Exhibit 10.1


 


RESTATED EXECUTIVE SEVERANCE AGREEMENT


 


This
Severance Agreement is made as of the 24th day of June 2008 by and between
Cephalon, Inc., a Delaware corporation (the “Company”), and Frank Baldino, Jr.,
Ph.D. (“Executive”).


 


WHEREAS,
Executive is an executive of the Company, currently serving as its Chairman and
Chief Executive Officer; and


 


WHEREAS, the Company and
Executive previously entered into that certain Executive Severance Agreement,
dated as of July 25, 2002, (the “Severance Agreement”), pursuant to which
Executive is entitled to certain payments and benefits in the event that
Executive’s employment is terminated on account of a reason set forth in the
Severance Agreement; and


 


WHEREAS, the Company and Executive desire to restate the Severance
Agreement to include the terms of Amendment 2008-1 to the Severance Agreement
dated June 23, 2008.


 


NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants and
agreements hereinafter set forth and intending to be legally bound hereby, the
Company and Executive (individually a “Party” and together, the “Parties”)
agree to restate the Agreement as follows:


 


1.     Definitions.


 


(a) “Annual
Base Salary” shall mean twelve times the greater of (i) the highest
monthly base salary paid or payable (including any base salary which has been
earned but deferred) to the Executive by the Company and its affiliates (as
defined in section 1504 of the Code without regard to subsection (b) thereof),
together with any and all salary reduction authorized amounts under any of the
Company’s benefit plans or programs, or (ii) the monthly base salary paid
or payable to the Executive by the Company (including authorized deferrals,
salary reduction amounts and any car allowance) immediately prior to the
Executive’s Termination Date.


 


(b) “Annual
Bonus” shall mean 100% of Executive’s target annual bonus for the year in
which Executive’s Termination Date occurs, plus 100% of any other bonuses
Executive receives, or is entitled to receive, during the year in which Executive’s
Termination Date occurs, including, but not limited to, bonuses under the
Company’s executive special bonus program.


 


(c) “Board”
shall mean the Board of Directors of the Company.


 


(d) “Bonus
Multiplier” shall mean the quotient determined by dividing the total number
of months in which the Executive performed services for the Company during the
calendar year in which his Termination Date occurs divided by 12.


 


(e) “Cause”
shall mean Executive has engaged in any act of unethical conduct, willful misconduct,
fraud or embezzlement, any unauthorized disclosure of confidential 


 

















 


information or trade secrets, or any other act that is
materially and demonstrably detrimental to the Company.


 


(f)  “Change
in Control” shall be deemed to have occurred if any of the following events
occurs:


 


(i)             the direct or indirect acquisition
by any person or related group of persons (other than the Company or a person
that directly or indirectly controls, is controlled by, or is under common
control with, the Company) of beneficial ownership (within the meaning of Rule 13d-3
of the Securities Exchange Act of 1934) of securities possessing more than
thirty percent (30%) of the combined voting power of the Company’s outstanding
securities pursuant to a tender or exchange offer made directly to the
Company’s shareholders which the Board does not recommend such shareholders to
accept;


 


(ii)           a change in the composition of the
Board over a period of twenty-four (24) months or less such that a majority of
the Board members ceases, by reason of one or more contested elections for
Board membership, to be comprised of individuals who either (x) have been
Board members continuously since the beginning of such period, or (y) have
been elected or nominated for election as Board members during such period by
at least a majority of the Board members described in clause (x) who were
still in office at the time such election or nomination was approved by the
Board;


 


(iii)          a merger or consolidation in which
securities possessing more than fifty percent (50%) of the combined voting
power of the Company’s outstanding securities are transferred to a person or
persons different from the persons holding those securities immediately prior
to such transaction; or


 


(iv)          the sale, transfer or other disposition
of more than seventy-five percent (75%) of the Company’s assets in a single or
related series of transactions.


 


(g) “Code”
means the Internal Revenue Code of 1986, as amended.


 


(h) “Constructive
Termination” means:


 


(i)            with
respect to a termination of employment prior to a Change in Control,
Executive’s voluntary resignation following either of the following events: (x) a
change in his position with the Company which materially reduces his level of
responsibility or (y) a reduction in his base salary by more than
twenty-five percent (25%); or


 


(ii)           with
respect to a termination of employment after, or in connection with, a Change
in Control, Executive’s voluntary resignation following any of the following
events: (x) a change in his position with the Company or the successor
thereto which materially reduces his level of responsibility; (y) a
reduction in his level of compensation (including base salary, significant
fringe benefits or any non-discretionary and objective-standard incentive
payment or bonus award) by more than ten percent (10%) in the aggregate; or (z) a
relocation of the Executive’s place of employment by more than fifty (50)
miles; provided, however, such 


 


2

















 


change, reduction or relocation is effected by the
Company or the successor thereto without Executive’s consent.


 


(i)   “Disability”
shall mean Executive is, by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of not less than one year, unable to engage in any substantial gainful
employment or service.


 


(j)  “Notice
of Termination” means a written notice which (i) indicates the
specific termination provision in this Agreement relied upon, and (ii) briefly
summarizes the facts and circumstances deemed to provide a basis for
termination of the Executive’s employment under the provision so indicated.


 


(k) “Termination
Date” shall mean the last day of Executive’s employment with the Company.


 


(l)  “Termination
of Employment” shall mean the termination of Executive’s active employment
relationship with the Company.


 


2.     Termination
of Employment Prior to a Change in Control.


 


(a) Termination
Prior to a Change in Control.  In the
event that Executive’s employment with the Company is terminated prior to a
Change in Control on account of: (i) an involuntary termination by the
Company for any reason other than Cause, death or Disability, or (ii) the
Executive voluntarily terminates employment with the Company on account of a
Constructive Termination, Executive shall be entitled to the benefits provided
in subsection (b) of this Section 2.


 


(b) Compensation
Upon Termination Prior to Change in Control.  Subject to the provisions of Section 5
hereof, in the event a termination described in subsection (a) of this Section 2
occurs, the Company shall provide Executive with the following, provided that
Executive executes and does not revoke the Release (as defined in Section 5):


 


                (i)            Executive shall receive a cash payment equal to the sum
of (x) three (3) times Executive’s Annual Base Salary at the rate in
effect immediately before Executive’s Termination Date, (y) three (3) times
Executive’s Annual Bonus, and (z) the Bonus Multiplier times Executive’s
Annual Bonus.  Except as provided in Section 24(b),
payment shall be made in a lump sum within sixty (60) days after Executive’s
Termination Date, but in no event earlier than the date on which the revocation
period for the Release has expired.


 


                (ii)           Executive shall receive a cash
payment equal to the premium cost that Executive would have to pay, at COBRA
rates as in effect on Executive’s Termination Date, to continue the Company’s
medical and dental coverage for Executive and, where applicable, Executive’s
spouse and dependents, if receiving such coverage on Executive’s Termination
Date, for a period of thirty-six (36) months following Executive’s Termination
Date, plus an additional amount to fully gross-up Executive for any ordinary
income taxes that result from such payment, so that the after-tax amount that
Executive will receive will be equivalent to the COBRA rates for such
coverage.  


 


3

















 


Except as provided
in Section 24(b), payment shall be made in a lump sum within sixty (60)
days after Executive’s Termination Date, but in no event earlier than the date
on which the revocation period for the Release has expired.


 


(iii)          The Company shall
cover the cost of reasonable outplacement assistance services for Executive
that are directly related to Executive’s termination of employment with the
Company and are actually provided by an outplacement agency selected by
Executive, in an amount not to exceed $15,000; provided, however, that the
period during which the outplacement assistance services will be covered and
the reimbursements paid does not extend beyond the period set forth in Treas.
Reg. §1.409A-1(b)(9)(v)(E).


 


(iv)          Executive shall receive any amounts
earned, accrued or owing but not yet paid to Executive as of Executive’s Termination
Date, payable in a lump sum, and any benefits accrued or earned in accordance
with the terms of any applicable benefit plans and programs of the Company.


 


(c) Notice of
Termination.  Any termination on
account of this Section 2 shall be communicated by a Notice of Termination
to the other Parties hereto given in accordance with Section 18 hereof.


 


3.     Termination
of Employment on Account of a Change in Control.


 


(a) Termination
on Account of a Change in Control. 
In the event that Executive’s employment with the Company is terminated
after, or in connection with, a Change in Control on account of: (i) an
involuntary termination by the Company following a Change in Control for any
reason other than Cause, death or Disability, (ii) the Executive voluntarily
terminates employment with the Company following a Change in Control on account
of a Constructive Termination, (iii) by the Company (other than for Cause,
death or Disability) prior to or in connection with an anticipated Change in
Control at the request or direction of the acquirer involved in the Change in
Control, or (iv) voluntarily by Executive for any reason (other than for
death, Disability, or under circumstances in which Executive engaged in conduct
that would constitute Cause) during the thirty (30) day period immediately
following the first anniversary of the occurrence of a Change in Control,
Executive shall be entitled to the benefits provided in subsection (b) of
this Section 3.  If Executive is
entitled to benefits described in subsection (b) of this Section 3 by
reason of clause (a)(iii) above, Executive shall be entitled to such
benefits upon his Termination of Employment regardless of whether the Change in
Control actually occurs.


 


(b) Compensation
in Connection With a Termination on Account of a Change in Control.  Subject to the provisions of Section 5
hereof, in the event a termination described in subsection (a) of this Section 3
occurs, the Company shall provide Executive with the following, provided that
Executive executes and does not revoke the Release:


 


(i)            Executive shall
receive a cash payment equal to the sum of (x) three (3) times
Executive’s Annual Base Salary at the rate in effect immediately before
Executive’s Termination Date, (y) three (3) times Executive’s Annual
Bonus, and (z) the Bonus Multiplier times Executive’s Annual Bonus.  Except as provided in Section 24(b), 


 


4

















 


payment shall be
made in a lump sum within sixty (60) days after Executive’s Termination Date,
but in no event earlier than the date on which the revocation period for the
Release has expired.


 


(ii)           Executive shall receive a cash
payment equal to the premium cost that Executive would have to pay, at COBRA
rates as in effect on Executive’s Termination Date, to continue the Company’s
medical and dental coverage for Executive and, where applicable, Executive’s
spouse and dependents, if receiving such coverage on Executive’s Termination
Date, for a period of thirty-six (36) months following Executive’s Termination
Date, plus an additional amount to fully
gross-up Executive for any ordinary income taxes that result from such payment,
so that the after-tax amount that Executive will receive will be equivalent to
the COBRA rates for such coverage. 
Except as provided in Section 24(b), payment shall be made in a
lump sum within sixty (60) days after Executive’s Termination Date, but in no
event earlier than the date on which the revocation period for the Release has
expired.


 


(iii)          All stock options and restricted stock
held by Executive will become fully vested and/or exercisable, as the case may
be, on the Termination Date, and all stock options shall remain exercisable
after Executive’s Termination Date as set forth in the applicable option
agreements with the Company.


 


(iv)          The Company shall cover the cost of
reasonable outplacement assistance services for Executive that are directly
related to Executive’s termination of employment with the Company and are
actually provided by an outplacement agency selected by Executive, in an amount
not to exceed $15,000; provided, however, that the period during which the
outplacement assistance services will be covered and the reimbursements paid
does not extend beyond the period set forth in Treas. Reg.
§1.409A-1(b)(9)(v)(E).


 


(v)           Executive shall
receive any amounts earned, accrued or owing but not yet paid to Executive as
of Executive’s Termination Date, payable in a lump sum, and any benefits
accrued or earned in accordance with the terms of any applicable benefit plans
and programs of the Company.


 


(c) Notice of
Termination.  Any termination on
account of this Section 3 shall be communicated by a Notice of Termination
to the other Parties hereto in accordance with Section 18 hereof.


 


4.     Termination
of Employment on Account of Disability. 
Notwithstanding anything in this Agreement to the contrary, if
Executive’s employment terminates on account of Disability, Executive shall be
entitled to receive disability benefits under any disability program maintained
by the Company that covers Executive, and Executive shall not be considered to
have terminated employment under this Agreement and shall not receive benefits
pursuant to Sections 2 and 3 hereof.


 


5.     Release.  Notwithstanding the foregoing, no such
payments shall be made unless Executive executes, and does not revoke, the
Company’s standard written release (the 


 


5

















 


“Release”), of any and all claims against the Company
and all related parties with respect to all matters arising out of Executive’s
employment by the Company (other than any entitlements under the terms of this
Agreement or under any other plans or programs of the Company in which
Executive participated and under which Executive has accrued or become entitled
to a benefit) or the termination thereof.


 


6.     Other
Payments.  The payments due under
Sections 2 and 3 hereof shall be in addition to and not in lieu of any payments
or benefits due to Executive under any other plan, policy or program of the
Company, except that no cash payments shall be paid to Executive under the
Company’s then current severance pay policies.


 


7.     Enforcement.


 


(a) In the event
that the Company shall fail or refuse to make payment of any amounts due
Executive under Sections 2, 3 and 6 hereof within the respective time periods
provided therein, the Company shall pay to Executive, in addition to the
payment of any other sums provided in this Agreement, interest, compounded
daily, on any amount remaining unpaid from the date payment is required under Sections
2, 3 and 6, as appropriate, until paid to Executive, at the rate from time to
time announced by First Union Bank as its “prime rate” plus 2%, each change in
such rate to take effect on the effective date of the change in such prime
rate.


 


(b) It is the
intent of the Parties that Executive not be required to incur any expenses
associated with the enforcement of Executive’s rights under Sections 2, 3 and 6
of this Agreement by arbitration, litigation or other legal action because the
cost and expense thereof would substantially detract from the benefits intended
to be extended to Executive hereunder. 
Accordingly, the Company shall pay Executive the amount necessary to
reimburse Executive in full for all expenses (including all attorneys’ fees and
legal expenses) incurred by Executive in enforcing any of the obligations of
the Company under this Agreement.


 


8.     No
Mitigation.  Executive shall not be
required to mitigate the amount of any payment or benefit provided for in this
Agreement by seeking other employment or otherwise, nor shall the amount of any
payment or benefit provided for herein be reduced by any compensation earned by
other employment or otherwise.


 


9.     Non-Exclusivity
of Rights.  Except as provided in Section 6,
nothing in this Agreement shall prevent or limit Executive’s continuing or
future participation in or rights under any benefit, bonus, incentive or other
plan or program provided by the Company or any of its subsidiaries or
affiliates and for which Executive may qualify.


 


10.   No Set-Off.  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 circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Executive or others.


 


11.   Taxes.  Any payment required under this Agreement
shall be subject to all requirements of the law with regard to the withholding
of taxes, filing, making of reports and the like, and the Company shall use its
best efforts to satisfy promptly all such requirements.


 


6

















 


12.     Certain Increases in Payment.


 


(a)           Anything
in this Agreement to the contrary notwithstanding, in the event that it shall
be determined that any payment or distribution by the Company to or for the
benefit of Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise (the “Payment”), would
constitute an “excess parachute payment” within the meaning of section 280G of
the Code, Executive shall be paid an additional amount (the “Gross-Up Payment”)
such that the net amount retained by Executive after deduction of any excise
tax imposed under section 4999 of the Code, and any federal, state and local
income and employment tax and excise tax imposed upon the Gross-Up Payment
shall be equal to the Payment.  For
purposes of determining the amount of the Gross-Up Payment, Executive shall be
deemed to pay federal income tax and employment taxes at the highest marginal
rate of federal income and employment 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 Executive’s
residence (or, if greater, the state and locality in which Executive is
required to file a nonresident income tax return with respect to the Payment)
on the Termination Date, net of the maximum reduction in federal income taxes
that may be obtained from the deduction of such state and local taxes.


 


(b)           All
determinations to be made under this Section 12 shall be made by the
Company’s independent public accountant immediately prior to the Change in
Control (the “Accounting Firm”), which firm shall provide its determinations
and any supporting calculations both to the Company and Executive within 10
days of the Termination Date.  Any such
determination by the Accounting Firm shall be binding upon the Company and
Executive.  Except as provided in Section 24(b),
within five days after the Accounting Firm’s determination, the Company shall
pay (or cause to be paid) or distribute (or cause to be distributed) to or for
the benefit of Executive such amounts as are then due to Executive under this Section 12.


 


(c)           Executive
shall notify the Company in writing of any claim by the Internal Revenue
Service that, if successful, would require the payment by the Company of the
Gross-Up Payment.  Such notification
shall be given as soon as practicable but no later than ten business days after
Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.  Executive shall not pay such claim prior to
the expiration of the thirty day period following the date on which he gives
such notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due).  If the Company notifies Executive in writing
prior to the expiration of such period that it desires to contest such claim,
Executive shall:


 


 (i)           give the Company any information
reasonably requested by the Company relating to such claim;


 


 (ii)          take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company;


 


7

















 


 (iii)         cooperate with the Company in good
faith in order to effectively contest such claim; and


 


 (iv)         permit the Company to participate in
any proceedings relating to such claim;


 


provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an after-tax basis,
for any excise tax, income tax or employment tax, including interest and
penalties, with respect thereto, imposed as a result of such representation and
payment of costs and expenses.  Without
limitation on the foregoing provisions of this Section 12, the Company
shall control all proceedings taken in connection with such contest and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearing and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and Executive agrees to prosecute such contest to a termination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided further, however,
that if the Company directs Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to Executive, on an
interest-free basis and shall indemnify and hold Executive harmless, on an
after-tax basis, from any excise tax, income tax or employment tax, including
interest or penalties with respect thereto, imposed with respect to such
advance or with respect to any imputed income with respect to such advance; and
provided further that any extension of the statute of limitations relating to
payment of taxes for the taxable year of Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.


 


(d)           If,
after the receipt by Executive of an amount advanced by the Company pursuant to
this Section, Executive becomes entitled to receive any refund with respect to
such claim, Executive shall (subject to the Company’s complying with the
requirements of this Section) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto).  If, after the
receipt by Executive of an amount advanced by the Company pursuant to this
Section, a determination is made that Executive shall not be entitled to any
refund with respect to such claim and the Company does not notify Executive in
writing of its intent to contest such denial of refund prior to the expiration
of thirty 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 Gross-Up Payment required to be
paid.


 


(e)           All
of the fees and expenses of the Accounting Firm in performing the
determinations referred to in this Section shall be borne solely by the
Company.  The Company agrees to indemnify
and hold harmless the Accounting Firm of and from any and all claims, damages
and expenses resulting from or relating to its determinations pursuant to this
Section, 


 


8

















 


except
for claims, damages or expenses resulting from the gross negligence or willful
misconduct of the Accounting Firm.


 


13.   Confidential
Information.  Executive shall remain
subject to the terms and conditions of his Employee Confidentiality Agreement,
which shall continue in full force and effect, except as specifically modified
herein.


 


14.   Non-Competition.


 


(a)  During the period of
Executive’s employment by the Company and, if Executive’s employment with the
Company terminates for any reason other that described in Section 3(a) above,
for a period of one (1) year thereafter, except with the written consent
of the Board, Executive shall not directly or indirectly, own, manage, operate,
join, control, finance or participate in the ownership, management, operation,
control or financing of, or be connected as an officer, director, employee,
partner, principal, agent, representative, stockholder, consultant, investor or
otherwise with, or use or permit his name to be used in connection with, any
person, business or enterprise which directly or indirectly engages in (i) the  development  of compounds,
or (ii) the sale or marketing of products, that compete with the Company’s
compounds or products (the “Company’s Business”).  In further consideration for the Company’s
promises herein, Executive agrees that for the period beginning with the
termination of his employment with the Company for any reason other than that
described in Section 3(a) above, and for a period of one (1) year
thereafter, Executive will not:


 


(i) 
except with the prior written consent of the Board, directly or indirectly
solicit, entice or induce any customer to become a customer of any other
person, firm or corporation with respect to the Company’s Business or to cease
doing business with the Company or its subsidiaries or affiliates, and that
Executive will not approach any such person, firm or corporation for such
purpose or authorize or knowingly approve, encourage or assist the taking of
such actions by any other person, firm or corporation; or


 


(ii) 
directly or indirectly solicit, recruit or hire any part-time or full-time
employee, representative or consultant of the Company or its subsidiaries or
affiliates to work for a third party other than the Company or its subsidiaries
or affiliates or engage in any activity that would cause any employee,
representative or consultant to violate any agreement with the Company or its
subsidiaries or affiliates.  The foregoing
covenant shall not apply to any person after twelve (12) months have elapsed
after the date on which such person’s employment by the Company has terminated.


 


(b) 
The foregoing restrictions shall not be construed to prohibit Executive’s
ownership of less than five percent of any class of securities of any
corporation which is engaged in any of the foregoing businesses and has a class
of securities registered pursuant to the Securities Exchange Act of 1934, as
amended, provided that such ownership represents a passive investment and that
neither Executive nor any group of persons including Executive in any way,
either directly or indirectly, manages or exercises control of any such
corporation, guarantees any of its financial obligations, otherwise takes any
part in its business, other than exercising Executive’s rights as a
stockholder, or seeks to do any of the foregoing.


 


9

















 


15.   Equitable
Relief.


 


(a) Executive
acknowledges that the restrictions contained in Sections 13 and 14 hereof are
reasonable and necessary to protect the legitimate interests of the Company and
its affiliates, that the Company would not have entered into this Agreement in
the absence of such restrictions, and that any violation of any provision of
those Sections will result in irreparable injury to the Company.  Executive represents that his experience and
capabilities are such that the restrictions contained in Section 14 hereof
will not prevent Executive from obtaining employment or otherwise earning a
living at the same general level of economic benefit as is currently the
case.  Executive further represents and
acknowledges that (i) he has been advised by the Company to consult his
own legal counsel in respect of this Agreement, and (ii) that he has had
full opportunity, prior to execution of this Agreement, to review thoroughly
this Agreement with his counsel.


 


(b) Executive
agrees that the Company shall be entitled to preliminary and permanent
injunctive relief, without the necessity of proving actual damages, as well as
an equitable accounting of all earnings, profits and other benefits arising
from any violation of Sections 13 or 14 hereof, which rights shall be
cumulative and in addition to any other rights or remedies to which the Company
may be entitled.  In the event that any
of the provisions of Sections 13 or 14 hereof should ever be adjudicated to
exceed the time, geographic, service, or other limitations permitted by
applicable law in any jurisdiction, then such provisions shall be deemed
reformed in such jurisdiction to the maximum time, geographic, service, or
other limitations permitted by applicable law.


 


(c) Executive
irrevocably and unconditionally (i) agrees that any suit, action or other
legal proceeding arising out of Section 13 or 14 hereof, including without
limitation, any action commenced by the Company for preliminary and permanent
injunctive relief or other equitable relief, may be brought in the United
States District Court for the District of Delaware, or if such court does not
have jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in Delaware, (ii) consents to the non-exclusive jurisdiction
of any such court in any such suit, action or proceeding, and (iii) waives
any objection which Executive may have to the laying of venue of any such suit,
action or proceeding in any such court. 
Executive also irrevocably and unconditionally consents to the service
of any process, pleadings, notices or other papers in a manner permitted by the
notice provisions of Section 18 hereof.


 


16.   Term of
Agreement.  This Agreement shall
continue in full force and effect for the duration of Executive’s employment
with the Company; provided, however, that after the termination of Executive’s
employment during the term of this Agreement, this Agreement shall remain in
effect until all of the obligations of the Parties hereunder are satisfied or
have expired.


 


17.   Successor
Company.  The Company shall require
any successor or successors (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by agreement in form and substance satisfactory to
Executive, to acknowledge expressly that this Agreement is binding upon and
enforceable against the Company in accordance with the terms hereof, and to
become jointly and severally obligated with the Company to perform this
Agreement in the same manner 


 


10

















 


and to the same extent that the Company would be
required to perform if no such succession or successions had taken place.  Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a breach
of this Agreement.  As used in this
Agreement, the Company shall mean the Company as herein before defined and any
such successor or successors to its business and/or assets, jointly and
severally.


 


18.   Notice.  All notices and other communications required
or permitted hereunder or necessary or convenient in connection herewith shall
be in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
service, as follows:


 


	
  If to the Company, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Cephalon, Inc.

  
	
   

  	
   

  	
  41 Moores Rd.

  
	
   

  	
   

  	
  Frazer, PA 19355

  
	
   

  	
   

  	
  Attn:  Charles A. Sanders, M.D.

  
	
   

  
	
  With a copy to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Morgan,
  Lewis & Bockius LLP

  
	
   

  	
   

  	
  1701 Market Street

  
	
   

  	
   

  	
  Philadelphia, PA
  19103-2921

  
	
   

  	
   

  	
  Attn: I. Lee Falk,
  Esquire

  
	
   

  	
   

  	
   

  
	
  If to Executive, to:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Frank
  Baldino, Jr., Ph.D.

  
	
   

  	
   

  	
  106 Bellefair Lane

  
	
   

  	
   

  	
  West Chester, PA 19382

  



 


or to such other names or
addresses as the Company or Executive, as the case may be, shall designate by
notice to the other Parties hereto in the manner specified in this Section;
provided, however, that if no such notice is given by the Company following a
change in control, notice at the last address of the Company or to any
successor pursuant to this Section 18 shall be deemed sufficient for the
purposes hereof.  Any such notice shall
be deemed delivered and effective when received in the case of personal
delivery, five days after deposit, postage prepaid, with the U.S. Postal
Service in the case of registered or certified mail, or on the next business
day in the case of overnight express courier service.


 


19.   Governing
Law.  This Agreement shall be
governed by and interpreted under the laws of the State of Delaware without
giving effect to any conflict of laws provisions.


 


11

















 


20.   Contents of Agreement, Amendment and
Assignment.


 


(a) This
Agreement supersedes all prior agreements, sets forth the entire understanding
between the Parties hereto with respect to the subject matter hereof and cannot
be changed, modified, extended or terminated except upon written amendment
executed by Executive and executed on the Company’s behalf by a duly authorized
officer.  The provisions of this
Agreement may provide for payments to Executive under certain compensation or
bonus plans under circumstances where such plans would not provide for payment
thereof.  It is the specific intention of
the Parties that the provisions of this Agreement shall supersede any
provisions to the contrary in such plans, and such plans shall be deemed to
have been amended to correspond with this Agreement without further action by
the Company or the Board.


 


(b) Nothing in
this Agreement shall be construed as giving Executive any right to be retained
in the employ of the Company, or as changing or modifying the “at will” nature
of Executive’s employment status.


 


(c) All of the
terms and provisions of this Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs, representatives,
successors and assigns of the Parties hereto, except that the duties and
responsibilities of Executive and the Company hereunder shall not be assignable
in whole or in part by the Company.  If
Executive should die after his Termination Date and while any amount payable
hereunder would still be payable to Executive hereunder if Executive had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to Executive’s devises,
legates or other designees or, if there is no such designee, to Executive’s
estate.


 


21.   Severability.  If any provision of this Agreement or
application thereof to anyone or under any circumstances shall be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be
given effect without the invalid or unenforceable provision or application.


 


22.   Remedies
Cumulative; No Waiver.  No right
conferred upon the Parties by this Agreement is intended to be exclusive of any
other right or remedy, and each and every such right or remedy shall be
cumulative and shall be in addition to any other right or remedy given
hereunder or now or hereafter existing at law or in equity.  No delay or omission by a Party in exercising
any right, remedy or power hereunder or existing at law or in equity shall be
construed as a waiver thereof.


 


23.   Miscellaneous.  All section headings are for convenience
only.  This Agreement may be executed in
several counterparts, each of which is an original.  It shall not be necessary in making proof of
this Agreement or any counterpart hereof to produce or account for any of the
other counterparts.


 


24.   Section 409A.


 


(a) Interpretation.  This Agreement shall be interpreted to avoid
any penalty sanctions under section 409A of the Code.  If any payment or benefit cannot be provided
or made at the time specified herein without incurring sanctions under section
409A of the Code, then such 


 


12

















 


benefit or payment shall be provided in full at the
earliest time thereafter when such sanctions will not be imposed.  All payments to be made upon a termination of
employment under this Agreement may only be made upon a “separation from service”
under section 409A of the Code.  For
purposes of section 409A of the Code, each payment made under this Agreement
shall be treated as a separate payment. 
In no event may Executive, directly or indirectly, designate the
calendar year of payment.


 


(b) Payment
Delay.  Notwithstanding any provision
to the contrary in this Agreement, if on Executive’s Termination Date Executive
is a “specified employee” (as such term is defined in section 409A(a)(2)(B)(i) of
the Code and its corresponding regulations) as determined by the Company (or
any successor thereto) in its sole discretion in accordance with its “specified
employee” determination policy, then all cash severance payments payable to
Executive under this Agreement that are deemed as deferred compensation subject
to the requirements of section 409A of the Code shall be postponed for a period
of six months following Executive’s “separation from service” with the Company
(or any successor thereto).  The
postponed amounts shall be paid to Executive in a lump sum within thirty (30)
days after the date that is six (6) months following Executive’s
“separation from service” with the Company (or any successor thereto).  If Executive dies during such six-month
period and prior to payment of the postponed cash amounts hereunder, the amounts
delayed on account of section 409A of the Code shall be paid to the personal
representative of Executive’s estate within sixty (60) days after Executive’s
death.  No interest shall be paid on any
amounts delayed pursuant to this subsection.


 


(c) Reimbursements.  All reimbursements provided
under this Agreement shall be made or provided in accordance with the
requirements of section 409A, including, where applicable, the requirement that
(i) any reimbursement is for expenses incurred during Executive’s lifetime
(or during a shorter period of time specified in this Agreement), (ii) the
amount of expenses eligible for reimbursement during a calendar year may not
affect the expenses eligible for reimbursement in any other calendar year, (iii) the
reimbursement of an eligible expense will be made on or before the last day of
the taxable year following the year in which the expense is incurred, and (iv) the
right to reimbursement is not subject to liquidation or exchange for another
benefit.  If expenses are incurred in
connection with any tax audit or litigation, any reimbursements under the
Agreement for such expenses shall be paid not later than the end of Executive’s
taxable year following Executive’s taxable year in which (i) the tax audit
or litigation is resolved if no taxes are paid or (ii) the taxes that are
subject to such audit or litigation are remitted to the taxing authority.  Any tax gross up payments to be made
hereunder shall be made not later than the end of Executive’s taxable year next
following Executive’s taxable year in which the related taxes are remitted to
the taxing authority.


 


[Signature
Page Follows]


 


13

















 


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


 


 


	
   

  	
   

  	
  CEPHALON, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Attest:

  	
   

  	
   

  	
  By:

  	
  /s/ Charles A. Sanders

  
	
   

  	
   

  	
   

  	
  Charles A. Sanders, M.D.

  
	
   

  	
   

  	
  Its:

  	
  Chairman of the Stock
  Option and Compensation

  
	
   

  	
   

  	
   

  	
  Committee, and Member
  of the Board of Directors

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Frank Baldino, Jr.
  

  
	
  Witness

  	
   

  	
  Frank
  Baldino, Jr., Ph.D.

  
					



 


14