Document:

Prepared by MERRILL CORPORATION

SEVERANCE

AND CHANGE OF CONTROL AGREEMENT

 

THIS severance

and change of control AGREEMENT ("Agreement") is made and

entered into as of September 26, 2001, by and between Provell, Inc., a

Minnesota corporation (the "Company") and Michael T. McGowan, an individual

and resident of the state of Minnesota ("Executive").

 

RECITALS

 

A.            These Recitals shall be and hereby are incorporated as

essential terms of this Agreement, and describe (i) the general nature and

reasons for the Company's desire to enter into this Agreement and (ii)

Executive's rights and obligations under this Agreement.  Any interpretation or construction of this

Agreement shall be considered in light of these Recitals.

 

B.            Executive is currently employed as the Company's Vice

President of Marketing and, as such, is a key executive of the Company.

 

C.            The Board of Directors of the Company believes that it is

imperative to diminish the inevitable distraction to Executive that arises by

virtue of the personal uncertainties and risks created by any pending or

threatened Change in Control (as defined herein) of the Company.

 

D.            The Company believes that it is important that it receive

certain assurances with respect to its Confidential Information and Executive's

Work Product (each as defined herein) and that the Company receive certain

protections with respect to Executive's activities following termination of his

employment and is willing to offer Executive the compensation, bonuses and

other benefits set forth in this Agreement in order to obtain such assurances

and protections.

 

E.             The Company desires to continue to employ Executive and

Executive desires to be employed by the Company, on the terms and conditions,

and pursuant to the covenants, set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and

for other good and valuable consideration, the receipt and sufficiency of which

are hereby acknowledged, the Company and Executive agree as follows:

 

ARTICLE 1

 

definitions

 

1.1           Annual Bonus.  For purposes of this Agreement, "Annual

Bonus" means the largest annual bonus paid to Executive in the three years

immediately preceding the time a Severance Payment is due under this Agreement.

 

1.2           Base Salary.  For purposes of this Agreement, "Base

Salary" means the greater of:  (i)

$175,000, (ii) Executive's annual base salary, as established by the Board of

Directors from time to time, then in effect at the time a Severance Payment is

due under this Agreement, or (iii) the average annual base salary paid to

Executive over the twenty-four (24) months preceding the time a Severance

Payment is due under this Agreement calculated by dividing the total base

salary paid to Executive over such twenty-four (24) months by two (2).

 

1.3           Cause.  For purposes of this Agreement,

"Cause" means termination of Executive in the event that Executive:

(i) has repeatedly failed to perform the material duties specified for the

position to which Executive has been elected, which failure is willful and

deliberate; (ii) has engaged in an act or acts of dishonesty which is or are

intended to result in substantial personal enrichment for Executive; (iii) has

knowingly engaged in conduct which is materially injurious to the Company; (iv)

is convicted of, or pleads NOLO CONTENDERE to (A) any felony (other than any felony

arising out of negligence), or (B) any crime or offense involving dishonesty

with respect to the Company; (v) knowingly provides materially misleading

information concerning the Company to the Board of Directors of the Company,

any governmental body or regulatory agency or any lender or other financing

source or proposed financing source of the Company.

 

1.4           Change of Control.  For purposes of this Agreement, "Change

of Control" means:

 

(a)           any "Person" or

"Persons" (as such terms are used in Sections 13(d) and 14(d) of the

Securities Exchange Act of 1934, as amended (the "Exchange Act"))

(other than the Company, any employee benefit plan of the Company or any entity

which reports beneficial ownership of the Company's outstanding securities on

Schedule l3G pursuant to Regulation Section 240.l3d-l promulgated under the

Exchange Act) becomes a Beneficial Owner (as defined in Rule 13d-3 and Rule

13d-5 under the Exchange Act), directly or indirectly, of securities of the

Company representing 35% or more of the voting power of all of the Company's

then outstanding securities; or

 

(b)           the sale, transfer, conveyance or

other disposition (pursuant to a sale of assets, a merger or consolidation or

similar transaction), in one or a series of related transactions, of all or

substantially all of the assets of the Company to any Person or Persons (as

defined above); or 

 

(c)           a merger, consolidation or similar

transaction to which the Company is a party, if the individuals and entities

who were shareholders of the Company, as applicable, immediately prior to the

effective date of such merger, consolidation or similar transaction do not have

the same proportionate ownership of common stock of the surviving corporation

immediately following the effective date of such merger, consolidation or

similar transaction; or

 

(d)           the adoption by the Company of a plan

providing for its liquidation or dissolution.

 

(e)           Any references in this Agreement to

the date or the time of the Change of Control shall mean:  (i) with respect to subsection (a) above,

the date such Person closes on a purchase wherein it acquires sufficient shares

such that it then owns 35% or more of the Company's voting shares; (ii) with

respect to subsections (b) and (c) above, the closing date for such sale of assets,

merger, consolidation or similar transaction; and (iii) with respect to

subsection (d) above, the date such plan is approved by the shareholders of the

Company.

 

1.5           Good Reason.  For purposes of this Agreement, "Good

Reason" means termination by Executive in the event that the Company:  (i) reduces the scope of Executive's

authority and responsibility without Executive's prior consent; (ii) reduces

Executive's base salary, reduces the amount of annual bonus for which Executive

is eligible, amends any stock incentives or employee retirement plan applicable

to Executive in a way which is materially adverse to Executive, or materially

reduces the other benefits to which Executive is entitled without Executive's

prior consent; (iii) requires Executive's principal place of employment to be

anywhere other than the Company's principal executive offices, or there is a

relocation of the Company's principal executive offices outside of the

Minneapolis/St. Paul, Minnesota metropolitan area; or (iv) otherwise fails to

perform its obligations under this Agreement.

 

1.6           Severance Payment.  For purposes of this Agreement,

"Severance Payment" means the amount calculated by multiplying the

sum of Executive's Base Salary plus Annual Bonus by two:  

 

(Base Salary + Annual Bonus) x 2 = Severance Payment.

 

1.7           Termination Date.  For purposes of this Agreement,

"Termination Date" means the date on which Executive ceases to be an

employee of the Company.

 

ARTICLE 2

 

severance AND OTHER

TERMINATION BENEFITS

 

2.1           Severance.  The Company shall pay to Executive the

Severance Payment (less appropriate payroll withholding as required by law)

upon (i) a termination of Executive's employment by the Company without Cause,

(ii) a termination of Executive's employment by Executive for Good Reason, or

(iii) a termination of Executive's employment, whether voluntary or

involuntary, for any reason other than for Cause upon or within (and including)

13 months after a change of control.

 

2.2           Disability and Medical/Dental

Coverage; No Unpaid Vacation or Sick Leave.  In addition to any Severance Payment Executive may be entitled to

receive under Section 2.1 above, if Executive's employment is terminated (i) by

the Company without Cause, (ii) by Executive for Good Reason or (iii)whether

voluntary or involuntary for any reason other than for cause upon or within

(and including) 13 months after a Change of Control then the Company shall

continue the disability and medical/dental coverage provided to Executive

immediately prior to Executive's Termination Date.  Such coverage shall be provided by the Company at its sole cost

until the second anniversary of the Termination Date.  If and to the extent additional benefits are available, Executive

has the right to continue health benefits under COBRA laws in effect on the

Termination Date.  Executive

acknowledges that the number of months of health insurance benefits available

under this Section 2.3 exceed by six (6) months the number of required months

under current law.  Executive shall not

be deemed to have and shall not be paid for any unpaid vacation or sick leave

upon his termination of employment for any reason, voluntary or involuntary.

 

2.3           Other Termination Benefits.  In addition to the benefits described above,

upon termination (whether voluntary or involuntary) of Executive’s employment

with the Company, Executive shall be entitled to receive the following

benefits:

 

(a)           The Company shall

pay to Executive (i) the full base salary earned by him and unpaid through the

Termination Date, at the rate in effect at the time written notice of

termination (voluntary or involuntary) was given, (ii) and any amount earned by

Executive as a bonus with respect to the fiscal year of the Company preceding

the termination of his employment if such bonus has not theretofore been paid

to Executive.

 

(b)           The Company shall

also pay to Executive all legal fees and expenses incurred by Executive as a

result of such termination of employment (including all fees and expenses, if

any, incurred by Executive in successfully seeking to obtain or enforce any

right or benefit provided to Executive by this Agreement whether by arbitration

or otherwise); and

 

(c)           Executive shall not

be required to mitigate the amount of any payment provided for in this Section

4 by seeking other employment or otherwise. 

The amount of any payment or benefit provided in this Section 4 shall

not be reduced by any compensation earned by Executive as a result of any

employment by another employer.

 

(d)           For the avoidance of

doubt, Executive acknowledges that the Company shall be under no obligation to

provide Executive with an automobile or an automobile allowance at any time

after the Termination Date pursuant to any term of this Agreement.

 

2.4           Payment.  All amounts due under Section 2 of this

Agreement shall be paid to Executive no later than the close of business on the

earlier to occur of the Termination Date or the date of the Change of Control.

 

ARTICLE 3

 

certain additional

payments by the company

 

3.1           Gross-Up Payment.  Anything to the contrary notwithstanding, in

the event it shall be determined that any payment, distribution or benefit made

or provided by the Company to or for the benefit of Executive (whether pursuant

to this Agreement or otherwise) (a "Payment"), would be subject to the

excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as

amended (the "Code"), or any interest or penalties with respect to

such excise tax (such excise tax, together with any such interest and

penalties, being collectively referred to as the "Excise Tax"), then

the Company shall pay Executive in cash an amount (the "Gross-Up

Payment") such that, after payment by Executive of all taxes (including

any payroll or FICA taxes, and any interest or penalties imposed with respect

to all such taxes), including but not limited to income taxes (and any interest

and penalties imposed with respect thereto) and the Excise Tax imposed upon the

Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to

the Excise Tax imposed on the Payments. An example of the calculation of the

Gross-Up Payment is attached hereto as Exhibit A.

 

3.2           Determination of Gross-Up Payment.  Subject to Section 3.3, all determinations

required to be made under this Article 3, including whether a Gross-Up Payment

is required and the amount of the Gross-Up Payment, shall be made by the firm

of independent public accountants selected by the Company to audit its

financial statements for the year immediately preceding the Change in Control

(the "Accounting Firm").  The

Accounting Firm shall provide detailed supporting calculations to the Company

and Executive within thirty (30) days after the Termination Date.  In the event that the Accounting Firm is

serving as accountant or auditor for the individual, entity or group effecting

the Change in Control, Executive may appoint another nationally recognized

accounting firm to make the determinations required under this Article 3 (which

accounting firm shall then be referred to as the "Accounting Firm").  All fees and expenses of the Accounting Firm

in connection with the work it performs pursuant to this Article 3 shall be

promptly paid by the Company.  Any

Gross-Up Payment (as determined pursuant to this Article 3) shall be paid by

the Company to Executive within five (5) days of the receipt of the Accounting

Firm's determination.  If the Accounting

Firm determines that no Excise Tax is payable by Executive, it shall furnish

Executive with a written opinion that failure to report the Excise Tax on

Executive's applicable federal income tax return would not result in the

imposition of a negligence or a similar penalty.  Any determination by the Accounting Firm shall be binding upon

the Company and Executive.  As a result

of the uncertainty in the application of Section 4999 of the Code at the time

of the initial determination by the Accounting Firm, it is possible that

Gross-Up Payments which will not have been made by the Company should have been

made ("Underpayment").  In the

event that the Company exhausts its remedies pursuant to Section 3.3, and

Executive is thereafter required to make a payment of Excise Tax, the

Accounting Firm shall promptly determine the amount of the Underpayment that

has occurred and any such Underpayment shall be paid by the Company to

Executive within five (5) days after such determination.

 

3.3           Contest.  Executive shall notify the Company in

writing of any claim made by the Internal Revenue Service that, if successful,

would require the Company to pay a Gross-Up Payment.  Such notification shall be given as soon as practicable but no

later than ten (10) 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 30-day period following

the date on which Executive 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:

 

(a)           give the Company any information

reasonably requested by the Company relating to such claim;

 

(b)           take such action in connection with

contesting such claim as the Company shall reasonably request in writing from

time to time, without limitation, accepting legal representation with respect

to such claim by an attorney selected by the Company and reasonably acceptable

to Executive;

 

(c)           cooperate with the Company in good

faith in order to effectively contest such claim; and

 

(d)           permit the Company to participate in

any proceedings relating to such claim, provided 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 or income

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 3.3, the Company shall control all proceedings taken

in connection with such contest.  At its

sole option, the Company may pursue or forego any and all administrative

appeals, proceedings, hearings and conferences with the taxing authority in

respect of such claim and may either direct Executive to pay the tax claimed

and sue for a refund or contest the claim in any permissible manner.  Executive agrees to prosecute such contest

to a determination before any administrative tribunal, in a court of initial

jurisdiction and in one or more appellate courts, as the Company shall

determine, provided 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, from any Excise Tax or income 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 further provided 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.

 

3.4           Refund.  If, after the receipt by Executive of an

amount advanced by the Company pursuant to Section 3.3, Executive becomes

entitled to receive any refund with respect to such claim, Executive shall

(subject to the Company's complying with the requirements of Section 3.3)

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 Section 3.3, 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 (30) 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.

 

ARTICLE 4

 

TERM and survival

 

The Company's obligation under Sections 2.1 and 2.2 to

pay a Severance Payment and provide other benefits to Executive a termination

of employment within 13 months after a Change of Control shall terminate on the

fourth anniversary date of this Agreement, provided, however, to

the extent any such obligation arose on or prior to such fourth anniversary

date due Executive's termination of employment on or prior to the fourth

anniversary date and such obligation remains unperformed on the third

anniversary date, such obligation shall survive.  The Company's obligation to pay a Severance Payment and other

benefits under Sections 2.1 and 2.2 upon a termination without Cause or

termination for Good Reason and the Company's obligations to make payments

under Sections 2.3 and 3.1 shall survive indefinitely.  The rights and obligations of the parties

with respect to Articles 5, 6 and 7 shall survive for the periods set forth in

Articles 5, 6 and 7. 

 

ARTICLE 5

 

PROTECTION OF TRADE

SECRETS AND

CONFIDENTIAL information

 

5.1           Covenant to Protect Confidential

Information.  Executive acknowledges

that in connection with Executive's employment by the Company, Executive will

be brought into contact with Confidential Information (as defined below), and

Executive and the Company agree that in consideration of the covenants of the

Company pursuant to this Agreement that upon a Change of Control, termination

by the Executive for Good Reason, or termination with Cause:

 

(a)           Executive will not disclose to any

person or entity any Confidential Information after the term of his employment,

except to employees of the Company who, in the reasonable judgment of Executive

need such information for the performance of their duties, and attorneys,

accountants or other representatives of the Company as may be necessary or

appropriate in the ordinary course of performing Executive's duties as an

executive of the Company, or otherwise with the Company's express prior written

consent.

 

(b)           Executive will not disclose or

transfer any Confidential Information to any third party without the express

prior written consent of the Company (which consent shall not be unreasonably

hindered or delayed), except that Executive may make such disclosures to third

parties:  (i) in the ordinary course of

conducting the business of the Company, (ii) subject to a confidentiality

agreement in form and substance reasonably acceptable to the Company and (iii)

in compliance with orders, rules or regulations of judicial, regulatory or

self-regulatory organizations having jurisdiction over either the Company or

Executive.

 

(c)           Executive will deliver to the Company

promptly upon termination of employment, or at any other time that the Company

may so request, all memoranda, notes, records (including electronic data

records), reports and other documents (and all copies thereof) relating to the

Confidential Information which he may then possess or have within his control.

 

(d)           For purposes of this Agreement,

"Confidential Information" means any information which is proprietary

or unique to the business of the Company, including but not limited to trade

secret information, matters of a technical nature such as processes, devices,

techniques, data and formulas, research subjects and results, marketing

methods, plans and strategies, operations, products, revenues, expenses,

profits, sales, key personnel, customers, suppliers, pricing policies, any

information concerning the marketing and other business affairs and methods of

the Company which is not readily available in the Company's industry, and any

information the Company has indicated to Executive in an unambiguous writing is

confidential.

 

5.2           Termination of Obligation of

Confidentiality.  The confidentiality

obligations imposed by Section 5.1 shall cease to apply to Confidential

Information after the EARLIEST of the date on which the Confidential

Information which has been treated by the Company as Confidential Information:

(i) was known to Executive before it was obtained from the Company; (ii) was

publicly available on the date of first receipt from the Company; (iii) has

become generally known to the public in the United States through no fault of

Executive; (iv) has been disclosed to Executive free of any obligation of

confidentiality by a third party who, to the knowledge of Executive, has the

right to disclose the same and did not derive the information from the Company;

or (v) was independently developed by Executive without the use of the Confidential

Information; provided that, with respect to clauses (i), (iv) and (v) only,

such date must be established through Executive providing the Company with

written evidence clearly establishing such exception.

 

5.3           Survival of Covenants.  The obligations of this Article 5 shall

indefinitely survive the termination of Executive's employment with the Company

and shall be binding upon any and all of Executive's assigns, executors,

administrators and other legal representatives.  However, notwithstanding anything to the contrary in this

Agreement, if the Company either breaches any covenant to pay or provide

benefits to Executive under Article 2 hereof, whether before or after the

Termination Date, in addition to all other remedies in equity or at law which

Executive may otherwise be entitled to pursue, the Covenant to Protect

Confidential Information shall 

terminate and be of no further force or effect if such breach has not

been cured by the Company within five (5) calendar days after the date of such

breach.  The Company understands and

agrees that such termination under such circumstances is reasonable and will

not be deemed to be an election of remedies by Executive, and that Executive

shall be entitled to pursue all amounts and benefits owed to him under Article

2 thereafter.

 

ARTICLE 6

 

work product

 

6.1           Work Product. Executive

acknowledges that Work Product (as defined below) belongs solely to the Company

upon a Change of Control, termination by the Executive for Good Reason, or

termination with Cause:

 

(a)           At the request of the Company,

Executive shall (i) assign (and Executive does hereby assign) to the Company

all of his ownership in and rights to such Work Product, and  (ii) assist the Company, at the Company’s

expense, as requested during and after employment to evidence, perfect and

enforce the rights of the Company in and ownership of such Work Product by

promptly executing and delivering to the Company, the necessary written

instruments and by performing such other acts as may be necessary, in the opinion

of the Company, so as to enable the Company to obtain and maintain patent,

copyright or other intellectual property rights in such Work Product and so as

to vest the entire right and title thereto in the Company.

 

(b)           Pursuant to the provisions of Minn.

Stat. Section 181.78, the Company hereby notifies Executive that this Section

6.1 does not apply to an invention for which no equipment, supplies, facility

or trade secret information of the Company was used and which was developed

entirely on Executive's own time, and (i) which does not relate (A) directly to

the business of the Company, or (B) to the Company's actual or demonstrably

anticipated research or development, or (ii) which does not result from any

work performed by Executive for the Company.

 

(c)           For purposes of this Agreement,

"Work Product" means all inventions, creations, innovations,

improvements, technical information, systems, software developments, methods,

designs, analyses, drawings, reports, service marks, trademarks, tradenames, logos

and all similar or related information (whether patentable or unpatentable)

which relate to the Company's actual or anticipated business, research and

development or existing or future products or services which are conceived,

developed or made by Executive (whether or not during usual business hours and

whether or not alone or in conjunction with any other person) while employed by

the Company (including those conceived, developed or made prior to the date of

this Agreement), together with all patent applications, letters patent,

trademark, tradename and service mark applications or registrations, copyrights

and reissues thereof that may be granted for or upon any of the foregoing.

 

6.2           Survival of Covenants.  The obligations of this Article 6 shall indefinitely

survive the termination of Executive's employment with the Company with respect

to inventions or other discoveries conceived or otherwise developed during

Executive's employment and shall be binding upon any and all of Executive's

assigns, executors, administrators and other legal representatives.  However, notwithstanding anything to the

contrary in this Agreement, if the Company either breaches any covenant to pay

or provide benefits to Executive under Article 2 hereof, whether before or

after the Termination Date, in addition to all other remedies in equity or at

law which Executive may otherwise be entitled to pursue, the foregoing Work

Product covenant shall terminate and be of no further force or effect if such

breach has not been cured by the Company within five (5) calendar days after

the date of such breach.  The Company

understands and agrees that such termination under such circumstances is

reasonable and will not be deemed to be an election of remedies by Executive,

and that Executive shall be entitled to pursue all amounts and benefits owed to

him under Article 2 thereafter.

 

ARTICLE 7

 

NONCOMPETITION,

NONSOLICITATION AND NONDISPARAGEMENT

 

7.1           Noncompetition, Nonsolicitation

and Nondisparagement.  Executive

acknowledges and agrees with the Company that, during the course of Executive's

employment with the Company, Executive has had and will continue to have the

opportunity to develop relationships with existing employees, customers and

other business associates of the Company, which relationships constitute

goodwill of the Company, and Executive acknowledges and agrees that the Company

would be irreparably damaged if Executive were to take actions that would

damage or misappropriate such goodwill. 

Executive accordingly covenants and agrees that upon a Change of

Control, termination by Executive for Good Reason or termination with Cause as

follows:

 

(a)           Executive acknowledges that the

Company currently conducts throughout the United States (the

"Territory") the business of selling membership/enhancement services

(the "Subject Business") accordingly, in consideration of the

covenants of the Company pursuant to this Agreement, from the date hereof until

the first anniversary of Executive's Termination Date (the "Noncompete Period"),

Executive shall not, directly or indirectly, engage in, assist, give or lend

funds to or otherwise finance, be employed by or consult with, or have a

financial or other interest in, any “Competitor” (as defined below) which

engages in the Subject Business or markets programs, products or services

similar to those of the Company as of Executive's last day of employment with

the Company, whether for or by himself or as an independent contractor, agent,

stockholder, partner or joint venturer with any such Competitor, provided that

the aggregate ownership by Executive of no more than two percent of the

outstanding equity securities of any Person, including any Competitor, which

securities are traded on a national or foreign securities exchange, quoted on

the Nasdaq Stock Market or other automated quotation system shall not be deemed

to be giving or lending funds to, otherwise financing or having a financial

interest in a competitor.  As used

herein, the term, “Competitor” means those Persons identified on Exhibit B

attached hereto and any company or any business unit of any company that

receives more than 75% of its annual revenues engaging in the

Membership/Enhancement Services Business. 

Also, as used herein, Membership/Enhancement Services Business means the

sale or marketing of memberships to clubs for which club members/customers pay

an annual membership fee which fee is automatically renewed unless the customer

cancels his/her/its membership.  

 

(b)           Executive covenants and agrees that

during the Noncompete Period, Executive will not, directly or indirectly,

either for himself or for any other Person (i) solicit or initiate contact with

any employee of the Company, or any former employee of the Company whose

employment with the Company terminated within six months of such solicitation

or contact, for the purpose of employing such individual, (ii) solicit any

supplier to the Company as of Executive's last day of employment with the

Company to purchase or distribute information, products or services of or on

behalf of Executive or such other Person that are competitive with the

information, products or services provided by the Company, or (iii) make any

disparaging statements concerning the Company or its officers, directors or

employees, to any lessor, lessee, vendor, supplier, customer, distributor,

employee, consultant or other business associate of the Company, as such

relationship relates to the Company's conduct of the Subject Business.  Notwithstanding the foregoing, this section

7.1(b) does not prohibit or restrict communicating with or hiring employees or

former employees of the Company who first initiate contact with Executive or

who respond to a general public solicitation of employment such as a newspaper

advertisement.

 

(c)           Executive understands that the foregoing

restrictions may limit Executive's ability to earn a livelihood in a business

similar to the business of the Company, but Executive nevertheless believes

that Executive has received and will receive sufficient consideration and other

benefits as provided hereunder to clearly justify such restrictions which, in

any event (given Executive's education, skills and ability), Executive does not

believe would prevent him from otherwise earning a living.

 

(d)           Notwithstanding anything to the

contrary in this Agreement, if the Company either breaches any covenant to pay

or provide benefits to Executive under Article 2 hereof, whether before or  after the Termination Date, in addition to

all other remedies in equity or at law which Executive may otherwise be entitled

to pursue, the foregoing noncompetition, nonsolicitation and nondisparagement

covenants shall  terminate and be of no

further force or effect if such breach has not been cured by the Company within

five (5) calendar days after the date of such breach.  The Company understands and agrees that such termination under

such circumstances is reasonable and will not be deemed to be an election of

remedies by Executive, and that Executive shall be entitled to pursue all

amounts and benefits owed to him under Article 2 thereafter.

 

ARTICLE 8

 

remedies

 

8.1           Remedies.  In the event of the violation or threatened

violation by Executive of any of the covenants contained in this Agreement, in

addition to any other remedy available in law or in equity, the Company shall

have (i) the right and remedy of specific enforcement, including injunctive

relief, it being acknowledged and agreed that any such violation or threatened

violation may cause irreparable injury to the Company and that monetary damages

will not provide an adequate remedy, (ii) the right and remedy to withhold any

payments or benefits required to be made or provided to Executive hereunder

upon the material and continuing violation by Executive of any provisions of

Articles 5, 6 or 7 hereof, but without limiting Executive's obligations under

Articles  5 or 6 hereof, provided that

all such payments shall be promptly paid over to Executive if the arbitrators

referenced in Article 9 hereof determines that Executive did not violate such

provisions, and (iii)the right to any and all damages available as a matter of

law.

 

8.2           Reformation.  In furtherance and not in limitation of the

foregoing, should any duration or geographical restriction on business

activities covered under this Agreement or any other provision of this

Agreement be found by any court of competent jurisdiction to be less than fully

enforceable due to its breadth of restrictiveness or otherwise, Executive and

the Company intend that such court will enforce this Agreement to the full

extent that the court may find permissible by construing such provisions to

cover only that duration, extent or activity which may be enforceable.  Executive and the Company acknowledge the

uncertainty of the law in this respect and intend that this Agreement will be

given the construction that renders its provisions valid and enforceable to the

maximum extent permitted by law.

 

ARTICLE 9

 

arbitration

 

In the event of a dispute between the Company and

Executive regarding either party's failure to comply with the covenants contained

in this Agreement, it is the intention of the parties that the dispute shall be

resolved as expeditiously as possible, consistent with fairness to both

sides.  Accordingly, any such matters

shall be resolved by binding private arbitration before a single

arbitrator.  Within thirty (30) days of

receipt of such notice by the opposing party, the parties shall meet in good

faith to appoint a disinterested and neutral arbitrator.  In the event the parties cannot agree upon

the identity of the neutral arbitrator within said thirty (30) day period, then

the neutral arbitrator shall be appointed by the Chief Judge of Hennepin County

(Minnesota) District Court.  Any

arbitration proceeding conducted hereunder shall be in the City of Minneapolis

and shall follow the procedures set forth in the Rules of Commercial

Arbitration of the American Arbitration Association, and both sides shall

cooperate in as expeditious a resolution of the proceeding as is reasonable

under the circumstances.  The arbitrator

shall apply the law of the State of Minnesota. 

The arbitrator shall have the power to enter any relief he or she deems

fair and just on any claim, including interim and final equitable relief, along

with any procedural order that is reasonable under the circumstances.  Any award rendered by the arbitrator may be

filed and a judgment obtained in any court having jurisdiction over the parties

unless the relief granted in the award is delivered within ten (10) days of the

award.  Either party may request

arbitration by written notice to the other party.

 

ARTICLE 10

 

miscellaneous

 

10.1         No Funding of Severance.  Nothing contained in this Agreement or

otherwise shall require the Company to segregate, earmark or otherwise set

aside any funds or other assets to provide for any payments required to be made

under Articles 2 or 3 hereof, and the rights of Executive to any benefits

hereunder shall be solely those of a general, unsecured creditor of the

Company.

 

10.2         Beneficiaries.  In the event of Executive's death, any

amount or benefit payable or distributable to him pursuant to this Agreement

shall be paid to the beneficiary designated by Executive for such purpose in

the last written instrument received by the Company prior to Executive's death,

if any, or, if no beneficiary has been designated, to Executive's estate, but

such designation shall not be deemed to supersede any beneficiary designation

under any benefit plan of the Company.

 

10.3         Governing Law; Jurisdiction.  This Agreement shall be construed,

interpreted and enforced according to the statutes, rules of law and court

decisions of the State of Minnesota without regard to conflict of law

provisions.  Executive hereby submits to

the jurisdiction of, and waives any venue objections against, the State of

Minnesota and the federal courts of the United States located in such state in

respect of all actions arising out of or in connection with this Agreement, and

Executive consents to the personal jurisdiction of such courts for such

purposes.

 

10.4         Assignment and Survival.  This Agreement is binding upon the Company

and Executive and their permitted successors and assigns.  The obligations of Articles 5, 6, 7, 8, 9

and 10 of this Agreement will survive the termination of Executive's employment

with the Company.  The services rendered

by Executive to the Company under this Agreement are personal in nature and,

therefore, Executive may not delegate Executive's duties or obligations under

this Agreement.  The Company may assign

its rights and delegate its duties and obligations under this Agreement.

 

10.5         No Waiver.  The failure of either the Company or

Executive to object to any conduct or violation of any of the covenants made by

the other under this Agreement will not be deemed a waiver of any rights or

remedies.  No waiver of any right or

remedy arising under this Agreement will be valid unless set forth in an

appropriate writing signed by both the Company and Executive.  This Agreement shall not give Executive any

right to be employed for any specific time or limit the Company's right to

terminate Executive's employment at any time, with or without Cause.

 

10.6         Modification.  This Agreement supersedes and replaces any

and all prior and written understandings, if any, between the parties relating

to the subject matter of this Agreement, including any previous employment

contract which is hereby revoked.  The

parties agree that this Agreement and the Exhibits attached hereto (a) set

forth the entire understanding and agreement between the parties with respect

to the subject matter of this Agreement and (b) is the complete and exclusive

statement of the terms and conditions thereof, and there are no other written

or oral agreements in regard to the subject matter of this Agreement.  This Agreement shall not be changed or

modified except by a written document signed by the parties hereto.

 

10.7         Unique Nature of Agreement.  The covenants made in, and the rights

conveyed by, this Agreement are of a unique and special nature.  Any violation of this Agreement by Executive

will result in immediate and irreparable to the Company.  In such event, Executive acknowledges that

this Agreement entitles the Company to an injunction or decree of specific

performance from a court of equity in addition to other rights or remedies

which the Company may have at law or in equity.  Executive hereby waives the right to assert the defense that any

such breach or violation can be adequately compensated in damages and in an

action at law.

 

10.8         Severability.  The covenants, provisions, and sections of

this Agreement are severable.  If any

portion of this Agreement is held to be unlawful or unenforceable, the same

will not affect any other portion of this Agreement, and the remaining terms

and conditions or portions thereof will remain in full force and effect.  This Agreement will be construed in such

case as if such unlawful or unenforceable portion had never been contained in

this Agreement, in order to effectuate the intentions of the Company and

Executive in executing this Agreement.

 

10.9         Notices.  All notices, demands and other

communications provided for hereunder shall be in writing and shall be given

either by personal delivery, via facsimile transmission (receipt telephonically

confirmed), by nationally recognized overnight courier (prepaid), or by

certified or registered first class mail, postage prepaid, return receipt

requested, sent to each party at its/his address as set forth below or such

other address or in such other manner as may be designated by such party in

written notice to each of the other parties. 

All such notices, demands and communications shall be effective when

personally delivered, one (1) business day after delivery to the overnight

courier, upon telephone confirmation of facsimile transmission or upon receipt

after dispatch by mail to the party to whom the same is given or made:

 

	

  If to Executive:

  	

   

  	

  Michael T. McGowan

  
	

   

  	

   

  	

  8812 Windsor Terrace

  North, Brooklyn Park, MN 55443

  
	

   

  	

   

  	

   

  
	

  If to the

  Company:

  	

   

  	

  Provell, Inc.

  
	

   

  	

   

  	

  301 Carlson

  Parkway, Suite 201

  
	

   

  	

   

  	

  Minnetonka, MN 

  55305

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  Attention:  Chief Financial Officer

  

 

[SIGNATURE PAGE FOLLOWS]

 

IN WITNESS WHEREOF the following parties have executed

the above instrument the day and year first above written.

 

	

   

  	

  Provell,

  Inc.

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  By

  	

   

  
	

   

  	

  Name

  	

   

  
	

   

  	

  Its

  	

   

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  EXECUTIVE:

  
	

   

  	

   

  
	

   

  	

   

  
	

   

  	

  Michael T. McGowan

  
				

 

exhibit a

 

gross-up payment

calculation

 

Pursuant to Article 4 of the Executive Employment

Agreement to which this Exhibit D is attached, a gross-up payment shall be paid

to the Executive by the Company within the time period specified in the Agreement

for the amount of excise tax incurred by the Executive as a result of Internal

Revenue Code Section 4999.  The

following is an example of the result intended by Article 4 of the Agreement.

 

Definition of terms:

 

G=           Gross-up payment due,

P=           Amount of the parachute payment,

B=           Base amount,

R=           Aggregate applicable Federal and

State (net of Federal benefit) income tax rate,

.2=           20% tax rate imposed by Internal

Revenue Code Section 4999

 

Example assumptions:

 

G=           X,

P=           $1,000,000,

B=           $250,000, and

R=           .45

 

Based upon the

assumptions listed, the gross-up payment is calculated as follows:

 

G=           (.2P - .2B) / (.8-R)

G=           [(.2($1,000,000) - .2($250,000)] /

(.8 - .45)

G=           ($200,000 - $50,000) / .35

G=           $150,000 / .35

G=           $428,571

 

EXHIBIT B

 

LIST OF

COMPETITORS

 

Memberworks, Inc.

 

Cendant’s

Membership Services Business Unit, known as Trilegiant

 

Encore Marketing

International Inc.

 

Signature

Marketing Group, Inc., currently owned by GE Financial Advisors

 

Brand Direct

Marketing, Inc.

 

Eubiquity,

currently owned by West Teleservices, Inc.

 

Metris Companies,

Inc.Prepared by MERRILL CORPORATION

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY  WITH THE SECURITIES AND EXCHANGE

COMMISSION  PURSUANT TO RULE 24b-2 OF

THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

 

Exhibit 10.18

 

SECOND AMENDMENT TO

COLLABORATION

AGREEMENT

 

This Second Amendment to

Collaboration Agreement (“Amendment”) is entered into as of July 6, 2001 (“Amendment Date”) by

and between Rigel Pharmaceuticals, Inc.,

a Delaware corporation (“Rigel”) having offices at 240 East Grand Avenue, South

San Francisco, CA 94080, and Novartis Pharma AG, a Swiss corporation

(“Novartis”) having offices at Lichtstrasse 35, CH-4058, Basel, Switzerland.

Rigel and Novartis are referred to herein collectively as the “Parties,” and

each individually as a “Party.”

 

Recitals

 

Whereas, Rigel has, as of the Amendment Date,

conducted significant research regarding the role of endothelial cell function

in angiogenesis (some of which research Rigel has conducted pursuant to a

collaborative program with Cell Genesys, Inc., a Delaware corporation (“Cell

Genesys”), and has substantial expertise in the discovery of intracellular

target molecules that modulate human disease states, which expertise is

applicable to further research on endothelial cell function in angiogenesis;

 

Whereas, Novartis is engaged in the research,

development, marketing and manufacture of pharmaceutical compounds useful in

treating or preventing human diseases and conditions, including diseases and

conditions which may affect or be affected by angiogenesis, and therefore

desires to have access to the results of Rigel’s research up to the Amendment

Date in such area, as well as to cooperate with Rigel and employ Rigel

technology to pursue further research in such area;

 

Whereas, Rigel and Novartis are parties to that

certain Collaboration Agreement dated May 26, 1999 as amended by a First

Amendment dated 18 May, 2001 (referred to as the “Collaboration Agreement”)

pursuant to which Novartis may have access to up to five (5) collaborative

research projects with Rigel, as more completely described in the Collaboration

Agreement, and in connection with research surrounding such process that Rigel

has ongoing under its collaboration with Cell Genesys in order to benefit from the

synergies and efficiencies of a combined research program;

 

Whereas, the Parties wish to conduct their

further research regarding endothelial cell function in angiogenesis as a Joint

Project within the framework of their existing collaboration pursuant to the

Collaboration Agreement;

 

Whereas, the Parties have, as of the Amendment

Date, initiated three (3) collaborative projects pursuant to the Collaboration

Agreement, of which two (2) have been Joint Projects (as defined by the

Collaboration Agreement) and one (1) has been an At-Novartis Projects (as

defined by the Collaboration Agreement);

 

Whereas,  the Collaboration Agreement provides for the Parties

to conduct a maximum of three (3) At-Novartis Projects; and

 

[Signature

Page]

 

Whereas, the Parties wish to amend the

Collaboration Agreement as provided herein to accommodate conducting a

collaborative project relating to endothelial cell function in angiogenesis as

a Joint Project pursuant to the Collaboration Agreement in conjunction and

consistent with Rigel’s research for and responsibilities to Cell Genesys, as

well as to provide for Rigel to be compensated for its prior work outside the

scope of the Collaboration Agreement in such area of research.

 

Now, Therefore, in consideration of the foregoing and

the covenants and promises contained in this Amendment, the Parties agree as

follows:

 

ARTICLE

1

 

DEFINITIONS

 

1.1          Terms

Defined in Collaboration Agreement.  Any initially capitalized terms not

otherwise defined herein shall have the meanings given in the Collaboration

Agreement.

 

1.2          Additional

Defined Terms.  As used herein and in the Collaboration

Agreement, the following terms shall have the following meanings:

 

(a)           “Angiogenesis

Project” shall mean the Program of Research directed to the identification of

Novel Validated Targets involved in endothelial cell function as part of the

angiogenesis process, as such Program of Research is more fully described in

Exhibit A.

 

(b)           “CG

Agreement” shall

mean that certain License and Research Agreement made effective by and between

Rigel and Cell Genesys as of September 2, 1999, as first amended and restated

by such parties on March 26, 2001 and subsequently amended and restated by such

parties effective July 1, 2001, a partially redacted copy of the signed CG Agreement

being appended to this Amendment as Exhibit C.

 

(c)           “Novel

Validated Angiogenesis Project Target” shall mean a Novel Validated Target identified in the

Angiogenesis Project.

 

1.3          Research

Period. The

Collaboration Agreement is hereby amended to replace the definition of

“Research Period” in its entirety with the following:

 

““Research Period” shall mean,

for each Joint Project and At-Novartis Project other than the Angiogenesis

Project, five years commencing as of the corresponding Commencement Date,

subject to earlier termination as permitted hereby.

 

With respect to

the Angiogenesis Project, the Research Period shall mean three (3) years after

its Commencement Date.”

 

ARTICLE

2

 

NUMBER

OF PROJECTS; ANGIOGENESIS PROJECT; RIGHTS IN NOVEL 

VALIDATED

ANGIOGENESIS TARGETS

 

2.1          Number of

Projects.  The Collaboration Agreement is hereby

amended to replace the text of Section 2.1 thereof in its entirety with

the following:

 

“Novartis may have access to up to five (5) Programs of Research of

which at least three (3) will be Joint Projects and no more than two (2) will

be At-Novartis Projects.”

 

2.2          Angiogenesis

Project.  The Collaboration Agreement is hereby

amended to insert, after Section 2.5 thereof, a Section 2.6 entitled

“Angiogenesis Project” having the following as its text:

 

“The Program of Research

constituting the Angiogenesis Project is as described at Exhibit A to this

Second Amendment. The Angiogenesis Project shall be conducted as a Joint

Project as provided in Section 4.1 of the Agreement and is one of the Programs

of Research referred to in Section 2.1 of the Agreement; provided, that Novartis

acknowledges that the Program of Research for the Angiogenesis Project may

describe, and the Angiogenesis Project may therefore include, research that is

also covered by the CG Agreement.  The

number of FTEs for each of the first three years of the Angiogenesis Project

are set forth in Exhibit B, row B-4.”

 

2.3          Discretionary

Termination of Research Period: Section 4.5.1 of the Collaboration Agreement is hereby

amended to insert the phrase “if applicable” immediately after the phrases

“given Joint Project” and “such Joint Project” in the sixth and eighth lines,

respectively, of such Section.

 

2.4          Exclusivity

Term: Section 5.2

of the Collaboration Agreement is hereby amended to insert the phrase “and,

with respect to the Angiogenesis Project only, subject furthermore to the

provisions of the CG Agreement,” immediately after the phrase “and subject to

the provisions of Section 5.5,” in the third line of such Section.

 

2.5          Novel

Validated Angiogenesis Project Target.  A new Section

6.5 shall be added to the Collaboration Agreement with the following as its

text:

 

“Novel Validated Angiogenesis Project

Target.  The Parties

recognize and acknowledge that as a part of Rigel’s ongoing relationship with

Cell Genesys in the angiogenesis field, Rigel has certain obligations and has

granted certain rights to Cell Genesys that are each described and defined in

the CG Agreement. Such rights of Cell Genesys may include without limitation

(i) the nonexclusive right to use Novel Validated Angiogenesis Targets to

research and develop Therapeutic Candidates (within the meaning of such term as

defined and used in the CG Agreement); and (ii) pursuant to Section 2.2(b)(i)

of the CG Agreement, the “royalty-free, exclusive, worldwide license, with the

right to grant and authorize sublicenses, under any Information and

intellectual property created by Rigel (solely or jointly with Novartis) under

the Novartis Angiogenesis Collaboration, to make, have made, use, sell, offer

for sale and import Therapeutic Candidates within the CG Program Field”.  The rights with respect to Novel Validated

Angiogenesis Targets and Project Technology granted Novartis pursuant to the

Collaboration Agreement and this Amendment are hereby made subject to any

conflicting rights granted Cell Genesys pursuant to the CG Agreement solely to

the extent of the conflict with such rights of Cell Genesys.”

 

ARTICLE

3

 

FINANCIAL

TERMS

 

3.1          Milestone

Payments to Rigel.

Novartis will pay Rigel Milestone Payments in respect of achievements in the

Angiogenesis Project in the amounts and upon the events specified in Section

7.2 of the Collaboration Agreement.

 

3.2          Access

Payment.

 

(a)           Section 7.3 of the Collaboration Agreement

is hereby amended to insert the phrase “other than the Angiogenesis Project”

immediately after the phrase “each Joint Project” in the second line of such

Section.

 

(b)           Novartis shall pay Rigel a project access

fee in relation to the Angiogenesis Project of four million dollars

($4,000,000) within thirty (30) days after the receipt of an invoice from Rigel

on or after the Amendment Date.

 

3.3          Extension

Fee. The

Extension Fee payable by Novartis to extend the Exclusivity Term with respect

to any Novel Validated Angiogenesis Project Target shall be as specified (with

respect to any Novel Validated Target) pursuant to Section 7.5 of the

Collaboration Agreement.

 

3.4          Research

Support of Angiogenesis Project. The Collaboration Agreement is hereby amended by

replacing Exhibit B thereto with the amended and restated Exhibit B appended to

this Amendment.

 

ARTICLE

4

 

CONFIDENTIALITY

 

4.1          The following Section 10.2.3 shall be

added to the Collaboration Agreement:

 

“Novartis is aware and authorizes that Rigel may disclose to Cell

Genesys under the CG Agreement Confidential Information generated by Rigel

solely or jointly with Novartis under the Angiogenesis Project, such

Confidential Information to be used by Cell Genesys exclusively as provided in

the CG Agreement.”

 

ARTICLE

5

 

MISCELLANEOUS

 

5.1          This Amendment shall become effective

upon the Amendment Date and will form an integral part of the Collaboration

Agreement.

 

5.2          Except as expressly amended hereby, all

clauses of the Collaboration Agreement shall remain unchanged in full force and

effect.

 

5.3          This Amendment may be executed in two (2)

or more counterparts, each of which shall be deemed an original, but all of

which together shall constitute one and the same instrument.

 

In Witness Whereof, the Parties hereto have duly executed

this Second Amendment.

 

	

  Rigel

  Pharmaceuticals, Inc.

  	

  Novartis

  Pharma AG

  
	

   

  	

   

  	

   

  
	

  By:

  	

  /s/   Raul R. Rodriguez

  	

   

  	

  By:

  	

  /s/   J. Heim

  
	

   

  	

   

  	

   

  
	

  Name:

  	

    Raul R. Rodriguez

  	

   

  	

  Name:

  	

    J. Heim

  
	

   

  	

   

  	

   

  
	

  Title:

  	

    Vice President, Business Development

  	

   

  	

  Title:

  	

    Sr. Scientific

  Expert MCB

  
							

 

 

EXHIBIT A

 

Angiogenesis Project

 

[*]

 

Exhibit B

 

Exhibit B to the Collaboration Agreement shall be deleted and

replaced in its entirety with the following:

 

“EXHIBIT B

 

 

	

  Project

  	

   

  	

  Number of Rigel FTEs

  	

   

  	

  Commencement Date

  	

   

  	

  Type of Project

  
	

  B-1: T-Cell Project

  	

   

  	

  12

  	

   

  	

  Effective Date

  	

   

  	

  Joint Project

  
	

  B-2: B-Cell Project

  	

   

  	

  12

  	

   

  	

  August 24, 1999

  	

   

  	

  Joint Project

  
	

  B-3: Epithelial Cell Project

  	

   

  	

  n.a.

  	

   

  	

  January 1, 2000

  	

   

  	

  At-Novartis

  Project

  
	

  B-4: Angiogenesis Project

  	

   

  	

  12 in first and

  second year after Commencement Date 

   

   8 in third year after Commencement Date

  	

   

  	

  Amendment Date

  	

   

  	

  Joint Project

  

 

EXHIBIT C

 

RIGEL-CELL GENESYS AGREEMENT (Redacted)

 

See Exhibit 10.19 to

Rigel Pharmaceuticals, Inc.’s Quarterly Report on Form 10Q for the quarter

ended September 30, 2001

 

 

 

	

  [ * ]

  	

  =

  	

  CERTAIN CONFIDENTIAL INFORMATION

  CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED

  SEPARATELY  WITH THE SECURITIES AND

  EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF

  1934, AS AMENDED.

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