Document:

cryolife8k110208ex10.htm

    Exhibit
10.1

     

    CHANGE
OF CONTROL AGREEMENT

    

    This CHANGE OF CONTROL AGREEMENT (this
“Agreement”) dated as of the 2nd day of November, 2008 is by and between
CRYOLIFE, INC., a Florida corporation (“CryoLife” or the “Company”) and Gerald
B. Seery (the “Officer”).

    

    W I T N E S S E T H:

    

    WHEREAS, the Board of Directors of the
Company upon the recommendation of the Compensation Committee, has determined
that it is in the best interests of the Company and its shareholders to enter
into this Change of Control Agreement in order to assure that the Company will
have the continued dedication of Officer, notwithstanding the possibility,
threat or occurrence of a Change of Control (as defined herein) of the Company;
and

    

    WHEREAS, Officer has determined that it
is in the best interests of Officer to enter into this Agreement;

    

    NOW, THEREFORE, in consideration of the
premises, the promises hereinafter set forth and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
both parties, it is hereby agreed as follows:

    

               1.           CERTAIN
DEFINITIONS.

    

    (a) “Effective Date” means
the first date during the Change of Control Period (as defined herein) on which
a Change of Control occurs.  Notwithstanding anything in this
Agreement to the contrary, if the Officer’s employment with the Company is
terminated by the Company without Cause or by Officer for Good Reason (as such
terms are defined herein) within the six (6) month period prior to the date on
which the Change of Control occurs and if such Change of Control is consummated
(such a termination of employment, an “Anticipatory Termination”), then for all
purposes of this Agreement the “Effective Date” means the date immediately prior
to the date of such termination of employment.

    

    (b) “Change of Control
Period” means the period commencing on the date hereof and ending on
September 1, 2011; provided,
however, that, commencing on September 1, 2011, and each three-year
anniversary of such date (such date and each such three-year anniversary
thereof, the “Renewal Date”) unless previously terminated, the Change of Control
Period shall be automatically extended so as to terminate three (3) years from
such Renewal Date, unless, at least thirty (30) days prior to the next Renewal
Date, the Company shall give notice to the Officer that the Change of Control
Period shall not be so extended.

    

    (c) “Affiliated Company”
means any company controlled by, controlling or under common control with the
Company.

    

    (d) “Change of Control”
means a change in the ownership or effective control of, or in the ownership of
a substantial portion of the assets of, the Company, as described in paragraphs
(i) through (iii) below.

     

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    (i)           Change in Ownership of the
Company.  A change in the ownership of the Company shall occur
on the date that any one person, or more than one person acting as a group
(within the meaning of paragraph (iv)), other than a group of which Officer is a
member, acquires ownership of the Company stock that, together with the Company
stock held by such person or group, constitutes more than 50% of the total
voting power of the stock of the Company.

    

                 (A)           If
any one person or more than one person acting as a group (within the meaning of
paragraph (iv)), other than a group of which Officer is a member,  is
considered to own more than 50% of the total voting power of the stock of the
Company, the acquisition of additional the Company stock by such person or
persons shall not be considered to cause a change in the ownership of the
Company or to cause a change in the effective control of the Company (within the
meaning of paragraph (ii) below).

    

               (B)           An
increase in the percentage of the Company stock owned by any one person, or
persons acting as a group (within the meaning of paragraph (iv)), as a result of
a transaction in which the Company acquires its stock in exchange for property,
shall be treated as an acquisition of stock for purposes of this paragraph
(i).

    

               (C)           Except
as provided in (B) above, the provisions of this paragraph (i) shall apply only
to the transfer or issuance of the Company stock if such stock remains
outstanding after such transfer or issuance.

     

    (ii)           Change in Effective Control
of the Company.

    

    (A)           A
change in the effective control of the Company shall occur on the date that
either of (1) or (2) below occurs:

    

               (1)           Any
one person, or more than one person acting as a group (within the meaning of
paragraph (iv)), other than a group of which Officer is a member, acquires (or
has acquired during the 12 month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of the Company
possessing 30% or more of the total voting power of the stock of the Company;
or

    

               (2)           A
majority of the members of the the Company Board of Directors are replaced
during any 12 month period by Directors whose appointment or election is not
endorsed by a majority of the Board of Directors prior to the date of the
appointment or election.

    

    (B)           A
change in effective control of the Company also may occur with respect to any
transaction in which either of the Company or the other entity involved in a
transaction experiences a Change of Control event described in paragraphs (i) or
(iii).

    

    (C)           If
any one person, or more than one person acting as a group (within the meaning of
paragraph (iv)), is considered to effectively control the Company (within the
meaning of this paragraph (ii)), the acquisition of additional control of the
Company by the same person or persons shall not be considered to cause a change
in the effective control of the Company (or to cause a change in the ownership
of the Company within the meaning of paragraph (i)).

     

     

    
      
        
        

      

      
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    (iii)           Change in Ownership of a
Substantial Portion of the Company’s Assets.  A change in the
ownership of a substantial portion of the Company’s assets shall occur on the
date that any one person, or more than one person acting as a group (within the
meaning of paragraph (iv)), other than a group of which Officer is a member,
acquires (or has acquired during the 12 month period ending on the date of the
most recent acquisition by such person or persons) assets from the Company that
have a total gross fair market value (within the meaning of paragraph (iii)(B))
equal to or more than 40% of the total gross fair market value of all of the
assets of the Company immediately prior to such acquisition or
acquisitions.

     

    (A)           A
transfer of the Company’s assets shall not be treated as a change in the
ownership of such assets if the assets are transferred to one or more of the
following:

    

               (1)           A
shareholder of the Company (immediately before the asset transfer) in exchange
for or with respect to the Company stock;

    

               (2)           An
entity, 50% or more of the total value or voting power of which is owned,
directly or indirectly, by the Company;

    

               (3)           A
person, or more than one person acting as a group (within the meaning of
paragraph (iv)) that owns, directly or indirectly, 50% or more of the total
value or voting power of all of the outstanding stock of the Company;
or

    

               (4)           An
entity, at least 50% of the total value or voting power of which is owned,
directly or indirectly, by a person described in paragraph
(iii)(A)(3).

    

    For
purposes of this paragraph (iii)(A), and except as otherwise provided, a
person’s status is determined immediately after the transfer of
assets.

    

     (B)           For
purposes of this paragraph (iii), gross fair market value means the value of all
the Company assets, or the value of the assets being disposed of, determined
without regard to any liabilities associated with such assets.

    

    (iv)        For
purposes of this Section 1(d), persons shall be considered to be acting as a
group if they are owners of an entity that enters into a merger, consolidation,
purchase, or acquisition of assets, or similar business transaction with the
Company.  If a person, including an entity shareholder, owns stock in
the Company and another entity with which the Company enters into a merger,
consolidation, purchase, or acquisition of stock, or similar business
transaction, such shareholder shall be considered to be acting as a group with
the other shareholders in a corporation only to the extent of the ownership in
that corporation prior to the transaction giving rise to the change and not with
respect to the ownership interest in the other corporation.  Persons
shall not be considered to be acting as a group solely because they purchase or
own stock of the Company at the same time, or as a result of the same public
offering of the Company’s stock.

     

    
 

    
      
        
        

      

      
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    2.           EMPLOYMENT.

    

    Officer and the Company acknowledge
that the employment of the Officer by the Company is “at will” and Officer shall
have no rights under this Agreement unless Officer is terminated by the Company
without Cause or by the Officer with Good Reason during the period commencing on
the Effective Date and ending on the second anniversary of such
date.

    

    3.           TERMS OF AT WILL
EMPLOYMENT.

    

    (a) During
the term of his or her employment by the Company, and excluding any periods of
vacation and sick leave to which the Officer is entitled, the Officer agrees to
devote reasonable attention and time to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities assigned to the
Officer by the Board of Directors or the Chief Executive Officer, to use the
Officer’s reasonable best efforts to perform faithfully and efficiently such
responsibilities.

    

    (b) During
the term of this Agreement, the Officer will not, without the prior written
consent of the Company, directly or indirectly other than in the performance of
the duties hereunder, render services of a business, professional or commercial
nature to any other person or firm, whether for compensation or otherwise,
except: (i) with respect to any noncompetitive family businesses of the Officer
for which the rendering of such services will not have an adverse effect upon
Officer’s performance of his duties and obligations hereunder; (ii) that Officer
shall be permitted to engage in charitable and community affairs provided that
such activities do not interfere with the performance of his duties and
responsibilities enumerated herein; and (iii) to give attention to Officer’s
investments provided that such activities do not interfere with the performance
of his duties and responsibilities enumerated herein.

    

    4.           TERMINATION OF
EMPLOYMENT.

    

    (a)           Cause.  For
purposes of this Agreement, “Cause” shall mean:

    

    
      	
              (i)  

            	
              an
      intentional act of fraud, embezzlement, theft or any other material
      violation of law that occurs during or in the course of the Officer’s
      employment with the Company;

            

    

    

    
      	
              (ii)  

            	
              intentional
      damage by Officer to the Company’s
assets;

            

    

    

    
      	
              (iii)  

            	
              intentional
      disclosure by Officer of the Company’s confidential information contrary
      to the Company policies;

            

    

    

    
      	
              (iv)  

            	
              material
      breach of the Officer’s obligations under this
  Agreement;

            

    

    

    
      	
              (v)  

            	
              intentional
      engagement by the Officer in any activity which would constitute a breach
      of the Officer’s duty of loyalty or of the Officer’s assigned
      duties;

            

    

    

    
      	
              (vi)  

            	
              intentional
      breach by the Officer of any of the Company’s policies and
      procedures;

            

    

    

    
      	
              (vii)  

            	
              the
      willful and continued failure by Officer to perform the Officer’s assigned
      duties (other than as a result of incapacity due to physical or mental
      illness); or

            

    

    

    
      	
              (viii)  

            	
              willful
      conduct by the Officer that is demonstrably and materially injurious to
      the Company, monetarily or
otherwise.

            

    

     

     

    
      
        
        

      

      
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    (b)           Good
Reason.  For purposes of this Agreement, “Good Reason” shall
mean the assignment to the Officer, without the Officer’s consent, of any duties
materially inconsistent with the Officer’s position (including changes in
status, offices, or titles and any change in the Officer’s reporting
requirements that would cause Officer to report to an officer  who is
junior in seniority to the officer to whom Officer reports), authority, duties
or responsibilities, determined as of the later of the date of this Agreement or
the date of any modification to Officer’s position (including status, offices,
titles and reporting requirements, as described above), authority, duties or
responsibilities that is agreed to by Officer, or any other action by the
Company that results in a material diminution in such position, authority,
duties, responsibilities or Officer’s aggregate compensation, excluding for this
purpose an isolated, insubstantial and inadvertent action taken in good faith
and which is remedied by the Company within thirty (30) days after receipt of
notice thereof given by the Officer (each of these an “Event” for purposes of
this Section 4(b)).  Officer must notify the Company of any Event that
constitutes Good Reason within ninety (90) days following Officer’s knowledge of
the existence of such Event or such Event shall not constitute Good Reason under
this Agreement.

    

    (c)           Notice of
Termination.  Any termination by the Company for Cause, or by
the Officer for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 11(b) of this
Agreement.  For purposes of this Agreement, a “Notice of Termination”
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Officer’s employment under the provision so indicated and
(iii) specifies the termination date (which date shall not be more than thirty
(30) days after the giving of such notice; provided, however, if Officer
is terminating for Good Reason such date shall not be less than thirty (30) nor
more than forty-five (45) days after giving of such notice).  The
failure by the Officer or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good Reason or Cause
shall not waive any right of the Officer or the Company, respectively, hereunder
or preclude the Officer or the Company, respectively, from asserting such fact
or circumstance in enforcing the Officer’s or the Company’s rights
hereunder.

    

    (e) Date of
Termination.  “Date of Termination” means the date of receipt
of the Notice of Termination, or any later date specified therein, as the case
may be. The Company and the Officer shall take all steps necessary (including
with regard to any post-termination services by the Officer) to ensure that any
termination described in this Section 4 constitutes a “separation from service”
within the meaning of Section 409A of the Code, and notwithstanding anything
contained herein to the contrary, the date on which the separation from service
takes place shall be the “Date of Termination.”

    

    (f)  Covenants Necessary to the
Company’s Business.

    

    (i)           Non-Solicitation of
Customers.  The Officer covenants and agrees that, during the
term of this Agreement and for a period of one (1) year following the
termination of this Agreement Officer will not, either directly or indirectly,
in competition with the Company Business (as defined below), solicit, entice or
recruit for a Competing Business (as defined below), attempt to solicit, entice
or recruit for a Competing Business, or attempt to divert or appropriate to a
Competing Business, any actual or prospective customer of the Company with whom
Officer had contact on behalf of the Company.  For the purposes of
this Agreement, “Company Business” shall mean the business of (A) processing
cardiac or vascular tissues, (B) marketing biological glue or protein
hydrogel technology products, (C) marketing transport or other solutions for use
with human organs to be transplanted and/or (D) marketing hemostatic agents for
use in surgeries.  “Competing Business” shall mean any person or
entity that engages in a commercial business that is the same as or
substantially similar to the Company Business, and only that portion of the
business that is in competition with the Company Business.

     

     

    
      
        
        

      

      
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    (ii)           Non-Solicitation of
Employees.  Officer covenants and agrees that, during the term
of this Agreement for a period of one (1) year following the Date of
Termination, Officer will not, either directly or indirectly, solicit, entice,
encourage, cause, or recruit any person employed by the Company and with whom
Officer had contact during Officer’s employment with the Company to leave such
person’s employment with the Company to join a Competing Business.

    

    (iii)           Consideration for
Covenants.  Officer covenants and agrees that the payment of
any Severance Payment (as defined in Section 5(e)) shall be subject to and
expressly conditioned upon Officer’s compliance with the covenants set forth in
subparagraphs (i) and (ii) above.  Should Officer fail to comply with
these covenants, the Company shall not be required to make the Severance Payment
(or any portion of the Severance Payment that remains unpaid), and the Officer
shall be required to repay any portion of the Severance Payment that the Officer
has already received from the Company.

    

    

    5.           OBLIGATIONS OF THE COMPANY UPON
TERMINATION.

    

    (a)           If,
during the two year period commencing on the Effective Date and ending on the
second anniversary
of the Effective Date, (i) the Company shall terminate the Officer’s employment
without Cause, or (ii) the Officer shall terminate employment for Good Reason,
then the Company shall pay to Officer the Severance Payment (defined
below).

    

    (b) Severance
Payment.  The “Severance Payment” shall be an amount equal to
two (2) times the aggregate of Officer’s base salary as of the Date of
Termination and bonus compensation for the year in which the termination of
employment occurs. For purposes of determining Officer’s bonus compensation for
purposes of this Section 5(b), if the Date of Termination occurs before the
awarding of bonuses for the year in which the Date of Termination occurs, the
bonus compensation component of the Severance Payment shall be computed based on
Officer’s most recent awarded bonus.  Bonus compensation shall include
both the Annual Bonus paid in cash and the value of any non-cash bonuses, such
as options or restricted stock. Any such options will be valued pursuant to the
Black Scholes valuation method as of the grant date, using the same assumptions
used by the Company in computing the FAS 123R charge for the options, and any
shares of restricted stock will be valued at the closing price of the the
Company Common Stock on The New York Stock Exchange on the date of
issuance.  The Company’s annual option and restricted stock grants
shall not be deemed to be bonus compensation unless they are specifically
designated as such by the the Company Compensation Committee.  For the
sake of clarification, all cash paid and any shares issued in payment of all or
a portion of the bonus pursuant to the Company’s Officer Incentive Plan shall be
bonus compensation for purposes of this Agreement for the year in which paid or
issued. The Severance Payment shall be payable to Officer as
follows:

     

     

    
      
        
        

      

      
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    (i)           The
Severance Payment, if any is due hereunder, shall be paid to Officer in a lump
sum not later than thirty (30) days following Officer’s Date of
Termination. 

    

    (ii)           In
the event of an Anticipatory Termination, the Severance Payment shall be paid to
Officer in a lump sum not later than thirty (30) days following the date of the
Change of Control.

    

    Notwithstanding
the foregoing, if any amount paid pursuant to this Section 5(b) is deferred
compensation withing the meaning of Section 409A of the Code and as of the Date
of Termination Officer is a Specified Employee, amounts that would otherwise be
payable during the six-month period immediately following the Date of
Termination shall instead be paid, with interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Code, on
the first business day after the date that is six months following Officer’s
“separation from service” within the meaning of Section 409A of the Code (the
“Delayed Payment Date”).   As used in this Agreement, the term
“Specified Employee” means a “specified employee” as defined in Section
409A(a)(2)(B)(i) of the Internal Revenue Code of 1986, as amended (the “Code”).
By way of clarification, “specified employee” means a “key employee” (as defined
in Section 416(i) of the Code, disregarding Section 416(i)(5) of the Code) of
the Company.  Officer shall be treated as a key employee if the
Officer meets the requirement of Section 416(i)(1)(A)(i), (ii), or (iii) at any
time during the twelve (12) month period ending on an “identification
date”.  For purposes of any “Specified Employee” determination
hereunder, the “identification date” shall mean the last day of each calendar
year.

    

    6.           FULL SETTLEMENT.

    

    In no event shall the Officer be
obligated to seek other employment or take any other action by way of mitigation
of the amounts payable to the Officer under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not the Officer
obtains other employment.  The Company agrees to pay, to the full
extent permitted by law, all legal fees and expenses which the Officer may
reasonably incur as a result of any contest by the Company or Officer with
respect to liability under or the interpretation of the validity or
enforceability of, any provision of this Agreement, but only in the event and to
the extent that (i) the Officer receives a final, non-appealable judgment in his
favor in any such action or receives a final judgment in his favor that has not
been appealed by the Company within 30 days of the date of the judgment; or (ii)
the parties agree to dismiss any such action upon the Company’s payment of the
sums allegedly due the Officer or performance of the covenants by the Company
allegedly breached by it.

    

    7.           LIMITATION OR EXPANSION OF
BENEFITS.

    

    (a) In the event it shall be determined
that all or any portion of any benefit, payment, acceleration right or
distribution by the Company to or for the benefit of the Officer (whether
payable or distributable pursuant to the terms of this Agreement or otherwise)
is treated as an “excess parachute payment” (as defined in Section 280G(b)(1) of
the Code) which is subject to the excise tax imposed by Section 4999 of the Code
(such excise tax, the “Excise Tax”), then the Company shall pay to Officer an
additional amount of cash (a “Gross-Up Payment”) equal to the amount necessary
to cause the amount of the aggregate after-tax compensation and benefits
received by the Officer hereunder (after payment of the excise tax under Section
4999 of the Code with respect to any excess parachute payment, and any state and
federal income and employment taxes with respect to the Gross-Up Payment) to
equal the aggregate after-tax compensation and benefits the Officer would have
received if the Excise Tax had not been imposed. The Gross Up Payment shall be
paid to Officer on the date that is thirty (30) days prior to the date on which
the Excise Tax with respect to any excess parachute payment is due.  A
nationally recognized public accounting firm selected by the Company shall
initially determine, at the Company’s expense, whether an “excess parachute
payment” will be made to Officer, and if so, the amount of the Gross-Up
Payment.  In the event of a subsequent claim by the Internal Revenue
Service that, if successful, would result in Officer’s liability for an Excise
Tax in excess of the amount covered by any previous Gross-Up Payment, the
Officer shall promptly notify the Company in writing of such
claim.  If the Company elects to contest such claim, it shall so
notify the Officer and shall bear and pay directly or indirectly all costs and
expenses of contesting the claim (including additional interest and penalties
incurred in connection with such action), and shall indemnify and hold Officer
harmless, on an after-tax basis, for any excise, income, or employment tax,
including interest and penalties with respect thereto, imposed as a result of
the Company’s payment of costs of the contest. Officer shall cooperate fully
with the Company in the defense of any such IRS claim.  If, as a
result of the Company’s action with respect to a claim, Officer receives a
refund of any amount paid by the Company with respect to such claim, Officer
shall promptly pay such refund to the Company.  In the event the IRS
claim is finally determined to result in the imposition of additional Excise Tax
on Officer, the Company shall make an additional Gross-Up Payment with respect
to any such additional Excise Tax.

     

     

    
      
        
        

      

      
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    (b) Anything in this Agreement to the
contrary notwithstanding, aggregate severance, separation and/or similar
payments made to Officer pursuant to this Agreement and otherwise shall be
limited to the equivalent of Officer’s salary paid during the three (3)
completed fiscal years ended prior to the Date of Termination, including bonuses
and guaranteed benefits paid during those years. If necessary, any Gross-Up
Payment will be reduced in order to comply with this provision.

    

    8.           CONFIDENTIAL
INFORMATION.

    

    The Officer and the Company are parties
to one or more separate agreements respecting confidential information, trade
secrets, inventions and non-competition (collectively, the “IP Agreements”). The
parties agree that the IP Agreements shall not be superseded or terminated by
this Agreement and shall survive any termination of this Agreement; provided,
however, that to the extent that there is any conflict or overlap between the
provisions of this Agreement and any of the IP Agreements, those provisions that
provide the Company with the greatest rights and protections shall
control.

    

    

    

    
      
        
        

      

      
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    9.           SUCCESSORS.

    

    (a) This Agreement is personal to the
Officer and without the prior written consent of the Company shall not be
assignable by the Officer otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable by
the Officer’s legal representatives.

    

    (b) This Agreement shall inure to the
benefit of and be binding upon the Company and its successors and
assigns.

    

    (c) The Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place.  As used in this Agreement,
“the Company” shall mean CryoLife as hereinbefore defined and any successor to
its business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.

    

    10.           COMPLIANCE
WITH SECTION 409A.

    

    (a)           This
Agreement is intended to comply with, or otherwise be exempt from, Section 409A
of the Code and any regulations and Treasury guidance promulgated
thereunder.

    

    (b)           The
Company and Officer agree that they will execute any and all amendments to this
Agreement as they mutually agree in good faith may be necessary to ensure
compliance with Section 409A of the Code.

    

    (c)           The
Company makes no representation or warranty as to the tax effect of any of the
preceding provisions, and the provisions of this Agreement shall not be
construed as a guarantee by the Company of any particular tax effect to Officer
under this Agreement.  the Company shall not be liable to Officer or
any other person for any payment made under this Agreement which is determined
to result in the imposition of an excise tax, penalty or interest under Section
409A of the Code, nor for reporting in good faith any payment made under this
Agreement as an amount includible in gross income under Section 409A of the
Code.

    

    11.           MISCELLANEOUS.

    

    (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of Georgia, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force and effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.

    

    (b) All notices and other
communications hereunder shall be in writing and shall be given by hand delivery
(which shall include delivery via Federal Express or UPS) to the other party or
by registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:

     

     

    
      
        
        

      

      
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                                If
      to the Officer:

                              
	 
      	 
      
	 
      	
                                Gerald
      B. Seery

                              
	 
      	
                                1575 Asheforde
      Dr.

                              
	 
      	
                                Marietta, GA 
      30068

                              
	 
      	 
      
	 
      	
                                If
      to the Company:

                              
	 
      	 
      
	 
      	
                                CryoLife,
      Inc.

                              
	 
      	
                                1655
      Roberts Boulevard, N.W,

                              
	 
      	
                                Kennesaw,
      Georgia 30144

                              
	 
      	
                                Attention:  Chief
      Executive Officer

                              
	 
      	
                                Facsimile:
      (770)
590-3754

                              

                      

                    

                  

                

              

            

          

        

      

    

    

    or to
such other address as either party shall have furnished to the other in writing
in accordance herewith. Notice and communications shall be effective when
actually received by the addressee.

    

    (c) If any provision of this Agreement
or the application of any provision hereof to any person or circumstance is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstance shall not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent) necessary to
make it valid, enforceable and legal; provided, however, if the provision so
held to be invalid, unenforceable or otherwise illegal cannot be reformed so as
to be valid and enforceable, then it shall be severed from, and shall not affect
the enforceability of, the remaining provisions of the Agreement.

    

    (d) The Company may withhold from any
amounts payable under this Agreement such Federal, state, local or foreign taxes
as shall be required to be withheld pursuant to any applicable law or
regulation.

    

    (e) This Agreement embodies the entire
agreement between the parties with respect to the subject matter addressed
herein, except as specifically set forth in Section 9 above.  From and
after the Effective Date, this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.

    

    

    

    
      
        
        

      

      
        10

        
          

        

      

      
        
        

      

    

    

     

    IN WITNESS WHEREOF, the parties hereto
have executed this Agreement as of the date first above written.

     

    
      
        
          
            
              
                
                  	 	/s/
      Gerald B. Seery	 
	 	 Gerald
      B. Seery	 
	 	 	 	 
	
                           

                        	
                          By:
      

                        	/s/ Steven
      G. Anderson	 
	 	 Steven
      G. Anderson	 
	 	 Chairman,
      President and CEO	 
	 	 	 	 

                

              

            

          

        

      

    
      
         

      

      
        11c55487_ex10-1.htm -- Converted by SEC Publisher, created by BCL Technologies Inc., for SEC Filing

SEPARATION AGREEMENT AND GENERAL RELEASE OF CLAIMS (this “Agreement”), dated as of November  3, 2008, by and between ELITE PHARMACEUTICALS, INC., with offices at
165 Ludlow Avenue, Northvale, New Jersey 07647 (the “Company”), and CHARAN BEHL. 

BACKGROUND

          WHEREAS, Employee is presently employed by the Company; and

          WHEREAS, Employee’s employment with the Company has been terminated as of the Separation Date (as defined below), and, in connection therewith, the Company has agreed to provide certain benefits to Employee in consideration
of Employee’s execution and performance of this Agreement; 

          NOW, THEREFORE, in consideration of the mutual covenants and conditions contained in this Agreement and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound hereby, the parties agree as follows: 

TERMS

          
 1.      Termination of Employment. Employee acknowledges that his employment with the Company shall terminate as of, and that his work-through date with the Company is the
close of business on November 3, 2008 (the “Separation Date”).

          
(a)      Employment Agreement.  Employee acknowledges and hereby waives his entitlement to certain notice and payment provisions upon termination under his Amended and
Restated Employment Agreement dated February 9, 2007, by and between Employee and the Company (the “Employment Agreement”). In particular, Employee hereby waives his right to
notice under Section 3.2.4 and all obligations of the Company to the Employee set forth in Sections 3.3, 3.2.4, 3.3.2 of the Employment Agreement, including without limitation the Severance Amount (as such term is defined in the Employment
Agreement).

          
(b)      Payments.
The Company shall pay to Employee (i) $25,000 (which amount represents the
unpaid guaranteed bonus as of March 2008), (ii)
$12,019 (which amount represents 2 1/5 weeks of unpaid vacation for the 2008
fiscal year) and (iii) $14,263 in expense reimbursements.  Employee acknowledges
that there are no payment amounts outstanding to Employee under the Employment
 Agreement and that all expenses to which he may be entitled to reimbursement
under the Company’s reimbursement policy have been reimbursed. 

          
 (c)      Option Agreements. Employee acknowledges the grant of options to purchase up to 750,000 shares of common stock, par value $0.01 per share (the
“Common Stock”) of the Company at an exercise price of $2.25 per share as set forth in the Incentive Stock Option Letter Agreements dated November 13, 2006, the
“Option Agreements”), which is each attached hereto as Exhibit A. Employee acknowledges that pursuant to two of the Option Agreements, options

	 	   	
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to purchase 500,000 shares of Common Stock are unvested and shall terminate as of the Separation Date. Employee acknowledges that he has 90
days following the Separation Date of which to exercise the remaining options to purchase up to 250,000 shares of Common Stock. 

         2.      Severance Benefits. The Company shall pay to Employee a severance payment of Twenty Thousand Five Hundred Forty Eight Dollars
(US$20,548) less any payroll or withholding taxes (the “Severance Payment”). The Company shall grant to Employee an option to purchase 50,000 shares of Common Stock (the
“Severance Option”). The Severance Option shall be fully vested and have an exercise price equal to $[___] (which amount represents the closing price of Common Stock on the
American Stock Exchange on the date prior to the grant). Upon payment of the Severance Payment and grant of the Severance Option, the Company shall have no further obligation to Employee, including, without limitation, on account of his service as
an employee of the Company.

          3.      Covenants, Representations and Warranties of the Parties. The Company and Employee each represents and warrants to the other (as to
itself) that (i) the party has full authority and capacity to enter into and perform the party’s obligations under this Agreement (having obtained all requisite corporate, company and/or governmental approvals), (ii) this Agreement has been
fully authorized, executed and delivered by the party and that the party has full legal right, power and authority to enter into and perform this Agreement, which constitutes a valid and binding agreement between the parties, enforceable against the
party in accordance with its terms, (iii) there are no agreements between the party and any third party that conflict with this Agreement; and (iv) no consent or approval of any third party, court or governmental agency is required in connection
with the party’s execution and performance of this Agreement. 

          4.      General Release of Claims and Covenants Not to Sue. Employee for himself and his respective administrators, executors, agents,
beneficiaries and assigns, does hereby waive, release and forever discharge the Company (as hereinafter defined for the purposes of this Section 4) of and from any and all Claims (as defined below). Employee agrees not to file a lawsuit to assert
any such Claim. This release covers all Claims arising from the beginning of time up to and including the date of this Agreement, but does not cover Claims relating to the validity or enforcement of this Agreement. In addition, Employee irrevocably
and unconditionally releases, forever discharges, and agrees to indemnify and hold harmless the Company from all Claims Employee believes or, at a later date may believe, he has against the Company for any actions arising out of Employee’s
employment with or separation from the Company from the beginning of time up to and including the date of this Agreement, whether known or unknown as of the date of this Agreement.

               (a)      Definition of “Claims”. (i) For purposes of this Agreement, “Claims” includes without limitation all actions or demands of any kind that Employee now has, or may have or claim to have in the future arising out of occurrences on or before the date of this Agreement. More specifically, Claims
include rights, causes of action, damages, penalties, losses, attorneys’ fees, costs, expenses, obligations, agreements, judgments and all other liabilities of any kind or description whatsoever, either in law or in equity, whether known or
unknown, suspected or unsuspected. 

	 	   	
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               (ii)
The nature of Claims covered by this release and covenant not to sue includes,
without limitation, all actions or demands in any way based on Employee’s
employment with Company, the terms and conditions of such employment, or the
termination of such employment. More specifically, all of the following are included
in the types of Claims that will be barred by this release and covenant not to
sue: (i) contract claims (whether express or implied), (ii) tort claims (such
as for defamation or emotional distress), (iii) claims under federal, state and
municipal laws, regulations, ordinances or court decisions of any kind, (iii)
claims of discrimination, harassment or retaliation, whether based on race, color,
religion, gender, sex, age, sexual orientation, handicap or disability, national
origin, or any other legally protected class, (iv) claims under the Age Discrimination
in Employment Act of 1967 as amended by the Older Workers Benefit Protection
Act, Title VII of the Civil Rights Act of 1964 as amended by the Civil Rights
Act of 1991, the Equal Pay Act of 1962, the Americans with Disabilities Act of
1990, the Workers Adjustment and Retraining Notification Act, the New York State
Human Rights Law (Article 15 of the New York State Employee Law), the New York
City Human Rights Law (Title I, Chapter B of the Administrative Code of the City
of New York), or any other federal, state or local statute or ordinance, (v)
claims under Employee Retirement Income Security Act, the Fair Labor Standards
Act, state wage payment laws and state wage and hour laws; and (vi) claims for
wrongful discharge. 

                  (b)      Definition
  of “Company”. For purposes of this
  Section 4, “Company” includes, without limitation, Elite Pharmaceuticals,
  Inc., and its past, present and future parents, Affiliates (as defined below),
  subsidiaries, divisions, predecessors, successors, assigns, employee benefit
  plans and trusts and each of their respective past, present and future directors,
  officers, partners, shareholders, members, managers, agents, employees, attorneys,
  representatives, consultants, associates, fiduciaries, plan sponsors, administrators
and trustees. 

                 (c)      Definition
  of “Affiliate”. For purposes of this
  Agreement, “Affiliate” (and its
derivations) shall mean, with respect to any person, any other person who controls,
  is controlled by or is under common control with such person. For purposes
  of the definition of Affiliate, "control" means the power to direct
  the management and policies of such person or firm, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.

                 (d)      Employee’s
  Acknowledgment of Scope of Release. Employee declares and agrees that any Claims he may have incurred or sustained may
not be fully known to him and may be more numerous and more serious than he now believes or expects. Further, in entering into this Agreement, Employee relies wholly upon his own judgment of the future development, progress and result of said
Claims, both known and unknown, and acknowledges that he has not been influenced to any extent whatsoever in the making of this Agreement by any representations or statements regarding said Claims made by individuals or entities who are within the
definition of Company above. Employee further acknowledges that he accepts the terms herein in full settlement and satisfaction of all such Claims. 

	 	   	
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       5.      Restrictive
Covenants of Employee.

            (a)      Employment Agreement.
  Employee acknowledges that he has certain obligations under his Employment
  Agreement dated as of February 9, 2007. In particular, Employee acknowledges
  his obligations under Sections 4 and 5: “Protection of Confidential Information and Trade Secrets; Non-Competition; No Solicitation” and “Continued Cooperation; Return of Documents and Property;
Injunctive Relief; Non-Exclusivity and Survival” of the Employment Agreement.
Employee agrees that he will continue to be bound by and shall abide by such
provisions. 

           (b)      Confidentiality. 

                 (i)      Employee
  acknowledges and agrees that, during his employment with the Company, he had
  access to Proprietary Information (as defined below) and that the Proprietary
  Information is the exclusive property of the Company or the party that disclosed
  or delivered such information to the Company. Employee agrees not to use the
  Proprietary Information, directly or indirectly, and agrees that he will promptly
  notify the Company of any unauthorized disclosure of Proprietary Information.
  Specifically, Employee agrees that all Proprietary Information or inventions
  developed as a direct result of his efforts on behalf of the Company during
  his employment with the Company remain the exclusive property of the Company,
  and that Employee has no ownership interest therein. For purposes of this Agreement, “Proprietary Information” means all of the following information and
material, whether or not reduced to writing and whether or not patentable, that Employee, during his employment with the Company, had access to or developed, in whole or in part, as a direct or indirect result of either his efforts on behalf of the
Company or through the use of any of the Company’s facilities or resources: (i) computer software, including without limitation all source and object code, flow charts, algorithms, coding sheets, routines, sub-routines, compilers, assemblers,
design concepts and related documentation and manuals; (ii) production processes, collection and receivable management processes, procedures and techniques, marketing techniques, licensing or sales policies, financial information, employee names and
job descriptions, customer and prospective customer names and requirements, data and other information or materials relating to the manner in which the customer, prospective customer or the Company do business; (iii) patents, patent applications,
trademarks, trademark applications and any other intellectual property rights and discoveries, concepts and ideas (including but not limited to the nature and results of research and development activities), processes, formulae, techniques,
“know-how”, designs, drawings and specifications, information relating to products, proposed products, agreements with or proprietary information of third parties, and clinical data and analysis, clinical
trials, applications and communications with the United States Food and Drug Administration;
(iv) any other information or materials relating to the business or activities
of the Company which is not generally known to others engaged in similar business
or activities; (v) all inventions and ideas which are derived from or relate
to Employee’s access to, or knowledge of, any of the information or materials describe herein; (vi) any of the information or
material described herein which is the property of any other person or firm which has revealed or delivered such information or material to the Company pursuant to a contractual relationship with the Company or otherwise in the course of the
Company’s business. Proprietary Information shall not include any information or material of the type described herein to the extent that such information or material is or becomes publicly known through no act on Employee’s
part in violation of this confidentiality provision. 

	 	   	
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                 (ii)      Employee further agrees that he shall maintain the terms of this Agreement and the negotiations leading up to it in the STRICTEST CONFIDENCE. Employee shall not disclose or discuss any of the
terms of this Agreement or the negotiations leading up to it with anyone other than: Employee’s
immediate family members, accountant, the Internal Revenue Service, legal representative,
or pursuant to subpoena issued as part of a legal proceeding; provided that,
before disclosing the terms of this Agreement or the negotiations leading up
to it to any of the foregoing, Employee shall advise the recipient regarding
the existence of this confidentiality provision and obtain the agreement of the
recipient to maintain the information in accordance with this provision. 

            (c)      Return of Corporate Property and Associated Expenses. Employee
  represents that he has returned to the Company all corporate property and copies
  thereof in his possession or under his custody or control, including without
  limitation, corporate credit cards, identification badge, calling cards, cellular
  or mobile telephone, and computer equipment and software. Employee’s access to
such property and facilities shall cease effective as of the Separation Date. In addition, Employee represents and warrants to the Company that he has returned to the Company, and has not retained copies of, all customer records, whether in print or
electronic form, and Employee specifically represents and warrants to the Company that he has deleted all such information from any personal computer or other electronic storage media in his possession.  Employee’s
access to such property and facilities, records, and information shall cease
effective as of the Separation Date. 

            (d)      Non-Disparagement.
  Employee agrees that he shall not, directly or indirectly, defame, disparage,
  make negative comments about, whether or not true, the name or reputation of
  the Company or any of its Affiliates, including but not limited to, any officer,
  director, employee or shareholder of the Company or any of its Affiliates,
  or act in any other manner that is intended to or does damage the good will,
  business or personal reputations of the Company or any of its Affiliates, including
  but not limited to, any officer, director, employee or shareholder of the Company
  or any of its Affiliates. The provisions of this Section 5(d) shall survive
  any termination of this Agreement and the termination of the Employee’s
employment with the Company.

       6.      Acknowledgements of Employee.

            (a)      Except
  as provided for in Section 2, the Company shall have no further obligation
  to Employee, including, without limitation, on account of his service as an
employee of the Company.

            (b)      Employee acknowledges that any payments or benefits provided to Employee under the terms of this Agreement do not constitute an admission by the Company that it has violated any law or legal
obligation with respect to any aspect of Employee’s employment or separation
therefrom. 

            (c)      Employee
  agrees and acknowledges that Employee's right to receive and keep the Severance
Payment and Severance Option is conditioned upon Employee continuing to 

	 	   	
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Initials __________     __________  

observe, and not be in breach of, the provisions of any of the terms or conditions provided for in this Agreement. Upon any breach hereof, all severance compensation and other benefits due Employee pursuant to Section 2 of this
Agreement shall immediately cease, or if already paid, shall be recoverable in full by the Company.  

          (d)      Employee has not instituted, assisted, or otherwise participated in connection with, any complaint, claim, charge, lawsuit, or administrative agency proceeding, or action at law or otherwise
against the Company. To the extent permitted by law, Employee waives his right to institute in the future any complaint, claim, charge, lawsuit, or administrative proceeding, or action at law or otherwise against the Company, and agree not to accept
any relief or recovery from any such action or proceeding filed on his behalf, other than any complaint, claim, charge, lawsuit, or administrative proceeding, or action at law in connection with, or resulting from, the Company’s breach of any
term of this Agreement. 

          (e)      Employee hereby represents that from the Separation Date onward (i) Employee has not made and will not make any representations, warranties, or commitments binding the Company and (ii) Employee
has not executed and will not execute any agreement on behalf of the Company, nor did Employee or shall Employee hold himself out to have such authority.

          (f)      Upon reasonable advance written notice, during mutually agreeable time periods, and provided the foregoing shall not interfere with Employee’s then current employment, Employee agrees to make
himself available to the Company in any pending or future governmental or regulatory investigation, civil or administrative proceeding, or arbitration, subject to any privileges that Employee may have and to his other personal and business
commitments. The Company will reimburse Employee for any loss of salary and all reasonable costs and expenses incurred by Employee in connection with any such proceeding or arbitration.

          (g)      Employee hereby represents that Employee has not assigned to any person or entity any claim, including, without limitation, Claims that arose or could have arisen against the Company, or its past,
present and future parents, Affiliates, subsidiaries, divisions, predecessors, successors, assigns, employee benefit plans and trusts and each of their respective past, present and future directors, officers, partners, shareholders, members,
managers, agents, employees, attorneys, representatives, consultants, associates, fiduciaries, plan sponsors, administrators and trustees. 

          (h)      Employee acknowledges that he has been advised to consult, and has consulted, with legal counsel of his choosing, at his own expense, regarding the meaning and binding effect of this Agreement and
each and every term hereof prior to executing it. 

         (i)      Employee,
intending to be legally bound hereby, certifies and warrants that he has read
carefully this Agreement and has executed it voluntarily and with full knowledge
and understanding of its  significance, meaning and binding effect. Employee
further declares that he is competent to understand the content and effect of
this Agreement. 

	 	   	
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          (j)      Employee
acknowledges that he was given a period of 21 days within which to consider this
Agreement and to the extent he executes this Agreement before the expiration
of the 21-day period, he does so knowingly and voluntarily and only after consulting
his attorney. Employee shall have the right to cancel and revoke this Agreement
during a period of 7 days following executing this Agreement, and this Agreement
shall not become effective, and no payments or benefits shall be made or provided
pursuant to this Agreement, until the day after the expiration of such 7-day
period. The 7-day period of revocation shall commence upon Employee executing
this Agreement. In order to revoke this Agreement, the Executive shall deliver
to the Company, prior to the expiration of such 7-day period, a written notice
of revocation. Upon such revocation, this Agreement shall be null and void and
of no further force or effect. 

       7.      Headings. The headings contained in this Agreement are not part of this Agreement and are included solely for ease of reference.

       8.      Integration and Modification. Employee declares and represents that no promise or agreement has been made to him other than those
expressed herein. Except as stated herein, this Agreement and the Option Agreements, constitute the entire agreement of the parties and supersedes all prior understandings, whether oral or written, between them. Any modification of this Agreement
must be made in writing and signed by all parties. 

       9.      Severability. If any provision of this Agreement is or shall be declared invalid or unenforceable by a court of competent jurisdiction,
the remaining provisions shall not be affected thereby and shall remain in full force and effect. 

       10.      Notices. All notices and other communications set forth in this Agreement are to be deemed delivered the day they are sent if sent by
same day or overnight commercial service to the applicable party at the following address (or such other address for a party as may be specified by like notice): 

       If to Employee:

  Charan Behl 

  PO Box 376 

  Commack, NY 11725

       If to the Company:

  Elite Pharmaceuticals, Inc. 

165 Ludlow Avenue 

Northvale, NJ 07647 

Attention: Chief Executive Officer or Chief Financial Officer 

Facsimile: (201) 750-2755 

	 	   	
Page 7 of 9  	   	
Initials __________     __________  

     With a
copy to:

Reitler Brown & Rosenblatt LLC 

800 Third Avenue, 21st floor 

New York, NY 10022 

Attention: Lauren K. Kluger, Esq.

Facsimile: (212) 371-5500 

     11.      Governing Law; Consent to Jurisdiction. This Agreement shall be governed by, and construed in accordance with, the laws of the State of
New York (without giving effect to its choice or conflict of laws provisions). Each of the parties hereby irrevocably and unconditionally submits to the jurisdiction of the courts of the State of New York and of the federal courts sitting in the
State of New York in all actions or proceedings arising out of or relating to this Agreement. Each of the parties agrees that all actions or proceedings arising out of or relating to this Agreement must be litigated exclusively in any such state or
federal court that sits in the City of New York, Borough of Manhattan, and accordingly, each party irrevocably waives any objection which it may now or hereafter have to the laying of the venue of any such litigation in any such court.  

     12.      Counterparts. This Agreement may be executed in any number of counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument. 

     13.      Equitable Remedies. Employee acknowledges and agrees that it would be impossible or inadequate to measure and calculate the Company's
damages from any breach of the covenants set forth in Sections 3, 4, 5 and 6 of this Agreement. Accordingly, Employee agrees that if he breaches any of such covenants, the Company will have available, in addition to any other right or remedy
available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. Employee further agrees that no bond or other
security shall be required in obtaining such equitable relief and hereby consents to the issuance of such injunction and to the ordering of specific performance. 

[Remainder of page intentionally left blank. Signature page follows.]

	 	   	
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     IN WITNESS WHEREOF, and with the intention of being legally bound hereby, the parties have executed this Separation Agreement and General Release of Claims as of the date first written above.

	 	 	 	 
	 	 	   
	 	CHARAN BEHL	   
	 	 	 	   
	 	ELITE PHARMACEUTICALS,
    INC.	 
	 	 	 	   
	 	 	 	   
	 	By:	 	 
	 	 	Name: Chris Dick 	
        
	 	 	Title: Chief Operating
    Officer	
          

	
\  	   	
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EXHIBIT A

  Incentive Stock Option Letter Agreements Dated November 13, 2006

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