Document:

Exhibit 10.1

 

 

August 20, 2004

 

William Chardavoyne

1721 Elm Avenue

Manhattan Beach, California 90266

 

Dear Bill:

 

This letter agreement, dated August 20, 2004 (this “agreement”),
confirms the terms of your employment by Activision Publishing, Inc. (“Employer”),
on the terms and conditions set forth below.

 

1.         Term

 

            This agreement shall
commence effective as of the date set forth above and shall continue until
terminated in accordance with the terms specifically set forth in this
agreement.

 

2.         Salary

 

            (a)       In full consideration for all rights and
services provided by you under this agreement, you shall receive an annual base
salary (“Base Salary”) of $365,000.

 

            (b)       Base Salary payments shall be made in
accordance with Employer’s then prevailing payroll policy.  The Base Salary referred to in Paragraph 2(a)
shall constitute your minimum Base Salary during the applicable period.  On an annual basis, your Base Salary may be
reviewed to determine if an increase above the minimum is appropriate. Any
decision regarding whether to change your base salary shall be made in the sole
discretion of executive management and/or the Compensation Committee of the
Board of Directors of Employer.

 

            (c)       In addition to your base salary, you may
be eligible to receive an annual discretionary bonus (“Annual Bonus”) targeted
at sixty percent (60 %) of your annual Base Salary (which may be pro-rated for
the amount of time that you actually perform services for Employer during a
particular fiscal year).  The amount of
this Annual Bonus, if any, is within the sole and absolute discretion of the
Employer’s Board of Directors (or the Compensation Committee of the Board of
Directors).  Certain of the criteria that
will be considered to evaluate your eligibility for an Annual Bonus is your
achievement of specific objectives and/or your contribution to the success of
the corporate goals and objectives. 
Employer’s overall financial performance will also be considered in
determining whether any bonus is awarded and, if so, the amount.  Discretionary Annual Bonuses, if granted, are
generally paid to employees in May of each year.  You must remain continuously employed by
Employer through the date on which the discretionary bonus is paid to be
eligible to receive a bonus.  Employer
retains the right to modify, at any time, any and all of the criteria used to
determine whether Employee is eligible for a bonus and, if so, the amount of
any such bonus, so long as such Annual Bonus modifications are applied
consistently to other employees in similar officer positions.

 

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3.         Title

 

            You are being employed
under this agreement in the position of Executive Vice President and Chief
Financial Officer.

 

4.         Duties

 

            You
shall personally and diligently perform, on a full-time and exclusive basis,
such services consistent with your position or consistent with duties involved
in the transition of your position as Employer and its Board of Directors/
Committees of the Board of Directors may reasonably require.  You 
are also required to read, review and observe all of Employer’s existing
policies, procedures, rules and regulations as well as those adopted by
Employer during the term of your employment. 
You will at all times perform all of the duties and obligations required
by you under this agreement in a loyal and conscientious manner and to the best
of your ability and experience.

 

5.         Expenses

 

            To the extent you
incur necessary and reasonable business expenses in the course of your
employment, you shall be reimbursed for such expenses, subject to Employer’s
then current policies regarding reimbursement of such business expenses.

 

6.              Other
Benefits

 

            You shall be entitled
to those benefits which are standard for persons in similar positions with
Employer, including coverage under Employer’s health, life insurance and
disability plans, and eligibility to participate in Employer’s 401(k)
plan.  Nothing paid to you under any such
plans and arrangements (nor any bonus or stock options which Employer’s Board
of Directors (or the Compensation Committee of such Board of Directors), in its
sole and absolute discretion, shall provide to you)) shall be deemed in lieu,
or paid on account, of your Base Salary. 
You expressly agree and acknowledge that after the expiration or early
termination of the term of your employment under this agreement, you are
entitled to no additional benefits, except as specifically provided in this
agreement or under the benefit plans referred to above and those benefit plans
in which you subsequently may become a participant, and subject in each case to
the terms and conditions of each such plan, or as required by applicable
law.  Notwithstanding anything to the
contrary set forth above, you shall be entitled to receive those benefits
provided by COBRA upon the expiration or earlier termination of this agreement.

 

7.         Vacation and Paid
Holidays

 

            (a)       You will be entitled to paid vacation
days in accordance with the normal vacation policies of Employer in effect from
time to time, provided that in no event shall you be entitled to less than
twenty (20) days of paid vacation per year.

 

            (b)       You shall be entitled to all paid
holidays given by Employer to its full-time employees.

 

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8.         Protection of Employer’s
Interests

 

            (a)           Duty of Loyalty.  During the term of your
employment, you will not compete in any manner, whether directly or indirectly,
as a principal, employee, agent or owner, with Employer, or any affiliate of
Employer, except that the foregoing will not prevent you from holding at any
time less than five percent (5%) of the outstanding capital stock of any
company whose stock is publicly traded.

 

            (b)           Property of Employer.  All rights worldwide with respect to any and
all intellectual or other property of any nature produced, created or suggested
by you during the term of your employment and/or resulting from your services
to Employer which (i) relate in any manner at the time of conception or
reduction to practice to the actual or demonstrably anticipated business of
Employer, (ii) result from or are suggested by any task assigned to you or any
work performed by you on behalf of Employer, or (iii) are based on any property
owned or idea conceived by Employer, shall be deemed to be a work made for hire
and shall be the sole and exclusive property of Employer.  You agree to execute, acknowledge and deliver
to Employer, at Employer’s request and expense, such further documents,
including copyright and patent assignments, as Employer reasonably finds appropriate
to evidence Employer’s rights in such property.

 

            (c)           Confidentiality.  Any confidential and/or proprietary
information of Employer or any affiliate of Employer shall not be used by you
or disclosed or made available by you to any person except, in furtherance of
or as required in the course of your employment, and upon expiration or earlier
termination of the term of your employment, you shall return to Employer all
such information which exists in written or other physical form (and all copies
thereof) under your control.  Without
limiting the generality of the foregoing, you acknowledge signing and
delivering to Employer the Activision Employee Proprietary Information
Agreement and you agree that all terms and conditions contained in such agreement,
and all of your obligations and commitments provided for in such agreement,
shall be deemed, and hereby are, incorporated into this agreement as if set
forth in full herein.  The provisions of  this paragraph shall survive the expiration
or earlier termination of this agreement.

 

            (d)           Covenant Not to Solicit.  After the termination of your employment
pursuant to Paragraph 9(a) or the termination of this agreement pursuant to
Paragraph 9(b) of this agreement for any reason whatsoever, you shall not, either
alone or jointly, with or on behalf of others, directly or indirectly, whether
as principal, partner, agent, shareholder, director, employee, consultant or
otherwise, at any time during a period of one (1) year following such
expiration or termination, offer employment to, or directly or indirectly
solicit the employment or engagement of, or otherwise entice away from the
employment of Employer or any affiliated entity, either for your own account or
for any other person firm or company, any person who was employed by Employer
or any such affiliated entity during the term of your employment, whether or
not such person would commit any breach of his or her contract of employment by
reason of his or her leaving the service of Employer or any affiliated entity.

 

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9.         Termination

 

            (a)       For Cause.  At any time
during the continuation of this agreement, Employer may terminate your
employment under this agreement for Cause defined as your (i) willful, reckless
or gross misconduct or fraud, (ii) gross negligent performance of job
responsibilities, and (iii) conviction of or pleading no contest to a felony or
crime involving dishonesty or moral turpitude.

 

            (b)       Without Cause.  The parties
agree that this agreement may be terminated for convenience without Cause by
either party on no less than twelve (12) months prior written notice and such
termination shall not be deemed to constitute a wrongful discharge or a
wrongful termination of your employment by Employer or a breach by Employer or
by you of any term of this agreement and/or any other duty or obligation,
expressed or implied, which the parties may owe each other pursuant to any
principle or provision of law. The date on which such written termination
notice is received by either you or Employer is referred to in this agreement
as “Termination Notice Date”.

 

            (c)       Death or Disability.  In the event of your death during the
continuation of this agreement, this agreement shall terminate and Employer
only shall be obligated to pay your estate or legal representative only the
amounts set forth in Paragraph 9(d)(ii) below. 
In the event you are unable, with reasonable accommodation, to perform
the essential services required of your position as a result of any physical or
mental condition (“disability”), then Employer shall have the right, at its
option, to terminate your employment under this agreement, and Employer shall
be obligated to pay you only the amounts set forth in Paragraph 9(d)(iii)
below.  You acknowledge and agree that
your ability to continuously perform your duties for Employer is an essential
part of your position and that any inability to perform such duties during the
term of this agreement for a period of 60 or more consecutive days or an
aggregate of 90 or more days during any 12-month period would create an undue
hardship for Employer and the operation of its business.  Unless and until so terminated, during any
period of disability during which you are unable, with reasonable
accommodation, to perform the services required of you under this agreement,
your Base Salary shall be payable to the extent of, and subject to, Employer’s
policies and practices then in effect with regard to sick leave and disability
benefits.

 

            (d)       Termination of Obligations.
 In the event of the termination of your
employment under this agreement pursuant to Paragraphs 9(a), 9(b) or 9(c), all
obligations of Employer to you under this agreement shall immediately terminate
except as follows:

 

i.                        Termination
Without Cause.  In the
event either party terminates this agreement pursuant to Paragraph 9(b), then
the following shall apply:

a.               You and Employer shall
promptly agree on a reasonable transition plan acceptable to Employer in its
reasonable discretion which shall allow, among other matters, for an orderly
transition of your responsibilities as a Chief Financial Officer to another
individual who is then engaged or will be engaged by Employer to perform such
duties, including, without limitation full understanding of Employer’s financial,

 

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                        accounting and forecasting
systems, corporate reporting, internal controls, internal and external
communications, staffing matters and your continuing participation and
assistance with any then on-going corporate litigation matters. You agree to
devote such time as is reasonably required to conduct such transition timely
and effectively, including on full time, exclusive basis in the initial stages
of such transition if the executive management of Employer determines such
level of your involvement in the transition process to be reasonable and
desirable. You hereby acknowledge and agree that while Employer may agree in
its discretion to a shorter transition schedule, it is anticipated that transition
process may continue for a minimum of one (1) month to as long as six (6)
months from the Termination Notice Date. The parties acknowledge that
notwithstanding the actual duration of transition process, your status as
employee of Employer will continue for the full period of twelve (12) months
from the Termination Notice Date and you will continue to provide such advisory
services until the end of your employment consistent with your prior position
with Employer as Employer may reasonably request.

b.              Conditioned on your full,
complete and continuing compliance with the conditions set forth in Paragraph
9(d)(i)(a) above, you shall receive: (i) continuing payments of your Base
Salary then in effect, payable in accordance with Employer normal payroll practices
for a period of twelve (12) months following the Termination Notice Date;
(ii) full Annual Bonus for the fiscal year during which  the Termination Notice Date  occurs to the extent such Annual Bonus is
awarded to you pursuant to the terms of Paragraph 2(c) of this agreement by the
Board of Directors (or the Compensation Committee of such Board of Directors),
payable in accordance with Employer’s normal practices applicable to Annual
Bonus payments; (iii) should the Termination Notice Date occur during the
course of any fiscal year such that there are then fewer than twelve (12)
months remaining in such fiscal year at the time of such termination (it being
understood that Employer’s fiscal year is April to March), the portion of the
Annual Bonus for the following fiscal year if such Annual Bonus is awarded
pursuant to the terms of Paragraph 2(c) of this agreement by the Board of
Directors (or the Compensation Committee of such Board of Directors) pro-rated
for the number of months to allow you to receive your bonus payment for the
full twelve (12) month period from the Termination Notice Date (such bonus
payment to be calculated and paid out in accordance with Employer’s normal
practices applicable to Annual Bonus 

 

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                        payments); and (iv)
continuing reimbursement of expenses if any due to you pursuant to Paragraph
5.  For illustration purposes and for
avoidance of doubt, in regards to Paragraphs 9(d)(i)(b)(i), (ii) and (iii), it
is the understanding of the parties that should this agreement, for example, be
terminated without cause effective as of Termination Notice Date on October 31,
2004, you will receive:

•                  Continuing Base Salary payments through
October 31, 2005;

•                  Annual Bonus for Employer’s fiscal year 2005
ending March 31, 2005, to the extent earned, and payable on or about May 2005
if such continues to be Employer’s normal payment time period for the
disbursement of bonuses; and

•                  Annual Bonus for Employer’s fiscal year 2006
ending March 31, 2006, to the extent earned, pro-rated for the month of
April-October 2006, and payable on or about May 2006 if such continues to be
Employer’s normal payment time period for the disbursement of bonuses

•                  Above payments are conditioned on your full,
complete and continuing compliance with the conditions set forth in Paragraph
9(d)(i)(a).

ii.                     Compensation
upon Death.  In the
event this agreement is terminated as a result of your death, your heirs,
successors or legal representatives shall receive: (i) the Base Salary through
the date of termination of this agreement; (ii) any unpaid Annual Bonus
for any previously completed fiscal year if such Annual Bonus is awarded to you
pursuant to the terms of Paragraph 2(c) of this agreement by the Board of
Directors (or the Compensation Committee of such Board of Directors) and remain
not paid; (iii) the pro rata portion of the Annual Bonus for the fiscal year in
which termination occurs to the extent such Annual Bonus is awarded to you
pursuant to the terms of Paragraph 2(c) of this agreement by the Board of
Directors (or the Compensation Committee of such Board of Directors); (v)
reimbursement of expenses due to you pursuant to Paragraph 5.  Bonus payments will be made notwithstanding
the fact that you are not employed by Employer at the time such payment is
paid. All such payments shall be in addition to any payments or benefits your
widow, beneficiaries or estate may be entitled to receive pursuant to any
pension or employee benefit plan or life insurance policy 

 

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                              maintained by Employer; and
(v) all payments and benefits due you under any of Employee’s employee benefit
plans.

iii.                                                                        Compensation
upon Disability.  In the
event this agreement is terminated as a result of your disability, you shall
receive: (i) the Base Salary through the date of your termination; (ii) any
unpaid Annual Bonus for any previously completed fiscal year if such Annual
Bonus is actually awarded to you pursuant to the terms of Paragraph 2(c) of
this agreement by the Board of Directors (or the Compensation Committee of such
Board of Directors) and remain not paid in whole or in part; (iii) the pro rata
portion of the Annual Bonus for the fiscal year in which your termination
occurs to the extent such Annual Bonus is awarded pursuant to the terms of
Paragraph 2(c) of this agreement by the Board of Directors (or the Compensation
Committee of such Board of Directors); (iv) reimbursement of expenses due to
you pursuant to Paragraph 5. Bonus payments will be made notwithstanding the
fact that you are not employed by Employer at the time such payment is paid.

(e)             Disposition of Stock Options Upon Termination.  Upon termination of your employment for any
reason, the following terms shall apply to the Options to acquire shares of
common stock of Activision, Inc. that may have been issued to you during the
course of your employment with Employer prior to such termination (“Options”):

 

(i)                                     In the event of termination of your
employment without Cause and conditioned on your full, complete and continuing
compliance with the conditions set forth in Paragraph 9(d)(i)(a) above, all
such stock options shall continue to vest and be exercisable for a period of
twelve (12) months following the Termination Notice Date, provided that at all times during such period your remain
an employee.  Upon termination of such
twelve (12) month period or earlier termination of your employment, all then
unvested stock options shall be cancelled and only vested stock options shall
continue to be exercisable until the earlier of (a) the end of the 30th day
after such date, or (b) the expiration of such stock option pursuant to the
terms of the stock option agreement for such stock option; and upon the
expiration of such period, all stock options then remaining unexercised shall
be cancelled.

 

(ii)                                  In the event of your termination of
employment by reason of your death or disability, all such stock options shall
cease to vest immediately as of the date of such termination of your
employment, all unvested stock options shall be cancelled and only vested stock
options shall continue to be exercisable until the earlier of (a) the end of
the 30th day after the date of such termination of your employment, or (b) the
expiration of such stock option pursuant to the terms of the stock option
agreement 

 

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                                                for such stock option; and upon the
expiration of such period, all stock options then remaining unexercised shall
be cancelled.

 

(iii)                               In the event of termination of your
employment for Cause, or by your material breach of this agreement, all such
stock options, whether or not vested, shall expire immediately on the date of
termination of your employment and all such stock options shall immediately be
cancelled and no longer continue vest or be exercisable as of the date of
termination of your employment.

 

(iv)                              In the event of termination of your
employment for any reason not otherwise described in Paragraphs 9(e)(i)-(iii),
all such stock options shall cease to vest immediately as of the date of such
termination of your employment, all unvested stock options shall be cancelled
and only vested stock options shall continue to be exercisable until the
earlier of (a) the end of the 30th day after the date of such termination of
your employment, or (b) the expiration of such stock option pursuant to the
terms of the stock option agreement for such stock option; and upon the
expiration of such period, all stock options then remaining unexercised shall
be cancelled.

 

10.      Use of Employee’s Name

 

            Employer shall have
the right, but not the obligation, to use your name or likeness for any
publicity or advertising purpose.

 

11.      Assignment

 

            Employer may assign
this agreement or all or any part of its rights under this agreement to any
entity which succeeds to all or substantially all of Employer’s assets (whether
by merger, acquisition, consolidation, reorganization or otherwise) or which
Employer may own substantially, and this agreement shall inure to the benefit
of such assignee.

 

12.      No Conflict with Prior
Agreements

 

            You represent to
Employer that neither your commencement of employment under this agreement nor
the performance of your duties under this agreement conflicts or will conflict
with any contractual commitment on your part to any third party, nor does it or
will it violate or interfere with any rights of any third party.

 

13.      Representations and
Warranties

 

            You represent and
warrant that you have provided Employer with complete and accurate information
regarding your skills and experience. 
Employee further represents and warrants that you have the skills and
abilities to perform the job responsibilities for which you are being hired (see paragraphs 3 and 4, above) based on your skills and
experience.  Based on your 

 

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representations regarding your skills and abilities, Employer has
agreed to hire and compensate you pursuant to the terms of this agreement.

 

14.      General Provisions

 

            (a)       Entire Agreement.  This agreement supersedes all prior or
contemporaneous agreements and statements, whether written or oral, concerning
the terms of your employment with Employer, and no amendment or modification of
this agreement shall be binding unless it is set forth in a writing signed by
both Employer and you.  To the extent
that this agreement conflicts with any of Employer’s policies, procedures,
rules or regulations, this agreement shall supersede the other policies,
procedures, rules or regulations. 
Without limiting the generality of the foregoing, you acknowledge that
this agreement supersedes your prior written agreement with Employer dated
April 1, 2002 and any related letters 
and memorandums of understanding, and such agreement and related letters
and memorandums are hereby declared terminated and of no further force and
effect.

 

            (b)       No Broker.  You have given no indication,
representation or commitment of any nature to any broker, finder, agent or
other third party to the effect that any fees or commissions of any nature are,
or under any circumstances might be, payable by Employer or any affiliate of
Employer in connection with your employment under this agreement.

 

            (c)       Waiver.  No waiver by either party of any breach by
the other party of any provision or condition of this agreement shall be deemed
a waiver of any similar or dissimilar provision or condition at the same or any
prior or subsequent time.

 

            (d)       Prevailing Law.  Nothing contained in this agreement shall be
construed so as to require the commission of any act contrary to law and
wherever there is any conflict between any provision of this agreement and any
present or future statute, law, ordinance or regulation, the latter shall
prevail, but in such event the provision of this agreement affected shall be curtailed
and limited only to the extent necessary to bring it within legal requirements.

 

            (e)       No Employment Commitments.  This agreement does not constitute a
commitment of Employer with regard to your employment, express or implied,
other than to the extent expressly provided for herein.

 

            (f)        Choice of Law.  This agreement shall be governed by and
construed in accordance with the laws of the State of California without regard
to conflict of law principles.

 

            (g)       Immigration.  In accordance with the Immigration Reform and
Control Act of 1986, employment under this agreement is conditioned upon
satisfactory proof of your identity and legal ability to work in the United
States.  Employer acknowledges that
Employee has satisfied this condition.

 

            (h)       Venue and Jurisdiction.  The parties agree that all actions or
proceedings initiated by either party hereto arising directly or indirectly out
of this agreement shall be litigated in federal or state court in Los Angeles,
California.  The parties hereto expressly
submit and consent in advance to such jurisdiction and agree that service of
summons and complaint or other process 

 

9

 

or papers may be made by registered or certified mail addressed to the
relevant party at the address set forth below. 
The parties hereto waive any claim that a federal or state court in Los
Angeles, California, is an inconvenient or an improper forum.

 

            (i)        Severability.  If any provision of this agreement is held to
be illegal, invalid or unenforceable under existing or future laws effective
during the term of this agreement, such provisions shall be fully severable,
the agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this agreement, and the
remaining provisions of this agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid or unenforceable provision or
by its severance from this agreement. 
Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this agreement a
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible and be legal and enforceable.

 

            (j)        Legal Counsel.  You acknowledge that you have been given the
opportunity to consult with legal counsel of his own choosing regarding this
agreement.  You understand and agree that
Activision’s General Counsel, or any other attorney or member of management who
has discussed any term or condition of this agreement with you, is only acting
on behalf of the company and not on behalf of Employee.

 

            (k)       Right to Negotiate.  You hereby acknowledges that you have been
given the opportunity to participate in the negotiation of the terms of this
agreement.

 

                (l)        Services Unique.  You recognize that the services being
performed by you under this agreement are of a special, unique, unusual,
extraordinary and intellectual character giving them a peculiar value, the loss
of which cannot be reasonably or adequately compensated for in damages in the
event of a breach of this agreement by you (particularly, but without
limitation, with respect to the provisions hereof relating to the exclusivity
of your services and the provisions of paragraph 8 of this agreement).

 

                (m)          Injunctive Relief.  In the event of a breach or threatened breach
of this agreement, you hereby agree that any remedy at law for any breach or
threatened breach of this agreement will be inadequate and, accordingly, each
party hereby stipulates that the other is entitled to obtain injunctive relief
for any such breaches or threatened breaches. 
The injunctive relief provided for in this paragraph is in addition to,
and is not in limitation of, any and all other remedies at law or in equity
otherwise available to the applicable party. 
The parties agree to waive the requirement of posting a bond in
connection with a court’s issuance of an injunction.

 

                (n)           Remedies Cumulative.
The remedies in this paragraph are not exclusive, and the parties shall have
the right to pursue any other legal or equitable remedies to enforce the terms
of this agreement.

 

            (o)       Attorneys’ Fees And Costs.  If either party brings an action to enforce,
interpret or apply the terms of this agreement or declare its rights under this
agreement, the prevailing party in such action, including all appeals, shall
receive all of its or his attorneys’ fees, experts’ fees, and all of its or his
costs, in addition to such other relief as may be granted.

 

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15.      Notices

 

            All notices which
either party is required or may desire to give the other shall be in writing
and given either personally or by depositing the same in the United States mail
addressed to the party to be given notice as follows:

 

	
  To Employer:

  	
   

  	
  3100 Ocean Park Boulevard

  
	
   

  	
   

  	
  Santa Monica, California
  90405

  
	
   

  	
   

  	
  Attention: Senior Vice
  President,

  
	
   

  	
   

  	
  Business Affairs and
  General Counsel

  
	
   

  	
   

  	
   

  
	
  To Employee:

  	
   

  	
  1721 Elm Avenue

  
	
   

  	
   

  	
  Manhattan Beach,
  California 90266

  

 

            Either party may by
written notice designate a different address for giving of notices.  The date of mailing of any such notices shall
be deemed to be the date on which such notice is given.

 

16.      Headings

 

            The headings set forth
herein are included solely for the purpose of identification and shall not be
used for the purpose of construing the meaning of the provisions of this
agreement.

 

            If the foregoing
accurately reflects our mutual agreement, please sign where indicated.

 

ACCEPTED
AND AGREED TO:

 

	
  Employer 

  	
   

  	
  Employee

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Ron Doornink

  	
   

  	
   

  	
   

  	
  William Chardavoyne

  
	
   

  	
   

  	
  Chief Executive Officer

  	
   

  	
   

  	
   

  	
   

  

 

 

11Exhibit 10.1

 

WATSON PHARMACEUTICALS, INC.

 

KEY EMPLOYEE AGREEMENT

 

This Key Employee Agreement (“Agreement”) is entered
into as of August 16, 2004 (the “Effective Date”), by and between James
Nash (“Executive”) and Watson Pharmaceuticals, Inc., a Nevada corporation (the “Company”).

 

WHEREAS, the Company desires to
employ Executive to provide personal services to the Company, and wishes to
provide Executive with certain compensation and benefits in return for his
services; and

 

WHEREAS, Executive wishes to be
employed by the Company and provide personal services to the Company in return
for certain compensation and benefits, including the benefits provided under
this Agreement;

 

NOW, THEREFORE, in consideration
of the mutual promises and covenants contained herein, it is hereby agreed by
and between the parties hereto as follows:

 

1.                                      EMPLOYMENT
BY THE COMPANY. Subject to terms set forth herein, the Company agrees to
employ Executive in the position of Executive Vice President, Supply Chain, and
Executive hereby accepts employment effective as of the Effective Date.  In this position, Executive shall perform
such duties as are assigned from time to time by the Chief Executive Officer (“CEO”)
of the Company or such other officer of the Company or one of its subsidiaries
that the CEO in his discretion may from time to time designate (the “Designated
Officer”), consistent with the Bylaws of the Company and as may be required by
the Company’s Board of Directors (the “Board”). 
During his employment with the Company, Executive will devote his best
efforts and substantially all of his business time and attention (except for
vacation periods as set forth herein and reasonable periods of illness or other
incapacity permitted by the Company’s general employment policies) to the
business of the Company.  Executive shall
abide by the general employment policies and procedures of the Company, except
that wherever the terms of this Agreement may differ from or are in conflict
with the Company’s general employment policies or procedures, this Agreement
shall control.

 

2.                                      COMPENSATION.

 

2.1                               Salary. For services to be rendered hereunder,
Executive shall receive a base salary as set forth in Section 1 of the
Compensation and Severance Terms Schedule, attached hereto as Exhibit A.  Executive will be considered annually for
increases in base salary in accordance with Company policy and subject to
review and approval by the CEO, Designated Officer, or the Compensation
Committee of the Board, as appropriate.

 

2.2                               Bonus. Executive shall be eligible to
participate in the Company’s bonus plan at the executive level throughout the
duration of Executive’s employment with the Company.  The Company shall have the sole discretion to
determine whether Executive is entitled to any such bonus and to determine the
amount of the bonus.  The amount of
Executive’s bonus may be determined in part based on Executive’s performance
with respect to certain goals

 

1

 

established by the
Company and attainment by the Company of its planned financial objectives for
the bonus period.  Notwithstanding the
foregoing, no bonus is guaranteed to Executive. 
Any bonus is subject to the approval of the CEO, Designated Officer, or
the Compensation Committee of the Board, as appropriate.  The Company retains the authority to review,
grant, deny or revise any bonus in its sole discretion.  To be eligible to receive a bonus, Executive
must remain in employment with the Company throughout the entire fiscal year or
as otherwise set forth in the applicable bonus plan.  The target level of such bonus is set forth
in Section 2 of Exhibit A attached hereto.

 

2.3                               Stock
Options.  Subject to approval of the
Board or the Compensation Committee of the Board, as appropriate, Executive
will receive the stock option grants (if any) set forth in Section 3 of
Exhibit A, and such additional grants of stock options as may from time to time
be granted, pursuant to the terms and conditions set forth in the applicable
stock option agreement and plan documents, copies of which will be made
available upon Executive’s request.  For
the purposes of this Agreement, all stock options granted to Executive by the
Company hereunder, or granted in the future, shall be referred to hereinafter
as the “Options.”

 

2.4                               Paid
Time Off.  Executive shall be
eligible to accrue paid time off (“PTO”) during the term of this Agreement, in
accordance with the Company’s standard policy regarding PTO and in an amount
commensurate with other employees at a level similar to that of the Executive.

 

2.5                               Standard
Company Benefits.  Executive shall be
entitled to all rights and benefits for which he is eligible under the terms
and conditions of the standard Company benefits plans (e.g., health and
disability insurance, 401(k) retirement plan, etc.) and other benefits and
incentives which may be in effect from time to time and provided by the Company
to employees at levels similar to the Executive.

 

3.                                      PROPRIETARY
INFORMATION AND INVENTIONS.

 

Executive agrees to execute and abide by the Employee
Proprietary Information and Inventions Agreement attached hereto as Exhibit C
and made a part hereof by this reference.

 

4.                                      OUTSIDE ACTIVITIES.

 

4.1                               Activities.  Except with the prior written consent of the
CEO or the Board, as appropriate, Executive will not during his employment with
the Company undertake or engage in any other employment, occupation or business
enterprise, other than ones in which Executive is a passive investor.  Executive may engage in civic and
not-for-profit activities so long as such activities do not materially
interfere with the performance of his duties hereunder. Executive will not
during his employment with the Company publicly or privately disparage the
Company or any of its subsidiaries, or their respective past or present
products, officers, directors, employees or agents.

 

4.2                               Investments
and Interests. During his employment by the Company, Executive agrees not
to acquire, assume or participate in, directly or indirectly, any position,
investment or interest known by him to be adverse to or in conflict with the
interest of the Company, its business or prospects, financial or otherwise. By
way of clarification, nothing

 

2

 

contained in this
Agreement shall prevent Executive from holding, for investment purposes only,
no more than one percent (1%) of the capital stock of any
publicly traded company.

 

4.3                               Non-Competition.  During his employment by the Company, except
on behalf of the Company, Executive will not directly or indirectly, whether as
an officer, director, stockholder, partner, proprietor, associate,
representative, consultant, or in any capacity whatsoever engage in, become
financially interested in, be employed by or have any business connection with
any other person, corporation, firm, partnership or other entity whatsoever
known by him to compete directly with the Company, anywhere in the world, in
any line of business engaged in (or planned to be engaged in) by the Company.

 

5.                                      Other
Agreements.

 

Executive represents
and warrants that his employment by the Company will not conflict with and will
not be constrained by any prior agreement or relationship with any third
party.  Executive represents and warrants
that he will not disclose to the Company or use on behalf of the Company any
confidential information governed by any agreement with any third party except
in accordance with an agreement between the Company and any such third
party.  During Executive’s employment by
the Company, Executive may use, in the performance of his duties, all
information generally known and used by persons with training and experience
comparable to his own and all information which is common knowledge in the
industry or otherwise legally in the public domain.

 

6.                                      TERMINATION
OF EMPLOYMENT.

 

6.1                               At-Will
Employment.  Executive’s relationship
with the Company is at-will.  The Company
shall have the right to terminate Executive’s employment with the Company at
any time with or without Cause and with or without notice.

 

6.2                               Termination
by Company for Cause.  If the Company
terminates Executive’s employment at any time for Cause, Executive’s salary
shall cease on the date of termination; and Executive will not be entitled to
severance pay, pay in lieu of notice or any other such compensation.

 

(a)                                  Definition
of “Cause.”  For purposes of this
Agreement, “Cause” shall mean (i) Executive’s conviction of any felony;
or, (ii) Executive’s gross misconduct, material violation of Company
policy, or material breach of Executive’s duties to the Company, which
Executive fails to correct within thirty (30) days after Executive is given
written notice by the CEO or the Board, as appropriate.

 

6.3                               Termination
by Company Without Cause.  If the
Company terminates Executive’s employment at any time without Cause, Executive
shall be entitled to severance benefits as set forth in Section 4.1 of the
Compensation and Severance Terms Schedule, attached hereto as Exhibit A.

 

6.4                               Executive’s
Voluntary Resignation.  Executive may
terminate his employment with the Company at any time, with or without Good
Reason, and with or without notice.  In
the event Executive voluntarily terminates his employment other than for Good

 

3

 

Reason, he will not be
entitled to severance pay, pay in lieu of notice or any other such
compensation.

 

6.5                               Executive’s
Resignation for Good Reason.  Executive
may resign his employment for Good Reason so long as Executive tenders his
resignation to the Company within sixty (60) days after the occurrence of the
event which forms the basis for his termination for Good Reason.  If Executive terminates his employment for
Good Reason, Executive shall be eligible for severance benefits as set forth in
Section 4.2 of Exhibit A, attached hereto.

 

(b)                                  Definition
of “Good Reason.”  For purposes of
this Agreement, “Good Reason” shall mean any one of the following events which
occurs on or after the Effective Date: 
(i) after a Change of Control, any material reduction of the Executive’s
then existing annual base salary, except to the extent the annual base salary
of all other executive officers of the Company is similarly reduced (provided
such reduction does not exceed fifteen percent (15%) of Executive’s then
existing annual base salary); (ii) after a Change of Control, any material
reduction in the package of benefits and incentives, taken as a whole, provided
to the Executive (except that employee contributions may be raised to the
extent of any cost increases imposed by third parties) or any action by the Company
which would materially and adversely affect the Executive’s participation or
reduce the Executive’s benefits under any such plans, except to the extent that
such benefits and incentives of all other executive officers of the Company are
similarly reduced; (iii) after a Change of Control, any material diminution of
the Executive’s duties and responsibilities, taken as a whole, excluding for
this purpose an isolated, insubstantial or inadvertent action not taken in bad
faith which is remedied by the Company immediately after notice thereof is
given by the Executive; (iv) any material breach by the Company of its
obligations under this Agreement; (v) any failure by the Company to obtain the
assumption of this Agreement by any successor or assign of the Company; or (vi)
any requirement that the Executive relocate to a work site that would increase
the Executive’s one-way commute distance by more than thirty-five (35) miles
from his then principal residence, unless the Executive accepts such relocation
opportunity.

 

6.6                               Termination
for Death or Disability.  Executive’s
employment with the Company will be terminated in the event of Executive’s
death, or any illness, disability or other incapacity in such a manner that
Executive is physically rendered unable regularly to perform his duties
hereunder for a period in excess of one hundred eighty (180) consecutive days
or more than one hundred eighty (180) days in any consecutive twelve (12) month
period.  The determination regarding
whether Executive is physically unable regularly to perform his duties shall be
made by the Board.  Executive’s inability
to be physically present on the Company’s premises shall not constitute a
presumption that Executive is unable to perform such duties.  In the event that Executive’s employment with
the Company is terminated for death or disability as described in this Section 6.6,
Executive or Executive’s heirs, successors, and assigns shall not receive any
compensation or benefits other than payment of accrued salary and PTO and such other
benefits as expressly required in such event by applicable law or the terms of
applicable benefit plans.

 

6.7                               Cessation.  If Executive violates any provision of Section 8
of this Agreement or the Employee Proprietary Information and Inventions Agreement
and Executive fails to correct such violation within ten (10) days after
Executive is given written notice by the

 

4

 

CEO or the Board, as
appropriate, then any severance payments or other benefits being provided to
Executive will cease immediately, and Executive will not be entitled to any
further compensation from the Company.

 

7.                                      CHANGE
OF CONTROL.

 

7.1                               Definition.  For purposes of this Agreement, Change of
Control means the occurrence of any of the following:

 

(a)                                  a
sale of assets representing fifty percent (50%) or more of the net book value
and of the fair market value of the Company’s consolidated assets (in a single
transaction or in a series of related transactions);

 

(b)                                  a
liquidation or dissolution of the Company;

 

(c)                                  a
merger or consolidation involving the Company or any subsidiary of the Company
after the completion of which: (i) in the case of a merger (other than a
triangular merger) or a consolidation involving the Company, the shareholders of
the Company immediately prior to the completion of such merger or consolidation
beneficially own (within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or comparable
successor rules), directly or indirectly, outstanding voting securities
representing less than fifty percent (50%) of the combined voting power of the
surviving entity in such merger or consolidation, and (ii) in the case of a
triangular merger involving the Company or a subsidiary of the Company, the
shareholders of the Company immediately prior to the completion of such merger
beneficially own (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rules), directly or indirectly, outstanding
voting securities representing less than fifty percent (50%) of the combined
voting power of the surviving entity in such merger and less than fifty percent
(50%) of the combined voting power of the parent of the surviving entity in
such merger;

 

(d)                                  an
acquisition by any person, entity or “group” (within the meaning of Section 13(d)
or 14(d) of the Exchange Act or any comparable successor provisions), other
than any employee benefit plan, or related trust, sponsored or maintained by
the Company or an affiliate of the Company and other than in a merger or
consolidation of the type referred to in clause “(c)” of this sentence, of
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rules) of outstanding voting securities
of the Company representing more than fifty percent (50%) of the combined
voting power of the Company (in a single transaction or series of related
transactions); or

 

(e)                                  in
the event that the individuals who, as of the Effective Date, are members of
the Board (the “Incumbent Board”), cease for any reason to constitute at least
fifty percent (50%) of the Board.  (If
the election, or nomination for election by the Company’s shareholders, of any
new member of the Board is approved by a vote of at least fifty percent (50%)
of the Incumbent Board, such new member of the Board shall be considered as a
member of the Incumbent Board.)

 

7.2                               Termination
After a Change of Control. In the event Executive’s employment with the
Company is terminated without Cause, or Executive resigns for Good

 

5

 

Reason, within ninety
(90) days prior to or twenty-four (24) months following a Change of Control (a “Change
of Control Termination”), then Executive shall be eligible for severance
benefits as set forth in Section 4.3 of Exhibit A, attached hereto.

 

7.3                               Parachute
Payments. In the event that it shall be determined under this Section 7.3
that any payment or benefit to Executive or for the benefit of Executive or on
Executive’s behalf (whether paid or payable or distributed or distributable)
pursuant to the terms of this Agreement or any other agreement, arrangement or
plan with the Company or any Affiliate (as defined below) (including, without
limitation, the severance benefits as set forth in Section 4.3 of Exhibit
A, attached hereto) (individually, a “Payment” and collectively, the “Payments”)
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the “Code”), or any successor provision
thereto (the “Excise Tax”), then Executive shall be entitled to receive from
the Company one or more additional payments (individually, a “Gross-Up Payment”
and collectively, the “Gross-Up Payments”) in an aggregate amount such that the
net amount of the Payments and the Gross-Up Payments retained by Executive
after the payment of all Excise Taxes (and any interest and penalties imposed
with respect to such Excise Taxes) on the Payments and all federal, state and
local income tax, employment taxes and Excise Taxes (including any interest and
penalties imposed with respect to such taxes and Excise Taxes) on the Gross-Up
Payments provided for in this Section 7.3, and taking into account any
lost or reduced tax deductions on account of the Gross-Up Payments, shall be
equal to the Payments.  For purposes of
this Section 7.3, an “Affiliate” shall mean any successor to all or
substantially all of the business and/or assets of the Company, any person
acquiring ownership or effective control of the Company or ownership of a
substantial portion of the assets of the Company’s assets, or any other person
whose relationship to the Company, such successor or such person acquiring
ownership or control is such as to require attribution between the parties
under Section 318(a) of the Code.

 

(a)                                  All determinations
required to be made under this Section 7.3, including whether and when any
Gross-Up Payment is required and the amount of such Gross-Up Payment, and the
assumptions to be utilized in arriving at such determinations, shall be made by
the Accountants (as defined below), which shall provide Executive and the
Company with detailed supporting calculations with respect to such Gross-Up
Payment within thirty (30) days of the receipt of notice from Executive or the
Company that Executive has received or will receive a Payment.  For the purposes of this Section 7.3,
the “Accountants” shall mean the Company’s independent certified public
accounting firm serving immediately prior to the Change of Control (or other
change in ownership or effective control, or change in ownership of a
substantial portion of the assets, of a corporation, as defined in Section 280G
of the Code) with respect to which such determination is being made.  In the event that the Accountants are also
serving as the accountants, auditors or consultants for the individual, entity
or group effecting the Change of Control (or other change in ownership or
effective control, or change in ownership of a substantial portion of the assets,
of a corporation, as defined in Section 280G of the Code), the Company
shall appoint another nationally recognized independent certified public
accounting firm, reasonably acceptable to Executive, to make the determinations
required hereunder (which accounting firm shall then be referred to as the “Accountants”
hereunder).  All fees and expenses of the
Accountants shall be borne solely by the Company.

 

(b)                                  For the purposes of
determining whether any of the Payments will be subject to the Excise Tax and
the amount of such Excise Tax, such Payments will be treated as “parachute
payments” within the meaning of section 280G of the Code, and all “parachute

 

6

 

payments” in excess of the “base amount” (as defined under Section 280G(b)(3)
of the Code) of Executive shall be treated as subject to the Excise Tax, unless
and except to the extent that, in the opinion of the Accountants, such Payments
(in whole or in part) either do not constitute “parachute payments” or
represent reasonable compensation for services actually rendered (within the
meaning of section 280G(b)(4) of the Code) in excess of the “base amount,”
or such “parachute payments” are otherwise not subject to such Excise Tax.

 

(c)                                  For purposes of determining
the amount of the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest applicable marginal rate of federal income taxation
for the calendar year in which the Gross-Up Payment is to be made and to pay
any applicable state and local income taxes at the highest applicable marginal
rate of taxation for the calendar year in which the Gross-Up Payment is to be
made, net of the maximum reduction in federal income taxes which could be
obtained from the deduction of such state or local taxes if paid in such year
(determined without regard to limitations on deductions based upon the amount
of Executive’s adjusted gross income); and to have otherwise allowable
deductions for federal, state and local income tax purposes at least equal to
those disallowed because of the inclusion of the Gross-Up Payment in Executive’s
adjusted gross income.

 

(d)                                  Any determination by
the Accountants shall be binding upon the Company and Executive.  As a result of uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by
the Accountants hereunder, it is possible that the Gross-Up Payment made will
have been an amount less than the Company should have paid pursuant to this Section 7.3
(the “Underpayment”).  In the event that
the Company exhausts its remedies pursuant to Section 7.3(f) and Executive
is required to make a payment of any Excise Tax, the Underpayment shall be
promptly paid by the Company to or for Executive’s benefit.

 

(e)                                  Executive shall
notify the Company in writing of any claim by the Internal Revenue Service or
other taxing authority that, if successful, would require the payment by the
Company of a Gross-Up Payment.  Such
notification shall be given as soon as practicable after Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid.  Executive shall not pay such claim prior to
the expiration of the 30-day period following the date on which Executive gives
such notice to the Company (or such shorter period ending on the date that any
payment of taxes, interest and/or penalties with respect to such claim is
due).  If the Company notifies Executive
in writing prior to the expiration of such period that the Company desires to
contest such claim, Executive shall:  (i)
give the Company any information reasonably requested by the Company relating
to such claim; (ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, engaging legal representation with respect to
such claim by an attorney selected by the Company and reasonably acceptable to
Executive; (iii) cooperate with the Company in good faith in order to
effectively contest such claim; and (iv) permit the Company to participate in
any proceedings relating to such claims; provided, however,
that the Company shall bear and pay directly all costs and expenses, including
attorneys’ fees (including additional interest and penalties) incurred in
connection with such contest and shall indemnify Executive for and hold
Executive harmless from, on an after-tax basis, any Excise Tax or income,
employment or other taxes (including

 

7

 

interest and penalties with respect thereto) imposed as a result of
such representation and payment of all related costs and expenses.

 

(f)                                    Without limiting
the foregoing provisions of this Section 7.3, the Company shall control
all proceedings taken in connection with such contest and, at the Company’s
sole option, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the Internal Revenue Service or
other taxing authority in respect of such claim and may, at the Company’s sole
option, either direct Executive to pay the amount claimed and sue for a refund
or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however,
that if the Company directs Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to Executive, on an
interest-free basis, and shall indemnify Executive for and hold Executive
harmless from, on an after-tax basis, any Excise Tax or income, employment or
other taxes (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance (including as a result of any forgiveness by the Company of such
advance); provided, further, that any extension of
the statute of limitations relating to the payment of taxes, interest and
penalties for the taxable year of Executive with respect to which such
contested amount is claimed to be due shall be limited solely to such contested
amount.  Furthermore, the Company’s
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.

 

(g)                                 The Gross-Up Payments
provided for in this Section 7.3 shall be paid to Executive not later than
the date upon which the severance benefits payable to Executive under Section 4.3
of Exhibit A, attached hereto, are due; provided, however,
that if the amounts of such Gross-Up Payments cannot be finally determined by
the Accountants on or before such day, the Company shall pay to Executive on
such day an estimate, as determined in good faith by the Company, of the
minimum amount of such Gross-Up Payments and shall pay the remainder of such
Gross-Up Payments (together with interest at the rate provided in Section 1274(b)(2)(B)
of the Code) not later than 30 days after the amount thereof can be determined
by the Accountants.  In the event that
the amount of the estimated payments exceeds the amount subsequently determined
by the Accountants to have been due to the Executive, such excess shall
constitute a loan by the Company to Executive, payable not later than 30 days
after such determination and demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code).

 

8.                                      NONSOLICITATION.  While employed by the Company, and for
one (1) year following the termination of Executive’s employment with the
Company, Executive agrees not to solicit, attempt to solicit, induce, or
otherwise cause any employee or independent contractor of the Company to
terminate his or her employment or contractual relationship in order to become
an employee or independent contractor to or for Executive or any other person
or entity.

 

9.                                      RELEASE.  In exchange for the severance
compensation and benefits provided under this Agreement to which Executive
would not otherwise be entitled, Executive shall enter

 

8

 

into and execute a
release substantially in the form attached hereto as Exhibit B (the “Release”)
upon Executive’s termination of employment. 
Unless the Release is executed by Executive and delivered to the Company
within twenty-one (21) days (forty-five (45) days in the event of a group
termination) after the termination of Executive’s employment with the Company,
Executive shall not receive any severance benefits provided under this
Agreement, acceleration, if any, of Executive’s Options as provided in this Agreement
shall not apply and Executive’s Options in such event may be exercised
following the date of Executive’s termination only to the extent provided under
their original terms in accordance with the applicable stock option plan and
option agreements.

 

10.                               GENERAL
PROVISIONS.

 

10.1                        Notices.  Any notices provided hereunder must be in
writing and shall be deemed effective upon personal delivery (including,
personal delivery by facsimile transmission) or the third day after mailing by
first class mail, to the Company at its primary office location and to
Executive at his address as listed on the Company payroll (which address may be
changed by written notice).

 

10.2                        Severability.  Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity or unenforceability will not affect any other
provision or any other jurisdiction, and such invalid or unenforceable
provision shall be reformed, construed and enforced in such jurisdiction so as
to render it valid and enforceable consistent with the intent of the parties
insofar as possible.

 

10.3                        Waiver.  If either party should waive any breach of
any provisions of this Agreement, he or it shall not thereby be deemed to have
waived any preceding or succeeding breach of the same or any other provision of
this Agreement.

 

10.4                        Entire
Agreement.  This Agreement, together
with the Employee Proprietary Information and Inventions Agreement, constitute
the final, complete, and exclusive embodiment of the entire agreement between
Executive and the Company regarding the subject matter hereof and supersede any
prior agreement, promise, representation, or statement, written or otherwise,
between Executive and the Company with regard to this subject matter. This
Agreement is entered into without reliance on any promise, representation,
statement or agreement other than those expressly contained or incorporated
herein, and it cannot be modified or amended except in a writing signed by
Executive and a duly authorized officer of the Company.

 

10.5                        Counterparts.  This Agreement may be executed in separate counterparts,
any one of which need not contain signatures of more than one party, but all of
which taken together will constitute one and the same Agreement.

 

10.6                        Headings.  The headings of the sections hereof are
inserted for convenience only and shall not be deemed to constitute a part
hereof nor to affect the meaning thereof.

 

9

 

10.7                        Successors
and Assigns.  This Agreement is
intended to bind and inure to the benefit of and be enforceable by Executive, the
Company and their respective successors, assigns, heirs, executors and
administrators, except that Executive may not assign any of his duties
hereunder and he may not assign any of his rights hereunder without the written
consent of the Company, which shall not be withheld unreasonably.

 

10.8                        Attorneys’
Fees.  If either party hereto brings
any action to enforce his or its rights hereunder, the prevailing party in any
such action shall be entitled to recover his or its reasonable attorneys’ fees
and costs incurred in connection with such action.

 

10.9                        Arbitration.
To provide a mechanism for rapid and economical dispute resolution,
Executive and the Company agree that any and all disputes, claims, or causes of
action, in law or equity, arising from or relating to this Agreement (including
the Release) or its enforcement, performance, breach, or interpretation, will
be resolved, to the fullest extent permitted by law, by final, binding, and
confidential arbitration held in Orange County, California and conducted by
Judicial Arbitration & Mediation Services/Endispute (“JAMS”), under its
then-existing Rules and Procedures. 
Nothing in this Section 10.9 or in this Agreement is intended to
prevent either Executive or the Company from obtaining injunctive relief in
court to prevent irreparable harm pending the conclusion of any such
arbitration.

 

10.10                 Remedies.  Executive’s duties under Section 8
and the Employee Proprietary Information and Inventions Agreement shall survive
termination of Executive’s employment with the Company.  Executive acknowledges that a remedy at law
for any breach or threatened breach by Executive of the provisions of these
sections and the Employee Proprietary Information and Inventions Agreement would
be inadequate, and that such a breach would cause irreparable harm to the
Company; and Executive therefore agrees that the Company shall be entitled to
injunctive relief in case of any such breach or threatened breach.

 

10.11                 Governing
Law.  All questions concerning the
construction, validity and interpretation of this Agreement will be governed by
the law of the State of California as applied to contracts made and to be
performed entirely within California.

 

10

 

IN WITNESS WHEREOF,
the parties have executed this Agreement effective as of the Effective Date
above written.

 

	
  WATSON PHARMACEUTICALS, INC.

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  
	
  By:

  	
  /s/ Susan K. Skara

  	
   

  
	
   

  	
  Name: Susan K. Skara

  	
   

  
	
   

  	
  Title: SVP, Human
  Resources

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  EXECUTIVE:

  
	
   

  
	
   

  
	
  By:

  	
  /s/ James Nash

  	
   

  
	
   

  	
  James Nash

  
					

 

11

 

EXHIBIT A

 

COMPENSATION AND SEVERANCE TERMS
SCHEDULE

 

1.                                      BASE
SALARY

 

For services to be rendered under this Agreement,
Executive shall receive an initial base salary at an annualized rate of $360,000,
payable in accordance with the Company’s standard payroll practices, and
subject to increases as set forth in the Agreement.

 

2.                                      BONUS

 

Executive’s annual bonus, if granted, shall be at a
target level of 40% of the Executive’s then current base salary.

 

3.                                      STOCK OPTIONS

 

Within thirty days of the Effective Date, Executive
shall receive an Option grant of 40,000 shares of Company common stock.  Such Option grant shall be subject to the
terms and conditions of the Company’s 2001 Incentive Award Plan.

 

4.                                      SEVERANCE
BENEFITS

 

4.1                               Termination
By Company without Cause.  If the
Company terminates Executive’s employment at any time without Cause, the
Company shall provide to Executive, within thirty (30) days after the Effective
Date of the Release attached hereto as Exhibit B (as “Effective Date” is
defined in the Release), as the only severance compensation and benefits all of
the following:

 

(a)                                  A
lump sum severance payment, subject to standard withholdings or deductions, in
an amount equal to the sum of: (i) twenty-four (24) months of Executive’s then
base salary; (ii) two times Executive’s target bonus to be earned for the year
in which termination occurs or two times the bonus amount paid to the Executive
in the prior year, whichever is greater; and (iii) Executive’s prorated bonus
for the year in which the termination occurs, at the Company’s discretion.

 

(b)                                 Continued
group health insurance benefits (e.g., medical, dental, vision, etc.) for
Executive and Executive’s eligible dependents for a period of up to eighteen
(18) months under COBRA, and if Executive is not covered under the Company’s
group health insurance plan at the end of eighteen (18) months, the Company
shall use its best efforts to provide Executive and Executive’s eligible
dependents with comparable health insurance coverage for an additional period
of up six (6) months, but the Company shall not be obligated to pay more than
one hundred fifty percent (150%) of the cost of COBRA coverage for such
comparable coverage; provided, however, that in any event the Company’s
obligation to provide any health benefits pursuant to this sentence ends when
Executive becomes eligible for health insurance with a new

 

1

 

employer (and Executive agrees to promptly notify the
Company in writing of any such event of eligibility).

 

(c)                                  Outplacement
services for one year with a nationally recognized service selected by the
Company.

 

4.2                               Executive’s
Resignation for Good Reason.  If
Executive terminates his employment with the Company for Good Reason, the
Company shall provide to Executive, within thirty (30) days after the Effective
Date of the Release attached hereto as Exhibit B (as “Effective Date” is
defined in the Release), as the only severance compensation and benefits, the
same severance compensation and benefits provided in Section 4.1 hereof.

 

4.3                               Change
of Control Termination.  In the event
of a Change of Control Termination, the Company shall provide to Executive,
within thirty (30) days after the Effective Date of the Release attached hereto
as Exhibit B (as “Effective Date” is defined in the Release), as the only
severance compensation and benefits, (a) the same severance compensation and
benefits provided in Section 4.1 hereof and, (b) any unvested Options held
by Executive shall have their vesting accelerated in full so as to become one
hundred percent (100%) vested and immediately exercisable in full as of the
date of such termination.

 

5.                                      Sign-On
Payment.   Executive shall receive a
sign-on payment of seventy-five thousand dollars ($75,000.00), less appropriate
withholding of taxes, payable in installments as follows:  $30,000 on the first regularly scheduled
payroll date after the Effective Date; $45,000 within ninety (90) days of the Effective
Date.  Executive’s eligibility to receive
the sign-on payment is contingent on Executive’s execution of a reimbursement
agreement in a form acceptable to the Company.

 

2

 

EXHIBIT B

 

RELEASE AGREEMENT

 

I understand that my position with Watson Pharmaceuticals, Inc. (the “Company”)
terminated effective                     
(the “Separation Date”).  The Company has
agreed that if I choose to sign this Release, the Company will, within thirty
(30) days after the Effective Date of this Release,  pay me certain severance benefits (minus the
standard withholdings and deductions) pursuant to the terms of the Key Employee
Agreement (the “Agreement”) entered into as of                         ,
between myself and the Company, and any agreements incorporated therein by
reference.  I understand that I am not
entitled to such severance benefits unless I sign this Release.  I further understand that, regardless of whether
I sign this Release, the Company will pay me all of my accrued salary and paid
time off through the Separation Date, to which I am entitled by law.

 

In consideration for the severance benefits I am receiving under the
Agreement, I hereby release the Company and its officers, directors, agents,
attorneys, employees, shareholders, parents, subsidiaries, and affiliates (“Releasees”)
from any and all claims, liabilities, demands, causes of action, attorneys’
fees, damages, or obligations of every kind and nature, whether they are now
known or unknown, arising at any time prior to the date I sign this
Release.  This general release includes,
but is not limited to:  all federal and
state statutory and common law claims, claims related to my employment or the
termination of my employment or related to breach of contract, tort, wrongful
termination, discrimination, harassment, defamation, fraud, wages or benefits,
or claims for any form of equity or compensation.  Notwithstanding the release in the preceding
sentence, I am not releasing any right of indemnification I may have for any
liabilities and costs of defense (including without limitation reasonable
attorneys’ fees) arising from my actions within the course and scope of my
employment with the Company.

 

In releasing claims unknown to me at present, I am waiving all rights
and benefits under Section 1542 of the California Civil Code, and any law
or legal principle of similar effect in any jurisdiction:  “A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.”

 

If I am forty (40) years of age or older as of the Separation Date, I
acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the federal Age Discrimination in Employment Act of
1967, as amended (“ADEA”).  I also
acknowledge that the consideration given for the waiver in the above paragraph
is in addition to anything of value to which I was already entitled.  I have been advised by this writing, as
required by the ADEA that:  (a) my waiver
and release do not apply to any claims that may arise after my signing of this
Release; (b) I should consult with an attorney prior to executing this Release;
(c) I have twenty-one (21) days (forty-five (45) days in the event of a group
termination) within which to consider this Release (although I may choose to
voluntarily execute this Release earlier); (d) I have seven (7) days following
the execution of this release to revoke the Release; and (e) this Release will
not be effective until the eighth day after this Release has been signed both
by me and by the Company (“Effective Date”).

 

I acknowledge that I remain bound by the Invention Assignment and
Confidential Nondisclosure Agreement which I signed in connection with my
employment (“Invention Agreement”) and that the provisions of the Invention
Agreement shall remain in full force and effect. In accordance with my existing
and continuing obligations under the Invention Agreement, I have returned to
the Company all materials required to be returned pursuant to the Invention
Agreement, as well as any other Company property in my possession.  In consideration for the severance benefits I
am receiving hereunder, I agree that I will reasonably cooperate with the
Company for ninety (90) days after the Separation Date to assure the smooth
transition of pending matters and to answer questions which may arise from

 

 

time to time regarding my former duties and responsibilities.  Effective as of the Separation Date, I resign
any and all offices and directorships with the Company and any of its
affiliates, and will execute all documents reasonably requested by the Company
or its affiliates to effectuate such resignations.  Further, I agree that I will not hereafter
disparage the Company or any of the Releasees, either orally or in writing, to
any person or entity.  The Company agrees
that its officers and directors will not disparage me, either orally or in
writing, to any person or entity.

 

	
  Agreed:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
   

  	
  [Employee]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Date

  	
   

  	
   

  	
  WATSON PHARMACEUTICALS, INC.

  	
   

  

 

2

 

EXHIBIT C

 

EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS
AGREEMENT

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