**Exhibit 10.2**

 

**DEPOMED, INC.**

 

**MANAGEMENT CONTINUITY AGREEMENT**

 

This Management Continuity Agreement (the “Agreement”)is dated as of **[month]****[date]**,**[year]**, by and between **[name]** (“Employee”) and Depomed, Inc., aCalifornia corporation (the “Company”). This Agreement is intended to provide Employee with certain benefitsdescribed herein upon the occurrence of specific events.

 

**RECITALS**

 

A.            It is expected that another companymay from time to time consider the possibility of acquiring the Company or thata change in control may otherwise occur, with or without the approval of theCompany’s Board of Directors. The Board of Directors recognizes that suchconsideration can be a distraction to Employee and can cause Employee toconsider alternative employment opportunities. The Board of Directors has determined that it is in the best interestsof the Company and its shareholders to assure that the Company will have thecontinued dedication and objectivity of the Employee, notwithstanding thepossibility, threat or occurrence of a Change in Control (as defined below) ofthe Company.

 

B.            TheCompany’s Board of Directors believes it is in the best interests of theCompany and its shareholders to retain Employee and provide incentives toEmployee to continue in the service of the Company.

 

C.            The Board of Directors furtherbelieves that it is imperative to provide Employee with certain benefits uponcertain termination of Employee’s employment in connection with a Change inControl, which benefits are intended to provide Employee with financialsecurity and provide sufficient income and encouragement to Employee to remainwith the Company, notwithstanding the possibility of a Change in Control.

 

D.            To accomplish the foregoingobjectives, the Board of Directors has directed the Company, upon execution ofthis Agreement by Employee, to agree to the terms provided in this Agreement.

 

Now therefore, in consideration of the mutualpromises, covenants and agreements contained herein, and in consideration ofthe continuing employment of Employee by the Company, the parties hereto agreeas follows:

 

1.             **At-Will Employment**.  The Company and Employee acknowledge thatEmployee’s employment is and shall continue to be at-will, as defined underapplicable law, and that Employee’s employment with the Company may beterminated by either party at any time for any or no reason.  If Employee’s employment terminates for anyreason, Employee shall not be entitled to any payments, benefits, damages,award or compensation other than as provided in 

 

----

 

this Agreement or otherwiseagreed to by the Company.  The terms ofthis Agreement shall terminate upon the earliest of: (i) the date on whichEmployee ceases to be employed as an corporate officer of the Company, otherthan as a result of an Involuntary Termination, (ii) the date that allobligations of the parties hereunder have been satisfied (iii) one (1) yearafter a Change in Control or (iv) May 15, 2010 (or, if later in thecase of subclause (iv), the later to occur of (x) the termination of anyPending Change in Control (as defined below) (the date determined pursuant tothis clause (iv) being the “End Date”) and (y) one year afterthe completion of any Pending Change in Control).  A termination of the terms of this Agreementpursuant to the preceding sentence shall be effective for all purposes, exceptthat such termination shall not affect the payment or provision of compensationor benefits on account of a termination of employment occurring prior to thetermination of the terms of this Agreement. The rights and duties created by this Section 1 are contingent uponthe Employee’s release of claims against the Company (at the time oftermination in a form reasonably satisfactory to the Company) and may not bemodified in any way except by a written agreement executed by an officer of theCompany upon direction from the Board of Directors.

 

2.             **Benefits****Upon a Change in Control; Termination of Employment.**

 

(a)           **Treatmentof Stock Options Upon a Change in Control**.  In the event that Employee suffers anInvoluntary Termination in connection with or within twelve (12) monthsfollowing the effective date of a Change in Control, 100% of Employee’s unvestedCompany option shares shall become immediately vested on such terminationdate.  Each such option shall beexercisable in accordance with the provisions of the option agreement and planpursuant to which such option was granted.

 

(b)           **Severance.**  In the event that Employee suffers anInvoluntary Termination at any time in connection with or within twelve (12)months following the effective date of a Change in Control, Employee will beentitled to receive severance benefits as follows:  (A) severance payments during the periodfrom the date of Employee’s termination until the date **[insert “24 months” if the Employee is the ChiefExecutive Officer] [insert “18 months” if the Employee is the Chief OperatingOfficer] [insert “12 months” if the Employee is not the Chief Executive Officeror Chief Operating Officer]** months after the effective date of thetermination (the “Severance Period”) equal to the base salary whichEmployee was receiving immediately prior to the Change in Control, whichpayments shall be paid during the Severance Period in accordance with theCompany’s standard payroll practices, (B) a lump sum payment as soon aspracticable after the date of termination of employment **[insert “equal to two times” if the Employee is theChief Executive Officer] [insert “equal to one and one-half times” if theEmployee is the Chief Operating Officer] [insert “equal to” if the Employee isnot the Chief Executive Officer or Chief Operating Officer]** Employee’saverage annual bonus paid for the Company’s fiscal years (up to three)immediately preceding the Company’s fiscal year in which the termination occursand (C) continuation of payment by the Company of its portion of thehealth insurance benefits provided to Employee immediately prior to the Changein Control pursuant to the terms of the Consolidated Omnibus BudgetReconciliation Act of 1985, as amended (“COBRA”) or other applicable lawthrough the earlier of the end of the Severance Period or the date upon whichEmployee is no longer eligible for such COBRA or other benefits underapplicable law.  In addition, Employeewill receive payment(s) for all salary, bonuses and unpaid vacationaccrued as of the date of Employee’s termination of employment.

 

2

----

 

(c)           **Terminationfor Cause**.  If Employee’semployment is terminated for Cause at any time, then Employee shall not beentitled to receive payment of any severance benefits or optionacceleration.  Employee will receivepayment(s) for all salary, bonuses and unpaid vacation accrued as of thedate of Employee’s termination of employment.

 

(d)           **VoluntaryResignation**.  If Employeevoluntarily resigns from the Company under circumstances which do notconstitute an Involuntary Termination, then Employee shall not be entitled toreceive payment of any severance benefits or option acceleration.  Employee will receive payment(s) for allsalary, bonuses and unpaid vacation accrued as of the date of Employee’stermination of employment.

 

3.             **Definition of Terms**.  The following terms referred to in thisAgreement shall have the following meanings:

 

(a)           **Changein Control; Pending Change in Control**.** **“Change in Control”shall mean any event so determined by the Board of Directors pursuant to Section 10.4of the Company’s 2004 Equity Incentive Plan. “Pending Change in Control” shall mean any Change in Control withrespect to which the Company enters into a definitive agreement prior to theEnd Date which has not been completed or terminated as of the End Date.  Pending Change in Control shall include any Changein Control with respect to which the Company enters into a binding agreementwithin thirty days after the termination of any other Pending Change inControl.

 

(b)           **Cause**.  “Cause” shall mean (i) grossnegligence or willful misconduct in the performance of Employee’s duties to theCompany where such gross negligence or willful misconduct has resulted or islikely to result in substantial and material damage to the Company or itssubsidiaries (ii) repeated unexplained or unjustified absence from theCompany, (iii) a material and willful violation of any federal or statelaw; (iv) commission of any act of fraud with respect to the Company or (v) convictionof a felony or a crime involving moral turpitude causing material harm to thestanding and reputation of the Company, in each case as determined in goodfaith by the Board of Directors.

 

(c)           **InvoluntaryTermination**.  “InvoluntaryTermination” shall include any termination by the Company other than forCause and Employee’s voluntary termination within sixty (60) days following theoccurrence of any of the following events without Employee’s written consent: (i) amaterial reduction or change in job duties, responsibilities and requirementsinconsistent with Employee’s position with the Company and Employee’s priorduties, responsibilities and requirements or a change in Employee’s reportingrelationship; (ii) a material reduction of Employee’s base compensation(other than in connection with a general decrease in base salaries for mostofficers of the successor corporation); or (iii) Employee’s refusal torelocate to a facility or location more than thirty (30) miles from the Company’scurrent location, provided that Employee will not resign due to such change,reduction or relocation without first providing the Company with written noticeof the event or events constituting the grounds for his voluntary resignationwithin thirty (30) days of the initial existence of such grounds and areasonable cure period of not less than thirty (30) days following the date ofsuch notice.

 

3

----

 

4.             **Limitation and Conditions on Payments**.

 

In the event that the severance and other benefits provided for in thisAgreement to the Employee (i) constitute “parachute payments” within themeaning of Section 280G of the Internal Revenue Code of 1986, as amended(the “Code”) and (ii) but for this Section, would be subject to theexcise tax imposed by Section 4999 of the Code, then the Employee’sseverance benefits under Sections 2(a) and 2(b) shall be payableeither:

 

(a)           in full, or

 

(b)           as to such lesser amount which wouldresult in no portion of such severance benefits being subject to excise taxunder Section 4999 of the Code, whichever of the foregoing amounts, takinginto account the applicable federal, state and local income taxes and theexcise tax imposed by Section 4999, results in the receipt by the Employeeon an after-tax basis, of the greatest amount of severance benefits under Section 2(a) and2(b), notwithstanding that all or some portion of such severance benefits maybe taxable under Section 4999 of the Code. Unless the Company and the Employee otherwise agree in writing, anydetermination required under this Section 4 shall be made in writing byindependent public accountants selected by the Company (the “Accountants”),whose determination shall be conclusive and binding upon the Employee and theCompany for all purposes.  For purposesof making the calculations required by this Section 4, the Accountants maymake reasonable assumptions and approximations concerning applicable taxes andmay rely on reasonable, good faith interpretations concerning the applicationof Section 280G and 4999 of the Code. The Company and the Employee shall furnish to the Accountants suchinformation and documents as the Accountants may reasonably request in order tomake a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur inconnection with any calculations contemplated by this Section 4.

 

# 5.             **Section 409A**.  Notwithstanding any provision of this Agreement to the contrary,if, at the time of Employee’s termination of employment with the Company,Employee is a “specified employee” (as defined in Section 409A of theCode) and the deferral of the commencement of any severance payments orbenefits otherwise payable pursuant to this Agreement as a result of suchtermination of employment is necessary in order to prevent any accelerated incomerecognition or additional tax under Section 409A of the Code, then theCompany will not commence any payment of any such severance payments orbenefits otherwise required hereunder (but without any reduction in suchpayments or benefits ultimately paid or provided to Employee) that (a) willnot and may not under any circumstances, regardless of when such terminationoccurs, be paid in full by March 15 of the year following Employee’stermination of employment, and (b) are in excess of the lesser of (i) two(2) times Employee’s then annual compensation or (ii) two (2) timesthe limit on compensation then set forth in Section 401(a)(17) of the Codeand will not be paid by the end of the second calendar year following the yearin which the termination occurs, **until**the first payroll date that occursafter the date that is six (6) months following Employee’s “separation ofservice” with the Company (as defined under Code Section 409A).  If any payments are delayed due to suchrequirements, such amounts will be paid in a lump sum to Employee on theearliest of (x) the Employee’s death following the date of Employee’stermination of employment with the Company or (y) the first payroll datethat occurs after the date that is six (6) months following Employee’s “separationof 

 

4

----

#  

# service” with the Company.  For these purposes, each severance payment orbenefit is designated as a separate payment or benefit and will notcollectively be treated as a single payment or benefit.  This paragraph is intended to comply with therequirements of Section 409A of the Code so that none of the severancepayments and benefits to be provided hereunder will be subject to theadditional tax imposed under Section 409A of the Code and any ambiguitiesherein will be interpreted to so comply. Employee and the Company agree to work together in good faith toconsider amendments to this Agreement and to take such reasonable actions whichare necessary, appropriate or desirable to avoid imposition of any additionaltax or income recognition prior to actual payment to Employee under Section 409Aof the Code.  Notwithstanding anything tothe contrary contained herein, to the extent that any amendment to thisAgreement with respect to the payment of any severance payments or benefitswould constitute under Code Section 409A a delay in a payment or a changein the form of payment, then such amendment must be done in a manner thatcomplies with Code Section 409A(a)(4)(C).

#  

6.             **Conflicts. **Employee represents that Employee’s performance of all the terms ofthis Agreement will not breach any other agreement to which Employee is aparty.  Employee has not, and will notduring the term of this Agreement, enter into any oral or written agreement inconflict with any of the provisions of this Agreement.  Employee further represents that Employee isentering into or has entered into an employment relationship with the Companyof Employee’s own free will and that Employee has not been solicited as anemployee in any way by the Company.

 

7.             **Successors**.  Any successor to the Company (whether director indirect and whether by purchase, lease, merger, consolidation, liquidationor otherwise) to all or substantially all of the Company’s business and/orassets shall assume the obligations under this Agreement and agree expressly toperform the obligations under this Agreement in the same manner and to the sameextent as the Company would be required to perform such obligations in theabsence of a succession.  The terms ofthis Agreement and all of Employee’s rights hereunder and thereunder shallinure to the benefit of, and be enforceable by, Employee’s personal or legalrepresentatives, executors, administrators, successors, heirs, distributees,devisees and legatees.

 

8.             **Notice**.  Notices andall other communications contemplated by this Agreement shall be in writing andshall be deemed to have been duly given when personally delivered or whenmailed by U.S. registered or certified mail, return receipt requested andpostage prepaid.  Mailed notices toEmployee shall be addressed to Employee at the home address which Employee mostrecently communicated to the Company in writing.  In the case of the Company, mailed noticesshall be addressed to its corporate headquarters, and all notices shall bedirected to the attention of its Secretary.

 

9.             **MiscellaneousProvisions**.

 

(a)           **No Duty to Mitigate**.  Employee shall not be required to mitigatethe amount of any payment contemplated by this Agreement (whether by seekingnew employment or in any other manner), nor shall any such payment be reducedby any earnings that Employee may receive from any other source.

 

5

----

 

(b)           **Waiver**.  No provision of this Agreement shall bemodified, waived or discharged unless the modification, waiver or discharge isagreed to in writing and signed by Employee and by an authorized officer of theCompany (other than Employee).   Nowaiver by either party of any breach of, or of compliance with, any conditionor provision of this Agreement by the other party shall be considered a waiverof any other condition or provision or of the same condition or provision atanother time.

 

(c)           **WholeAgreement**.  No agreements,representations or understandings (whether oral or written and whether expressor implied) which are not expressly set forth in this Agreement have been madeor entered into by either party with respect to the subject matter hereof.  This Agreement supersedes any agreement ofthe same title and concerning similar subject matter dated prior to the datehereof, and by execution of this Agreement both parties agree that any suchpredecessor agreement shall be deemed null and void.

 

(d)           **Choiceof Law**.  The validity,interpretation, construction and performance of this Agreement shall begoverned by the laws of the State of California without reference to conflictof laws provisions.

 

(e)           **Severability**.  If any term or provision of this Agreement orthe application thereof to any circumstance shall, in any jurisdiction and toany extent, be invalid or unenforceable, such term or provision shall beineffective as to such jurisdiction to the extent of such invalidity orunenforceability without invalidating or rendering unenforceable the remainingterms and provisions of this Agreement or the application of such terms andprovisions to circumstances other than those as to which it is held invalid orunenforceable, and a suitable and equitable term or provision shall besubstituted therefor to carry out, insofar as may be valid and enforceable, theintent and purpose of the invalid or unenforceable term or provision.

 

(f)            **Arbitration**.  Any dispute or controversy arising under orin connection with this Agreement may be settled at the option of either partyby binding arbitration in the County of Santa Clara, California, in accordancewith the rules of the American Arbitration Association then ineffect.  Judgment may be entered on thearbitrator’s  award in any court havingjurisdiction.  Punitive damages shall notbe awarded.

 

(g)           **LegalFees and Expenses**.  Theparties shall each bear their own expenses, legal fees and other fees incurredin connection with this Agreement.

 

(h)           **NoAssignment of Benefits**. The rights of any person to payments or benefits under this Agreementshall not be made subject to option or assignment, either by voluntary orinvoluntary assignment or by operation of law, including (without limitation)bankruptcy, garnishment, attachment or other creditor’s process, and any actionin violation of this Section 8(h) shall be void.

 

(i)            **EmploymentTaxes**.  All payments madepursuant to this Agreement will be subject to withholding of applicable incomeand employment taxes.

 

6

----

 

(j)            **Assignmentby Company**.  The Companymay assign its rights under this Agreement to an affiliate, and an affiliatemay assign its rights under this Agreement to another affiliate of the Companyor to the Company.   In the case of anysuch assignment, the term “Company” when used in a section of this Agreementshall mean the corporation that actually employs the Employee.

 

(k)           **Counterparts**.  This Agreement may be executed in counterparts,each of which shall be deemed an original, but all of which together willconstitute one and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

7

----

 

The partieshave executed this Agreement on the date first written above.

 
|   | DEPOMED, INC.                                                                                                                                                                                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                 |   |
|   |                                                                                                                                                                                                                 |   |
|   | By:                                                                                                                                                                                                                  |   |
|   | Name:                                                                                                                                                                                                                |   |
|   | Title:                                                                                                                                                                                                               |   |
|   |                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                 |
|   | EMPLOYEE                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                 |
|   | [                                   ] |
|   |                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                 |
|   | Signature:                                                                                                                                                                                                           |   |
|   |                                                                                                                                                                                                                 |
|   | Address:                                                                                                                                                                                                             |   |
|   |                                                                                                                                                                                                                 |   |
|        |                                                                                                                                                                                                                      |  |  |

 

8

----