pursuant to the exercise, conversion or exchange of any securityexercisable for, convertible into or exchangeable for common stock or voting securities of theCompany, unless the Person exercising, converting or exchanging such security acquired suchsecurity directly from the Company or an underwriter or agent of the Company), (ii) any acquisitionby any employee benefit plan (or related trust) sponsored or maintained by the Company or anycorporation controlled by the Company or (iii) any acquisition by any corporation pursuant to aBusiness Combination (as defined below) which complies with clauses (i) and (ii) of subsection (c)of this definition; or               (b) such time as the Continuing Directors (as defined below) do not constitute a majority ofthe Board of Directors of the Company (or, if applicable, the Board of Directors of a successorcorporation to the Company) (the “Board”), where the term “Continuing Director” means at any date amember of the Board (i) who was a member of the Board on the date of execution of the PriorAgreement or (ii) who was nominated or elected subsequent to such date by at least a majority ofthe directors who were Continuing Directors at the time of such nomination or election or whoseelection to the Board was recommended or endorsed by at least a majority of the directors who wereContinuing Directors at the time of such nomination or election; provided, however, that thereshall be excluded from this clause (ii) any individual whose initial assumption of office occurredas a result of an actual or threatened election contest with respect to the election or removal ofdirectors or other actual or threatened solicitation of proxies or consents, by or on behalf of aperson other than the Board; or               (c) the consummation of a merger, consolidation, reorganization, recapitalization or shareexchange involving the Company or a sale or other disposition of all or substantially all of theassets of the Company in one or a series of transactions (a “Business Combination”), unless,immediately following such Business Combination, each of the following two conditions is satisfied:(i) all or substantially all of the individuals and entities who were the beneficial owners of theOutstanding Company Voting Securities immediately prior to such Business Combination beneficiallyown, directly or indirectly, more than 60% the combined voting power of the then-outstandingsecurities entitled to vote generally in the election of directors, of the resulting or acquiringcorporation in such Business Combination (which shall include, without limitation, a corporationwhich as a result of such transaction owns the Company or substantially all of the Company’s assetseither directly or through one or more subsidiaries) (such resulting or acquiring corporation isreferred to herein as the “Acquiring Corporation”) in substantially the same proportions as theirownership of the Outstanding Company Voting Securities immediately prior to such BusinessCombination and (ii) no Person (excluding any employee benefit plan (or related trust) maintainedor sponsored by the Company or by the Acquiring Corporation) beneficially owns, directly orindirectly, 50% of the combined voting power of the then-outstanding securities of the AcquiringCorporation entitled to vote generally in the election of directors (except to the extent that suchownership existed prior to the Business Combination); or               (d) the liquidation or dissolution of the Company.          1.2 “Cause” means willful misconduct by the Executive or willful failure by theExecutive to perform his/her responsibilities to the Company (including, without limitation, breachby the Executive of any provision of any employment, consulting, advisory,
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nondisclosure,non-competition or other similar agreement between the Executive and the Company), as determined bythe Company, which determination shall be conclusive.          1.3 “Change in Control Date” means the first date during the Term (as defined inSection 2) on which a Change in Control occurs. Anything in this Agreement to the contrarynotwithstanding, if (a) a Change in Control occurs, (b) the Executive’s employment with the Companyis terminated prior to the date on which the Change in Control occurs, and (c) it is reasonablydemonstrated by the Executive that such termination of employment (i) was at the request of a thirdparty who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwisearose in connection with or in anticipation of a Change in Control, then for all purposes of thisAgreement the “Change in Control” shall mean the date immediately prior to the date of suchtermination of employment.          1.4 “Disability” means a condition causing the Executive to be disabled within themeaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the “Code”), and anyregulations promulgated thereunder.          1.5 “Good Reason” means the occurrence, without the Executive’s written consent, ofany of the following events or circumstances:               (a) the assignment to the Executive of duties inconsistent in any material respect with theExecutive’s authority (including status, offices, titles and reporting requirements), duties, orresponsibilities in effect immediately prior to the earliest to occur of (i) the Change in ControlDate, (ii) the date of the execution by the Company of the initial written agreement or instrumentproviding for the Change in Control or (iii) the date of the adoption by the Board of a resolutionproviding for the Change in Control (with the earliest to occur of such dates referred to herein asthe “Measurement Date”), or any other action or omission by the Company which results in a materialdiminution in such authority, duties, or responsibilities; or               (b) a change by the Company in the location at which the Executive performs his/her principalduties for the Company to a new location that increases the distance which the Executive commutesto a distance that is 35 miles greater than the distance of the Executive’s commute immediatelyprior to the Measurement Date.Notwithstanding the occurrence of any event or circumstance set forth in clauses (a) or (b) above,such occurrence shall not be deemed to constitute Good Reason if, prior to the Date of Terminationspecified in the Notice of Termination (each as defined in Section 3.2(a)) given by the Executivein respect thereof, such event or circumstance has been fully corrected and the Executive has beenreasonably compensated for any losses or damages resulting therefrom (provided that such right ofcorrection by the Company shall only apply to the first Notice of Termination for Good Reason givenby the Executive).     2. Term of Agreement. This Agreement, and all rights and obligations of the partieshereunder, shall take effect upon the Effective Date and shall expire upon the first to occur of(a) the expiration of the Term (as defined below) if a Change in Control has not occurred duringthe Term, (b) the termination of the Executive’s employment with the Company prior to the Change
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inControl Date, (c) the date 18 months after the Change in Control Date, if the Executive is stillemployed by the Company as of such later date, or (d) the fulfillment by the Company of all of itsobligations under this Agreement if the Executive’s employment with the Company terminates within18 months following the Change in Control Date. “Term” shall mean the period commencing as of theEffective Date and continuing in effect through December 31, 2011.     3. Employment Status; Termination Following Change in Control.          3.1 Not an Employment Contract. The Executive acknowledges that this Agreement doesnot constitute a contract of employment or impose on the Company any obligation to retain theExecutive as an employee and that this Agreement does not prevent the Executive from terminatingemployment at any time. If the Executive’s employment with the Company terminates for any reasonand subsequently a Change in Control shall occur, the Executive shall not be entitled to anybenefits hereunder except as otherwise provided pursuant to Section 1.3.          3.2 Notice of Termination of Employment.               (a) If the Change in Control Date occurs during the Term, any termination of the Executive’semployment by the Company or by the Executive within 18 months following the Change in Control Date(other than due to the death of the Executive) shall be communicated by a written notice to theother party hereto (the “Notice of Termination”), given in accordance with Section 9. Any Noticeof Termination shall specify the effective date of the employment termination (the “Date ofTermination”). The Date of Termination set forth in such Notice of Termination shall not be lessthan 30 days or more than 60 days after the date of delivery of such Notice of Termination, exceptin the case of termination by the Company for Cause in which case such termination may be effectiveimmediately.               (b) If the Executive seeks to terminate his/her employment with the Company for Good Reason,then the Notice of Termination shall set forth in reasonable detail the facts and circumstancesclaimed to provide a basis for termination of the Executive’s employment. Any Notice of Terminationfor Good Reason given by the Executive must be given within 30 days of the first occurrence of theevent(s) or circumstance(s) which constitute(s) Good Reason.     4. Benefits to Executive. If the Change in Control Date occurs during the Term andthe Executive’s employment is terminated by the Company (other than for Cause, Disability or death)or by the Executive for Good Reason within 18 months following the Change in Control Date, then theExecutive shall be entitled to the following benefits:               (a) Compensation.                    (i) The Company shall pay to the Executive in a lump sum in cash within 30 days (or suchearlier date as applicable law requires) after the Date of Termination (A) the Executive’s basesalary through the Date of Termination (B) any accrued vacation pay, in each case to the extent notpreviously paid, (C) when permitted by Section
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409A, the amount of any compensation previouslydeferred by the Executive (together with any accrued interest or earnings thereon) and (D) a $10,000 transition payment ;                    (ii) The Company shall pay to the Executive an amount equal to [200%/150%] of the sum of (x)the highest annual base salary of the Executive during the period of the Executive’s employmentwith the Company and (y) the highest annual bonus of the Executive during the period of theExecutive’s employment with the Company, including for this purpose the target annual bonus of theExecutive for the calendar year during which the Date of Termination occurs, over a period (the“Payment Period”) that is equal in length to [24 months for the Chief Executive Officer] [18 monthsfor all other Executives] for the Executive and commences on the Date of Termination (or as soonthereafter as is permitted under Sections 6 and 7), which amount shall be paid to the Executive ininstallments, in accordance with the Company’s regular payroll practices. Notwithstanding theforegoing installment provisions, subject to the Executive Release requirement and timing ofSection 7, if and to the extent the payments are exempted from the six-month delay by Sections6(a)(iii)(1) and (2), the Company shall make the payments in this Section 4(a)(ii) on or within 10days after the date provided by Section 7;                    (iii) Provided that the Executive complies with the Executive Release requirements, (A) if theExecutive is eligible and elects to continue receiving group medical insurance under thecontinuation coverage rules known as COBRA, the Company will pay the full premium for such coveragethat it pays for active and similarly-situated employees who receive the same type of coverageuntil the earlier of (i) the end of the Payment Period or (ii) the date the COBRA continuationcoverage expires, and (B) in the event that the Payment Period extends beyond the date the COBRAcontinuation coverage expires, then following the date of such expiration, the Company shall pay tothe Executive on a monthly basis until the end of the Payment Period an amount equal to the samemonthly premium that the Company was paying for COBRA continuation coverage for the Executiveimmediately prior to the expiration of the COBRA continuation coverage; provided, however, that ifthe Executive becomes reemployed with another employer and is eligible to receive health insurancebenefits from such employer, then the Company shall no longer be required to make these payments;                    (iv) to the extent not previously paid or provided, the Company shall timely pay or provide tothe Executive any other amounts or benefits required to be paid or provided or which the Executiveis eligible to receive following the Executive’s termination of employment under any plan, program,policy, practice, contract or agreement of the Company and its affiliated companies.               (b) Stock Acceleration. Each outstanding option to purchase shares of Common Stock ofthe Company held by the Executive shall become immediately exercisable in full and shares of CommonStock of the Company received upon exercise of any options will no longer be subject to a right ofrepurchase by the Company, and each outstanding restricted stock award shall be deemed to be fullyvested and will no longer be subject to a right of repurchase by the Company.
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     5. Taxes.               (a) Notwithstanding any other provision of this Agreement, except as set forth in paragraph(b) below, in the event that the Company undergoes a “Change in Ownership or Control” (as definedbelow), the Company shall not be obligated to provide to the Executive a portion of any “ContingentCompensation Payments” (as defined below) that the Executive would otherwise be entitled to receiveto the extent necessary to eliminate any “excess parachute payments” (as defined in Section280G(b)(1) of the Code) for the Executive. For purposes of this Section 5, the ContingentCompensation Payments so eliminated shall be referred to as the “Eliminated Payments” and theaggregate amount (determined in accordance with Treasury Regulation Section 1.280G-1, Q/A-30 or anysuccessor provision) of the Contingent Compensation Payments so eliminated shall be referred to asthe “Eliminated Amount.”               (b) Notwithstanding the provisions of paragraph (a), no such reduction in ContingentCompensation Payments shall be made if (i) the Eliminated Amount (computed without regard to thissentence) exceeds (ii) 110% of the aggregate present value (determined in accordance with TreasuryRegulation Section 1.280G-1, Q/A-31 and Q/A-32 or any successor provisions) of the amount of anyadditional taxes that would be incurred by the Executive if the Eliminated Payments (determinedwithout regard to this sentence) were paid to him/her (including, state and federal income taxes onthe Eliminated Payments, the excise tax imposed by Section 4999 of the Code payable with respect toall of the Contingent Compensation Payments in excess of the Executive’s “base amount” (as definedin Section 280G(b)(3) of the Code), and any withholding taxes). The override of such reduction inContingent Compensation Payments pursuant to this Section 5(b) shall be referred to as an“Override.” For purpose of this paragraph, if any federal or state income taxes would beattributable to the receipt of any Eliminated Payment, the amount of such taxes shall be computedby multiplying the amount of the Eliminated Payment by the maximum combined federal and stateincome tax rate provided by law.               (c) For purposes of this Section 5 the following terms shall have the following respectivemeanings:                    (i) “Change in Ownership or Control” shall mean a change in the ownership or effective controlof the Company or in the ownership of a substantial portion of the assets of the Company determinedin accordance with Section 280G(b)(2) of the Code.                    (ii) “Contingent Compensation Payment” shall mean any payment (or benefit) in the nature ofcompensation that is made or made available (under this Agreement or otherwise) to a “disqualifiedindividual” (as defined in Section 280G(c) of the Code) and that is contingent (within the meaningof Section 280G(b)(2)(A)(i) of the Code) on a Change in Ownership or Control of the Company.               (d) Any payments or other benefits otherwise due to the Executive following a Change inOwnership or Control that could reasonably be characterized (as determined by the Company) asContingent Compensation Payments (the “Potential Payments”) shall not be made until the datesprovided for in this Section 5(d), except to the extent the structure of the Change in Ownership orControl requires prompter payment. Within 30 days after each date on which the Executive firstbecomes entitled to receive (whether or not then due)
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a Contingent Compensation Payment relating tosuch Change in Ownership or Control, the Company shall determine and notify the Executive (withreasonable detail regarding the basis for its determinations) (i) which Potential Paymentsconstitute Contingent Compensation Payments, (ii) the Eliminated Amount and (iii) whether theOverride is applicable. The Potential Payments will be reduced in the following order: (i)nonacceleration of any stock options whose exercise price is at or above the fair market value ofthe stock as determined in the discretion of the Compensation Committee (taking into account, asappropriate, the proceeds that would be received in connection with the event covered by Section4999) (“Underwater Options”), (ii) the cash severance due under Section 6(a)(ii) above, (iii)nonacceleration of any stock options other than Underwater Options, and (iv) any vesting ordistribution of restricted stock or restricted stock units. Within each category described inclauses (i), (iii), and (iv), reductions or eliminations shall be made in reverse order beginningwith vesting or distributions that are to be paid the farthest in time from the date of eventcovered by Section 4999. The Company shall promptly make to the Executive the Payments that remainafter such reductions.               (e) The provisions of this Section 5 are intended to apply to any and all payments or benefitsavailable to the Executive under this Agreement or any other agreement or plan of the Company underwhich the Executive receives Contingent Compensation Payments.     6. Payments subject to Section 409A.               (a) Subject to this Section 6, payments or benefits under Section 4 shall begin only upon thedate of a “separation from service” of the Executive (determined as set forth below) which occurson or after the termination of the Executive’s employment. The following rules shall apply withrespect to distribution of the payments and benefits, if any, to be provided to the Executive underSection 4, as applicable:                    (i) It is intended that each installment of the payments and benefits provided under Section 4shall be treated as a separate “payment” for purposes of Section 409A of the Code and the guidanceissued thereunder (“Section 409A”). Neither the Company nor the Executive shall have the right toaccelerate or defer the delivery of any such payments or benefits except to the extent specificallypermitted or required by Section 409A.                    (ii) If, as of the date of the “separation from service” of the Executive from the Company,the Executive is not a “specified employee” (within the meaning of Section 409A), then eachinstallment of the payments and benefits shall be made on the dates and terms set forth in Section4.                    (iii) If, as of the date of the “separation from service” of the Executive from the Company,the Executive is a “specified employee” (within the meaning of Section 409A), then:                         (1) Each installment of the payments and benefits due under Section 4 that, in accordance withthe dates and terms set forth herein, will in all circumstances, regardless of when the separationfrom service occurs, be paid within the Short-Term Deferral Period (as hereinafter defined) andshall be treated as a short-term deferral within
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the meaning of Treasury Regulation Section1.409A-1(b)(4) to the maximum extent permissible under Section 409A. For purposes of thisAgreement, the “Short-Term Deferral Period” means the period ending on the later of the15th day of the third month following the end of the Executive’s tax year in which theseparation from service occurs and the 15th day of the third month following the end ofthe Company’s tax year in which the separation from service occurs; and                         (2) Each installment of the payments and benefits due under Section 4 that is not described inSection 6(a)(iii)(1) and that would, absent this subsection, be paid within the six-month periodfollowing the “separation from service” of the Executive from the Company shall not be paid untilthe date that is six months and one day after such separation from service (or, if earlier, theExecutive’s death), with any such installments that are required to be delayed being accumulatedduring the six-month period and paid in a lump sum on the date that is six months and one dayfollowing the Executive’s separation from service and any subsequent installments, if any, beingpaid in accordance with the dates and terms set forth herein; provided, however,that the preceding provisions of this sentence shall not apply to any installment of payments andbenefits if and to the maximum extent that that such installment is deemed to be paid under aseparation pay plan that does not provide for a deferral of compensation by reason of theapplication of Treasury Regulation 1.409A-1(b)(9)(iii) (relating to separation pay upon aninvoluntary separation from service). Any installments that qualify for the exception underTreasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of theExecutive’s second taxable year following his taxable year in which the separation from serviceoccurs.               (b) The determination of whether and when a separation from service of the Executive from theCompany has occurred shall be made and in a manner consistent with, and based on the presumptionsset forth in, Treasury Regulation Section 1.409A-1(h). Solely for purposes of this Section 6(b),“Company” shall include all persons with whom the Company would be considered a single employerunder Section 414(b) and 414(c) of the Code.               (c) All reimbursements and in-kind benefits provided under the Agreement shall be made orprovided in accordance with the requirements of Section 409A to the extent that such reimbursementsor in-kind benefits are subject to Section 409A.     7. Release. The obligation of the Company to make the payments and provide thebenefits to the Executive under Section 4(a)(ii) and Section 4(a)(iii) is conditioned upon theExecutive signing a release of claims, in a customary and reasonable form requested by the Company(the “Executive Release”), within such period of time as the Company may specify following the Dateof Termination (provided that the Executive Release must become effective before the60th day after Date of Termination). The Company shall not be obligated to make anypayments to the Executive under Section 4(a)(ii) and Section 4(a)(iii) until the Executive Releasehas become effective in accordance with its terms. Assuming the Executive Release has becomeeffective, the payments subject to the Executive Release will be paid (or begin payment) upon the60th day after termination of employment, and the Company shall promptly pay to theExecutive any payments that would otherwise have been made to the Executive between the Date ofTermination and such 60th day.
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     8. Successors.          8.1 Successor to Company. The Company shall require any successor (whether direct orindirect, by purchase, merger, consolidation or otherwise) to all or substantially all of thebusiness or assets of the Company expressly to assume and agree to perform this Agreement to thesame extent that the Company would be required to perform it if no such succession had taken place.Failure of the Company to obtain an assumption of this Agreement at or prior to the effectivenessof any succession shall be a breach of this Agreement and shall constitute Good Reason (and besubject to the timing in Section 3.2(b)) because failure to do so would be a material breach if theExecutive elects to terminate employment, except that for purposes of implementing the foregoing,the date on which any such succession becomes effective shall be deemed the Date of Termination.As used in this Agreement, “Company” shall mean the Company as defined above and any successor toits business or assets as aforesaid which assumes and agrees to perform this Agreement, byoperation of law or otherwise.          8.2 Successor to Executive. This Agreement shall inure to the benefit of and beenforceable by the Executive’s personal or legal representatives, executors, administrators,successors, heirs, distributees, devisees and legatees. If the Executive should die while anyamount would still be payable to the Executive or his/her family hereunder if the Executive hadcontinued to live, all such amounts, unless otherwise provided herein, shall be paid in accordancewith the terms of this Agreement to the executors, personal representatives or administrators ofthe Executive’s estate.     9. Notice. All notices, instructions and other communications given hereunder or inconnection herewith shall be in writing. Any such notice, instruction or communication shall besent either (i) by registered or certified mail, return receipt requested, postage prepaid, or (ii)prepaid via a reputable nationwide overnight courier service, in each case addressed to theCompany, at 2981 Route 22, Patterson, New York 12563, and to the Executive at the Executive’saddress indicated on the signature page of this Agreement (or to such other address as either theCompany or the Executive may have furnished to the other in writing in accordance herewith). Anysuch notice, instruction or communication shall be deemed to have been delivered five business daysafter it is sent by registered or certified mail, return receipt requested, postage prepaid, or onebusiness day after it is sent via a reputable nationwide overnight courier service. Either partymay give any notice, instruction or other communication hereunder using any other means, but nosuch notice, instruction or other communication shall be deemed to have been duly delivered unlessand until it actually is received by the party for whom it is intended.     10. Miscellaneous.          10.1 Employment by Subsidiary. For purposes of this Agreement, the Executive’semployment with the Company shall not be deemed to have terminated solely as a result of theExecutive continuing to be employed by a wholly-owned subsidiary of the Company.
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          10.2 Severability. The invalidity or unenforceability of any provision of thisAgreement shall not affect the validity or enforceability of any other provision of this Agreement,which shall remain in full force and effect.          10.3 Injunctive Relief. The Company and the Executive agree that any breach of thisAgreement by the Company is likely to cause the Executive substantial and irrevocable damage andtherefore, in the event of any such breach, in addition to such other remedies which may beavailable, the Executive shall have the right to specific performance and injunctive relief.          10.4 Governing Law. The validity, interpretation, construction and performance ofthis Agreement shall be governed by the internal laws of the State of Connecticut, without regardto conflicts of law principles.          10.5 Waivers. No waiver by the Executive at any time of any breach of, or compliancewith, any provision of this Agreement to be performed by the Company shall be deemed a waiver ofthat or any other provision at any subsequent time.          10.6 Counterparts. This Agreement may be executed in counterparts, each of whichshall be deemed to be an original but both of which together shall constitute one and the sameinstrument.          10.7 Tax Withholding. Any payments provided for hereunder shall be paid net of anyapplicable tax withholding required under federal, state or local law.          10.8 Entire Agreement. This Agreement sets forth the entire agreement of the partieshereto in respect of the subject matter contained herein and supersedes all prior agreements,promises, covenants, arrangements, communications, representations or warranties, whether oral orwritten, by any officer, employee or representative of any party hereto in respect of the subjectmatter contained herein; and any prior agreement of the parties hereto in respect of the subjectmatter contained herein is hereby terminated and cancelled, including the Prior Agreement which ishereby terminated as of the Effective Date.          10.9 Amendments. This Agreement may be amended or modified only by a writteninstrument executed by both the Company and the Executive.          10.10 Executive’s Acknowledgements. The Executive acknowledges that he/she: (a) hasread this Agreement; (b) has been represented in the preparation, negotiation, and execution ofthis Agreement by legal counsel of the Executive’s own choice or has voluntarily declined to seeksuch counsel; (c) understands the terms and consequences of this Agreement; and (d) understandsthat the law firm of Wilmer Cutler Pickering Hale and Dorr LLP is acting as counsel to the Companyin connection with this Agreement and is not acting as counsel for the Executive.          10.11 Section 409A. This Agreement is intended to comply with the provisions ofSection 409A and the Agreement shall, to the extent practicable, be construed in accordancetherewith. The Company makes no representation or warranty and shall have no liability to theExecutive or any other person if any provisions of this agreement are determined to constitutedeferred compensation subject to Section 409A and do not satisfy an exemption from, or theconditions of, Section 409A.
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     IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and yearfirst set forth above.      PENWEST PHARMACEUTICALS CO.