Document:

Exhibit

Exhibit 10.(q)

AMENDED AND RESTATED
SHARED SERVICES AGREEMENT

This AMENDED AND RESTATED SHARED SERVICES AGREEMENT (this “Agreement”), executed as of December 8, 2017, but effective as of January 1, 2018, is between B. F. Saul Company, a corporation organized under the laws of the District of Columbia (“Saul Company,” which definition shall be deemed to include, for purposes of this Agreement, all consolidated subsidiaries of Saul Company), and Saul Centers, Inc., a corporation organized under the laws of the State of Maryland (“Saul Centers,” which definition shall be deemed to include, for purposes of this Agreement, Saul Holdings Limited Partnership and all of its subsidiaries).  Saul Company and Saul Centers shall collectively be referred to herein as the “parties.”

RECITALS:

A.     On July 1, 2004, Saul Company and Saul Centers executed a Shared Services Agreement (as amended, the “Original Shared Services Agreement”), whereby the parties established certain standards and procedures for sharing costs and services as more particularly set forth in the Original Shared Services Agreement.

B.    Saul Company and Saul Centers continue to be engaged in various businesses involving real estate.  The headquarters location and most executive officers of each of the parties are located at the same address, designated below as “Headquarters.” 

C.    Each of Saul Company and Saul Centers has certain experienced employees, programs and procedures the use of which by the other party is beneficial.  In connection with the foregoing, Saul Company and Saul Centers have now agreed to execute and deliver this Agreement to update the policies and procedures established by the parties pursuant to the Original Shared Services Agreement and reflect the apportionment of shared business costs, shared employee costs, and shared services between Saul Centers and Saul Company.   

D.     Both parties agree that the following terms represent a fair and equitable treatment of the costs and benefits to each of the parties with respect to such time, goods and services.

E.     The parties confirm that this Agreement is intended to amend and restate the Original Shared Services Agreement. 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

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Exhibit 10.(q)

AGREEMENT:

1.    Agreement to Share Costs.  Upon the terms and subject to the conditions contained herein, Saul Company and Saul Centers hereby agree to provide to the other party, as applicable, services as more particularly described herein.  Each of the services shall be provided and accepted, in accordance with, and subject to, the terms, limitations and conditions set forth below.  Each party will use commercially reasonable efforts to provide services to the other party in the same manner as if it were providing such services on its own account.

2.    Headquarters Costs.  

(a)    Headquarters Shared Costs.   The headquarters offices of both Saul Company and Saul Centers are currently located at 7501 Wisconsin Avenue, Bethesda, Maryland 20814 (such location, until changed by written agreement of an authorized officer of each of the parties, to be referred to herein as the “Headquarters”).  The parties agree that certain costs of the operation of, and company operations run from, the Headquarters, as set forth on Schedule 1 attached to this Agreement (collectively, the “Headquarters Shared Costs”) shall be allocated between Saul Company and Saul Centers on a percentage basis proportionate to the number of employees employed by each such party (individually, an “Employee” and collectively, the “Employees”) whose primary place of employment is the Headquarters.  The costs included on Schedule 1 shall be reviewed by authorized officers of each of the parties on an annual basis (or more frequently to the extent deemed appropriate by such authorized officers).  The parties acknowledge and agree that certain occupancy costs related to the Headquarters, such as rent, are the subject of one or more separate agreements, such as a sublease.  Costs covered by such separate agreements are not intended to be treated under this Agreement.

(b)    Budgeting and Reconciliation.  The respective number of Saul Company and Saul Centers Employees for the purpose of the calculation set forth in this Section 2 shall be determined prospectively annually on or before the last month of the calendar year and shall be reviewed as of the end of the second quarter of the then effective calendar year (or more frequently to the extent deemed appropriate by authorized officers of each party), and adjusted prospectively for the second half of the calendar year.  For each calendar year, such number shall be determined, by using the sum of (i) (1) the number of Employees employed by each party and (2) the number of vacant positions expected to be filled as of the first business day of the last month in the preceding calendar year plus (ii) the projected new positions expected to be created and filled during the current calendar year.  For example, for the period from January 1, 2018 through December 31, 2018, such number shall be based on the number of Employees, vacant positions and new positions projected to be filled of each party as of the first business day of December, 2017.  The parties acknowledge that the number of Employees may fluctuate from time to time within any quarter, but, subject to the provisions set forth above for more frequent determinations by mutual agreement) have agreed that the system of computation described above in this Section 2 substantially captures the agreement of the parties and is fair and equitable on an overall basis.

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Exhibit 10.(q)

(c)    Auditor Space.  Saul Company leases certain premises which include one (1) conference room that is currently fully utilized by outside auditors of Saul Centers (the “Saul Centers Auditor Space”).  Saul Centers shall reimburse Saul Company for one hundred percent (100%) of the costs of the Saul Centers Auditor Space (the “Auditor Space Cost”).    
3.    Allocated Support Groups Costs. 

(a)     Support Groups.  The following support groups are divisions within the Saul Company which perform services for Saul Centers:
		
	(i)
	Administration;

		
	(ii)
	Information Technology;

		
	(iii)
	Corporate Accounting;

		
	(iv)
	Internal Audit;

		
	(v)
	Financial Reporting;

		
	(vi)
	Human Resources;

		
	(vii)
	Payroll;

		
	(viii)
	Facilities;

		
	(ix)
	Finance; 

		
	(x)
	Construction and Development Accounting; and

		
	(xi)
	Office Leasing.

The Residential Division of Saul Centers performs services for Saul Company.
(b)    Support Groups Costs.  Commencing on the date hereof and continuing each year thereafter, Saul Company and Saul Centers shall respectively determine the annual costs (the “Allocated Support Employee Cost”) of each employee in the Support Groups (individually, an “Allocated Support Employee” and collectively, the “Allocated Support Employees”).  The Allocated Support Employee Cost will be calculated by adding the following:

		
	(i)
	annual base salary paid by the employer of such Allocated Support Employee;

		
	(ii)
	annual bonus or other financial incentive paid by the employer to the Allocated Support Employee;

		
	(iii)
	annual employer contributions based on the amount of cash compensation such as social security tax and retirement account matching; and

		
	(iv)
	other expenses of the home department of the Allocated Support Employee based on the average cost per person in his or her applicable Support Group, which shall include all rent, office expenses, professional fees, information technology costs, and other related costs and depreciation attributable to the applicable Support Group.  

(c)    Calculating Payment.  The parties will determine the percentage of time spent annually in each of Saul Company and Saul Centers matters by each Allocated Support Employee (the “Allocated Percentage”).  Each of the parties hereto agrees to pay to the other, on a monthly basis, the Allocated Percentage of the Allocated Support Employee Costs for each of their respective Allocated Support Employees (collectively, the “Support Groups Costs”).  

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Exhibit 10.(q)

    
(d)    Budgeting and Reconciliation.  The Allocated Support Employees, Allocated Support Employee Cost and the Allocated Percentages for the purpose of the calculations set forth in this Section 3 shall be determined prospectively annually on or before the last month of the calendar year and shall be reviewed as of the end of the second quarter of the then effective calendar year (or more frequently to the extent deemed appropriate by authorized officers of each party), and adjusted prospectively for the second half of the calendar year.  For each calendar year, the number of Allocated Support Employees shall be determined, by using the sum of (i) (1) the number of Allocated Support Employees employed by each party and (2) the number of vacant positions expected to be filled as of the first business day of the last month in the preceding calendar year plus (ii) the projected new positions expected to be created and filled during the current calendar year.  For example, for the period from January 1, 2018 through December 31, 2018, such number shall be based on the number of Allocated Support Employees, vacant positions and new positions projected to be filled of each party as of the first business day of December, 2017.  The parties acknowledge that the number of Allocated Support Employees may fluctuate from time to time within any quarter, but, subject to the provisions set forth above for more frequent determinations by mutual agreement) have agreed that the system of computation described above in this Section 3 substantially captures the agreement of the parties and is fair and equitable on an overall basis.

4.    Industry Services Costs. 

(a)    Acquisition and Development Group; Construction Group.  The Acquisition and Development Group (“A&D Group”) is composed of Employees of each of Saul Company and Saul Centers.  Saul Company employees perform acquisition and development services for Saul Centers.  Similarly, Saul Centers employees perform acquisition and development services for Saul Company.  The Construction Group is composed of Saul Company employees, which employees perform construction management services for both Saul Company and Saul Centers.  The A&D Group and the Construction Group shall be referred collectively herein as the “Industry Groups.”  

(b)    Industry Groups Costs. Commencing on the date hereof and continuing each year thereafter, Saul Company and Saul Centers shall respectively determine the monthly costs (“Industry Employee Cost”) of each employee in the Industry Groups (individually, an “Industry Employee” and collectively, the “Industry Employees”).  The Industry Employee Cost will be calculated by adding the following and dividing it by twelve (12) months:  

		
	(v)
	annual base salary paid by the employer of such Industry Employee;

		
	(vi)
	annual bonus or other financial incentive paid by the employer to the Industry Employee;

		
	(vii)
	annual employer contributions based on the amount of cash compensation such as social security tax and retirement account matching; and

		
	(viii)
	other expenses of the home department of the Industry Employee based on the average cost per person in his or her applicable group, which shall include all rent, office expenses, professional fees, information 

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Exhibit 10.(q)

technology costs, and other related costs and depreciation attributable to the applicable group.  

(c)    Calculating Payment.  Employees of each of the Industry Groups track the actual work hours spent in Saul Company and Saul Centers matters.  The parties will determine the percentage of time spent monthly by each Industry Group Employee in Saul Company and Saul Centers matters (the “Monthly Percentage”).  Each of the parties hereto agrees to pay to the other party, the respective Monthly Percentage of the Industry Employee Costs for each of their respective Industry Employees (collectively, the “Industry Groups Costs”).  

5.    Benefits Costs.   

(a)    Company-Wide Shared Costs.  Both Saul Company and Saul Centers have offices in locations other than the Headquarters, and Employees who work at locations other than the Headquarters.  The parties agree that certain “company-wide” costs of the operation of the respective businesses of Saul Company and Saul Centers, whether relating to officers and Employees at Headquarters or other offices, as set forth on Schedule 2 attached to this Agreement (the “Company-Wide Shared Costs”) shall be allocated between Saul Company and Saul Centers on a percentage basis proportionate to the number of the Employees employed by each such party, including both of the Employees whose principal place of business is the Headquarters and the Employees whose principal place of business is a location other than the Headquarters; provided, however, that group health insurance costs shall be allocated between the parties based on the actual Employees of each party who participate in the group health plan.  

(b)     Excluded Employees.  Anything herein to the contrary notwithstanding, the parties acknowledge that the Company-Wide Shared Costs are not intended to cover the hotel division field-based employees of Saul Company or its subsidiaries.   

6.     Shared Program Costs.
(a)    Designated Programs. The parties acknowledge that (i) certain costs of the operation of each of the parties are incurred under programs (the “Designated Programs”) that apply only to certain segments of the employee population, based on the needs of the employers and the terms of their employment; and (ii) the cost and administrative activities related to such programs (“Shared Program Costs”) can reasonably be expected to be reduced if such Designated Programs are operated on a shared basis.  The Designated Programs covered by this Agreement are as set forth on Schedule 3 attached to this Agreement.  The costs for the items included on Schedule 3 shall be reviewed by authorized officers of each of the parties on an annual basis (or more frequently to the extent deemed appropriate by such authorized officers).

(b)    Calculating Payment.  The portion of the Shared Program Costs allocated to each of the parties hereto shall be determined based on the ratio of the number of Employees of each party who attended the Designated Program to the total number of Employees who attended the Designated Program.  
    

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Exhibit 10.(q)

7.     Information Technology Costs.

(a)     Information Technology (“IT”) Equipment.  The parties acknowledge that each of Saul Company and Saul Centers will from time to time purchase computer, telephone, and other information technology-related equipment for individual employees (including, by way of example and not limitation, desktop computers and office telephones) (collectively, the “IT Equipment”).  All IT Equipment costs shall be borne directly by the entity for whom that person works, and shall not be included in the IT Shared Costs (as hereinafter defined).
(b)    IT Shared Costs.  The parties acknowledge that IT software, third-party services for maintenance of IT hardware and software, and licenses (collectively, the “IT Software”) can be provided more efficiently and cost effectively to Saul Company and Saul Centers on a shared basis.  Costs for IT Software utilized by either party (the “IT Shared Costs”) shall be calculated as follows:  Saul Company shall determine the cost of each individual component of the IT Software that it has purchased or otherwise licensed and divide the cost by the number of Employees who have such component installed on their computer.  The IT Shared Costs shall be allocated to each party based on the actual use of IT Software by the Employees of each party.
(c)    Budgeting and Reconciliation.  The cost of IT Software and the number of individual Employee users of each of Saul Company and Saul Centers shall be determined prospectively annually on or before the last month of the calendar year and shall be reviewed before the end of the second quarter of the then effective calendar year (or more frequently to the extent deemed appropriate by authorized officers of each party), and adjusted prospectively for the second half of the year.  For each calendar year, such number shall be determined, by using the actual number of users of IT Software employed by each party on the first business day of the last month in the preceding calendar year plus the projected new hires for the current calendar year.  

8.     Legal Services.  The parties acknowledge that certain “in-house” legal services (the “Legal Services”) are provided to Saul Centers by employees of Saul Company on an on-going basis for purposes of efficiency and cost effectiveness.  Saul Centers shall pay to Saul Company, on a monthly basis, a fixed fee for each hour of legal services performed by Saul Company employees for Saul Centers.  Such hourly fee shall be determined by mutual agreement of the parties on an annual basis (or more frequently to the extent deemed appropriate), and based upon the “all-in” employment costs to Saul Company for such employee and may be different for each member of the in-house legal team.

9.     Payment; Direct Billing; Reconciliation.

 (a)     Monthly Payment. Each of the parties hereto agrees to pay to the other, on a monthly basis, its allocation of the following costs as calculated pursuant to this Agreement:

		
	(i)
	the Headquarters Shared Costs;

		
	(ii)
	the Auditor Space Costs;

		
	(iii)
	the Support Group Costs;

		
	(iv)
	the Industry Groups Costs;

		
	(v)
	the Company-Wide Shared Costs;

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Exhibit 10.(q)

		
	(vi)
	the Shared Program Costs;

		
	(vii)
	the IT Shared Costs; and 

		
	(viii)
	the Legal Services.

     The parties agree that as an administrative convenience, Saul Centers may offset its monthly payment to Saul Company by the monthly amounts owed to Saul Centers by Saul Company under this Agreement.

(b)    Supporting Documentation; Inspection Right.  Either party may request supporting documentation evidencing any of the sums payable by the other party under this Agreement.  Such supporting documentation shall be made available to the requesting party within five (5) business days of such written request.  Each party will keep and maintain books and records on behalf of the other party in accordance with past practices and internal control procedures. Each party will have the right, at any time and from time to time upon reasonable prior notice to the other party to inspect and copy (at its expense) during normal business hours at the Headquarters the books and records relating to the services and costs, and with respect to the other party’s performance of its obligations under this Agreement. This inspection right will include the ability of the other party’s financial auditors to review such books and records in the ordinary course of performing standard financial auditing services for such party (but subject to such financial auditors executing appropriate confidentiality agreements reasonably acceptable to the other party, if requested). Upon the expiration or termination of this Agreement, each party will be obligated to return to the other party, as soon as reasonably practicable, any property or materials of the other party that is in its control or possession.

(c)    Direct Billing.  The parties acknowledge that a number of operational and other costs are billed by outside vendors directly to Saul Company or Saul Centers.  The parties will make all reasonable efforts to confirm that such costs are billed to and paid by the correct party in each case. On a quarterly basis (or more frequently to the extent deemed appropriate by authorized officers of each of the parties), any misapplied invoices and payments shall be reconciled and appropriate payments shall be made by each party to the other.  In addition, certain shared services may be billed or invoiced to both Saul Company and Saul Centers.  The parties agree that either party may pay such invoices and submit a request for reimbursement to the other party.  

(d)    Reconciliation.  The parties also agree that they will make all reasonable efforts to ensure that all allocations, charges and payments made pursuant to this Agreement are accurate.  On an annual basis (or more frequently to the extent deemed appropriate by authorized officers of each of the parties), such allocations, charges and payments shall be reviewed and reconciled, and any appropriate payments shall be made by each party to the other.

10.    Ordinary Course of Business Changes; Amendments.   

(a)    Changes to the services or programs shared by the parties and listed as the Headquarters Shared Costs, the Company-Wide Shared Costs, the Shared Program Costs and the IT Shared Costs, may be made by the parties, on an annual basis, by mutual agreement of authorized officers.   Changes in the hourly billing rates of the Legal Services may also be made by the parties, on an annual basis by mutual agreement of authorized officers.   

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Exhibit 10.(q)

  
(b)     Except as expressly provided in Section 10(a) above, this Agreement may be amended only by agreement in writing of all parties.  

11.    Resolution of Disputes

(a)    Saul Centers and Saul Company acknowledge that the success of their relationship requires an efficient decision-making process for issues that arise under this Agreement. The Parties shall use reasonable best efforts to resolve specific disputes posed by either Party. If the dispute is not resolved in a satisfactory manner within five (5) business days from submission to the other Party in writing with all necessary supporting materials, the dispute shall be submitted in writing to the President of Saul Centers and the Chairman of Saul Company (the “Senior Leaders”) for resolution. If the Senior Leaders are unable to resolve the dispute within (10) business days, the dispute shall be submitted to the Audit Committee of Saul Centers and the Chairman of Saul Company (the “Dispute Resolution Board”). 

(b)    Any dispute which has not been resolved by the Dispute Resolution Board within ten (10) business days shall be adjudicated by binding arbitration in accordance with the then-applicable CPR Rules for Non-Administered Arbitration (the “CPR Rules”). The arbitration shall be conducted by three arbitrators. Each Party shall appoint one arbitrator, and the two Party-appointed arbitrators shall then appoint a third arbitrator, who shall chair the tribunal, in accordance with the CPR Rules. The arbitration shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. Judgment upon the award rendered by the arbitrators may be entered by any court having jurisdiction. Unless otherwise agreed by the Parties, the arbitration shall be conducted in Washington, D.C. The arbitrators shall have no authority to award punitive, exemplary, indirect or special damages except in connection with a statutory claim that explicitly provides that relief, nor any authority to hear or certify any class action.

(c)    Notwithstanding anything to the contrary in this Agreement, all negotiations pursuant to this Section 11 shall be deemed to be confidential information and treated as compromise and settlement negotiations under any applicable state or federal evidentiary law. The Parties shall maintain the confidentiality of all negotiations, settlements and arbitration awards in accordance with the CPR Rules, unless otherwise required by applicable laws; provided, however, that arbitration proceedings may be disclosed when and to the extent necessary if a Party requests a judgment confirming, challenging or enforcing an arbitration award. 

(d)    Each Party shall bear its own expenses arising from preparing for and participating in any negotiations or arbitration under this Section 11; provided that the Parties shall each be responsible for fifty percent (50%) of the costs and fees owed to the arbitrators, and/or CPR, as applicable, in accordance with any arbitration held in accordance with this Section 11.

(e)    For purposes of this Section 11, references to each Party shall mean the Saul Company, on the one hand, and Saul Centers, on the other hand.

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Exhibit 10.(q)

12.    General Provisions.
 
(a)    Nothing herein contained shall prevent employees of Saul Company from engaging in other activities, including, without limitation, the rendering of advice to, and performance of services for, other entities affiliated with Saul Company.

(b)    This Agreement shall have a term of one year from the date set forth above, and thereafter shall automatically continue for additional one-year terms unless terminated by either party upon not less than thirty (30) days’ written notice to the other party. The parties may terminate this Agreement at any time by mutual written agreement.  Within thirty (30) days after the effective date of such termination (i) all unpaid payments or reimbursements for services performed or costs incurred under this Agreement by either party prior to such termination shall be paid by the other party and (ii) a reconciliation pursuant to Section 9(d) above shall be agreed upon and paid.

(c)     Any notice, report or other communication required or permitted to be given hereunder shall be in writing and shall be provided by personal delivery, interoffice mail or recognized overnight courier.  Any such notices to either party shall be given to the Headquarters address unless a party has provided the other party with notice, pursuant to this subsection (c), of a different notice address.

(d)    This Agreement shall not be changed, modified, terminated, or discharged, in whole or in part, except by an instrument in writing signed by all parties hereto, or their respective successors or assignees.

(e)    The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

(f)    This Agreement shall be construed and interpreted in accordance with the laws of the State of Maryland, without regard to conflict of law principles.

(g)    This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof.  The parties acknowledge and agree that upon the execution of this Agreement, the Original Shared Services Agreement is hereby superseded in full and replaced by this Agreement.

(h)    Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, 

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Exhibit 10.(q)

power or privilege with respect to any other occurrence.  No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

(i)     The titles of paragraphs and subparagraphs contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.

(j)     This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.

[signature page follows]

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Exhibit 10.(q)

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

B. F. SAUL COMPANY

                    

By: /s/ Patrick T. Connors            
Name: Patrick T. Connors
Title: Senior Vice President

SAUL CENTERS, INC.

                    
By: /s/ Scott V. Schneider        
Name: Scott V. Schneider
Title: Senior Vice President

Schedule 1:  Headquarters Shared Costs

Schedule 2:  Company-Wide Shared Costs; Excluded Employees

Schedule 3:  Designated Programs/Shared Program Costs

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Exhibit 10.(q)

Schedule 1

Headquarters Shared Costs

Paper and supplies
Plant and facilities maintenance contracts
Lunchroom charges
Copiers and other equipment rental and maintenance
Company sponsored special events
7501 parking costs
Metro SmartTrip benefits
Costs of offsite storage, pantry supplies and other services

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Exhibit 10.(q)

SCHEDULE 2
Company-Wide Shared Costs
Group health 
Group life insurance
Fidelity bonds
EAP and other employee support services
Wellness Programs

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Exhibit 10.(q)

SCHEDULE 3
Designated Programs/Shared Costs
Designated Programs:
CPD 

14Exhibit

Exhibit 10.12
TERMS FOR
2018 NON-QUALIFIED STOCK OPTION (NQSO) GRANTS UNDER THE MERCK & CO., INC. 2010 INCENTIVE STOCK PLAN

This is a summary of the terms applicable to the stock option specified in this document. Different terms may apply to any prior or future stock option.

	
			
	Grant Type:
	NQSO
	 

	Option Price:
	$XX.XX
	 

	Grant Date:
	May X, 2018
	 

	Expiration Date:
	May X, 2028
	 

	 
	 
	 

	Vesting Date
	 
	Portion that Vests

	May X, 2019
	 
	First:  33.333%

	May X, 2020
	 
	Second:  33.333%

	May X, 2021
	 
	Balance

		
	I.
	GENERAL INFORMATION

This stock option becomes exercisable in equal installments (subject to a rounding process) on the Vesting Dates indicated in the accompanying box. This stock option expires on its Expiration Date, which is the day before the tenth anniversary of the Grant Date. If your employment with the Company is terminated, your right to exercise this stock option will be determined according to the terms in Section II.

Eligibility: Eligibility for grants is determined under the Merck & Co., Inc. 2010 Incentive Stock Plan for employees of the Company, its subsidiaries, its affiliates or its joint ventures if designated by the Compensation and Benefits Committee of Merck’s Board of Directors, or its delegate (the “Committee”).

Subject to Recoupment: For employees in Band 600 and above, this Stock Option Award will be subject to recoupment in the event of certain violations of Company policy in accordance with the Company’s policy for Recoupment of Compensation for Compliance Violations, as set forth in Appendix A (as may be amended from time to time).

		
	II.
	TERMINATION OF EMPLOYMENT

A.General Rule. If your employment is terminated for any reason other than those specified in the following paragraphs, the portion of this stock option that is unvested will expire on the date your employment ends; the portion of this stock option that is vested will expire unless exercised before the New York Stock Exchange closes (the “Close of Business”) on the day before the same day of the third month (“Within Three Months”) after the date of the termination (but in no event after the expiration of the Option Period). Close of Business for any day on which the New York Stock Exchange is not open means the close of business prior to that date when the Exchange is open. Where there is no corresponding day of a month, the last day of the month is deemed to be the same day as a later day (e.g., November 28, 29 and 30 all correspond to February 28 in non leap years). If you are rehired by the Company or JV, this option nevertheless will expire unless exercised Within Three Months, or the original Expiration Date if earlier.

B.Retirement. If you retire from service with the Company the portion of this stock option that would have become exercisable according to its original schedule within one year of the date

 
your employment terminates will vest and become exercisable on its applicable Vesting Date and the remainder will expire immediately.  Whether already vested on the date your employment terminates or vested as a result of such retirement, this option will expire on the earlier of (a) the day before the fifth anniversary of the termination date or (b) its original Expiration Date.  For grantees who are employed in the U.S., “retirement” means a termination of employment after attaining the earliest of (a) age 55 with at least 10 years of service (b) such age and service that provides eligibility for subsidized retiree medical coverage or (c) age 65 without regard to years of service. For other grantees, “retirement” is determined by the Company. If your employment is terminated as described in this paragraph and you are later rehired by the Company or JV, this option nevertheless will expire according to this paragraph notwithstanding such rehire.

C.Involuntary Termination. If your employment is terminated by the Company and the Company determines that such termination was involuntary, including the result of a restructuring or job elimination, but excluding non-performance of your duties and the reasons listed under paragraphs B or D through H, the portion of this stock option that is unvested will expire on the date your employment ends; the portion of this stock option that is vested will expire on the day before the one year anniversary of the date your employment ends, but in no event later than the original Expiration Date. If your employment is terminated as described in this paragraph and you are later rehired by the Company or JV, this option nevertheless will expire according to this paragraph notwithstanding such rehire.

D.Sale. If your employment is terminated and the Company determines that such termination resulted from the sale of your subsidiary, division or joint venture, the following portion of this stock option award will vest and become exercisable immediately upon such termination: one-third if employment terminates on or after the Grant Date but before the first anniversary thereof; and all if employment terminates on or after the first anniversary of the Grant Date. Whether already vested on the date your employment terminates or vested as a result of such sale, this stock option will expire the day before the first anniversary of the date your employment with the Company ends, but in no event later than the original Expiration Date. Notwithstanding the foregoing, the Committee may determine, for purposes of this stock option grant, whether employment with an entity that is established from the Company’s spin off, split off, split up or distribution of equity securities in connection with that entity constitutes a  termination of employment, and may make adjustments, if any, as it deems appropriate, at the time of the distribution of such equity securities, in the kind and/or number of shares subject to this option, and/or in the option price of such option. If your employment is terminated as described in this paragraph and  you are later rehired by the Company or JV, this option nevertheless will expire according to this paragraph notwithstanding such rehire.

E.Misconduct. If your employment is terminated as a result of your deliberate, willful or gross misconduct, this stock option (whether vested or unvested) will expire immediately upon your receipt of notice of such termination.

F.Death. If your employment terminates as a result of your death, the portion of this stock option that is unvested will vest immediately upon your death. Whether already vested on the date of your death or vested as a result of your death, this  stock option will expire on the day before the second anniversary of your death, even if such date is later than the Original Expiration date. This stock option will expire on such earlier date than otherwise specified in this paragraph as may be required under applicable non-U.S. law (e.g., in France, six months from the date of death). If you die while any portion of this stock option remains outstanding, but after your employment terminates for the reasons listed under paragraphs B, C, D, G or H of this section, the portion that                remains outstanding after such employment termination will become immediately exercisable and will continue to be exercisable until the expiration date prescribed in  paragraph B, C, D, G or H as applicable (and at least a year from your death in those jurisdictions where such extension is required by law).

G.Disability. If your employment is terminated and the Company determines that such termination resulted from your inability to perform the material duties of your role by reason of a physical or mental infirmity that is expected to last for at least six months or to result in your death, whether or not you are eligible for disability benefits from any applicable disability program, then this stock option will continue to become exercisable on applicable Vesting Dates and will expire on the earlier of (a) the day before the fifth anniversary of the day your employment terminates and (b) its original Expiration Date. If your employment is terminated as described in this paragraph and you are later rehired by the Company or JV, this option nevertheless will expire according to this paragraph notwithstanding such rehire.

H.Change in Control. If the Company involuntarily terminates your employment without Cause before the second anniversary after the closing of a change in control, each unvested Stock Option that is outstanding immediately prior to the change in control will immediately become fully vested and exercisable. All options, including options vested prior to such time, will expire on the day before the fifth anniversary of the termination of your employment following a change in control (but not beyond the Expiration Date). This extended exercise period does not apply in the case of termination by reasons of retirement, involuntary termination, sale, misconduct, death or disability, as described in paragraphs B, D, E, F and G above or termination prior to a change in control. If this stock option does not remain outstanding following the change in control and is not converted into a successor stock option, then you will be entitled to receive cash for this option in an amount at least equal to the difference between the price paid to stockholders in the change in control and the Option Price of this stock option. A "change in control" has the same meaning that it has under the Merck & Co., Inc. Change in Control Separation Benefits Plan (excluding an MSD Change in Control).

I.Joint Venture. Employment with a joint venture or other entity in which the Company has determined that it has a significant business or ownership interest (a “JV”) is not considered termination of employment for purposes of this

 
stock option. If you transfer employment from the Company to  a JV or from a JV to the Company, such employment must be approved by, and contiguous with employment by, the Company or the JV. The terms set out in paragraphs A through H above apply to this stock option while the option holder is employed by the JV.

		
	III.
	TRANSFERABILITY

This stock option is not transferable and may not be assigned or otherwise transferred except, under specific terms, by executives who hold or who retired within the prior 12 months from a Section 16 officer position.

		
	IV.
	ADMINISTRATION

The Committee is responsible for construing and interpreting this grant, including the right to construe disputed or doubtful plan provisions, and may establish, amend and construe such rules and regulations as it may deem necessary or desirable for the proper administration of this grant.  Any decision or action taken or to be taken by the Committee, arising out of or in connection with the construction, administration, interpretation and effect of this grant shall, to the maximum extent permitted by applicable law, be within its absolute discretion (except as otherwise specifically provided herein) and shall be final, binding and conclusive upon the Company, all eligible employees and any person claiming under or through any eligible employee. All determinations by the Committee including, without limitation, determinations of the eligible employees, the form, amount and timing of incentives, the terms and provisions of incentives and the writings evidencing incentives, need not be uniform and may be made selectively among eligible employees who receive, or are eligible to receive, Incentives hereunder, whether or not such eligible employees are similarly situated.

		
	V.
	GRANTS NOT PART OF EMPLOYMENT CONTRACT

Notwithstanding reference to grants of incentives in letters offering employment or in specific employment agreements, incentives do not constitute part of any employment contract between the Company or JV and the grantee, whether the employment contract arises as a matter of agreement or applicable law.  The value of any grant or of the proceeds of any exercise of Incentives are not included in calculating compensation for purposes of pension payments, separation pay, termination indemnities or other similar payments due upon termination of employment.

This stock option is subject to the provisions of the 2010 Incentive Stock Plan. For further information regarding your stock options, you may access the Merck Global Long-Term Incentives homepage via http://onemerck.com

Unless you notify the Company in writing that you wish to refuse this grant within 60 days of the Grant Date, you will be deemed to acknowledge that you have read, understood and agree to all of the terms, conditions and provisions of this document and the Merck & Co., Inc. 2010 Incentive Stock Plan. If you wish to reject this grant, you must send your written notice of rejection to the Company at:

Attention: Global Executive Compensation and Benefits Merck & Co., Inc.
2000 Galloping Hill Road, Building K-1 Kenilworth, New Jersey, U.S.A. 07033

Appendix A
Recoupment of Compensation for Compliance Violations

POLICIES AND PROCEDURES

Policy
It is the policy of the Compensation and Benefits Committee of the Board of Directors (the “Committee”) that the Committee  will exercise its discretion to determine whether to seek Recoupment of any bonus and/or other incentive compensation paid or awarded to an Affected Employee with respect to any performance period beginning after December 31, 2013, where it determines, in consultation with the Audit Committee, that: a) the Affected Employee engaged in misconduct, or failed to reasonably supervise an employee who engaged in misconduct, that resulted in a Material Policy Violation relating to the research, development, manufacturing, sales, or marketing of Company products; and b) the Committee concludes that the Material Policy Violation caused Significant Harm to the Company, as those terms are defined in this policy. The Committee’s exercise of its discretion may take into account any considerations determined by the Committee to be relevant.

Definitions
1.    “Recoupment” is defined to include any and all of the following actions to the extent permitted by law: (a) reducing the amount of a current or future bonus or other cash or non- cash incentive compensation award, (b) requiring reimbursement of a bonus or other cash-based incentive compensation award paid with respect to the most recently completed performance period, (c) cancelling all or a portion of a future-vesting equity award, (d) cancelling all or a portion of an equity award that vested within the previous twelve-month period, (e) requiring return of shares paid upon vesting and/or reimbursement of any proceeds received from the sale of an equity award, in each case that vested within the previous twelve-month period, and (f) any other method of reducing the total compensation paid to an employee for any prior twelve- month period or any current or future period.

2.    A “Material Policy Violation” is defined as a material violation of a Company policy relating to the research, development, manufacturing, sales, or marketing of Company products.

3.    An “Affected Employee” is an employee in Band 600 or higher who (i) engaged in misconduct that results in a Material Policy Violation; or (ii) failed in his or her supervisory responsibilities to reasonably manage or monitor the conduct of an employee who engaged in misconduct that results in a Material Policy Violation.

4.    “Significant Harm” means a significant negative impact on the Company’s financial operating results or reputation.

Procedures
1.The Committee, acting in consultation with the Audit Committee, shall administer this policy and have full discretion to interpret and to make any and all determinations under this policy, subject to the approval of the full Board of Directors in the case of a determination to seek or waive Recoupment from the Chief Executive Officer.

2.The General Counsel, in consultation with the Chief Ethics and Compliance Officer and the Executive Vice President, Human Resources, is responsible for determining whether to

 

refer a matter to the Committee for review under this policy and for assisting the Committee with its review. The Committee may consult with other Board Committees and any external or internal advisors as it deems appropriate.

3.If the Committee, acting in consultation with the Audit Committee, determines that there is a basis for seeking Recoupment under this policy, the Committee shall exercise its discretion to determine for each Affected Employee, on an individual basis, whether, and to what extent and in which manner, to seek Recoupment.

4.In exercising its discretion, the Committee may take into consideration, as it deems appropriate, all of the facts and circumstances of the particular matter and the general interests of the Company.

Delegation to Management for Certain Recoupment Decisions
The Committee hereby delegates to the Chief Executive Officer (who may further delegate as he deems appropriate) the authority to administer this policy and to make any and all decisions under it regarding Affected Employees who are not Section 16 Officers of the Company. Section 16 Officers are employees of the Company who are subject to Section 16 of the Securities Exchange Act of 1934. Management shall report to the Committee on any affirmative decisions to seek Recoupment pursuant to this delegation.

Disclosure of Recoupment Decisions
The Company will comply with all applicable securities laws and regulations, including Securities and Exchange Commission disclosure requirements regarding executive compensation. The Company may also, but is not obligated to, provide additional disclosure beyond that required by law when the Company deems it to be appropriate and determines that such disclosure is in the best interest of the Company and its shareholders.

Miscellaneous
Nothing in this policy shall limit or otherwise affect any of the following: 1) management’s ability to take any disciplinary action with respect to any Affected Employee; 2) the Committee’s ability to use its negative discretion with respect to any incentive compensation performance target at any time; or
3) the Committee’s or management’s ability to reduce the amount (in whole or in part) of a current or future bonus or other cash or non-cash incentive compensation award to any executive or other employee for any reason as they may deem appropriate and to the extent permitted by law.  Nothing in this policy shall replace or otherwise limit or affect the Clawback Policy for EIP Awards Upon Significant Restatement of Financial Results and/or the Clawback Policy for PSUs upon Significant Restatement of Financial Results.

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