate this Agreement.

 

8.5                               Severability. Should any one or more of the
provisions of this Agreement or of any agreement entered into pursuant to this
Agreement be determined to be illegal or unenforceable, then such illegal or
unenforceable provision shall be modified by the proper court or arbitrator to
the extent necessary and possible to make such provision enforceable, and such
modified provision and all other provisions of this Agreement and of each other
agreement entered into pursuant to this Agreement shall be given effect
separately from the provisions or portion thereof determined to be illegal or
unenforceable and shall not be affected thereby.

 

8.6                               Successors and Assigns. Executive may not
assign this Agreement without the prior written consent of the Company. The
Company may assign its rights without the written consent of the executive, so
long as the Company or its assignee complies with the other material terms of
this Agreement. The rights and obligations of the Company under this Agreement
shall inure to the benefit of and be binding upon the successors and permitted
assigns of the Company, and the Executive’s rights under this Agreement shall
inure to the benefit of and be binding upon his heirs and executors. The
Company’s subsidiaries and controlled affiliates shall be express third party
beneficiaries of this Agreement.

 

8.7                               Entire Agreement. This Agreement supersedes
all prior agreements and understandings between the parties, oral or written. No
modification, termination or attempted waiver shall be valid unless in writing,
signed by the party against whom such modification, termination or waiver is
sought to be enforced.

 

8.8                               Counterparts; Facsimile. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original, and all of which taken together shall constitute one
and the same instrument. This Agreement may be executed by facsimile with
original signatures to follow.

 

IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first written above.

 

EXECUTIVE:

 

SYNERGY PHARMACEUTICALS INC.

 

 

 

 

 

 

/s/ Gary S. Jacob

 

/s/ Bernard Denoyer

Gary S. Jacob, Ph.D.

 

Bernard Denoyer, Senior Vice President, Finance

 

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