EXHIBIT 10.1
**ISTA PHARMACEUTICALS, INC.**
**CHANGE OF CONTROL SEVERANCE AGREEMENT**
     This Change of Control Severance Agreement (the “Agreement”) is made andentered into effective as of August      , 2002 (the “Effective Date”), by andbetween _______________ (the “Employee”) and ISTA Pharmaceuticals, Inc., aDelaware corporation (the “Company”). Certain capitalized terms used in thisAgreement are defined in Section 1 below.
R E C I T A L S
     A. It is expected that the Company from time to time will consider thepossibility of a Change of Control. The Board of Directors of the Company (the“Board”) recognizes that such consideration can be a distraction to theEmployee and can cause the Employee to consider alternative employmentopportunities.
     B. The Board believes that it is in the best interests of the Company andits stockholders to provide the Employee with an incentive to continue hisemployment and to maximize the value of the Company upon a Change of Controlfor the benefit of its stockholders.
     C. In order to provide the Employee with enhanced financial security andsufficient encouragement to remain with the Company notwithstanding thepossibility of a Change of Control, the Board believes that it is imperative toprovide the Employee with certain severance benefits upon the Employee’stermination of employment following a Change of Control.
AGREEMENT
     In consideration of the mutual covenants herein contained and thecontinued employment of Employee by the Company, the parties agree as follows:
     1. Definition of Terms. The following terms referred to in this Agreementshall have the following meanings:
          (a) Cause. “Cause” shall mean (i) any act of personal dishonesty taken bythe Employee in connection with his responsibilities as an employee which isintended to result in substantial personal enrichment of the Employee, (ii)Employee’s conviction of a felony which the Board reasonably believes has hador will have a material detrimental effect on the Company’s reputation orbusiness, (iii) a willful act by the Employee which constitutes misconduct andis injurious to the Company, and (iv) continued willful violations by theEmployee of the Employee’s obligations to the Company after there has beendelivered to the Employee a written demand for performance from the Companywhich describes the basis for the Company’s belief that the Employee has notsubstantially performed his duties.
          (b) Change of Control. “Change of Control” shall mean the occurrence ofany of the following events:
 

 

               (i) the approval by stockholders of the Company of a merger orconsolidation of the Company with any other corporation, other than a merger orconsolidation which would result in the voting securities of the Companyoutstanding immediately prior thereto continuing to represent (either byremaining outstanding or by being converted into voting securities of thesurviving entity) more than fifty percent (50%) of the total voting powerrepresented by the voting securities of the Company or such surviving entityoutstanding immediately after such merger or consolidation; provided, however,that any such merger or consolidation as a result of a Going PrivateTransaction (defined hereafter) pursuant to Rule 13e-3 of the SecuritiesExchange Act of 1934 (the “Act”) shall not constitute a Change of Control;
               (ii) the approval by the stockholders of the Company of a plan of completeliquidation of the Company or an agreement for the sale or disposition by theCompany of all or substantially all of the Company’s assets;
               (iii) any “person” (as such term is used in Sections 13(d) and 14(d) ofthe Securities Exchange Act of 1934, as amended) becoming the “beneficialowner” (as defined in Rule 13d-3 under said Act), directly or indirectly, ofsecurities of the Company representing fifty percent (50%) or more of the totalvoting power represented by the Company’s then outstanding voting securities;provided, however, that any such “person” becoming a “beneficial owner” ofsecurities of the Company representing fifty percent (50%) or more of the totalvoting power represented by the Company’s then outstanding voting securities asa result of (A) a financing of the Company (as reasonably determined by theCompany), (B) a Going Private Transaction (defined hereafter) pursuant to Rule13e-3 of the Act, or (C) an all cash tender offer by a private equity firm,venture capital firm or other financial buyer (as reasonably determined by theCompany) shall not constitute a Change of Control; or
               (iv) a change in the composition of the Board, as a result of which fewerthan a majority of the directors are Incumbent Directors. “IncumbentDirectors” shall mean directors who either (A) are directors of the Company asof the date hereof, or (B) are elected, or nominated for election, to the Boardwith the affirmative votes of at least a majority of those directors whoseelection or nomination was not in connection with any transactions described insubsections (i), (ii), or (iii) or in connection with an actual or threatenedproxy contest relating to the election of directors of the Company; provided,however, that any such change in the composition of the Board as a result of afinancing of the Company (as reasonably determined by the Company) shall notconstitute a Change of Control.
          (c) Going Private Transaction. “Going Private Transaction” shall mean anytransaction or series of transactions involving one or more of the followingtransactions:
               (i) a purchase of any equity security by the issuer of such security or byan affiliate of such issuer;
               (ii) a tender offer for or request or invitation for tenders of any equitysecurity made by the issuer of such class of securities or by an affiliate ofsuch issuer; or
-2-

 

               (iii) a solicitation subject to Regulation 14A of the Act of any proxy,consent or authorization of, or a distribution subject to Regulation 14C of theAct of information statements to, any equity security holder by the issuer ofthe class of securities or by an affiliate of such issuer, in connection with:a merger, consolidation, reclassification, recapitalization, reorganization orsimilar corporate transaction of any issuer or between an issuer (or itssubsidiaries) and its affiliate; a sale of substantially all the assets of anissuer to its affiliate or group of affiliates; or a reverse stock split of anyclass of equity securities of the issuer involving the purchase of fractionalinterests,
which has either a reasonable likelihood or a purpose of producing, eitherdirectly or indirectly, any of the following effects:
               (i) causing any class of equity securities of the issuer which is subjectto section 12(g) or section 15(d) of the Act to be held of record by less than300 persons; or
               (ii) causing any class of equity securities of the issuer which is eitherlisted on a national securities exchange or authorized to be quoted in aninter-dealer quotation system of a registered national securities associationto be neither listed on any national securities exchange nor authorized to bequoted on an inter-dealer quotation system of any registered nationalsecurities association.
          (d) Involuntary Termination. “Involuntary Termination” shall mean withoutthe Employee’s express written consent, (i) a significant reduction of theEmployee’s duties, position or responsibilities relative to the Employee’sduties, position or responsibilities in effect immediately prior to suchreduction, or the removal of the Employee from such position, duties andresponsibilities, unless the Employee is provided with comparable duties,position and responsibilities; provided, however, that a reduction in duties,position or responsibilities solely by virtue of the Company being acquired andmade part of a larger entity (as, for example, when the Chief Financial Officerof the Company remains as such following a Change of Control but is not madethe Chief Financial Officer of the acquiring corporation) shall not constitutean “Involuntary Termination;” (ii) a substantial reduction, without goodbusiness reasons, of the facilities and perquisites (including office space andlocation) available to the Employee immediately prior to such reduction; (iii)a reduction by the Company of the Employee’s base salary as in effectimmediately prior to such reduction; (iv) a material reduction by the Companyin the kind or level of employee benefits to which the Employee is entitledimmediately prior to such reduction with the result that the Employee’s overallbenefits package is significantly reduced; (v) the relocation of the Employeeto a facility or a location more than fifty (50) miles from his currentlocation; (vi) any purported termination of the Employee by the Company whichis not effected for Cause or for which the grounds relied upon are not valid;or (vii) the failure of the Company to obtain the assumption of this Agreementby any successors contemplated in Section 6 below.
          (e) Termination Date. “Termination Date” shall mean the effective date ofany notice of termination delivered by one party to the otherhereunder.
-3-

 

     2. Term of Agreement. This Agreement shall terminate upon the date thatall obligations of the parties hereto under this Agreement have been satisfiedor, if earlier, on the date, prior to a Change of Control, Employee is nolonger employed by the Company.
     3. At-Will Employment. The Company and the Employee acknowledge that theEmployee’s employment is and shall continue to be at-will, as defined underapplicable law. If the Employee’s employment terminates for any reason, theEmployee shall not be entitled to any payments, benefits, damages, awards orcompensation other than as provided by this Agreement, or as may otherwise beestablished under the Company’s then existing employee benefit plans orpolicies at the time of termination.
     4. Severance Benefits.
          (a) Termination Following A Change of Control. If the Employee’semployment with the Company terminates as a result of an InvoluntaryTermination at any time within twenty-four (24) months after a Change ofControl, then, subject to Employee executing and not revoking a release ofclaims in the form provided by the Company, Employee shall be entitled to thefollowing severance benefits:
               (i) 9/12 of Employee’s base salary as in effect as of the date of suchtermination, less applicable withholding, payable, at the election of theCompany, either in a lump sum within thirty (30) days of the InvoluntaryTermination or at the same rate and in accordance with the Company’s standardpayroll policies over a period of time not to exceed nine (9) months;
               (ii) a pro rata portion of Employee’s target bonus for the year oftermination, if any. Such amount shall equal the product of (x) the targetbonus for the year of termination, multiplied by (y) a fraction, the numeratorof which is the number of months Employee was employed for the Company duringthe year of termination, and denominator of which is twelve (12). The month inwhich Employee’s employment terminates shall be considered a full month forpurposes of this calculation;
               (iii) all stock options granted by the Company to the Employee prior tothe Change of Control shall become fully vested and exercisable as of the dateof the termination to the extent such stock options are outstanding andunexercisable at the time of such termination and all stock subject to a rightof repurchase by the Company (or its successor) that was purchased prior to theChange of Control shall have such right of repurchase lapse with respect to allof the shares;
               (iv) the Company shall reimburse Employee’s group medical, dental andvision plan continuation coverage premiums, if any, with respect topost-termination health (i.e., medical, vision and dental) coverage under theCompany’s group health plans; provided, however, that (i) the Employeeconstitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of theInternal Revenue Code of 1986, as amended; and (ii) the Employee electscontinuation coverage pursuant to the Consolidated Omnibus BudgetReconciliation Act of 1985, as amended (“COBRA”), within the time periodprescribed pursuant to COBRA. The Company shall reimburse the Employee for thecontinuation coverage premiums paid by the Employee to continue coverage untilthe earlier
-4-

 

of (i) the date Employee is no longer receiving continuationcoverage pursuant to COBRA, or (ii) nine (9) months from the termination date.
          (b) Termination Apart from a Change of Control. If the Employee’semployment with the Company terminates other than as a result of an InvoluntaryTermination within the twenty-four (24) months following a Change of Control,then the Employee shall not be entitled to receive severance or other benefitshereunder, but may be eligible for those benefits (if any) as may then beestablished under the Company’s then existing severance and benefits plans andpolicies at the time of such termination.
          (c) Accrued Wages and Vacation; Expenses. Without regard to the reasonfor, or the timing of, Employee’s termination of employment: (i) the Companyshall pay the Employee any unpaid base salary due for periods prior to theTermination Date; (ii) the Company shall pay the Employee all of the Employee’saccrued and unused vacation through the Termination Date; and (iii) followingsubmission of proper expense reports by the Employee, the Company shallreimburse the Employee for all expenses reasonably and necessarily incurred bythe Employee in connection with the business of the Company prior to theTermination Date. These payments shall be made promptly upon termination andwithin the period of time mandated by law.
     5. Limitation on Payments. In the event that the severance and otherbenefits provided for in this Agreement or otherwise payable to the Employee(i) constitute “parachute payments” within the meaning of Section 280G of theCode, and (ii) would be subject to the excise tax imposed by Section 4999 ofthe Code (the “Excise Tax”), then Employee’s benefits under this Agreementshall be either
          (a)  delivered in full, or
          (b)  delivered as to such lesser extent which would result in no portion ofsuch benefits being subject to the Excise Tax,
     whichever of the foregoingamounts, taking into account the applicable federal, state and local incometaxes and the Excise Tax, results in the receipt by Employee on an after-taxbasis, of the greatest amount of benefits, notwithstanding that all or someportion of such benefits may be taxable under Section 4999 of the Code.
     Unless the Company and the Employee otherwise agree in writing, anydetermination required under this Section shall be made in writing by theCompany’s independent public accountants (the “Accountants”), whosedetermination shall be conclusive and binding upon the Employee and the Companyfor all purposes. For purposes of making the calculations required by thisSection, the Accountants may make reasonable assumptions and approximationsconcerning applicable taxes and may rely on reasonable, good faithinterpretations concerning the application of Section 280G and 4999 of theCode. 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 theAccountants may reasonably incur in connection with any calculationscontemplated by this Section.
-5-

 

     6. Successors.
          (a) Company’s Successors. Any successor to the Company (whether direct orindirect and whether by purchase, lease, merger, consolidation, liquidation orotherwise) to all or substantially all of the Company’s business and/or assetsshall assume the Company’s obligations under this Agreement and agree expresslyto perform the Company’s obligations under this Agreement in the same mannerand to the same extent as the Company would be required to perform suchobligations in the absence of a succession. For all purposes under thisAgreement, the term “Company” shall include any successor to the Company’sbusiness and/or assets which executes and delivers the assumption agreementdescribed in this subsection (a) or which becomes bound by the terms of thisAgreement by operation of law.
          (b) Employee’s Successors. Without the written consent of the Company,Employee shall not assign or transfer this Agreement or any right or obligationunder this Agreement to any other person or entity. Notwithstanding theforegoing, the terms of this Agreement and all rights of Employee hereundershall inure to the benefit of, and be enforceable by, Employee’s personal orlegal representatives, executors, administrators, successors, heirs,distributees, devisees and legatees.
     7. Notices.
          (a) General. Notices and all other communications contemplated by thisAgreement shall be in writing and shall be deemed to have been duly given whenpersonally delivered or when mailed by U.S. registered or certified mail,return receipt requested and postage prepaid. In the case of the Employee,mailed notices shall be addressed to him at the home address which he mostrecently communicated to the Company in writing. In the case of the Company,mailed notices shall be addressed to its corporate headquarters, and allnotices shall be directed to the attention of its Secretary.
          (b) Notice of Termination. Any termination by the Company for Cause or bythe Employee as a result of a voluntary resignation or an InvoluntaryTermination shall be communicated by a notice of termination to the other partyhereto given in accordance with this Section. Such notice shall indicate thespecific termination provision in this Agreement relied upon, shall set forthin reasonable detail the facts and circumstances claimed to provide a basis fortermination under the provision so indicated, and shall specify the TerminationDate (which shall be not more than 30 days after the giving of such notice).The failure by the Employee to include in the notice any fact or circumstancewhich contributes to a showing of Involuntary Termination shall not waive anyright of the Employee hereunder or preclude the Employee from asserting suchfact or circumstance in enforcing his rights hereunder.
-6-

 

     8. Arbitration.
          (a) Any dispute or controversy arising out of, relating to, or inconnection with this Agreement, or the interpretation, validity, construction,performance, breach, or termination thereof, shall be settled by bindingarbitration to be held in Orange County, California, in accordance with theNational Rules for the Resolution of Employment Disputes then in effect of theAmerican Arbitration Association (the “Rules”). The arbitrator may grantinjunctions or other relief in such dispute or controversy. The decision ofthe arbitrator shall be final, conclusive and binding on the parties to thearbitration. Judgment may be entered on the arbitrator’s decision in any courthaving jurisdiction.
          (b) The arbitrator(s) shall apply California law to the merits of anydispute or claim, without reference to conflicts of law rules. The arbitrationproceedings shall be governed by federal arbitration law and by the Rules,without reference to state arbitration law. Employee hereby consents to thepersonal jurisdiction of the state and federal courts located in California forany action or proceeding arising from or relating to this Agreement or relatingto any arbitration in which the parties are participants.
          (c) Employee understands that nothing in this Section modifies Employee’sat-will employment status. Either Employee or the Company can terminate theemployment relationship at any time, with or without Cause.
          (d) EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSESARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING ANY CLAIMS ARISING OUT OF,RELATING TO, OR IN CONNECTION WITH THIS AGREEMENT, OR THE INTERPRETATION,VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION THEREOF TO BINDINGARBITRATION, CONSTITUTES A WAIVER OF EMPLOYEE’S RIGHT TO A JURY TRIAL ANDRELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THEEMPLOYER/EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO, THE FOLLOWINGCLAIMS:
               (i) ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OFCONTRACT, BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH ANDFAIR DEALING, BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OFEMOTIONAL DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT ORINTENTIONAL INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; ANDDEFAMATION.
               (ii) ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPALSTATUTE, INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF1964, THE CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF1967, THE AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDSACT, THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION201, *et seq*;
-7-

 

               (iii) ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONSRELATING TO EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.
     9. Miscellaneous Provisions.
          (a) No Duty to Mitigate. The Employee shall not be required to mitigatethe amount of any payment contemplated by this Agreement, nor shall any suchpayment be reduced by any earnings that the Employee may receive from any othersource.
          (b) Waiver. No provision of this Agreement may be modified, waived ordischarged unless the modification, waiver or discharge is agreed to in writingand signed by the Employee and by an authorized officer of the Company (otherthan the Employee). No waiver by either party of any breach of, or ofcompliance with, any condition or provision of this Agreement by the otherparty shall be considered a waiver of any other condition or provision or ofthe same condition or provision at another time.
          (c) Integration. This Agreement and any outstanding stock optionagreements and restricted stock purchase agreements referenced herein representthe entire agreement and understanding between the parties as to the subjectmatter herein and supersede all prior or contemporaneous agreements, whetherwritten or oral, with respect to this Agreement and any stock option agreementor restricted stock purchase agreement.
          (d) Choice of Law. The validity, interpretation, construction andperformance of this Agreement shall be governed by the internal substantivelaws, but not the conflicts of law rules, of the State of California.
          (e) Severability. The invalidity or unenforceability of any provision orprovisions of this Agreement shall not affect the validity or enforceability ofany other provision hereof, which shall remain in full force and effect.
          (f) Employment Taxes. All payments made pursuant to this Agreement shallbe subject to withholding of applicable income and employment taxes.
          (g) Counterparts. This Agreement may be executed in counterparts, each ofwhich shall be deemed an original, but all of which together will constituteone and the same instrument.
-8-

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, inthe case of the Company by its duly authorized officer, as of the day and yearfirst above written.   COMPANY:ISTA Pharmaceuticals, Inc.  By:     Title:   EMPLOYEE:    Signature   Printed Name
-9-