Document:

Exhibit 10.5

 

Verona Pharma plc

Unapproved Share Option Scheme

 

Adopted on 18 September 2006

 

Amended on 11 October 2012

 

Amended on 29 January 2015

 

Verona Pharma plc – Unapproved share option scheme rules

 

 

Contents

 

	
1.
    	
Definitions and interpretation
    	
1
    
	
2.
    	
Purpose
    	
3
    
	
3.
    	
Grant of Option
    	
3
    
	
4.
    	
Share capital limits on Options
    	
4
    
	
5.
    	
Rights to exercise Options
    	
4
    
	
6.
    	
Procedures to exercise Options
    	
7
    
	
7.
    	
Adjustment of Options
    	
8
    
	
8.
    	
Taxation
    	
9
    
	
9.
    	
Administration and amendment
    	
9
    
	
10.
    	
General
    	
10
    
	
Letter Notifying   Grant
    	
12
    
	
Share Option   Certificate
    	
14
    
	
Form of   Exercise
    	
16
    

 

 

Rules of the Verona Pharma plc
 Unapproved Share Option Scheme

 

1.                                      Definitions and interpretation

 

1.1                               In this Scheme, unless the context otherwise requires, the following definitions shall apply:

 

“AIM” means the Alternative Investment Market of the London Stock Exchange.

 

“AIM Rules” means the AIM Rules for Companies published by the London Stock Exchange from time to time.

 

“Associated Company” has the meaning set out in section 449 Corporation Tax Act 2010.

 

“Board” means the board of directors of the Company or a duly authorised committee of the board.

 

“Business Day” means a day on which the London Stock Exchange is open for business.

 

“Committee” means the remuneration committee of the Board.

 

“Company” means Verona Pharma plc registered in England and Wales with company number 05375156.

 

“Control” has the meaning set out in section 995 Income Tax Act.

 

“Date of Grant” means the date on which an Option is granted pursuant to rule 3.5.

 

“Employee’s Contributions” means an employee’s primary Class 1 national insurance contribution or any equivalent social security liability in any jurisdiction outside England and Wales.

 

“Employees’ Share Scheme” has the meaning set out in section 1166 Companies Act 2006.

 

“Employer’s Contributions” means an employer’s secondary Class 1 national insurance contributions or any equivalent social security liability in any jurisdiction outside England and Wales.

 

“Exercise Date” has the meaning set out in rule 6.2.

 

“Exercise Price” means the price payable per Share on the exercise of an Option, not being less than the nominal value of a Share.

 

“Group Company” means any company within the group of companies comprising the Company and any wholly-owned subsidiaries of the Company

 

“Income Tax Act” means the Income Tax Act 2007.

 

“Income Tax Liability” means any income tax in respect of PAYE income for the purposes of section 683 Taxes Act (or the equivalent in any jurisdiction outside England & Wales).

 

“the London Stock Exchange” means the London Stock Exchange plc.

 

“National Insurance Contribution Liability” means any national insurance contributions which fall to be paid to HM Revenue & Customs by the Company (or the relevant employing Group Company or former Group Company) under the modified PAYE system as it applies for national insurance purposes under the Social Security Contributions and Benefits Act 1992 

 

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and regulations referred to in it (or the equivalent in any jurisdiction outside England and Wales).

 

“Option” means a right granted under this Scheme to acquire Shares.

 

“Option Holder” means a person to whom an Option has been granted under the Scheme or, where applicable, the legal personal representatives of such a person.

 

“Ordinary Shares” means shares comprising the ordinary share capital of the Company as defined in section 989 Income Tax Act.

 

“Rules” means the rules of this Scheme.

 

“Scheme” means this scheme being the Verona Pharma plc Unapproved Share Option Scheme originally approved by a resolution of the Board dated 18 September 2006, amended by resolutions of the Board dated 11 October 2012 and 29 January 2015 and as subsequently amended in accordance with rule 9.

 

“Scheme of Arrangement” means as defined in rule 5.6.

 

“Shares” means ordinary shares of £0.001 each in the capital of the Company.

 

“Taxes Act” means the Income Tax (Earnings and Pensions) Act 2003.

 

“Tax Liabilities” has the meaning contained in rule 8.2.

 

“Unvested Option” means, on any date, that part of an Option that has not vested in accordance with these Rules and the Vesting Schedule.

 

“Vests” means a right to exercise has arisen and “Vesting” shall be construed accordingly.

 

“Vested Option” means, on any date, that part of an Option that has vested in accordance with these Rules and the Vesting Schedule.

 

“Vesting Schedule” means the dates on which an Option Vests and the corresponding numbers of Shares over which the Option may then be exercised as determined by the Committee pursuant to rule 5.2.

 

1.2                               In this Scheme, unless the context otherwise requires:

 

(a)                                words in the singular include the plural and vice versa and words in one gender include any other gender;

 

(b)                                a reference to a statute or statutory provision includes:

 

(i)                                     any subordinate legislation (as defined in section 21(1), of the Interpretation Act 1978) made under it;

 

(ii)                                  any repealed statute or statutory provision which it re-enacts (with or without modification); and

 

(iii)                               any statute or statutory provision which modifies, consolidates, re-enacts or supersedes it;

 

(c)                                  a reference to rules is to rules in these Rules and references to sub-rules are to sub-rules in which they appear; and

 

(d)                                 the table of contents and headings are inserted for convenience only and shall not affect the interpretation of these Rules.

 

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2.                                      Purpose

 

2.1                               These Rules set out the terms by which the Committee may grant Options to selected officers, employees and consultants of the Company for the purpose of retaining their services.

 

3.                                      Grant of Option

 

3.1                               Subject to the AIM Rules and these Rules, the Committee may at any time grant Options under this Scheme as it, in its absolute discretion, thinks fit, provided that Options may only be granted within the period of 42 days starting on the Business Day following the day on which the Company makes an announcement of its results for the last preceding financial year, half-year or other period or on which listing particulars or a document containing equivalent information relating to Scheme Shares is issued. If the Committee considers there are circumstances which justify the grant of Options outside any of the periods set out above, the Committee may determine that Options may be granted at another time.

 

3.2                               When granting an Option the Committee may specify conditions which, unless otherwise stated in these Rules, must be satisfied prior to the exercise of the Option.  The Committee may in its absolute discretion amend or waive the conditions relating to a particular Option or part of an Option if events happen which cause the Committee reasonably to consider that it would be fairer so to amend or waive the conditions to ensure that they achieve their original purpose, provided that any amended conditions are neither no more nor no less difficult to achieve than those previously imposed.

 

3.3                               Within 60 days of the Date of Grant of an Option, the Company shall issue to the Option Holder a letter enclosing a certificate evidencing the grant of the Option in such form as the Committee  may determine provided that it shall specify:

 

(a)                                 the number of Shares subject to the Option;

 

(b)                                 the Exercise Price;

 

(c)                                  the Date of Grant;

 

(d)                                 when the Option ordinarily Vests and the number of shares over which the Option may then be exercised;

 

(e)                                  whether the Option Holder is required either to bear some or all of the cost of any Employer’s Contributions arising from the exercise of the Option or jointly to elect with the Company to transfer some or all of such liability to the Option Holder; and

 

(f)                                   any performance conditions attaching to the exercise of the Option pursuant to rule 3.2 and the period over which any such conditions shall be measured.

 

3.4                               If the Option Holder does not execute the Option certificate as a deed and return it to the Company within the period of 30 days after receiving the letter evidencing the grant of the Option under rule 3.1 (or such longer period as the Committee may determine), the Option shall automatically lapse at the end of such period.

 

3.5                               For the avoidance of doubt, the Date of Grant shall be taken to be the day on which the execution of the option certificate as a deed is completed.

 

3.6                               An Option shall be personal to the Option Holder and may not be transferred, assigned or charged.  Any purported transfer (except a transfer to the Option Holder’s personal representatives on death), assignment, charge, disposal or dealing of the Option shall render the Option void and cause it to lapse.  Each Option certificate shall carry a statement to this effect.

 

3.7                               An Option shall be granted by way of deed or otherwise as the Committee may determine.  No cash payment shall be required in consideration of such grant.

 

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3.8                               Any Options granted under the Scheme shall be limited and take effect so that any limit in rule 4 is not exceeded.

 

4.                                      Share capital limits on Options

 

4.1                               No Option may be granted on any date if the number of Shares to be issued on its exercise in full, when aggregated with the number of:

 

(a)                                 Shares issued on the exercise of, or remaining capable of being issued on the exercise of, Options granted during the period of 10 years ending on that date; and

 

(b)                                 Ordinary Shares issued on the exercise of, or remaining capable of being issued on the exercise of, options or other rights granted during the period of 10 years ending on that date under any other Employees’ Share Scheme or equity incentive plan adopted by the Company for the benefit of its officers, employees or consultants,

 

would exceed 10% of the number of Ordinary Shares in issue on that date.

 

4.2                               For the purposes of applying the limit in rule 4.1, any options which were surrendered, released or lapsed without being exercised shall not be taken into account.

 

5.                                      Rights to exercise Options

 

5.1                               Options may be exercised in accordance with the following provisions of this rule 5 and rule 6.

 

5.2                               Except as provided elsewhere in this rule 5, or as the Committee may at any time in its absolute discretion determine in exceptional circumstances, an Option may only be exercised:

 

(a)                                 if any conditions which apply to the Option under rule 3.2 have been fulfilled to the satisfaction of the Committee or waived;

 

(b)                                 at a time when the Option Holder holds an office or employment with a Group Company; and

 

(c)                                  in accordance with the Vesting Schedule specified by the Committee, in its absolute discretion, and set out in, or attached in the form of a schedule to, the option certificate.

 

General offer and compulsory acquisition

 

5.3                               If an Acquirer:

 

(a)                                 obtains Control of the Company as a result of making a general offer to:

 

(i)                                     acquire all of the issued ordinary share capital of the Company (other than that already held by the Acquirer) which is made on a condition such that if it is satisfied the Acquirer will have Control of the Company; or

 

(ii)                                  acquire all of the shares in the Company of the same class as the Shares; or

 

(b)                                 becomes bound or entitled to acquire shares in the Company under sections 979-982 of the Companies Act 2006,

 

any Option Holder may, notwithstanding rule 5.2 but subject to rule 7, exercise any Option of his in whole or in part within whichever of the periods set out in rules 5.4 applies after which, unless the Option Holder has released his Option according to rule 7 and to the extent unexercised the Option shall lapse.

 

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5.4                               The periods referred in rule 5.3 are:

 

(a)                                 in a case falling within rule 5.3(a), the period of 6 months beginning with the date when the Acquirer has obtained Control of the Company unless the Committee determines that in connection with the event referred to in rule 5.3(a) Options should become capable of exercise prior to this date; and

 

(b)                                 in a case falling within rule 5.3(b), the period of one month from the first date on which the Acquirer becomes bound or entitled to give a notice to acquire Shares in the Company under section 979-982 of the Companies Act 2006 (notwithstanding any other provisions as to exercise in these Rules).

 

Scheme of Arrangement

 

5.5                               Subject to rule 7, if under section 899 of the Companies Act 2006 the Court sanctions a compromise or arrangement in relation to the Company (a “Scheme of Arrangement”) and its shareholders in connection with the acquisition of Control by the Acquirer, the Option Holder may, notwithstanding rule 5.2, exercise any Option of his in full within the period of 6 months beginning with when the Court sanctions the Scheme of Arrangement, after which unless the Option Holder has released his Option according to rule 7 and to the extent unexercised the Option shall lapse.

 

Demerger

 

5.6                               If the Company is or is expected to be the subject of a demerger, merger within the Companies (Cross Border Merger) Regulations 2007, dividend-in-specie or other transaction which the Committee determines in its discretion would materially affect the value of any Option, the Committee may determine on a fair and reasonable basis that any Option Holder may, notwithstanding rule 5.2, exercise any Option of his in whole or in part during such period as the Committee shall specify and notify to the affected Option Holders.

 

Voluntary winding up

 

5.7                               If notice is duly given to members of a resolution at a general meeting for the voluntary winding up of the Company, except for the purposes of a reconstruction or amalgamation, any Option Holder may, notwithstanding rule 5.2, exercise any Option of his in whole or in part (but so that any exercise hereunder shall be conditional upon such resolution being passed) at any time thereafter until the resolution is duly passed or defeated or the general meeting adjourned sine die, whichever shall first occur.  If such resolution is passed an Option shall, to the extent unexercised, lapse.

 

Early cessation of employment

 

5.8                               Where an Option Holder ceases to hold any office or employment with a Group Company by reason of:

 

(a)                                 injury, disability or ill-health (such determination to be made by the Board); or

 

(b)                                 redundancy (within the meaning of the Employment Rights Act 1996); or

 

(c)                                  a Group Company ceasing to be under the Control of the Company or a business or part of a business being transferred to a company which is neither an Associated Company nor a company of which the Company has control,

 

an Option Holder may exercise notwithstanding rule 5.2 any Option held by him in full during the period of 90 days after the date of cessation (or such longer period as the Board may allow), after which it shall lapse.

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Cessation of employment for other reasons

 

5.9                               Where an Option Holder ceases to hold any office or employment with a Group Company in circumstances different to those provided for in rule 5.8 notwithstanding rule 5.2 but subject to rule 5.11 (death) a Vested Option shall remain exercisable during the period of 60 days after the date of cessation (or such longer period as the Board may allow) after which it shall lapse provided that if the cessation derives from dismissal of the Option Holder for gross misconduct or other disciplinary or other reasons giving rise to the termination of the Option Holder’s employment by the Company or otherwise constituting a breach of the Option Holder’s contract of employment (as determined in the absolute discretion of the Board) a Vested Option shall lapse on the date of cessation or, if earlier, the date that notice of termination is given.  Rule 5.10 shall apply to any Unvested Options.

 

Unvested Options

 

5.10                        An Unvested Option shall lapse on a cessation of employment within rule 5.9 unless the Board, prior to the date of cessation, gives notice to an Option Holder inviting that Option Holder to exercise their Unvested Option within such period and to such extent as the Board may in its absolute discretion determine.  If such notice is given, to the extent that any Unvested Option is not exercised within such period, it will lapse immediately thereafter.

 

Death

 

5.11                        Where the Option Holder dies:

 

(a)                                 any Option held by him that is a Vested Option at the date of death may be exercised by his personal representatives during the period of 12 months following such date after which it shall lapse; and

 

(b)                                 any Unvested Option shall lapse 12 months after the date of death unless the Board in its absolute discretion determines that it may be exercised in whole or in part before the expiry of that period.

 

Lapse of Options

 

5.12                        Notwithstanding any other provision in these Rules, an Option will lapse to the extent it has not been exercised on the earliest to occur of the following:

 

(a)                                 the 10th anniversary of the Date of Grant;

 

(b)                                 the passing of a resolution by the shareholders in respect of a creditor’s voluntary liquidation, the making by the Court of a winding up order, or the appointment of an administrator or receiver in respect of the Company;

 

(c)                                  the Option Holder being adjudicated bankrupt, making or proposing a voluntary arrangement under the Insolvency Act 1986 or otherwise being deprived (except on death) of the legal or beneficial ownership of the Option;

 

(d)                                 if applicable, the expiry of the relevant period referred to in rule 3.4;

 

(e)                                  the expiry of the relevant period referred to in this rule 5 and where more than one such period applies, the earliest to expire of those periods.

 

Meaning of ceasing employment

 

5.13                        For the purposes of rules 5.8 and 5.9:

 

(a)                                 an Option Holder (including an Option Holder who is absent from work on paternity or parental leave) shall not be treated as ceasing to hold any office or employment until 

 

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he no longer holds any office or employment with the Company or any Group Company or any Associated Company; and

 

(b)                                 a female Option Holder who is absent from work on maternity leave shall not be deemed to have ceased holding any office or employment until she ceases to be entitled to exercise any statutory or contractual right to return to work.

 

6.                                      Procedures to exercise Options

 

6.1                               An Option shall be exercised by notice in writing (in the form prescribed by the Committee) given by the Option Holder to the Company in respect of all or some of the Shares comprised in the Option, and such notice shall be accompanied by:

 

(a)                                 the relevant option certificate (or an indemnity in respect of a lost option certificate);

 

(b)                                 if required by the Committee, an election to transfer liability for Employer’s Contributions to the Option Holder (in the form prescribed by the Committee and approved by HM Revenue & Customs); and

 

(c)                                  if required by the Committee, if the Shares to be acquired on exercise of the Option are considered to be restricted securities as defined in Part 7, Chapter 2, Taxes Act (such determination to be in the sole discretion of the Committee), a joint section 431, Taxes Act election (electing that the Market Value of the Shares acquired on exercise of the Option be calculated as if the Shares were not restricted securities),

 

together with a remittance for the aggregate Exercise Price payable, unless the Company and the Option Holder agree that an alternative arrangement can be used to satisfy the Exercise Price.

 

6.2                               Provided the conditions for exercise are satisfied, exercise of the Option shall be effective on the date of receipt or deemed receipt by the Company (as determined by rule 10.2) (the “Exercise Date”) of the documents referred to in rule 6.1.

 

6.3                               The Company has established a cashless exercise facility to enable Option Holders to provide funds to pay the aggregate Exercise Price by:

 

(a)                                 authorising the deduction of the necessary amount from their salary payment next following delivery of the option certificate and the notice of exercise to the Company or its duly appointed agent; or

 

(b)                                 executing a letter of instruction authorising a representative to act as the Option Holder’s agent and to sell on his behalf either all of the Shares acquired on exercise of the Option or such number of them (rounded up to the nearest whole Share) as will be required to cover the aggregate Exercise Price, the payment of any Tax Liabilities (as defined in rule 9.4), together with any fees and commissions arising in connection with the exercise of the Option and the sale of the Shares acquired.  Once the requisite number of Shares has been sold and these requirements met in full, the Option Holder will receive a share certificate in respect of the balance of the Shares remaining (if any) and/or a cheque or bank transfer in respect of the balance of monies (if any) left after sale of all or the requisite number of Shares as aforesaid; or

 

(c)                                  implementing any other arrangements from time to time determined by the Committee and agreed between the Company and the Option Holder.

 

6.4                               As soon as reasonably practicable after the Exercise Date the Company shall:

 

(a)                                 allot and issue such Shares which are to be issued pursuant to the exercise of the Option; or

 

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(b)                                 procure the transfer of such Shares which are to be transferred pursuant to the exercise of the Option,

 

to the Option Holder (or his nominee) and, subject to rule 6.5, cause to be registered in his name (or the name of his nominee) the number of Shares specified in the notice of exercise (as reduced in accordance with any alternative arrangement applicable under rule 6.1).

 

6.5                               The Option Holder shall be responsible for any stamp duty arising on the transfer of Shares.

 

6.6                               An Option may only be exercised in respect of a whole number of Shares, not a fraction of a Share.

 

6.7                               No Option may be exercised unless such exercise, and the issue or transfer of Shares after such exercise, would be lawful in all relevant jurisdictions and in compliance with the Listing Rules of the London Stock Exchange, the AIM Rules or any other relevant share dealing code of the Company, the City Code on Takeovers and Mergers and any other relevant UK or overseas regulation or enactment.

 

6.8                               An Option may not be exercised for fewer than 50,000 Shares at any one time

 

6.9                               When an Option is exercised only in part, the balance shall remain exercisable on the same terms as originally applied to the whole Option and an endorsement to that effect shall be noted on the Option Certificate as soon as reasonably practicable after the partial exercise.

 

6.10                        Save for any right determined by reference to a date preceding the date on which Shares are issued, Shares issued on the exercise of an Option shall rank equally with the Shares then in issue.  Shares transferred on the exercise of an Option will be transferred without the benefit of any rights attaching to them by reference to a record date preceding the date of exercise.

 

6.11                        An Option Holder to whom Shares are issued or transferred on the exercise of an Option shall be bound by the Company’s articles of association as they apply to such Shares and if required to do so by the Board, shall enter into a deed of adherence pursuant to any shareholders’ agreement relating to the Company. Where any such Shares are issued to or transferred to a nominee, the Option Holder shall ensure that similar obligations apply to that nominee as required by the Board.

 

7.                                      Adjustment of Options

 

7.1                               In the event of any capitalisation or offer by way of rights (including an open offer) or on any consolidation, sub-division, reduction or other variation of the capital of the Company, the number of Shares subject to the Option and the Exercise Price may be adjusted in such manner as the Committee, on a fair and reasonable basis, may deem appropriate.  Notice of any such adjustments shall be given to the Option Holder by the Company.

 

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8.                                      Taxation

 

8.1                               An Option Holder shall be accountable for any Income Tax Liability and National Insurance Contribution Liability which is chargeable on any assessable income deriving from:

 

(a)                                 the grant or exercise of, or other dealing in, any Option held by him,

 

(b)                                 the acquisition, holding or disposal of any Shares acquired on exercise of any Option held by him; and

 

(c)                                  any action, event or thing done or omitted to be done following the Option Holder’s acquisition of the Shares acquired on exercise of any Option held by him which directly or indirectly gives rise to a liability under the Taxes Act in respect of the Shares (including the entering into of an election under section 431 of the Taxes Act).

 

8.2                               In respect of such assessable income the Option Holder shall indemnify the Company and (at the direction of the Company) any Group Company which is or may be treated as the employer of the Option Holder in respect of the following (together, the “Tax Liabilities”):

 

(a)                                 any Income Tax Liability; and

 

(b)                                 any National Insurance Contribution Liability being the aggregate of:

 

(i)                                     all the Employee’s Contributions; and

 

(ii)                                  all the Employer’s Contributions (unless otherwise determined by the Committee and notified to the Option Holder) .

 

8.3                               Pursuant to the indemnity referred to in rule 8.2, the Option Holder shall make such arrangements as the Company requires to meet the cost of the Tax Liabilities, including at the direction of the Company any of the following:

 

(a)                                 making a cash payment of an appropriate amount to the relevant Group Company whether by way of cheque, banker’s draft or deduction from salary in time to enable that Group Company to remit such amount to HM Revenue & Customs before the 14th day following the end of the month in which the event giving rise to the relevant Tax Liabilities occurs;

 

(b)                                 appointing the Company as agent and/or attorney for the sale of sufficient of the Shares acquired pursuant to the exercise of the Option to cover the Tax Liabilities and authorising the payment to the relevant Group Company of the appropriate amount (including all reasonable fees, commissions and expenses incurred by the relevant Company in relation to such Sale) out of the net proceeds of sale of the Shares; and

 

(c)                                  entering into an election whereby the employer’s liability for Employer’s Contributions is transferred to the Option Holder on terms set out in the election and approved by HM Revenue & Customs.

 

8.4                               For the purposes of this rule 8, Group Companies includes former Group Companies.

 

9.                                      Administration and amendment

 

9.1                               The Scheme shall be administered by the Committee acting on behalf of the Company and the Committee’s decision on all disputes shall be final.

 

9.2                               Subject to rule 9.3, the Committee may at any time amend these Rules in any way it thinks fit.

 

9.3                               No amendment may be made to these Rules if, or to the extent that, in the reasonable opinion of the Committee it would materially abrogate or adversely affect the subsisting rights of an 

 

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Option Holder as regards an Option granted prior to the amendment being made unless it is made:

 

(a)                                 with the written consent of the number of Option Holders that hold Options under the Scheme to acquire more than 50% of the Shares which would be delivered if all Options granted and subsisting under the Scheme were exercised (ignoring any conditions which may be attached to their exercise); or

 

(b)                                 by a resolution at a meeting of Option Holders passed by not less than 50% of the Option Holders who attend and vote either in person or by proxy.

 

9.4                               The Committee shall have power from time to time to make and vary such rules (not being inconsistent with these rules) for the implementation and administration of this Scheme as it may think fit.

 

10.                               General

 

10.1                        The Company shall at all times keep available sufficient authorised and unissued Shares to satisfy the exercise to the full extent still possible of any Options (excluding those the exercise of which is to be satisfied by the transfer of existing Shares) taking account of any other obligations of the Company to issue new Ordinary Shares or shall otherwise ensure that Shares are available for transfer to satisfy the exercise of any Option.

 

10.2                        Any notice or other communication under or in connection with these Rules may be given to the Option Holder either personally or by electronic mail or post and/or to the Company either personally or by electronic mail (with a report of receipt), post or by fax.  Items sent by electronic mail shall be deemed to have been received at the time specified in the report of receipt returned to the sender. Items sent by post should be first class prepaid and shall be deemed to have been received 48 hours after posting.  Items sent by fax shall be deemed to have been received on the day that they are sent.

 

10.3                        The terms of employment of an Option Holder shall not be affected in any way by his participation in the Scheme which shall not form part of such terms (either expressly or impliedly) nor in any way entitle him to take into account such participation in calculating any compensation or damages on the termination of his employment for whatever reason (whether lawful or unlawful) which might otherwise be payable to him, and the Option Holder’s terms of employment shall be deemed to be varied accordingly.

 

10.4                        This Scheme is entirely discretionary and may be suspended or terminated by the Company at any time.  Such suspension or termination will not affect any Options granted under the Scheme to the extent that they are subsisting at the date of such suspension or termination. The grant of an Option is likewise entirely discretionary and does not create any contractual or other right to receive future grants of options, or benefits in lieu of options.  All determinations with respect to future grants will be at the sole discretion of the Company.  Rights under the Scheme are not pensionable

 

10.5                        The costs of introducing and administering this Scheme shall be borne by the Company.

 

10.6                        Subject to applicable law, the Company and any Group Company may enter into arrangements (including the payment of money or making of loans) with any person on such terms as it thinks fit whereby, on the exercise of an Option, existing Shares may be transferred to an Option Holder in satisfaction of his rights under this Scheme.

 

10.7                        Nothing in these Rules shall be taken to impose any restriction or limitation on the exercise by the members of the Company of their rights to make any alteration to the articles of association of the Company or the share capital of the Company.

 

10.8                        At any time whilst Shares are listed on the Alternative Investment Market or the Official List of the London Stock Exchange, the Company shall apply to the London Stock Exchange for any 

 

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shares issued on the exercise of any Option to be listed on the Alternative Investment Market or the Official List as appropriate.

 

10.9                        The Option Holder, by accepting the Option, consents to the collection, use and transfer, in electronic or other form, of personal data (“Data”) that is necessary to facilitate the implementation, administration and management of the Scheme.  The Company may, for the purpose of implementing, administering and managing the Scheme, hold certain personal information about the Option Holder, including, but not limited to, the Option Holder’s name, home address and telephone number, date of birth, national insurance number or other identification number, salary, nationality, job title and details of all awards or entitlement to options that may be granted under the Scheme.  The Option Holder further consents to the transfer of the Data to any third parties assisting in the implementation, administration and management of the Scheme, including any broker with whom the Shares that may be issued on exercise of the Option may be deposited, and that these recipients may be located in the UK or elsewhere. The Option Holder, by accepting the Option, waives any data privacy rights he may have with respect to the Data and authorises the Company and its agents to store and transmit such information in electronic form

 

10.10                 The Scheme and any dispute, claim or obligation arising out of or in connection with it, its subject matter or formation shall be governed by English law. The Option Holder and the Company irrevocably agree that the English courts shall have exclusive jurisdiction to settle any dispute or claim arising out of or in connection with this Scheme, its subject matter or formation.

 

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Letter Notifying Grant

 

[to be typed onto Company letterhead]

 

·[Date]

 

·[Name]

 

·[Address]

 

Dear [ Name ·]

 

Verona Pharma plc Unapproved Share Option Scheme

 

I am pleased to inform you that the Board has granted you an option over · ordinary shares in the capital of Verona Pharma plc (the “Company”) (the “Option”) in accordance with the Verona Pharma plc Unapproved Share Option Scheme (the “Scheme”).

 

You will find enclosed with this letter:

 

·              A copy of the rules of the Scheme;

 

·              An option certificate for execution and return (Appendix A);

 

·              A joint election for the transfer of secondary NIC for execution and return (Appendix B); and

 

·              A form of exercise (Appendix C).

 

The option certificate is the written agreement between the Company and you in relation to the Option.  Unless you do not wish to accept the Option, please execute the option certificate and return it to me by [·].

 

By executing the option certificate you are agreeing to be bound by the rules of the Scheme so please read them carefully.  Your attention is drawn in particular to rule 5 which sets out the dates upon which your Option vests and the other situations in which you will be able to exercise it.

 

When you wish to exercise your Option you must do so by completing and returning the form of exercise (attached to the option certificate).

 

Taxation

 

The options are not approved by HM Revenue & Customs or any other taxation authority.  You may wish to take professional advice on your tax position with respect to the Options.

 

Your employer may have to account to HM Revenue & Customs on your behalf through the PAYE system for any income tax and national insurance contributions that become payable.  You will be required to make arrangements to reimburse your employer for the payment of these amounts on your behalf.

 

You are required to agree to bear any employer’s secondary national insurance that your employer may become liable to pay to HM Revenue & Customs. This is a condition of grant of the Option and you are required to enter into the joint election in the form attached to this letter as Appendix B. Under this election, you will be liable for any secondary national insurance contributions arising in respect of the Option.

 

12

 

In certain circumstances, exercise of your Option will be conditional on your entering into an election pursuant to section 431, Income Tax (Earnings and Pensions) Act 2003 jointly with your employer (electing that the market value of the shares acquired on exercise of the Option be calculated as if the shares were not restricted securities).  You will be asked to sign this form if it is necessary.

 

When you sell the shares you acquire on exercise of your Option, any gain may be subject to capital gains tax.  It will be your responsibility to report and pay any capital gains tax to HM Revenue & Customs or such other taxation authority as required.

 

Yours sincerely

 

	
 
    	
 
    
	
For and on behalf of
    	
 
    
	
Verona Pharma plc
    	
 
    

 

13

 

Share Option Certificate

 

Verona Pharma plc Unapproved Share Option Scheme

 

	
Date of Grant
    	
 
    	
Exercise Price per Share
    	
 
    	
Number of Shares
    	
 
    
	
·
    	
 
    	
£·
    	
 
    	
·
    	
 
    

 

This is to certify that                                                                                                                              

of                                                                                                                                                               

                                                                                                                                                                     

 

has been granted an option to acquire • ordinary shares in the Company at the exercise price shown above (the “Option”) under the rules of the Verona Pharma plc Unapproved Share Option Scheme (the “Scheme Rules”).

 

The Option is exercisable in accordance with the Scheme Rules.  In particular, the right to exercise the Option shall Vest in normal circumstances according to the Vesting Schedule below.

 

	
Normal Vesting Date
    	
 
    	
Vesting proportion
    	
 
    
	
·
    	
 
    	
·
    	
 
    
	
·
    	
 
    	
·
    	
 
    
	
·
    	
 
    	
[Balance of   Shares under Option]
    	
 
    

 

In this Vesting Schedule the phrase “Shares under Option” shall refer to the total number of Shares under Option at the Date of Grant. The number of Shares comprised in any tranche, other than the tranche that Vests on the latest date shall be rounded down to a whole number.

 

The tax treatment of the Option will depend on a number of factors, and if you are unsure about such treatment you are advised to take your own independent financial advice from an appropriately qualified professional adviser.

 

Where any income tax and national insurance contributions are payable through the PAYE system, you will be required to indemnify the Company and other Group Companies (and former Group Companies) all its subsidiaries for such liabilities under the Scheme Rules.  Capital gains tax (CGT) may also become payable on eventual disposal of the ordinary shares acquired and any such CGT liability will be for your own account.

 

14

 

This Agreement is executed by the Company and the Option Holder as a deed and delivered on the date shown above

 

	
Executed as a Deed by
    	
)
    	
 
    	
 
    
	
Verona Pharma plc acting by
    	
)
    	
 
    	
 
    
	
                     ,   a director
    	
)
    	
 
    	
 
    
	
in the presence of:
    	
)
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Signature of witness:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Occupation:
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Executed as a Deed   by
    	
 
    	
)
    	
 
    	
 
    
	
 
    	
 
    	
)
    	
 
    	
 
    
	
in the presence of
    	
 
    	
)
    	
 
    	
 
    

 

Signature of witness:

 

Name:

 

Address:

 

Occupation:

 

Notes

 

(1)         The Option is not transferable, and will lapse on any transfer, assignment, charge or other disposal.

(2)         A copy of the rules of the Scheme is available from the Company Secretary.

 

THIS CERTIFICATE IS IMPORTANT AND SHOULD BE KEPT IN A SAFE PLACE

 

15

 

Form of Exercise

 

Verona Pharma plc Unapproved Share Option Scheme
 (the “Scheme”)

 

	
To:
    	
The Directors
    
	
 
    	
Verona Pharma plc
    

 

I wish to exercise the option comprised in the enclosed option certificate (the “Option”) in respect of · ordinary shares of £0.001 each in the capital of the Company (the “Shares”).

 

I [enclose my remittance of £· in favour of Verona Pharma plc] or [have arranged payment in accordance with rule 7.3 of the Scheme Rules] as payment in full of the exercise price of £· per Share.

 

I apply for the number of Shares specified above and request you to arrange the registration of them in my name subject to the memorandum and articles of association of Verona Pharma plc.

 

I agree:

 

(a)                                 to indemnify Verona Pharma plc and other Group Companies (or former Group Companies) in respect of any Tax Liabilities (as defined in rule 8.2 of the Scheme); and

 

(b)                                 that the issue of these Shares to me is conditional on my first making arrangements to the satisfaction of Verona Pharma plc to discharge the Tax Liabilities pursuant to such indemnity and, if required by the board of directors, entering into a section 431 election.

 

	
Signed:
    	
 
    	
 
    	
Date:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Address:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
Postcode:
    	
 
    

 

Note:

 

If you are signing as a personal representative you should lodge a copy of the Grant of Probate or Letters of Administration as evidence of your appointment.  In the event of there being more than one personal representative each must sign the form.

 

16Exhibit 10.6

 

Dated 30th April 2012

 

VERONA PHARMA PLC

 

- and -

 

JAN-ANDERS KARLSSON

VERONA PHARMA PLC

 

- and -

 

JAN-ANDERS KARLSSON

 

 

EMPLOYMENT AGREEMENT

 

 

 

INDEX

 

	
Clause
    	
 
    	
 
    	
 
    	
Page
    
	
1
    	
 
    	
DEFINITIONS
    	
 
    	
3
    
	
2
    	
 
    	
APPOINTMENT
    	
 
    	
4
    
	
3
    	
 
    	
PERIOD OF APPOINTMENT
    	
 
    	
4
    
	
4
    	
 
    	
DUTIES OF EXECUTIVE
    	
 
    	
4
    
	
5
    	
 
    	
COMPANY POLICIES
    	
 
    	
5
    
	
6
    	
 
    	
INTELLECTUAL PROPERTY
    	
 
    	
5
    
	
7
    	
 
    	
CONFIDENTIALITY
    	
 
    	
6
    
	
8
    	
 
    	
DELIVERY UP OF THE COMPANY’S PROPERTY
    	
 
    	
7
    
	
9
    	
 
    	
REMUNERATION AND DEDUCTIONS
    	
 
    	
7
    
	
10
    	
 
    	
EXPENSES
    	
 
    	
8
    
	
11
    	
 
    	
BENEFITS
    	
 
    	
8
    
	
12
    	
 
    	
DISCRETIONARY BONUS
    	
 
    	
8
    
	
13
    	
 
    	
SHARE SCHEMES
    	
 
    	
8
    
	
14
    	
 
    	
CHANGE OF CONTROL
    	
 
    	
9
    
	
15
    	
 
    	
WORKING HOURS AND HOLIDAYS
    	
 
    	
9
    
	
16
    	
 
    	
ILL-HEALTH OR INJURY
    	
 
    	
10
    
	
17
    	
 
    	
TERMINATION OF EMPLOYMENT
    	
 
    	
10
    
	
18
    	
 
    	
PAYMENT IN LIEU AND GARDEN LEAVE
    	
 
    	
12
    
	
19
    	
 
    	
POST-TERMINATION RESTRICTIONS
    	
 
    	
12
    
	
20
    	
 
    	
DATA PROTECTION
    	
 
    	
14
    
	
21
    	
 
    	
PREVIOUS CONTRACTS
    	
 
    	
14
    
	
22
    	
 
    	
STATEMENT OF TERMS OF EMPLOYMENT
    	
 
    	
14
    
	
23
    	
 
    	
THIRD PARTIES
    	
 
    	
14
    
	
24
    	
 
    	
NOTICES
    	
 
    	
14
    
	
25
    	
 
    	
INTERPRETATION
    	
 
    	
15
    
	
26
    	
 
    	
GOVERNING LAW AND JURISDICTION
    	
 
    	
15
    

 

2

 

Employment Agreement

 

THIS AGREEMENT is made on 30 April 2012

 

BETWEEN:

 

(1)                                 VERONA PHARMA PLC, with its principal office at Suite 21, Alpha House, 100 Borough High Street, London SE1 1LB (the “Company”); and

 

(2)                                 JAN-ANDERS KARLSSON of Apartment 13, 2 Matthew Parker Street, London SW1H 9NJ (the “Executive”).

 

IT IS AGREED as follows:

 

1                                         DEFINITIONS

 

1.1          In this Agreement, unless the context otherwise expressly requires, the following expressions shall have the following meanings:

 

“Agreement” means this Agreement;

 

“Articles of Association” means the Company’s articles of association, as amended from time to time;

 

“Board” means the board of directors of the Company or any duly authorised committee of the Board;

 

“Change of Control Event” means:

 

(a)                                 a shareholder, or a group of associated shareholders, becoming entitled to sufficient shares in the Company to give it or them the ability and that ability is successfully exercised, in a general meeting, to replace all or a majority of the Board;

 

(b)                                 in relation to a takeover bid in respect of shares in the Company, during the “Bid Period” as defined the Companies Act provided that where a takeover bid is publicly announced prior to the service of a bidder’s statement on the Company in relation to that takeover bid, the Bid Period shall be deemed to have commenced at the time of that announcement; and

 

(c)                                  on an application under the Companies Act if a court orders a meeting to be held concerning a proposed compromise or arrangement for the purposes of or in connection with a scheme for the reconstruction of the Company or its amalgamation with any other company.

 

“Commencement Date” means 1 June 2012;

 

“Companies Act” means the Companies Act 1985;

 

“Company” means Verona Pharma plc, a company incorporated under the laws of England and Wales with registered number 05375156;

 

“Employment” means the employment established by this Agreement;

 

“Executive” means Jan-Anders Karlsson;

 

“Group” means the Group Companies collectively;

 

“Group Company” means the Company, and any company which is from time to time a subsidiary of the Company, the holding company of the Company or a subsidiary of such holding company;

 

“holding company” and “subsidiary”  shall have the respective meanings ascribed to such expressions by section 736 of the Companies Act 1985;

 

“Holiday Year” means the period of twelve consecutive calendar months commencing on 1 January in each year; and

 

3

 

“Intellectual Property Rights” means rights in ideas, know how, confidential information, inventions, discoveries, biological and chemical formulations, research and development methods and processes, scientific techniques and formulas and results of experimentation and testing including, without limitation, clinical, biological, pharmaceutical, toxicological and pre-clinical and clinical test data, products, patents, designs, trademarks, database right or copyright work or any right to prevent reproduction whether or not any of these is registered and including applications for any such right, matter or thing or registration thereof and all rights or forms of protection of a similar nature or having equivalent or similar effect to any of these which may subsist anywhere in the world.

 

2                                         APPOINTMENT

 

2.1          The Company appoints the Executive and the Executive agrees to serve the Company as chief executive officer, or in such other capacity as the Board may reasonably require (such other appointment not to be of a lower status than the Executive’s appointment under this Agreement).

 

2.2          The Company also appoints the Executive and the Executive accepts such appointment as a director of the Company.

 

2.3          The Executive hereby warrants to the Company that he will not be in breach of any former terms of employment, whether express or implied, or of any other obligation, arrangement, order or contract binding on the Executive, by reason of his entering into this Agreement.

 

2.4          The Executive hereby warrants that he knows of no circumstances which may result in proceedings being brought against him by the Financial Services Authority, under the provisions of the Financial Services and Markets Act 2000 (“FSMA”) or any similar regulatory authority, whether in the UK or otherwise and that no such proceedings have been threatened or commenced against him.

 

3                                         PERIOD OF APPOINTMENT

 

3.1          The Employment shall begin on the Commencement Date and, subject to Clause 17, shall continue until it is terminated by either party giving to the other not less than twelve months’ written notice.

 

4                                         DUTIES OF EXECUTIVE

 

4.1          The Executive shall be chief executive officer of the Company and, subject always to the directions of the Board, shall carry out such duties in relation to the Company as the Board may from time to time require.  The Executive shall, at the request of the Board, and without additional remuneration, act as an officer or employee of any Group Company.

 

4.2          The Executive shall be a director of the Company and carry out such duties as are consistent with his position as a director of a company including attending Board meetings and other meetings of the directors of the Board or making himself available for such meetings by telephone, as may from time to time be required.  The Executive may be required from time to time to participate in committees of the Board, including acting as chairman of such committees.

 

4.3          The Executive shall faithfully and diligently serve the Company as a director and chief executive officer and shall act at all times in the best interests of the Company.  The Executive shall perform diligently such duties and exercise such powers consistent with his employment under this Agreement as may from time to time be assigned to or vested in him and, in his capacity as chief executive officer, shall obey the reasonable and lawful directions of the Board.

 

4.4          The Executive shall, during the course of the Employment, be entitled to hold non-executive positions with other businesses, provided however that the Executive shall not whether alone or jointly with another and whether directly or indirectly, carry on, or be engaged or concerned in, or (except as the owner for investment of securities dealt in on a recognised stock exchange and not exceeding 3% in nominal value of the issued securities of any class or otherwise as approved in writing by the Company from time to time) be interested in, any other business which competes with the business of the Company or the Group.

 

4

 

4.5          The Executive shall at all times keep the Board or any other persons as it may nominate, promptly and fully informed (in writing if so requested) of his conduct of the business or affairs of the Company or the Group and provide such explanations as it or they may require in connection therewith.

 

4.6          The Executive shall comply with (a) every rule of law; (b) every regulation of the London Stock Exchange or of the Alternative Investment Market or any other Recognised Investment Exchange as defined in the FSMA; (c) every rule or regulation of any competent regulatory authority; and (d) every regulation of the Company for the time being in force in relation to dealings in shares or other securities of the Company or any other member of the Group.

 

4.7          The Executive’s initial place of employment shall be the principal office of the Company stated in this Agreement. The Executive agrees that the Company may change the Executive’s place of work to anywhere in the United Kingdom, provided that, if this requires the Executive to relocate, reasonable relocation expenses are paid by the Company.  In addition, the Executive may be required to travel and work on the business of the Company both inside and outside the United Kingdom.

 

5                                         COMPANY POLICIES

 

5.1          The Executive must comply with all Company policies, rules, systems and procedures as shall be in force from time to time.

 

6                                         INTELLECTUAL PROPERTY

 

6.1          All Intellectual Property Rights devised, developed or created by the Executive during the period of his employment with the Company or any Group Company and relating to the business of the Company shall belong to, and be the absolute property of the Company or such Group Company as the Company may nominate. To the extent that such Intellectual Property Rights are not otherwise vested in the Company, the Executive hereby assigns the same to the Company, together with all related past and future rights to action.

 

6.2          It shall be part of the normal duties of the Executive to consider in what manner and by what new methods or devices, products, services, processes, equipment or systems of the Company and each Group Company might be improved, and promptly to give to the Board full details of any invention, discovery, formula, technique, design, improvement or other matter or work whatsoever in relation thereto which the Executive may from time to time make or discover during the course of the Employment, and to further the interests of the Company in relation to the same.

 

6.3          The Executive shall at the request and cost of the Company do all things necessary or desirable and execute all and any documents required to give the Company, or such other member of the Group as the Company may nominate, title to the Intellectual Property Rights vested or assigned under Clause 6.1.  The obligation contained in this Clause 6.3 shall continue to apply after the termination of the Executive’s employment with the Company without limit in point of time.

 

6.4          The Company may edit, copy, add to, take from, adapt, alter and translate the product of the Executive’s services in exercising the rights vested or assigned under Clause 6.1.

 

6.5          To the full extent permitted by law, the Executive irrevocably and unconditionally waives any moral rights the Executive may otherwise have under sections 77 to 85 inclusive of the Copyright Designs and Patents Act 1988 and any equivalent provisions of law anywhere in the world, in relation to the rights referred to in Clause 6.1.

 

6.6          The Executive must not knowingly do or omit to do anything which will or may have the result of preventing the Company from enjoying the full benefits of ownership of the Intellectual Property Rights vested or assigned under Clause 6.1.

 

6.7          The Executive must not at any time make use of the Company’s property or documents or materials in which the Company owns the Intellectual Property Rights for any purpose which has not been authorised by the Company.

 

5

 

6.8          Each of the provisions of this Clause 6 is distinct and severable from the others and if at any time one or more of such provisions is or becomes invalid, unlawful or unenforceable (whether wholly or to any extent), the validity, lawfulness and enforceability of the remaining provisions (or the same provision to any other extent) of this Clause 6 shall not in any way be affected or impaired.

 

7                                         CONFIDENTIALITY

 

7.1          During the course of the Employment, the Executive will have access to and become aware of information which is confidential to the Company.  Without prejudice to his common law duties, the Executive undertakes that he will not, save in the proper performance of his duties, make use of, or disclose to any person, (including for the avoidance of doubt any competitors of the Company), any of the trade secrets or other confidential information of or relating to the Company, or any user of the Company’s services or any company, organisation or business with which the Company is involved in any kind of business venture or partnership, or any other information concerning the business of the Company which he may have received or obtained in confidence while in the service of the Company. The Executive will use his best endeavours to prevent the unauthorised publication or disclosure of any such trade secrets or confidential information.

 

7.2          This restriction shall continue to apply after the termination of the Executive’s employment without limit in point of time but, both during the Executive’s employment and after its termination, shall cease to apply to information ordered to be disclosed by a Court or Tribunal of competent jurisdiction or otherwise required to be disclosed by law or to information which becomes available to the public generally (other than by reason of the Executive breaching this Clause 7). Nothing in this Clause 6 will prevent the Executive making a “protected disclosure” within the meaning of the Public Interest Disclosure Act 1998.

 

7.3          For the purposes of this Agreement confidential information shall include, but shall not be limited to:

 

(a)                                 the Company’s corporate, business development and marketing strategy and plans;

 

(b)                                 budgets, management accounts, bank account details and other confidential financial data of the Company;

 

(c)                                  know-how and products being developed by the Company, including inventions and discoveries, biological and chemical formulations, research and development methods and processes, scientific techniques and formulas and results of experimentation and testing including, without limitation, clinical, biological, pharmaceutical, toxicological and pre-clinical and clinical test data;

 

(d)                                 reports, confidential aspects of the Company’s computer technology and systems, confidential algorithms developed or used by the Company, confidential information relating to proprietary computer hardware or software (including updates) not generally known to the public;

 

(e)                                  confidential methods and processes, information relating to the running of the Company’s business which is not in the public domain, including details of salaries, bonuses, commissions and other employment terms applicable within the Company;

 

(f)                                   the names, addresses and contact details of any existing or prospective customers, suppliers or business partners of the Company and their requirements for any of the Company’s products or services.  Without prejudice to the foregoing, this includes personal information provided to the Company by visitors to and users of any of its websites;

 

(g)                                  the terms on which the Company does business with any existing or prospective customers, suppliers or business partners of the Company and the terms of any partnership, joint venture or other form of commercial co-operation or agreement the Company enters into with any third party;

 

(h)                                 software and technical information necessary for the development, maintenance or operation of any of the Company’s websites and the source code of each website; and

 

6

 

(i)                                     any other information which the Company is bound by an obligation of confidence owed to a third party, in particular the content of discussions or communications with any prospective customers, suppliers or business partners.

 

7.4          In this Clause 7, any reference to “Company” includes any “Group Company” as defined in Clause 1.1 and the Executive’s undertaking to the Company in Clause 7.1 is given to the Company for itself and as trustee for each Group Company.

 

7.5          The provisions of this Clause 7 shall be without prejudice to the Executive’s duties at common law.

 

8                                         DELIVERY UP OF THE COMPANY’S PROPERTY

 

8.1          The Executive shall not, except in the proper performance of his duties, or with the Company’s permission, remove any property belonging or relating to the Company or any Group Company from the Company’s or Group Company’s premises, or make any copies of documents or records relating to the Company’s or any Group Company’s affairs.

 

8.2          Upon the Company’s request at any time, and in any event on the termination of the Employment, the Executive shall immediately deliver up to the Company or its authorised representative, any plans, keys, mobile telephone, security passes, credit cards, equipment, documents, records, papers, computer disks, tapes or other computer hardware or software (together with all copies of the same), and all property of whatever nature in the Executive’s possession or control which belongs to the Company or any other Group Company or relates to its or their business affairs.  The Executive shall, at the Company’s request, provide the Company with a written statement that he has complied with this obligation.

 

8.3          If the Executive has any information relating to the Company or the Group or work he has carried out for the Company or any Group Company which is stored on a computer or laptop computer, whether or not the computer or laptop computer is owned by the Company or a Group Company, the Company shall be entitled to download the information and/or supervise its deletion from the computer or laptop concerned.

 

9                                         REMUNERATION AND DEDUCTIONS

 

9.1          The Executive shall receive during the Employment a salary at the rate of £130,000 per annum (or such higher rate as may be agreed in writing).  If the Company performs well (as indicated by a sustained increase of its share price in excess of 15p over a period of 6 months) then the Board will in its discretion consider increasing the Executive’s salary to not less than the median base salary of chief executive officers of biotechnology companies listed on the AIM stock exchange with comparable market capitalisations.  The undertaking of a salary review does not confer a contractual right (whether express or implied) to any increase in salary.  An increase in salary one year will not guarantee an increase in salary in any subsequent year or years.

 

9.2          The Executive’s salary will accrue on a day-to-day basis payable by equal monthly payments in arrears no later than the last day of each month. Such salary shall include any sums receivable as director’s fees or other remunerations from any Group Company.

 

9.3          Payment of salary to the Executive may be made either by the Company or by another Group Company and, if by more than one company, in such proportion as the Board may from time to time decide.

 

9.4          At any time during the Employment, or, in any event, on the termination thereof howsoever arising, the Company shall be entitled to deduct from the Executive’s remuneration any monies due to the Company from the Executive, including, but not limited to, any outstanding loans, advances, the cost of repairing any damage or loss to the Company’s property caused by the negligence of the Executive (and of recovering the same), excess holiday pay and any other monies owed by the Executive to the Company.

 

7

 

10                                  EXPENSES

 

The Company shall refund the Executive all reasonable expenses wholly and exclusively incurred by him in the proper performance of the Company or the Group’s business provided that the Executive produces to the Company such evidence of actual payment as the Company reasonably requires.  Any credit card or similar facility supplied to the Executive by the Company shall be used solely for expenses incurred by him in the course of the Employment.

 

11                                  BENEFITS

 

11.1        The Company shall, during the Employment, reimburse the Executive for the cost (grossed up for income tax paid by the Executive) incurred by him for membership of the Expacare or such other private medical insurance scheme for the Executive and his wife. The Executive shall produce to the Company evidence of payment of the membership.

 

11.2        The Company does not operate a pension scheme and makes no contributions toward any personal pension schemes.

 

11.3        The Company shall, during the Employment, provide membership of the UK Institute of Directors for the Executive.

 

11.4        The Company shall maintain for the Executive Directors’ and Officers’ insurance in respect of those liabilities which he may incur as a director or officer of the Company or any other Group Company for which such insurance is normally available to the Company in respect of its directors and officers.

 

12                                  DISCRETIONARY BONUS

 

12.1        The Executive shall be entitled to receive a discretionary bonus, dependent upon performance criteria for the Company and the Executive, as determined by the Board in its absolute discretion.  The discretionary bonus during the first 12 months of the Employment will be £170,000, dependent on performance criteria to be agreed by the Company and the Executive within two months after the commencement of the Employment.  The discretionary bonus for subsequent periods will be equal to 100% of the Executive’s salary under Clause 9.1, or such higher percentage determined by the Board in its absolute discretion.

 

12.2        Subject to the rules of the Company’s Share Dealing Code in force from time to time, within 12 months after receiving a bonus payment, the Executive shall invest an amount equal to half of the bonus (net of income tax paid by the Executive) in the Company by purchasing the Company’s shares traded on the AIM stock exchange.

 

12.3        Any bonus scheme operated by the Company will not constitute a contractual term and bonus payments (if any) will be paid at the absolute discretion of the Company. The Executive shall not be eligible to be considered for a bonus if the Employment of the Executive is terminated under Clause 17.2(b). In addition, as the bonus is paid as an incentive to employees to remain in the employment of the Company, payment of any bonus is conditional on the Executive remaining in the employment of the Company and not having given notice to the Company to terminate his employment at the date that any bonus is payable.

 

13                                  SHARE SCHEMES

 

13.1        The Executive shall be entitled to participate in the Company’s share and share option schemes in place from time to time (the “Share Schemes”). With respect to any award made to the Executive under a Share Scheme:

 

(a)                                 the number and value, vesting schedule, circumstances of exercise and all other terms and conditions of any award will be as determined in the Company’s sole discretion and set out in a separate letter from the Company to the Executive;

 

8

 

(b)                                 the award will be subject to the Executive entering into a joint election approved by HM Revenue & Customs with respect to secondary national insurance liability;

 

(c)                                  the making of any award under a Share Scheme shall not entitle the Executive to any further award or right to participate in any other Share Scheme;

 

(d)                                 subject to Clause 13.1(e), the Executive’s rights under or in relation to this Agreement are separate from and shall not be affected by any participation in the Share Schemes, and his participation shall be subject to the Share Schemes’ rules from time to time;

 

(e)                                  subject to Clause 14, if the Employment is terminated for whatever reason and whether lawfully or unlawfully, the Executive agrees that he shall not be entitled by way of damages for breach of contract, dismissal or compensation for loss of office or otherwise to any sum, shares or other benefits to compensate him for the loss or diminution in value of any actual or prospective rights, benefits or expectations under or in relation to the Share Schemes.

 

13.2        On the Commencement Date, the Executive will be entitled to be granted the following:

 

(a)                                 options to subscribe for a total of 2,000,000 ordinary shares in the capital of the Company exercisable at 5 pence per ordinary share. Such options will vest in equal proportions on the first, second and third anniversary of the date of grant. Subject to vesting, the options will be exerciseable at any time up to the fifth anniversary of the date of grant; and

 

(b)                                 options to subscribe for a further 3,000,000 ordinary shares in the capital of the Company, with 1,000,000 exerciseable at 10 pence per ordinary share, 1,000,000 exerciseable at 12 pence per ordinary share and the remaining 1,000,000 exerciseable at 15 pence per ordinary share.  All such options will vest on 1 June 2015. Subject to vesting, the options will be exerciseable at any time up to the fifth anniversary of the date of grant.

 

13.3        As soon as reasonably practicable after the signing of this Agreement, the Company will seek to put in place an HMRC-approved enterprise management incentive scheme for the options to be granted under Clause 13.2(a) and (b).  Any options that cannot be granted under an HMRC-approved scheme will be granted as non-approved options. Clause 13.1 will apply to the options granted under Clause 13.2(a) and (b).

 

14                                  CHANGE OF CONTROL

 

Notwithstanding any other terms and conditions of this Agreement, if a Change of Control Event occurs:

 

(a)                                 any award made to the Executive under a Share Scheme referred to in Clause 13 will automatically vest and may be exercised prior to the award’s expiry date; and

 

(b)                                 the Executive will be entitled to receive his full discretionary bonus under Clause 12 without any obligation to purchase shares in the Company referred to in Clause 12.1.

 

15                                  WORKING HOURS AND HOLIDAYS

 

15.1        The Executive shall devote the whole of his time, attention and abilities to his duties hereunder during the Company’s usual business hours and such additional hours as may from time to time be reasonably necessary for the proper performance of his duties.  This may include working in the evenings outside normal office hours, at weekends or on public holidays.  The Executive shall not be entitled to receive any additional remuneration for work outside the Company’s usual business hours.

 

15.2        The Executive hereby agrees to disapply Regulation 4 of the Working Time Regulations 1998 to the effect that the 48 hour limit on average working time will not apply in respect of his employment by the Company, subject to his right to revoke this election by 13 weeks’ notice by the Executive to the Company.

 

9

 

15.3        The Executive shall (in addition to normal UK public holidays) be entitled to 25 working days’ holiday at full salary in each Holiday Year during the Employment to be taken at such reasonable time or times as the Board may approve.  Holiday may only be taken during the notice period if either the Company so requires or the Board has approved the holiday after notice has been served.

 

15.4        Holiday entitlement shall accrue pro rata during each Holiday Year.  Any entitlement to holiday remaining at the end of any Holiday Year may not be carried forward to the next succeeding Holiday Year.  The notice requirements in relation to statutory annual leave, as provided by Regulation 15 of the Working Time Regulations 1998 shall not apply to this Agreement.

 

15.5        If the Executive has holiday entitlement accrued but not taken, the Company may, in its sole discretion, require him to take some or all of his holiday entitlement during his notice period or pay him a sum in lieu of accrued holiday on termination.  If, on the termination of the Employment, the Executive has exceeded his accrued holiday entitlement, this excess will be deducted from any sums due to the Executive from the Company.  A day’s holiday pay for these purposes shall be 1/260 of the Executive’s annual basic salary in accordance with Clause 9.1.

 

16                                  ILL-HEALTH OR INJURY

 

16.1        During any period of absence on medical grounds, the Executive shall be paid such statutory sick pay as he may be entitled to receive.

 

16.2        If the Executive is absent from work on medical grounds, he is required to notify the Company by telephone on the first morning of his absence or as soon as reasonably practicable thereafter.    If the Executive is absent from work for more than seven consecutive days, he must submit to the Company a medical certificate signed by a practising medical practitioner.  Thereafter, the Executive shall submit further medical certificates to cover the whole of his period of absence.

 

16.3        In the event that the Executive is incapacitated by reason of ill health or accident from performing his duties hereunder for a period or periods exceeding 130 working days in any 12 month period then:

 

(a)                                 the Company shall automatically become entitled to appoint a temporary successor to the Executive to perform all or any of the duties required to be performed by the Executive under the terms of this Agreement and the Executive’s duties shall be amended temporarily accordingly;

 

(b)                                 the Employment of the Executive may be subject to termination by the Company giving to the Executive not less than thirteen weeks’ notice in writing; and

 

(c)                                  nothing in this Clause 16.3 shall prejudice any rights that the Executive may have under the provisions of the Disability Discrimination Act 1995.

 

16.4        It is a condition of the Employment that the Executive consents to an examination by an independent doctor nominated by the Company should the Company so require.  The Executive hereby authorises the Company to have unconditional access to any report or reports (including copies of and documents referred to in such reports) prepared as a result of any such examination and authorises the doctor(s) to discuss the same with the Chairman of the Company.

 

16.5        The Company reserves the right to suspend the Executive on medical grounds, if, at any time, in the Company’s reasonable opinion, the Executive is incapable on grounds of ill-health of performing some or all of his duties under this Agreement.  During any period of suspension on medical grounds, the Executive will be subject to the same rights and duties as apply to employees on garden leave, as set out in Clause 18.2 of this Agreement.

 

17                                  TERMINATION OF EMPLOYMENT

 

17.1        The Employment may be terminated by either party by notice given in accordance with Clause 3.1.

 

10

 

17.2                        The Employment of the Executive shall be subject to termination by the Company (but without prejudice to any of the Executive’s continuing obligations hereunder):

 

(a)                                 pursuant to the provisions of Clause 16.3 above;

 

(b)                                 immediately by notice in writing if the Executive shall:

 

(i)                                     not be elected or re-elected as a director of the Company upon standing for election or re-election as a director in accordance with the Articles of Association or otherwise cease to be a director of the Company by virtue of a shareholders’ resolution; or

 

(ii)                                  have committed and repeated or continued (after warning) any material breach of his obligations hereunder; or

 

(iii)                               have been guilty of conduct calculated or likely or tending to bring himself or any Group Company into disrepute or otherwise prejudicially to affect the interests of any Group Company; or

 

(iv)                              have a bankruptcy order made against him or enter into a voluntary arrangement within the meaning of the Insolvency Act 1986 or enter into a Deed of Arrangement under the Deeds of Arrangement Act 1914 or make any composition with some or all of his creditors; or

 

(v)                                 be prohibited by law from being a director; or

 

(vi)                              be convicted of any arrestable criminal offence, other than an offence under the Road Traffic legislation in respect of which a non-custodial sentence or penalty is imposed.

 

17.3                        The Company may terminate the Employment if, in the opinion of the Board, the Executive’s performance of his duties is below the standard required of him.  Such termination will not usually occur without at least one prior warning to the Executive of the possibility of such termination.

 

17.4                        If the Company becomes entitled to terminate the Employment pursuant to Clause 17.2 above, it shall be entitled (but without prejudice to its rights subsequently to terminate the Employment on the same or any other ground) to suspend the Executive on full payment of salary for so long as it may think fit.

 

17.5                        The Executive shall have no claim against the Company if this Agreement is terminated by reason of the liquidation of the Company for the purpose of reconstruction or amalgamation and the Executive is offered employment with any concern or undertaking resulting from such reconstruction or amalgamation in a similar position and on terms which are substantially the same as the terms of this Agreement.

 

17.6                        On the termination of the Employment, howsoever arising, the Executive shall forthwith or at any time thereafter at the request of the Company, resign from all offices held by him in any Group Company together with any other offices or memberships held by him by virtue of the Employment.  Should the Executive fail to resign within seven days of being so requested, the Company is irrevocably authorised to appoint some person as his attorney to sign upon his behalf any document or do anything necessary or requisite to give effect thereto.

 

17.7                        The Executive shall not at any time during or after the termination of the Employment make any untrue or misleading statement in relation to the Company or the Group nor, in particular, after the termination of the Employment represent himself as being employed by or connected with the Group.

 

17.8                        Termination of the Employment within this Clause 17 shall be without prejudice to any rights which have accrued at the time of termination and to the provisions of Clauses 6, 7, 8 and 19 which shall remain in full force and effect.

 

11

 

18                                  PAYMENT IN LIEU AND GARDEN LEAVE

 

18.1                        The Company reserves the right in its absolute discretion to terminate the Employment at any time with immediate effect by giving written notice to the Executive that the Company shall pay in lieu of notice. The payment shall be calculated at the rate of the Executive’s basic annual salary, pro-rated full discretionary bonus and contractual benefits prevailing at the time when such notice is given.  The Company shall not, under any circumstances, be obliged to make a payment in lieu of notice.

 

18.2                        If either party serves notice on the other to terminate the Employment, the Company may require the Executive to take “garden leave” for all or part of the remaining period of his employment.  If the Executive is asked to take garden leave he:

 

(a)                                 may not attend at his place of work or any other premises of the Company and/or any Group Company unless at the Company’s written request;

 

(b)                                 may not contact any customers, suppliers, partners or contacts of the Company without the Company’s prior written permission;

 

(c)                                  may be required not to carry out all or any of his normal day to day duties for the remaining period of the Employment or any part thereof;

 

(d)                                 may be assigned other duties or have powers vested in him withdrawn;

 

(e)                                  must return to the Company all equipment, including, but not limited to, laptop computers and fax machines, all documents, discs and other materials (including copies) belonging to the Company and/or any Group Company containing confidential information; and

 

(f)                                   must remain contactable by telephone on a daily basis during any period of absence from work under this Clause 18, and may not take holiday, save with the Company’s prior written consent.

 

18.3                        It is expressly agreed between the parties that, during any period of garden leave, the mutual duties of good faith and trust and confidence, and the Executive’s duty of fidelity to the Company, shall continue during any period that the Executive is not required to attend work, pursuant to this Clause 18.

 

19                                  POST-TERMINATION RESTRICTIONS

 

19.1                        Within this Clause 19 the following words shall have the following meanings:

 

“Competitive Business”  shall mean any business or activity in competition with that carried on by the Company or any Group Company at the Termination Date in which the Executive shall have been directly concerned at any time in the Contact Period;

 

“Contact Period” shall mean the 12 month period ending with the Termination Date;

 

“Customer Connection” shall mean any person, company or other organisation who:

 

(a)                                 was at any time in the Contact Period a customer (including as licensee) or supplier (including as licensor) of the Company; or

 

(b)                                 was at the Termination Date negotiating with the Company with a view to dealing with the Company as customer (including as licensee) or supplier (including as licensor);

 

provided that this will only include suppliers where alternative sources of supply on equivalent terms would not be generally available to the Company or where the interference with any such supplier may be anticipated to cause damage to the Company;

 

“Skilled Employee” shall mean any person who was:

 

12

 

(a)                                 employed by the Company; or

 

(b)                                 contracted to render services to the Company;

 

in technical or managerial work during the Contact Period and who was so engaged or contracted on the Termination Date;

 

“Supplier” shall mean any person, company or other organisation supplying (including under licence) goods or services to the Company or negotiating with the Company at the Termination Date with a view to supplying (including under licence) goods or services to the Company, where alternative sources of supply on equivalent terms would not be generally available to the Company or where the interference with any such supplier may be anticipated to cause damage to the Company;

 

“Termination Date” shall mean the date of termination of the Executive’s Employment under this Agreement; and

 

“Territory” shall mean any member country of the European Union.

 

19.2                        The Executive shall not during the period of 6 months after the Termination Date, directly or indirectly, either on his own account or otherwise, canvass or solicit business in competition with the Company from any Customer Connection with whom the Executive shall have had material dealings in the Contact Period in the course of his Employment.

 

19.3                        The Executive shall not during the period of 6 months after the Termination Date, either on his own account or otherwise, do business in competition with the Company with any Customer Connection with whom the Executive shall have had material dealings in the Contact Period in the course of his Employment.

 

19.4                        The Executive will not during the period of 6 months after the Termination Date, in competition with the Company, either on his/her own account or otherwise, accept the supply of goods or directly or indirectly interfere with or seek to interfere with the continuance of the supply of goods to the Company from any Supplier with whom the Executive shall have had material dealings in the Contact Period in the course of his employment.

 

19.5                        The Executive shall not, during the period of 6 months after the Termination Date, directly or indirectly, induce or seek to induce any Skilled Employee, with whom the Executive shall have had material dealings in the course of his duties hereunder in the Contact Period, to leave the Company’s employment, whether or not this would be a breach of contract on the part of such Skilled Employee or offer employment or an engagement to any such Skilled Employee.

 

19.6                        The Executive shall not, during the period of 6 months after the Termination Date, carry on or be interested in Competitive Business in competition with the Company in the Territory whether as principal, agent, director, partner, proprietor, employee or otherwise.

 

19.7                        The period of time of the restrictions under this Clause 19 shall be reduced by the length of any period of garden leave the Executive may be required to take pursuant to Clause 18.2 above.  In the event that the period of the restrictions is so reduced, the Contact Period shall mean the 12 month period ending with the date on which the Executive’s garden leave commences.

 

19.8                        The Executive agrees that he will, at the request of the Company, enter into a direct agreement or undertaking with any Group Company whereby he will accept restrictions corresponding to the restrictions contained in this Clause 19 (or such of them as may be appropriate in the circumstances) in relation to such products and services and such areas and for such period as such Group Company may reasonably require for the protection of its legitimate interests.

 

19.9                        Each of the restrictions contained in this Clause 19 are considered reasonable by the Company and the Executive as being no greater than is required for the protection of the goodwill of the business of the Company and the Group and are intended to be separate and severable.  In the event that any of the said restrictions shall be held void, but would be valid if part of the wording

 

13

 

thereof were deleted, such restriction shall apply with such deletion as may be necessary to make it valid and effective.

 

20                                  DATA PROTECTION

 

20.1                        In order to keep and maintain records relating to the Employment it shall be necessary for the Company to record, keep and process personal data (including sensitive personal data) relating to the Executive.  This data may be recorded, kept and processed on computer and in hard copy form.  To the extent that it is reasonably necessary in connection with the Employment and the performance of the Company’s responsibilities as an employer, the Company may be required to disclose this data to others, including other employees of the Company, Group Companies, the Company’s professional advisers, the Her Majesty’s Revenue and Customs and other authorities.  The Executive consents to the recording, processing, use and disclosure by the Company of personal data relating to the Executive as set out above.  This does not affect the Executive’s rights as a data subject or the Company’s obligations and responsibilities under the Data Protection Act 1984 and/or the Data Protection Act 1998.  For the purposes of these Acts, the Company has nominated the Chairman as its representative.

 

21                                  PREVIOUS CONTRACTS

 

21.1                        This Agreement is in substitution for any previous contract of service or for services between any Group Company and the Executive which shall be deemed to have been terminated by mutual consent with effect from the Commencement Date.

 

22                                  STATEMENT OF TERMS OF EMPLOYMENT

 

22.1                        The information in this Agreement constitutes a written statement of the terms of employment of the Executive in compliance with the provisions of the Employment Rights Act 1996.

 

23                                  THIRD PARTIES

 

23.1                        This Agreement may be enforced by any Group Company subject to and in accordance with the terms of this Agreement.  Nothing in this Agreement confers on any other third party any benefits under the provision of the Contract (Rights of Third Parties) Act 1999.

 

24                                  NOTICES

 

24.1                        Notices by either party must be in writing addressed:

 

(a)                                 to the Company at its registered office for the time being; and

 

(b)                                 to the Executive at his place of work or at the address set out in this Agreement or such other address as the Executive may from time to time have notified in writing to the Company for the purpose of this Clause.

 

24.2                        Notices will be effectively served:

 

(a)                                 on the day of receipt, where any hand-delivered letter or (in the case of the Company) a facsimile transmission is received on a business day before or during normal working hours;

 

(b)                                 on the following business day, where any hand-delivered letter or (in the case of the Company) facsimile transmission is received either on a business day after normal working hours or on any other day;

 

(c)                                  on the second business day following the day of posting from within the United Kingdom of any letter sent by first class prepaid mail; or

 

(d)                                 on the fifth business day following the day of posting to an overseas address of any prepaid airmail letter.

 

14

 

25                                  INTERPRETATION

 

25.1                        The headings in this Agreement are for convenience only and are not to be used as an aid to construction of this Agreement.

 

25.2                        Reference to provisions of statutes, rules or regulations shall be deemed to include references to such provisions as amended, modified or re-enacted from time to time.

 

26                                  GOVERNING LAW AND JURISDICTION

 

26.1                        This Agreement shall be governed by, and interpreted in accordance with, English law and the parties hereby submit to the exclusive jurisdiction of the courts and tribunals of England and Wales.

 

IN WITNESS WHEREOF this Deed has been executed by the duly authorised representatives of the Company and by the Executive the day and year first above written.

 

	
EXECUTED AND
    	
)
    	
 
    
	
DELIVERED AS A DEED
    	
)
    	
 
    
	
on the date hereof
    	
)
    	
 
    
	
by the Company
    	
)
    	
 
    
	
acting by:
    	
)
    	
/s/ Clive Page
    
	
 
    	
 
    	
Director
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
/s/ Claire Poll
    
	
 
    	
 
    	
Director
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
In the presence of:
    	
)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
EXECUTED AND
    	
)
    	
 
    
	
DELIVERED AS A DEED
    	
)
    	
/s/ Jan-Anders Karlsson
    
	
on the date hereof
    	
)
    	
 
    
	
by the Executive
    	
)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
In the presence of:
    	
)
    	
 
    

 

15

 

 

26 January 2015

 

Dr. Jan-Anders Karlsson

Apt 13, 2 Matthew Parker Street

London SW1H 9NJ

 

Dear Jan-Anders,

 

Under clause 12.2 of your Employment Agreement with the Company dated 30 April 2012, you are under an obligation, subject to the rules of the Company’s Share Dealing Code, within 12 months after receiving a bonus payment under clause 12.1 of the Agreement, to invest an amount equal to half of the bonus (net of income tax) in the Company by purchasing the Company’s shares traded on the AIM stock exchange.

 

I confirm the Company’s agreement to amend clause 12.2 to provide that, by 1 June 2017, being 5 years from the commencement of your employment, to have invested an amount equal to £130,000 in the Company’s shares, representing 100% of your annual base salary at the date of commencement of your employment.

 

	
Your sincerely,
    	
 
    
	
 
    	
 
    
	
/s/ Dr. David Ebsworth
    	
 
    
	
Dr. David Ebsworth
    	
 
    
	
Non-Executive Chairman
    	
 
    
	
Verona Pharma plc
    	
 
    

 

I, Jan-Anders Karlsson, agree to the contents of this letter, including any resulting amendments to my Employment Agreement with the Company.

 

	
/s/   Dr. Jan-Anders Karlsson
    	
 
    
	
Dr. Jan-Anders   Karlsson
    	
 
    

 

3 More London Riverside, London, United Kingdom SE1 2RE • TeL +44 (0) 20 3283 4200 

 

 

 

2 August 2016

 

Dr. Jan-Anders Karlsson

CEO, Verona Pharma plc

 

Dear Jan-Anders,

 

To bring your remuneration in line with comparator companies, and in recognition of your considerable contribution to, and leadership of, Verona Pharma, it is with pleasure that I confirm that the Remuneration Committee of the Company’s Board of Directors has approved the following changes to your remuneration package, with effect from 1 August 2016:

 

·                  an award of a further 25,000,000 share options in the Company at an exercise price equal to 120% of the closing price of the Company’s shares listed on AIM on 2 August 2016;

 

·                  an increase of your annual base salary to £250,000;

 

·                  a change to your discretionary bonus structure, such that you will be entitled to a target bonus of up to 66% of your base salary extending to a maximum ‘stretch’ bonus of up to 132% of your base salary, dependent on performance objectives to be redefined and agreed by the Company and you as target and stretch, accordingly; and

 

·                  a decrease in the Company’s pension contribution to £10,000 per annum.

 

A letter setting out the full terms of the option award will be sent to you within the next few weeks.

 

Please acknowledging acceptance of the contents of this letter by signing and returning to me a duplicate copy of this letter.

 

	
/s/ David Ebsworth
    	
 
    

 

Dr. David Ebsworth

Non-Executive Chairman

Verona Pharma plc

 

I, Jan-Anders Karlsson, agree to the contents of this letter, including any resulting amendments to my Employment Agreement with the Company.

 

	
/s/ Jan-Anders Karlsson
    	
 
    
	
Dr. Jan-Anders Karlsson
    	
 
    

 

3 More London Riverside, London, United Kingdom SE1 2RE · Tel: +44 (0) 20 3283 4200
 E-mail: info@veronapharma.com · Website: www.veronapharma.com

 

 

THIRD AMENDMENT

TO

EMPLOYMENT AGREEMENT

 

This Third Amendment (the “Third Amendment”) to that certain employment agreement (as amended, the “Employment Agreement”), dated 30 April 2012, by and between Verona Pharma plc (the “Company”) and Jan-Anders Karlsson (the “Executive” and, together with the Company, the “Parties”) is made as of 28 March 2017 by and between the Company and Executive.  Except as set forth in this Third Amendment, capitalized terms used but not defined herein shall have the meanings ascribed to them in the Employment Agreement.

 

WITNESSETH

 

WHEREAS, the Company and Executive desire to amend the terms of the Employment Agreement as set forth herein.

 

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Executive and the Company hereby agree to the following:

 

1.                                      Amendment to the Employment Agreement.  The Employment Agreement is hereby amended by replacing Clause 16.1 and adding Clauses 27 and 28, which shall read as follows:

 

“16.1                  During any period of absence on medical grounds, the Executive shall be paid such contractual and statutory sick pay as the Executive may be entitled to receive under the Company’s sick leave policy from time to time.

 

27                                  TAX EQUALISATION

 

27.1                        During the course of the Employment, the Executive will be liable for UK income tax and employee’s National Health Insurance contributions (“UK Tax”).  In addition, the Executive may be liable to pay US federal and state income taxes in respect of earnings from work carried out in the US.  The Company intends to minimize the effect of the different rate of US and UK tax rates and leave the Executive in a net after-tax position substantially equivalent to what the Executive would experience if Executive were subject only to UK Tax during this period.  The Company shall tax equalise the Executive so that the income and employment tax burden to the Executive on his remuneration and other amounts payable pursuant to this Agreement (including any remuneration with respect to the Share Schemes and including the tax equalisation payments made pursuant to this Clause 27), exclusive of any taxes under Section 409A, Section 457A or Section 4999 of the United States Internal Revenue Code of 1986, as amended (the “Code”) or any other provisions of the Code relating to excise taxes, penalties or interest, is neither substantially greater nor less than the UK Tax that the Executive would have paid had Executive performed all of Executive’s duties to the Company in the UK, subject to the terms of any tax equalisation policy adopted by the Company, as it may be amended by the Company from time to time in the Company’s sole discretion (“Tax Equalisation”).  Such payments, if any are payable pursuant to this Clause 27, shall be made within 60 days after the actual US tax amounts due are paid by the Executive for any applicable tax periods.  To the extent that payments pursuant to this Clause 27 exceed the amount that was required to achieve Tax Equalisation, the Executive will repay to the Company an amount equal to the overpayment on demand by the Company and agrees that the Company may deduct amounts equal to any

 

 

overpayment from the Executive’s salary or other payments due from the Company to the Executive.  The Executive shall cooperate with the Company in determining any Tax Equalisation and in seeking any tax refunds owed on taxes paid by the Company pursuant to this Clause 27 in accordance with applicable tax rules and regulations.  This Clause 27 shall continue to apply after the termination of the Executive’s employment with the Company without limit in point of time.

 

28                                  EXCISE TAX

 

28.1                        If any payment or benefit that Executive would receive following a Change of Control Event or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the Reduced Amount.  The “Reduced Amount” shall be either (A) the largest portion of the Payment that would result in no portion of the Payment being subject to the Excise Tax or (B) the largest portion, up to and including the total amount, of the Payment, whichever of the amounts determined under (A) and (B), after taking into account all applicable federal, state and local employment taxes, income taxes, and the Excise Tax (all computed at the highest applicable marginal rate), results in the Executive’s receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or some portion of the Payment may be subject to the Excise Tax.  If a reduction in payments or benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in the following order: reduction of cash payments; cancellation of accelerated vesting of outstanding awards under a Share Scheme; and reduction of employee benefits.  In the event that acceleration of vesting of outstanding awards under a Share Scheme is to be reduced, such acceleration of vesting shall be undertaken in the reverse order of the date of grant of the Executive’s outstanding equity awards.

 

28.2                        All calculations required to be performed under Clauses 27 and 28 shall be made by a public accounting or employee benefits consulting firm with a national practice selected by the Company (the “Accounting Firm”).  The Accounting Firm shall provide detailed supporting calculations on the applicable matter to both to the Company and the Executive.  All fees and expenses of the Accounting Firm shall be borne solely by the Company.  Any determination by the Accounting Firm shall be binding upon the Company and the Executive.”

 

2.                                      No Other Amendment.  Except as expressly set forth in this Third Amendment, the Employment Agreement shall remain unchanged and shall continue in full force and effect according to its terms.

 

3.                                      Acknowledgement.  Executive acknowledges and agrees that Executive has carefully read this Third Amendment in its entirety, fully understands and agrees to its terms and provisions and intends and agrees that it be final and legally binding on Executive and the Company.

 

4.                                      Governing Law; Counterparts.  This Third Amendment shall be governed by, and interpreted in accordance with, English law and the Parties hereby submit to the exclusive jurisdiction of the courts and tribunals of England and Wales, and may be executed in several counterparts, each of which shall be deemed an original and all of which together shall constitute one document.

 

[signature page follows]

 

2

 

IN WITNESS WHEREOF this Third Amendment has been executed by the duly authorised representatives of the Company and by Executive the day and year first above written.

 

	
EXECUTED AND
    	
)
    	
 
    
	
DELIVERED AS A DEED
    	
)
    	
 
    
	
on the date hereof
    	
)
    	
 
    
	
by the Company
    	
)
    	
 
    
	
acting by:
    	
)
    	
/s/ Ken Cunningham
    
	
 
    	
 
    	
Director
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
In the presence of:
    	
)
    	
RC Hendricks
    
	
 
    	
 
    	
/s/ RC Hendricks
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
EXECUTED AND
    	
)
    	
 
    
	
DELIVERED AS A DEED
    	
)
    	
/s/ JA Karlsson
    
	
on the date hereof
    	
)
    	
 
    
	
by the Executive
    	
)
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
In the presence of:
    	
)
    	
/s/ PJ Morgan
    
	
 
    	
 
    	
PJ Morgan

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