Document:

Exhibit 10.1

 

Exhibit 10.1

March 3, 2008

Variable Term Accelerated Share Repurchase Transaction 

To:

EnPro Industries, Inc. 

5605 Carnegie Boulevard, Suite 500 

Charlotte, North Carolina 28209

From: 

Credit Suisse International 

One Cabot Square 

London E14 4QJ 

England

Dear Sirs:

This letter agreement (this “Confirmation”) confirms the terms and conditions of the
accelerated share repurchase transaction (the “Transaction”) entered into between EnPro
Industries, Inc. (“Counterparty”) and Credit Suisse International (“CSI”), represented by
Credit Suisse, New York branch (“Agent”) as its agent, on the Trade Date specified below. This
Confirmation constitutes a “Confirmation” under the Agreement specified below.

	1.	 	The definitions and provisions contained in the 2002 ISDA Equity Derivatives Definitions (the
“Definitions”) (as published by the International Swaps and Derivatives Association,
Inc.) are incorporated into this Confirmation. References herein to a “Transaction” shall be
deemed to be references to a “Share Forward Transaction” for purposes of the Definitions.
This Confirmation evidences a complete binding agreement between Counterparty and CSI as to
the terms of this Transaction.
	 
	 	 	This Confirmation shall supplement, form a part of, and be subject to an agreement (the
“Agreement”) in the form of the 1992 ISDA Master Agreement (Multicurrency – Cross
Border), as if, on the Trade Date hereof, CSI and Counterparty had executed that agreement
(but without any Schedule other than the provisions in Section 15 of this Confirmation), and
for the avoidance of doubt, this Transaction shall be the only transaction under the
Agreement. In the event of any inconsistency between the Definitions and the Agreement, the
Definitions will govern. In the event of any inconsistency between this Confirmation, on the
one hand, and the Definitions or the Agreement, on the other hand, this Confirmation will
govern.
	 
	2.	 	The following terms and conditions shall govern the Transaction:

General Terms:

	 	 	 
	     Trade Date:

	 	March 3, 2008

1

 

	 	 	 
	     Commencement Date:

	 	A Scheduled Trading Day following March 3, 2008 and
before or on May 6, 2008, as notified by Counterparty
to CSI in writing on such Commencement Date; provided
that if the Commencement Date occurs on a Scheduled
Trading Day after March 14, 2008, and (i) the product
of (x) the closing price of Shares on the Exchange on
such Commencement Date and (y) the Number of Shares
minus (ii) the Prepayment Amount is (A) a positive
number, then Counterparty shall pay to CSI in USD such
amount on such Commencement Date, or (B) a negative
number, then CSI shall pay to Counterparty in USD the
absolute value of such amount on such Commencement
Date.
	 
	 	 
	     Buyer:

	 	Counterparty
	 
	 	 
	     Seller:

	 	CSI
	 
	 	 
	     Shares:

	 	The common stock, par value $0.01 of Counterparty (sometimes also referred to as
the “Issuer”).
	 
	 	 
	     Price Adjustment
Period

	 	 
	Termination Date:
	 	 The earlier of:
	 

	 	(i)     the Scheduled Termination Date; and

	 
	 	 
	 

	 	 (ii)    the Scheduled Trading Day immediately preceding the Accelerated Termination Date.

	 
	 	 
	     Scheduled Termination
Date:

	 	August 29, 2008
	 
	 	 
	     Accelerated
Termination
Date:

	 	Any Exchange Business Day after June 30,
2008 and prior to the Scheduled Termination
Date that is so designated by CSI by
written notice to Counterparty of its
intention to terminate the Price Adjustment
Period (it being understood that such
notice may be given on the Accelerated
Termination Date).
	 
	 	 
	     Price Adjustment
Period:

	 	The period commencing on and including the
Scheduled Trading Day immediately following
the Commencement Date and ending on and
including the Price Adjustment Period
Termination Date.

2

 

Initial Settlement:

	 	 	 
	     Prepayment:

	 	Applicable.
	 
	 	 
	     Prepayment Amount:

	 	USD49,999,989
	 
	 	 
	     Prepayment Date(s):

	 	The third Clearance System Business Day
after the Trade Date and March 10, 2008.
On each Prepayment Date, CSI shall deliver
a number of Shares equal to 50% of the
Number of Shares to Counterparty in
accordance with Section 9.4 of the
Definitions (with the Prepayment Date
deemed to be a “Settlement Date” for
purposes of such Section 9.4), against
payment by Counterparty of 50% of the
Prepayment Amount.
	 
	 	 
	     Number of Shares:

	 	1,693,193
	 
	 	 
	     Exchange:

	 	New York Stock Exchange
	 
	 	 
	     Related Exchange(s):

	 	All Exchanges

Final Settlement:

	 	 	 
	     Cash Settlement:

	 	If Counterparty has not elected Net Share Settlement in accordance
with the “Net Share Settlement” provisions below, then (i) if the Cash Settlement
Payment Amount is positive, CSI shall pay to Counterparty an amount in cash equal to
the Cash Settlement Payment Amount; and (ii) if the Cash Settlement Payment Amount is
negative, Counterparty shall pay to CSI an amount in cash equal to the absolute value
of the Cash Settlement Payment Amount, each on the Cash Settlement Payment Date.
	 
	 	 
	     Cash Settlement Payment
Date:

	 	The third Currency Business Day following the Price Adjustment Period
Termination Date.
	 
	 	 
	     Cash Settlement Payment
Amount:

	 	An amount equal to (i) the Prepayment Amount, as adjusted pursuant to the provisions
of “Commencement Date” minus (ii) the product of the Average Reference Price
and the Number of Shares.

3

 

	 	 	 
	Net Share Settlement:

	 	If Counterparty, by written notice to CSI prior to the
opening of trading on the fifth Scheduled Trading
Day before the Scheduled Termination Date (or, in the
case of an Accelerated Termination Date, immediately
following receipt of notice from CSI of the
designation of such Accelerated Termination Date)
elects that Net Share Settlement shall apply, then:
	 
	 	 
	 

	 	(i)  
If the Cash Settlement Payment Amount
(calculated as if Cash Settlement applied) is
positive, then CSI shall deliver to Counterparty
a number of Shares (the “CSI Share Delivery
Amount”) equal to (x) the Cash Settlement
Payment Amount divided by (y) the
arithmetic average of the Daily 10b-18 VWAP
Prices for each Valuation Date during the Share
Settlement Pricing Period. With respect to any
Shares delivered by CSI pursuant hereto, the
Representation and Agreement contained in
Section 9.11 of the Definitions shall be
modified by excluding any representations
therein relating to restrictions, obligations,
limitations or requirements under applicable
securities laws as a result of the fact that
Counterparty is the issuer of the Shares.
“Share Settlement Pricing Period” means a number of
Valuation Dates not exceeding 20 valuation Dates, as specified by CSI
following receipt by CSI of the notice described
herein, commencing on the Scheduled Trading Day
immediately following the Price Adjustment
Period Termination Date.

	 
	 	 
	 

	 	(ii) 
If the Cash Settlement Payment Amount
(calculated as if Cash Settlement applied) is
negative, then Counterparty shall deliver to CSI
a number of Shares (the “Counterparty Share
Delivery Amount”) in accordance with provisions
of Annex A; provided, in no event shall
Counterparty be required to deliver more than
2,539,789 Shares (as such number may be adjusted
for stock splits or similar events) or as
otherwise agreed by the parties.

4

 

	 	 	 
	     Settlement Date:

	 	The third Exchange Business Day
following (i) the Price Adjustment Period
Termination Date if Counterparty Share Delivery
Amount is to be delivered, and (ii) the last day of
the Share Settlement Pricing Period if CSI Share
Delivery Amount is to be delivered.
	 
	 	 
	     Daily Share Reference
Price:

	 	For each Valuation Date, (a) the 10b-18
volume-weighted average price per Share on the
Exchange on such day as published on Bloomberg Page
“NPO <Equity> AQR SEC” (the “Daily 10b-18 VWAP
Price”) or any successor page thereto, or if such
price is not so reported on such Valuation Date for
any reason, as reasonably determined by the
Calculation Agent, minus (b) the Daily Reference
Price Adjustment specified in Schedule I.
	 
	 	 
	 
	 	 
	     Average Reference Price:

	 	The arithmetic average of
the Daily Share Reference Prices for each Valuation
Date during the Price Adjustment Period.
	 
	 	 
	     Valuation Date:

	 	Any Scheduled Trading Day that is not
a Valuation Disruption Day.
	 
	 	 
	     Valuation Disruption Day:

	 	Any Scheduled Trading Day
(i) that is a Disrupted Day or a day designated by
CSI as a Valuation Disruption Day pursuant to
Section 5.6 or Section 7 hereof; or (ii) on which
CSI or its affiliates (collectively, “CS”)
reasonably determine that it would be appropriate,
in light of any legal, regulatory or self-regulatory
requirements or related policies and procedures
(whether or not such requirements, policies or
procedures are imposed by law or have been
voluntarily adopted by CS), for CS to refrain from
purchasing Shares in connection with this
Transaction or to purchase fewer than the number of
Shares that it would otherwise purchase in
connection with this Transaction on such day.
	 
	 	 
	 

	 	For each Valuation Disruption Day, CSI may, by
written notice to Counterparty, extend the Price
Adjustment Period or the Share Settlement Pricing
Period, as applicable, by an additional Valuation
Date; provided however, if the extension relates to
clause (ii) in the paragraph immediately above, CSI
shall not communicate to Counterparty the reason for
such extension in the written notice.

5

 

	 	 	 
	 

	 	If any Scheduled Trading Day is a Disrupted Day in
the Price Adjustment Period or the Share Settlement
Pricing Period, as the case may be, the Calculation
Agent may, in good faith, reasonably determine
whether (i) such Disrupted Day is a Disrupted Day in
full, in which case the Daily 10b-18 VWAP Price for
such Disrupted Day may not be included for purposes
of determining the Average Reference Price or the
CSI Share Delivery Amount, as applicable, or (ii)
such Disrupted Day is a Disrupted Day only in part,
in which case the Daily 10b-18 VWAP Price for such
Disrupted Day may be determined by the Calculation
Agent based on Rule 10b-18 eligible transactions in
the Shares on such Disrupted Day effected before the
relevant Market Disruption Event occurred and/or
after the relevant Market Disruption Event ended,
and the weighting of the Daily 10b-18 VWAP Price for
the relevant Scheduled Trading Days during the Price
Adjustment Period or the Share Settlement Pricing
Period, as the case may be, may be adjusted in a
commercially reasonable manner by the Calculation
Agent for purposes of determining the Average
Reference Price or the CSI Share Delivery Amount, as
applicable, with such adjustments based on, among
other factors, the duration of any Market Disruption
Event and the volume, historical trading patterns
and price of the Shares. “Rule 10b-18 eligible
transactions” shall mean trades that are reported
during the period of time during which Counterparty
could purchase the Shares under Rule 10b-18(b)(2)
and are effected pursuant to the conditions of Rule
10b-18(b)(3), each under the Exchange Act (as
defined below).
	 
	 	 
	 

	 	In addition, the occurrence of a Disrupted Day,
whether in part or in full, during the Price
Adjustment Period shall be a Potential Adjustment
Event under the Definitions.
	 
	 	 
	     Market Disruption Event:

	 	Section 6.3(a) of the
Definitions is hereby amended by replacing clause
(ii) thereof in its entirety with the following: “(ii) an Exchange Disruption at any time prior to
the relevant Valuation Time on the relevant
Valuation Date, or” and inserting immediately
following clause (iii) thereof the following: “; in
each case that the Calculation Agent determines is
material.”
	 
	 	 
	     Calculation Agent:

	 	CSI
	 
	 	 
	     Credit Support Documents:

	 	None

6

 

Share Adjustments:

	 	 	 
	     Method of Adjustment:

	 	Calculation Agent Adjustment; provided that in respect of the
occurrence of any Disrupted Day or partial Disrupted Days, references to the
“diluting or concentrative effect on the theoretical value of the relevant Shares”
in Section 11.2(c) of the Definitions shall be deemed deleted and the Calculation
Agent shall make adjustments to any variable relevant to the exercise, settlement,
payment or other terms of the Transaction as the Calculation Agent determines
appropriate to account for the effect of the Disrupted Day on the theoretical value
of the Transaction.

Extraordinary Events:

	 	 	 
	     New Shares:

	 	In the definition of New Shares in Section 12.1(i) of the Definitions, the text in
clause (i) shall be deleted in its entirety and replaced with “publicly quoted, traded
or listed on any of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Select Market or the NASDAQ Global Market (or their respective
successors)”.
	 
	 	 
	     Consequences of Merger Events:
	 	 
	 
	 	 
	     (a) Share-for-Share:

	 	Modified Calculation Agent Adjustment
	 
	 	 
	     (b) Share-for-Other:

	 	Cancellation and Payment (Calculation Agent Determination)
	 
	 	 
	     (c) Share-for-Combined:

	 	Component Adjustment
	 
	 	 
	          Determining Party:

	 	CSI
	 
	 	 
	     Tender Offer:

	 	Applicable
	 
	 	 
	     Consequences of Tender Offer:
	 	 
	 
	 	 
	     (a) Share-for-Share:

	 	Modified Calculation Agent Adjustment
	 
	 	 
	     (b) Share-for-Other:

	 	Modified Calculation Agent Adjustment
	 
	 	 
	     (c) Share-for-Combined:

	 	Modified Calculation Agent Adjustment
	 
	 	 
	          Determining Party:

	 	CSI

7

 

	 	 	 
	     Nationalization,
Insolvency  or

      Delisting:

	 	Cancellation and Payment (Calculation Agent Determination); provided that Section
12.6(a)(iii) of the Definitions shall be amended by replacing the phrase, “an Exchange
or quotation system located in the same country as the Exchange (or, where the
Exchange is within the European Union, in any member state of the European Union)”
with the phrase, “any of the New York Stock Exchange, the American Stock Exchange, the
NASDAQ Global Select Market or the NASDAQ Global Market (or their respective
successors)”; if the Shares are immediately re-listed, re-traded or re-quoted on any
such exchange or quotation system, such exchange or quotation system shall be deemed
to be the Exchange.

Additional Disruption Events:

	 	 	 
	     (a) Change-in-Law:

	 	Applicable
	 
	 	 
	     (b) Insolvency Filing:

	 	Applicable
	 
	 	 
	     (c) Hedging Disruption:

	 	Applicable
	 
	 	 
	     (d) Loss of Stock Borrow:

	 	Applicable
	 
	 	 
	          Maximum Stock
Loan Rate:

	 	2.5%
	 
	 	 
	     (e) Increased Cost of
Stock Borrow:

	 	Applicable
	 
	 	 
	          Initial Stock
Loan Rate:

	 	0.8%
	 
	 	 
	Determining Party:

	 	CSI
	 
	 	 
	Additional Termination Event:

	 	CSI may designate any Scheduled Trading Day
as an Early Termination Date with respect
to the Transaction if Counterparty, at any
time prior to final settlement of this
Transaction, (i) alters the amount per
share or frequency of its ordinary cash
dividend on the Shares, or (ii) declares
any dividend other than an ordinary cash
dividend on the Shares. In either such
case, this Transaction shall be the sole
Affected Transaction and Counterparty shall
be the sole Affected Party.

8

 

	 	 	 
	Non-Reliance/ Agreements and
Acknowledgments Regarding
Hedging Activities/ Additional
Acknowledgments:

	 	Applicable

	3.	 	Share Settlement:
	 
	3.1	 	Upon (x) the occurrence or effective designation of an Early Termination Date in respect of
the Transaction or (y) the occurrence of an Extraordinary Event that results in the
cancellation or termination of the Transaction pursuant to Section 12.2, 12.3, 12.6 or 12.9 of
the Definitions (any such event as described in clause (x) or (y) above, an “Early Termination
Event”) (except, in the case of clause (y), an Extraordinary Event that is a Nationalization,
Insolvency, a Merger Event or a Tender Offer, in each case, in which the consideration or
proceeds to be paid to holders of Shares consists solely of cash), if one party would owe any
amount to the other party pursuant to Section 6(d)(ii) of the Agreement or any Cancellation
Amount pursuant to Section 12.2, 12.3, 12.6 or 12.9 of the Definitions (any such amount, a
“Payment Amount”), then on the date on which any Payment Amount is due, in lieu of any payment
or delivery of such Payment Amount, Counterparty may elect, by prior written notice to CSI,
that the party owing such amount shall deliver to the other party a number of Shares (or, in
the case of a Merger Event, Tender Offer, Nationalization or Insolvency, a number of units,
each comprising the number or amount of the securities or property that a hypothetical holder
of one Share would receive in such Extraordinary Event (each such unit, an “Alternative
Termination Delivery Unit” and, the securities or property comprising such unit, “Alternative
Termination Property”)) with a value equal to the Payment Amount based on the market value of
the Shares (or such Alternative Termination Property) as of the Early Termination Date or the
date as of which the Cancellation Amount is determined, as the case may be, as determined by
the Calculation Agent; provided that in determining the composition of any Alternative
Termination Delivery Unit, if the relevant Extraordinary Event involves a choice of
consideration to be received by holders, such holder shall be deemed to have elected to
receive the maximum possible amount of cash.
	 
	3.2	 	Notwithstanding anything to the contrary in this Confirmation, Counterparty acknowledges and
agrees that, on any day, to the extent (but only to the extent) that transactions in Shares
(or any other class of voting securities of Counterparty) would result in the ultimate parent
entity of CSI directly or indirectly beneficially owning (as such term is defined for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)) at any time on such day in excess of 9.0% of the outstanding Shares
or any other class of voting securities of Counterparty, (a) CSI shall not be obligated to
deliver or receive any Shares to or from Counterparty, (b) Counterparty shall not be entitled
to receive any Shares from CSI on such day, and (c) any purported receipt or delivery of
Shares shall be void and have no effect.
	 
	 	 	If, on any day, any delivery or receipt of Shares by CSI is not made, in whole or in part, as
a result of this provision, the respective obligations of Counterparty and CSI to make or
accept such receipt or delivery shall not be extinguished and such receipt or delivery shall
be effected over time as promptly as practicable after CSI determines, in a commercially

9

 

	 	 	reasonable manner, that such receipt or delivery would not result in its ultimate parent
entity directly or indirectly beneficially owning in excess of 9.0% of the outstanding Shares
or any other class of voting securities of Counterparty.
	 
	4.	 	Additional Agreements of the Parties:
	 
	4.1	 	For the avoidance of doubt, the last sentence of the first paragraph of 6(e) of the Agreement
shall not apply with respect to this Transaction.
	 
	4.2	 	CSI agrees that in the event of the bankruptcy of Counterparty, CSI shall not have rights or
assert a claim that is senior in priority to the rights and claims available to the
shareholders of the common stock of Counterparty; provided, however, that nothing herein shall
limit or shall be deemed to limit CSI’s right to pursue remedies in the event of a breach by
Counterparty of its obligations and agreements with respect to this Transaction; and provided
further that in pursuing a claim against Counterparty in the event of a bankruptcy, insolvency
or dissolution with respect to Counterparty, CSI’s rights hereunder shall rank on a parity
with the rights of a holder of Shares enforcing similar rights under a contract involving
Shares.
	 
	4.3	 	The parties acknowledge that this Transaction is not secured by any collateral that would
otherwise secure the obligations of Counterparty hereunder.
	 
	4.4	 	The parties agree and acknowledge that CSI is a “financial institution,” “swap participant”
and/or “financial participant” within the meaning of Sections 101(22), 101(53C) and 101(22A)
of Title 11 of the Bankruptcy Code (Title 11 of the United States Code) (the “Bankruptcy
Code”). The parties hereto further agree and acknowledge (A) that this Confirmation is (i) a
“securities contract,” as such term is defined in Section 741(7) of the Bankruptcy Code, with
respect to which each payment and delivery hereunder is a “settlement payment,” as such term
is defined in Section 741(8) of the Bankruptcy Code, and (ii) a “swap agreement,” as such term
is defined in Section 101(53B) of the Bankruptcy Code, with respect to which each payment and
delivery hereunder is a “transfer,” as such term is defined in Section 101(54) of the
Bankruptcy Code, and (B) that CSI is entitled to the protections afforded by, among other
sections, Sections 362(b)(6), 362(b)(17), 546(e), 546(g), 555 and 560 of the Bankruptcy Code.
	 
	5.	 	CS Share Purchases:
	 
	5.1	 	Any purchases or sales of Shares by CS will be conducted independently of Counterparty. The
timing of any CS purchases or sales of Shares, the number of Shares thus purchased or sold on
any day, the price paid or received per Share for any CS purchases or sales of Shares and the
manner in which any CS purchases or sales of Shares are made, including without limitation
whether such CS purchases or sales are made on any securities exchange or privately, shall be
within the sole discretion of CS.

10

 

	5.2	 	From the date hereof to the Price Adjustment Period Termination Date or the last day of the
Share Settlement Pricing Period, as the case may be, Counterparty shall not, and shall cause
its “affiliated purchasers” (as defined in Rule 10b-18 under the Exchange Act (“Rule 10b-18”))
not to, directly or indirectly (including, without limitation, by means of any cash-settled or
other derivative instrument) purchase, offer to purchase, place any bid or limit order that
would effect a purchase of, or commence any tender offer relating to, any Shares (or an
equivalent interest, including a unit of beneficial interest in a trust or limited partnership
or a depository share) or any security convertible into or exchangeable or exercisable for
Shares, except through Credit Suisse Securities (USA) LLC. However, the foregoing shall not
limit Counterparty’s ability (or the ability of any “agent independent of the issuer” (as
defined in Rule 10b-18)), pursuant to any plan (as defined in Rule 10b-18) of Counterparty, to
re-acquire Shares in connection with any equity transaction related to such plan or otherwise
restrict Counterparty’s ability to repurchase Shares under privately negotiated transactions
with any of its employees, officers, directors or affiliates, so long as any such
re-acquisition or repurchase does not constitute a “Rule 10b-18 Purchase” (as defined in Rule
10b-18).
	 
	5.3	 	From the date hereof to the Price Adjustment Period Termination Date and on any day during
the Share Settlement Pricing Period, Counterparty will effect all of its purchase transactions
in Shares through Credit Suisse Securities (USA) LLC.
	 
	5.4	 	Upon request by CSI, Counterparty shall, at least one day prior to the first day of the Price
Adjustment Period, notify CSI of the total number of Shares purchased in Rule 10b-18 purchases
of blocks pursuant to the once-a-week block exception contained in Rule 10b-18(b)(4) by or for
Counterparty or any of its affiliated purchasers during each of the four calendar weeks
preceding the first day of the Price Adjustment Period and during the calendar week in which
the first day of the Price Adjustment Period occurs (“Rule 10b-18 purchase”, “blocks” and
“affiliated purchaser” each being used as defined in Rule 10b-18).
	 
	5.5	 	Neither Counterparty nor any of its affiliates shall take any action that would cause any CS
purchases of Shares in connection with this Transaction not to meet the requirements of the
safe harbor provided by Rule 10b-18 under the Exchange Act if such purchases were made by
Counterparty.
	 
	5.6	 	Notwithstanding anything to the contrary herein or in the Definitions, on any day on which
Counterparty makes, or expects to be made, any public announcement (as defined in Rule 165(f)
under the Securities Act) of a Merger Transaction or a potential Merger Transaction:

	 	(a)	 	Counterparty shall notify CSI of such Merger Transaction or potential Merger
Transaction prior to the opening of trading in the Shares on such day;
	 
	 	(b)	 	Counterparty shall promptly notify CSI following any such announcement that such
announcement has been made, and shall promptly provide CSI with written notice specifying
(i) Counterparty’s average daily Rule 10b-18 purchases (as defined in Rule 10b-18) during
the three full calendar months immediately preceding the Announcement Date that were not
effected through CS, and (ii) the number of Shares purchased pursuant to the proviso in
Rule 10b-18(b)(4) for the three full months preceding the Announcement Date. Such
written notice shall be deemed to be a

11

 

	 	 	 	certification by Counterparty to CSI that such information is true and correct.
Counterparty understands that CSI will use this information in calculating the trading
volume for purposes of Rule 10b-18; and
	 
	 	(c)	 	CSI may in its good faith sole discretion, if it determines the resulting reduction
in permissible volume of Rule 10b-18 purchases to be material, designate one or more
Scheduled Trading Days in the period from and including the public announcement thereof
to and including the earlier of the completion of such transaction or the completion of
the vote by target shareholders to be Disrupted Days, and extend the Price Adjustment
Period or the Share Settlement Pricing Period, as the case may be, by the number of
Disrupted Days so designated.

	 	 	For the avoidance of doubt, “Merger Transaction” in this Section 5.6 means any merger,
acquisition or similar transaction involving a recapitalization as contemplated by Rule
10b-18(a)(13)(iv).
	 
	5.7	 	Counterparty acknowledges that:

	 	(a)	 	during the term of the Transaction, CSI and its affiliates may buy or sell Shares
or other securities or buy or sell options or futures contracts or enter into swaps or
other derivative securities in order to establish or adjust its hedge position with
respect to the Transaction;
	 
	 	(b)	 	CSI and its affiliates may also be active in the market for the Shares other than
in connection with hedging activities in relation to the Transaction;
	 
	 	(c)	 	CSI shall make its own determination as to whether, when or in what manner any
hedging or market activities in Counterparty’s securities shall be conducted and shall do
so in a manner that it deems appropriate to hedge its price and market risk with respect
to the Average Reference Price and Daily 10b-18 VWAP Price;
	 
	 	(d)	 	any market activities of CSI and its affiliates with respect to the Shares may
affect the market price and volatility of the Shares, as well as the Average Reference
Price and Daily 10b-18 VWAP Price, each in a manner that may be adverse to Counterparty;
and
	 
	 	(e)	 	the Transaction is a transaction in which it has granted CSI an option; CSI may
purchase shares for its own account at an average price that may be greater than, or less
than, the price paid by Counterparty under the terms of the Transaction.

	6.	 	Indemnification and Contribution:
	 
	6.1	 	Indemnification by Counterparty:
	 
	 	 	Counterparty agrees to indemnify and hold harmless CSI, its affiliates, their respective
directors, officers, employees, agents, advisors, brokers and representatives and each person
who controls CSI or its affiliates within the meaning of either the Securities Act or the

12

 

	 	 	Exchange Act against, and Counterparty agrees that no indemnified party shall have any
liability to Counterparty or any of its affiliates, officers, directors, or employees for, any
losses, claims, damages, liabilities (whether direct or indirect, in contract, tort or
otherwise) or expenses, joint or several, to which any indemnified party may become subject
under the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions, claims, investigations or proceedings in respect thereof, whether
commenced or threatened) (i) arise out of or relate to (A) actions or failures to act by
Counterparty or (B) actions or failures to act by an indemnified party with the consent of,
upon the direction of, or with the knowledge of Counterparty or (ii) otherwise arise out of or
relate to the Transaction. Counterparty will not be liable under this Section 6.1 to the
extent that any loss, claim, damage, liability or expense is found in a final and
nonappealable judgment by a court to have resulted primarily from the gross negligence or
willful misconduct of CSI. Counterparty agrees to reimburse promptly each such indemnified
party for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damages, liability, expense or action. This
indemnity agreement will be in addition to any liability which Counterparty may otherwise
have.
	 
	6.2	 	Contribution:
	 
	 	 	If the indemnification provided for above is unavailable to any
indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to herein, then Counterparty, in lieu
of indemnifying such indemnified party, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, liabilities or expenses, in such proportion as is
appropriate to reflect not only the relative fault of Counterparty on
the one hand and of CSI on the other in connection with the statements
or omissions which resulted in such losses, claims, damages, expenses
or liabilities, but also any other relevant equitable considerations.
The relative fault of Counterparty on the one hand and CSI on the
other shall be determined by reference to, among other considerations,
whether the misstatement or alleged misstatement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by Counterparty or by CSI and the parties’
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The amount paid or
payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim.
The parties agree that it would not be just and equitable if
contribution pursuant to this Section 6.2 were determined by a method
of allocation that does not take account of the equitable
considerations referred to in this paragraph. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
	 
	7.	 	Distribution Event:
	 
	 	 	Counterparty represents that it is not engaged as of the Trade Date in a distribution, as such
term is used in Regulation M under the Exchange Act (a “Distribution”). If, on any
day

13

 

	 	 	prior to the second Scheduled Trading Day immediately following the last day of the later of
the Price Adjustment Period and the Share Settlement Pricing Period, Counterparty or any of
its affiliates or agents makes a Distribution of Shares or any security for which the Shares
are a reference security (as defined in Regulation M) that would, in the view of CSI, preclude
Counterparty from purchasing Shares or cause any such purchases to violate any law, rule or
regulation, Counterparty shall provide to CSI at least one Scheduled Trading Day’s notice of
such Distribution and use reasonable efforts to cause such Distribution to be completed or
otherwise terminated as soon as reasonably practicable given the circumstances of the
Distribution. CSI may, in its good faith sole discretion, designate such day a Disrupted Day
and, in connection with such designation, extend the Price Adjustment Period or the Share
Settlement Pricing Period, as the case may be, by one Valuation Day for each day that such
Distribution continues.
	 
	8.	 	Additional Representations and Warranties of Counterparty:
	 
	 	 	Counterparty hereby represents and warrants to CSI that:
	 
	(a)	 	It has entered into this Transaction

	 	(i)	 	in connection with a duly authorized Share repurchase program, which program
shall be publicly announced on the date hereof; and
	 
	 	(ii)	 	solely for the purposes stated in such public disclosures.

	(b)	 	As of the Commencement Date and the date, if any, as of which Counterparty elects that “Net
Share Settlement” shall apply, it has complied with all applicable law, rules and regulations
in connection with disclosure of all material information with respect to its business,
operations or condition (financial or otherwise), and has filed such disclosure as required.
	 
	(c)	 	As of the Commencement Date and the date, if any, as of which Counterparty elects that “Net
Share Settlement” shall apply, all reports and other documents filed by Counterparty with the
Securities and Exchange Commission pursuant to the Exchange Act, when considered as a whole
(with the more recent such reports and documents deemed to amend inconsistent statements
contained in any earlier such reports and documents), do not contain any untrue statement of a
material fact or any omission of a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they were made, not
misleading. As of each such date, Counterparty is not in possession of any material nonpublic
information regarding Counterparty or the Shares.
	 
	(d)	 	Any purchases made by CS during the Price Adjustment Period and the Share Settlement Pricing
Period will be made by CS as principal (and not as an agent of Counterparty) and will be
proprietary in nature and not for the benefit or pursuant to the direction of Counterparty.
Without limiting the generality of the foregoing, during the Price Adjustment Period and the
Share Settlement Pricing Period, the parties agree that they will not communicate in any way
regarding CS’s purchases. The parties further agree that

14

 

	 	 	during the Price Adjustment Period and the Share Settlement Pricing Period, (i) Counterparty
and its agents or representatives shall not have, and shall not attempt to exert, any
influence over how, when or whether CS effects purchases of Shares; and (ii) they intend for
this Confirmation to constitute a binding contract satisfying the requirements of Rule
10b-5(1)(C) under the Exchange Act. Counterparty is entering into this Transaction in good
faith and not as part of a plan or scheme to evade compliance with the federal securities
laws, including, without limitation, Rule 10b-5 under the Exchange Act. Counterparty has not
entered into or altered any hedging transaction relating to the Shares corresponding to or
offsetting the Transaction. Counterparty represents and warrants that it has consulted with
its own advisors as to the legal aspects of its adoption and implementation of this
Confirmation under Rule 10b5-1. Counterparty acknowledges and agrees that any modification,
waiver or termination of this Confirmation must be effected in accordance with the
requirements for the amendment or termination of a “plan” under Rule 10b5-1(c).

	(e)	 	Counterparty is, and shall be as of the date of any payment or delivery by Counterparty
hereunder, solvent and able to pay its debts as they come due, with assets having a fair value
greater than liabilities and with capital sufficient to carry on the businesses in which it
engages.
	 
	(f)	 	Counterparty is not currently prohibited by law, contract or otherwise from purchasing Shares
in a number equal to the Number of Shares during the term of this Transaction.
	 
	(g)	 	Without limiting the generality of Section 3(a)(iii) of the Agreement, the Transaction will
not violate Rule 13e-1 or Rule 13e-4 under the Exchange Act.
	 
	(h)	 	Upon CSI’s request, Counterparty shall, prior to the date hereof, deliver to CSI a resolution
of Counterparty’s board of directors authorizing the transaction and such other certificate or
certificates that CSI may reasonably require.
	 
	9.	 	Additional Covenants of Counterparty:
	 
	 	 	Counterparty shall not at any time prior to the termination of this Transaction communicate,
directly or indirectly, any material nonpublic information concerning itself or the Shares or
purchases or sales of Shares by CS to any Relevant CSI Personnel. For purposes hereof,
“Relevant CSI Personnel” means any employee of CS, except employees that CSI has
notified Counterparty in writing are not Relevant CSI Personnel.
	 
	10.	 	U.S. Private Placement Representations:
	 
	 	 	As this Transaction constitutes, or may constitute, the sale by CSI to Counterparty of a
security or securities (as defined in the Securities Act), in addition to the representations
contained in Section 3 of the Agreement, Counterparty hereby represents to CSI, in accordance
with Section 3 of the Agreement, as follows:

15

 

	 	 	(a) Counterparty is acquiring such securities for its own account as principal, for investment
purposes only, and not with a view to, or for, resale, distribution or fractionalisation
thereof, in whole or in part, and no other person has a direct or indirect beneficial interest
in any such securities acquired by Counterparty;
	 
	 	 	(b) Counterparty represents and warrants that it qualifies as an “eligible contract
participant” as that term is defined in the U.S. Commodity Exchange Act, as amended, and is a
“qualified investor” as that term is defined in the Exchange Act;
	 
	 	 	(c) Counterparty is not, as of the date hereof, and after giving effect to the transactions
contemplated hereby will not be, required to register as an “investment company” as such term
is defined in the Investment Company Act of 1940, as amended;
	 
	 	 	(d) Counterparty understands that the offer and sale by CSI of such securities are intended to
be exempt from registration under the Securities Act, by virtue of Section 4(2) thereof. In
furtherance thereof, Counterparty represents and warrants that (i) it has the financial
ability to bear the economic risk of its investment and has adequate means of providing for
its current needs and other contingencies, (ii) it is experienced in investing in options and
similar instruments and has determined that such securities are a suitable investment for it,
(iii) it is an institution that qualifies as an “accredited investor” as that term is defined
in Regulation D under the Securities Act; and
	 
	 	 	(e) Counterparty has been given the opportunity to ask questions of, and receive answers from,
CSI concerning the terms and conditions of such securities and concerning the financial
condition and business operations of CSI and has been given the opportunity to obtain such
additional information necessary in order for Counterparty to evaluate the merits and risks of
purchase of such securities to the extent CSI possesses such information or can acquire it
without unreasonable effort or expense.
	 
	 	 	Counterparty hereby acknowledges that it understands and agrees that disposition of any such
securities is restricted under the Agreement, the Securities Act and state securities laws.
For example, such Securities have not been registered under the Securities Act or under the
securities laws of certain states and, therefore, cannot be resold, pledged, assigned or
otherwise disposed of unless they have been registered under the Securities Act and under the
applicable laws of such states or an exemption from such registration is available.
	 
	11.	 	Transfer:
	 
	 	 	Notwithstanding anything to the contrary in the Agreement, CSI may assign or transfer its
rights or obligations under this Transaction, in whole or in part, to any of its affiliates
without the prior written consent of Counterparty, provided that the senior unsecured debt
rating (“Credit Rating”) of such affiliate (or any guarantor of its obligations under
the transferred Transaction) is equal to or greater than the Credit Rating of CSI, as
specified by S&P or Moody’s, at the time of such assignment or transfer.

16

 

	12.	 	Account Details:
	 
	 	 	Payments to CSI:                To be advised
	 
	 	 	Payments to Counterparty: To be advised

	13.	 	Governing Law; Waiver of Jury Trial:
	 
	13.1	 	The Agreement and this Confirmation, and all disputes arising out of or in connection with
the Agreement and this Confirmation or the subject matter hereof, will be governed by and
construed in accordance with the laws of the State of New York without reference to choice of
law doctrine and each party hereby submits to the non-exclusive jurisdiction of the Courts of
the State of New York or the U.S. federal courts in each case located in the Borough of
Manhattan in New York City.
	 
	13.2	 	CSI and Counterparty hereby irrevocably waive any and all right to trial by jury in any legal
proceeding arising out of or related to the Agreement, this Confirmation or the Transaction
contemplated hereby.
	 
	14.	 	Tax Disclosure:
	 
	 	 	Notwithstanding any provision in this Confirmation, in connection with Section 1.6011-4 of the
Treasury Regulations, the parties hereby agree that each party (and each employee,
representative, or other agent of such party) may disclose to any and all persons, without
limitation of any kind, the U.S. tax treatment and U.S. tax structure of the Transaction and
all materials of any kind (including opinions or other tax analyses) that are provided to such
party relating to such U.S. tax treatment and U.S. tax structure, other than any information
for which nondisclosure is reasonably necessary in order to comply with applicable securities
laws.
	 
	15.	 	Additional Elections:

	 	(a)	 	The Termination Currency shall be U.S. dollars.
	 
	 	(b)	 	For purposes of Section 6(e) of the Agreement, Second Method and Loss shall
apply.
	 
	 	(c)	 	The “Cross-Default” provisions of Section 5(a)(vi) of the Agreement shall apply
to Counterparty and CSI. “Specified Entity” for purposes of Section 5(a)(vi) of the
Agreement shall mean all Affiliates. The “Threshold Amount” shall be $5,000,000 with
respect to Counterparty and the lesser of 3% of CSI’s shareholders’ equity and
$500,000,000 with respect to CSI.
	 
	 	(d)	 	The “Credit Event Upon Merger” provisions of Section 5(b)(iv) of the ISDA
Master Agreement shall apply to CSI and Counterparty.

17

 

	 	(e)	 	The “Automatic Early Termination” provision of Section 6(a) of the ISDA Master
Agreement shall not apply to CSI and will not apply to Counterparty.

16. Role of Agent:

Credit Suisse, New York branch, in its capacity as Agent will be responsible for (A) effecting
this Transaction, (B) issuing all required confirmations and statements to CSI and
Counterparty, (C) maintaining books and records relating to this Transaction in accordance
with its standard practices and procedures and in accordance with applicable law and (D)
unless otherwise requested by Counterparty, receiving, delivering, and safeguarding
Counterparty’s funds and any securities in connection with this Transaction, in accordance
with its standard practices and procedures and in accordance with applicable law.

	 	(a)	 	Agent is acting in connection with this Transaction solely in its capacity as
Agent for CSI and Counterparty pursuant to instructions from CSI and Counterparty.
Agent shall have no responsibility or personal liability to CSI or Counterparty arising
from any failure by CSI or Counterparty to pay or perform any obligations hereunder, or
to monitor or enforce compliance by CSI or Counterparty with any obligation hereunder,
including, without limitation, any obligations to maintain collateral. Each of CSI and
Counterparty agrees to proceed solely against the other to collect or recover any
securities or monies owing to it in connection with or as a result of this Transaction.
Agent shall otherwise have no liability in respect of this Transaction, except for its
gross negligence or willful misconduct in performing its duties as Agent.
	 
	 	(b)	 	Any and all notices, demands, or communications of any kind relating to this
Transaction between CSI and Counterparty shall be transmitted exclusively through Agent
at the following address:
	 
	 	 	 	Credit Suisse, New York branch

Eleven Madison Avenue 

New York, NY 10010-3629
	 
	 	 	 	For payments and deliveries: 

Facsimile No.: (212) 325 8175 

Telephone No.: (212) 325 8678 / (212) 325 3213
	 
	 	 	 	For all other communications: 

Facsimile No.: (212) 325 8173 

Telephone No.: (212) 325 8676 / (212) 538 5306 / (212) 538 1193 / (212) 538 6886
	 
	 	(c)	 	The date and time of the Transaction evidenced hereby will be furnished by the
Agent to CSI and Counterparty upon written request.
	 
	 	(d)	 	CSI and Counterparty each represents and agrees (A) that this Transaction is
not unsuitable for it in the light of such party’s financial situation, investment
objectives and needs and (B) that it is entering into this Transaction in reliance upon
such tax, accounting, regulatory, legal and financial advice as it deems necessary and
not upon any view expressed by the other or the Agent.

18

 

	 	(e)	 	CSI is regulated by The Securities and Futures Authority and has entered into
this Transaction as principal. The time at which this Transaction was executed will be
notified to Counterparty (through the Agent) on request.

19

 

     Please confirm that the foregoing correctly sets forth the terms of our agreement by signing
and returning to us a copy of this Confirmation.

	 	 	 	 	 	 	 
	 	 	Yours sincerely,	 	 
	 
	 	 	 	 	 	 
	 	 	CREDIT SUISSE INTERNATIONAL	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ James Jay Jaxon 
	 	 
	 

	 	Name:
	 	 James Jay Jaxon
	 	 
	 

	 	Title:	 	Director	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Steven Winnert 
	 	 
	 

	 	Name:
	 	Steven Winnert
	 	 
	 

	 	Title:	 	Managing Director	 	 
	 
	 	 	 	 	 	 
	 	 	CREDIT SUISSE, NEW YORK BRANCH, AS
AGENT FOR CREDIT SUISSE INTERNATIONAL	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Christy Grant 
	 	 
	 

	 	Name:
	 	Christy Grant
	 	 
	 

	 	Title:	 	Vice President	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	/s/ Anthony Fisher 
	 	 
	 

	 	Name:
	 	Anthony Fisher
	 	 
	 

	 	Title:	 	Vice President	 	 

Agreed to as of the date first above written.

ENPRO INDUSTRIES, INC.

	 	 	 	 	 
	By:

	 	/s/ Robert D. Rehley	 	 
	Name:

	 	 

Robert D. Rehley
	 	 
	Title:

	 	Vice President and Treasurer	 	 
	 
	 	 	 	 
	By:

	 	/s/ Robert P. McKinney	 	 
	Name:

	 	 

Robert P. McKinney
	 	 
	Title:

	 	Assistant Secretary	 	 

 

 

SCHEDULE I

					
	 	 	 	 	 
	Daily Reference Price Adjustment:
	 	USD0.425 per Share
	 	 

Schedule I-1

 

 

ANNEX A

Share Delivery Conditions

If Counterparty has elected to deliver the Counterparty Share Delivery Amount or has elected to
deliver Shares in lieu of the Payment Amount under Section 3.1,

1. Counterparty shall elect whether Registered Offering or Exempt Offering shall be the offering
method by which the Shares will be sold by CSI:

     (i) If Registered Offering is elected, then Shares shall be sold by CSI only pursuant to an
effective Registration Statement. Counterparty may elect Registered Offering only if all of the
following conditions are met:

     (a) a registration statement covering public resale of such Shares by CSI (the
“Registration Statement”) shall have been filed with, and declared effective by, the
Securities and Exchange Commission under the Securities Act on or prior to the Price
Adjustment Period Termination Date (or, with respect to Shares delivered pursuant to Section
3 of the Confirmation, the Merger Date, the Tender Offer Date or the date of the occurrence
of the Insolvency, Delisting or the Early Termination Date (as the case might be)) (the
“Registration Date”), and no stop order shall be in effect with respect to the
Registration Statement; a printed prospectus relating to the Shares (including any
prospectus supplement thereto, the “Prospectus”) shall have been delivered to CSI,
in such quantities as CSI shall reasonably have requested, on or prior to the Registration
Date;

     (b) the form and content of the Registration Statement and the Prospectus (including,
without limitation, any sections describing the plan of distribution) shall be satisfactory
to CSI;

     (c) as of or prior to the Registration Date, CSI and its agents shall have been
afforded a reasonable opportunity to conduct a due diligence investigation with respect to
Counterparty customary in scope for underwritten offerings of equity securities and the
results of such investigation are satisfactory to CSI, in its discretion;

     (d) an opinion of counsel for Counterparty and a “cold comfort” letter signed by the
independent public accountants who have issued a report on Counterparty’s financial
statements included in such Registration Statement shall have been delivered to CSI or its
affiliates before [ ], each addressed to CSI and any underwriter, and each in form
and substance satisfactory to CSI and any such underwriter and their respective counsel
covering substantially the same matters with respect to such Shares and the offering, sale
and issuance thereof and the financial statements of Counterparty as are customarily covered
in opinions of Counterparty’s counsel and in accountants’ letters delivered to
underwriter(s) in underwritten public offerings of securities and, in the case of the
accountants’ letter, such other financial matters as CSI or its affiliates may have
reasonably requested; and

     (e) as of the Registration Date, an agreement (the “Underwriting Agreement”)
shall have been entered into with CSI in connection with the public resale

 

 

of the Shares by CSI substantially similar to underwriting agreements customary for
underwritten offerings of equity securities, in form and substance satisfactory to CSI,
which Underwriting Agreement shall include, without limitation, provisions substantially
similar to those contained in such underwriting agreements relating to the indemnification
of, and contribution in connection with the liability of, CSI and its affiliates.

     (ii) If Exempt Offering is elected, then Shares shall be sold by CSI pursuant to an offering
that is exempt from the registration requirement of the Securities Act (an “Exempt Offering”) and
Counterparty may elect Exempt Offering only if (a) as of or prior to the Registration Date, CSI and
any potential purchaser of any such shares from CSI (or any affiliate of CSI designated by CSI)
identified by CSI shall have been afforded a commercially reasonable opportunity to conduct a due
diligence investigation with respect to Counterparty customary in scope for private placements of
equity securities (including, without limitation, the right to have made available to them for
inspection all financial and other records, pertinent corporate documents and other information
reasonably requested by them); (b) as of the Registration Date, an agreement (a “Private
Placement Agreement”) shall have been entered into between Counterparty and CSI (or any
affiliate of CSI designated by CSI) in connection with the private placement of such shares by
Counterparty to CSI (or any such affiliate) and the private resale of such shares by CSI (or any
such affiliate), substantially similar to private placement purchase agreements customary for
private placements of equity securities, in form and substance commercially reasonably satisfactory
to CSI, which Private Placement Agreement shall include, without limitation, provisions
substantially similar to those contained in such private placement purchase agreements relating to
the indemnification of, and contribution in connection with the liability of, CSI and its
affiliates, and shall provide for the payment by Counterparty of all commercially reasonable fees
and expenses in connection with such resale, including all commercially reasonable fees and
expenses of counsel for CSI, and shall contain representations, warranties and agreements of
Counterparty reasonably necessary or advisable to establish and maintain the availability of an
exemption from the registration requirements of the Securities Act for such resales; (c)
Counterparty shall either (x) represent that it is not aware of any material non-public information
regarding Counterparty or the Shares as of the date it elects an Exempt Offering, or (y) before any
purchasers decide to purchase the Shares, enter into confidentiality agreements with such
purchasers relating to any material non-public information regarding Counterparty or the Shares;
(d) Counterparty acknowledges that any Shares sold pursuant to an Exempt Offering may be sold at
prices that are less than the prices that might otherwise be available if such Shares were to be
sold pursuant to a registered public offering or at prices observed in the secondary market; and
(e) Counterparty shall not take or cause to be taken any action that would make unavailable either
(A) the exemption set forth in Section 4(2) of the Securities Act for the sale of Shares delivered
pursuant to subclause (a) below or the Additional Shares by Counterparty to CSI or (ii) an
exemption from the registration requirements of the Securities Act reasonably acceptable to CSI for
resales of Shares delivered pursuant to subclause (a) below or the Additional Shares.

          (a) If Exempt Offering elected, Counterparty shall deliver to CSI on the Settlement Date or
the Early Termination Date, as applicable, a number of Shares equal to (x) the Settlement Amount
divided by (y) a price per Share minus a discount, each as reasonably determined by the
Calculation Agent. Clauses (i) to (v) of Paragraph 2 shall apply to the Shares delivered to CSI
pursuant to this subclause (a).

 

 

2. If Registered Offering is elected by Counterparty,

(i) Counterparty shall deliver to CSI on the Settlement Date or the Early Termination Date, as
applicable, a number of Shares equal to (x) the Settlement Amount divided by (y) a price
per Share as reasonably determined by the Calculation Agent (such Shares so delivered, the “Offered
Shares”). For the purpose of this Annex A, “Settlement Amount” shall mean either the Payment
Amount or the absolute value of the Counterparty Payment Amount, as applicable.

(ii) CSI or any underwriter(s), will sell all, or such lesser portion as may be required hereunder,
of the Offered Shares comprising the Shares delivered by Counterparty pursuant to Clause (i) above
(“Offered Shares”) and any Additional Shares delivered by Counterparty to CSI in a commercially
reasonable manner.

(iii) At the end of each day upon which sales have been made, the Settlement Amount shall be (x)
reduced by an amount equal to the aggregate Net Proceeds received by CSI upon settlement of the
sale of such Shares and (y) increased by an amount (as reasonably determined by the Calculation
Agent) equal to CSI’s funding cost with respect to the then-current Settlement Amount as of the
close of business on such day. “Net Proceeds” means proceeds of any sale(s) made by CSI or any
underwriter(s), net of any fees and commissions (including, without limitation, underwriting or
placement fees) customary for similar transactions under the circumstances at the time of the
offering, together with carrying charges and expenses incurred in connection with the offer and
sale of the Shares (including, but without limitation to, the covering of any over-allotment or
short position (syndicate or otherwise).

(iv) If, on any day, the Settlement Amount has been reduced to zero, but not all of the Offered
Shares have been sold, no additional Offered Shares shall be sold and CSI shall, on the third
Exchange Business Day following such day, deliver to Counterparty (x) any remaining Offered Shares
and (y) if the Settlement Amount has been reduced to an amount less than zero, an amount in cash
equal to the absolute value of the then-current Settlement Amount.

(v) If on any day the Settlement Amount has not been reduced to zero while all of the Offered
Shares have been sold (such day, the “Shortfall Day”), Counterparty shall on the Business Day next
succeeding such day (the “Makewhole Notice Date”) deliver to CSI a notice of Counterparty’s
election that Counterparty shall either (i) pay an amount in cash equal to the Settlement Amount as
of the Shortfall Day on the day that is one (1) Business Day after the Makewhole Notice Date, or
(ii) deliver on the first Clearance System Business Day which is also an Exchange Business Day
following the Makewhole Notice Date, a number of additional Shares (“the “Additional Shares”) equal
to (x) the Settlement Amount as of the Shortfall Day divided by (y) the price per Share as
reasonably determined by the Calculation Agent. This clause (v) shall be applied successively
until the Settlement Amount is reduced to zero.

(vi) If at any time the number of Shares covered by the Registration Statement is less than the
Shares required to be delivered pursuant to this Paragraph 2, then Counterparty shall file
additional registration statement(s) to register the sale of all Shares required to be delivered to
CSI pursuant to Paragraph 2.EX-10.23 EMPLOYMENT AGREEMENT/RUSSELL M. MEDFORD

 

EXHIBIT 10.23

AMENDED EMPLOYMENT AGREEMENT

     THIS AGREEMENT (“Agreement”) amends and restates the Employment Agreement dated September 25,
2006 (the “Effective Date”), as amended, and is made and entered into by and between AtheroGenics,
Inc., a Georgia corporation (hereinafter called the “Employer”), and Russell M. Medford, M.D., a
resident of the State of Georgia (hereinafter the “Executive”).

WITNESSETH:

     WHEREAS, the Executive has been employed by Employer since 1993;

     WHEREAS, the Employer and Executive mutually desire that the Executive’s employment be
continued; and

     WHEREAS, the Employer and Executive mutually desire to enter into an employment contract which
will supersede any prior contracts;

     NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements
herein contained, the parties hereto agree as follows:

     1. Period of Employment.

     In exchange for the compensation, benefits and perquisites described in this Agreement, and
upon such other terms and conditions hereinafter set forth, the Employer agrees to employ the
Executive for the “Period of Employment” (as hereinafter defined). For purposes of this Agreement,
the “Period of Employment” shall commence as of the Effective Date of this Agreement and, unless
earlier terminated as provided in this Agreement, shall consist of an initial period of two (2)
years (the “Initial Term”), and shall automatically be extended for additional two (2) year terms
(each additional two (2) year term called a “Renewal Term”) unless Employer or Executive shall
notify the other not less than 30 days prior to the expiration of either the Initial Term or any
Renewal Term that Executive’s employment will end at the expiration of the then existing Initial
Term or Renewal Term.

     2. Position and Responsibilities.

     During the Period of Employment, the Executive agrees to serve as the President and Chief
Executive Officer of AtheroGenics, Inc., reporting directly to the Board of Directors of the
Employer (hereinafter the “Board”), and to perform those functions and duties customarily assigned
to individuals serving in the position in which the Executive serves hereunder. Without limiting
the foregoing, Executive shall be considered an executive officer of Employer, and shall be the
Chairman of Employer’s management executive committee. In addition, Executive shall keep the Board
of Directors of Employer fully apprised of all material developments occurring under Executive’s
supervision and responsibility.

 

 

     Except as may otherwise be approved in advance by the Board of Employer, the Executive shall
devote his full working time throughout the Period of Employment to the services required of him
hereunder. The Executive shall render his services exclusively to the Employer during the Period
of Employment, and shall use his best efforts, judgment and energy to improve and advance the
business and interests of the Employer in a manner consistent with the duties of his position.

     3. Compensation, Benefits and Perquisites.

           (a) Base Salary

     In exchange for the performance of his duties and responsibilities hereunder and all other
services rendered by the Executive in any capacity to the Employer, the Employer agrees to pay base
salary (“Base Salary”) to the Executive for the Initial Term equal to $483,453.93 per year. For
any Renewal Term thereafter during which this Agreement remains in effect, the Executive’s Base
Salary for each such Renewal Term shall be reviewed based upon an annual performance appraisal and
competitive market conditions and may be increased from time to time by the Employer (at the sole
discretion of Employer). Base Salary shall be payable according to the customary payroll practices
of the Employer.

           (b) Incentive Compensation

     In addition to Base Salary, the Executive shall be eligible to receive such incentive
compensation (“Incentive Compensation”) as shall be determined by the Board of Directors of
Employer (or a committee of the Board). The amount of such Incentive Compensation to be earned in
any year shall be based upon certain strategic and financial goals which shall be determined by the
Executive and the Board of the Employer. Such strategic and financial goals and target Incentive
Compensation shall be set forth in the Employer’s annual budget during the term of this Agreement.
For 2007, the target Incentive Compensation shall be $183,712.49. Incentive Compensation earned for
a calendar year pursuant to this Agreement shall be payable no later than sixty (60) days following
the expiration of the calendar year.

           (c) Equity Compensation

     The Executive shall be eligible to participate in the Employer’s Equity Ownership Plans and
receive such awards of stock and/or options thereunder as shall be determined by the Board of
Directors or a committee thereof.

           (d) General Benefits and Perquisites

     During the term of this Agreement, the Executive shall be entitled to participate, in
accordance with the terms and conditions thereof, in all employee benefit plans or perquisite
programs generally available to all executive management personnel of the Employer which may

-2-

 

be in effect from time to time during the term of this Agreement; provided, however, that
nothing contained herein shall require the Employer to establish, or maintain, any such plan.
These benefits are provided in accordance with the provisions of each individual plan, which may be
amended from time to time at the sole discretion of the Employer.

           (e) Additional Disability Coverage

     In addition to the employee benefit plan coverage provided under Section 3(d) above, during
the term of this Agreement the Executive will be provided with additional “Disability” (as
hereinafter defined) benefits in an amount such that the total annual Disability benefit payable
under this provision, together with payments under any short-term and/or long-term disability
program or policy maintained by the Employer and from workers compensation with respect to the
disabling condition, will be equal to 70% of the Executive’s annualized Base Salary immediately
prior to the Disability. The Disability benefit provided under this Section 3(e) will be paid from
the date of the Disability in the same manner and at the same time that benefits are paid under the
Employer’s short-term or long-term disability program or policy, as applicable until the earliest
of (i) the cessation of the Disability; (ii) the Executive’s death; (iii) the Executive’s
attainment of age 65; (iv) the date when short-term disability benefits terminate if long-term
disability benefits do not immediately commence thereafter pursuant to the terms of that policy; or
(v) the date when long-term disability policy benefits terminate pursuant to the terms of that
policy.

     For purposes of this Agreement, the term “Disability” or “Disabled” has the same meaning as
provided in the long-term disability plan maintained by the Employer, not taking into account any
exclusion or waiting period under such plan or, if the Employer determines that Code Section 409A
is applicable, has the meaning set forth in Code Section 409A and the related tax regulations;
provided, however, if Executive is Disabled under the long-term disability plan maintained by
Employer but is not Disabled within the meaning of Code Section 409A and he has a Separation from
Service when he is Disabled as so provided under such plan, his benefit under this Section 3(e)
shall begin on the date of his Separation from Service or, if he is a Specified Employee on such
date, shall begin on his Delayed Payment Date, and the payment made on his Delayed Payment Date
shall include all the payments which would have been made on and after the date of his Separation
from Service but for Executive’s status as a Specified Employee plus interest at the Prime Rate
from the date each such payment would have been made but for Executive’s status as a Specified
Employee. In the event of a dispute, the determination of Disability or Disabled shall be made by
the Board of Directors or its designee. In the event that the Executive shall dispute the
determination of the Board of Directors or its designee as to the Disability of the Executive, the
Executive may appeal the determination to a panel of three doctors, one to be selected by the
Executive at his expense, one to be selected by the Board of Directors or its designee at its
expense, and one to be selected by the doctors chosen by the Executive and the Board of Directors
or its designee whose expense shall be shared equally between Executive and Employer. The decision
of the panel of doctors shall be final. Any Separation from Service for Disability under this
Agreement shall not affect the rights, if any, that the Executive may otherwise have under the
long-term disability plan the Employer may have in effect at the effective date of such Separation
from Service and in which the

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Executive is then participating. Employer shall have the right to review any determination of
Disability no more frequently than bi-annually.

           (f) Reimbursement of Business Expenses

     The Employer will reimburse the Executive for all reasonable and necessary business expenses
(including, but not limited to, professional and service organization dues, journal subscriptions
and educational seminars, conferences, symposiums and other meetings) and related travel expenses,
incurred or expended in connection with the performance of his duties and responsibilities as
Executive under this Agreement in accordance with the reimbursement policies of Employer. Any
reimbursement payments made to Executive pursuant to the reimbursement policies of the Employer
during the term of this Agreement shall be paid no later than March 15 of the calendar year
immediately following the expiration of the calendar year in which the related expense was
incurred.

           (g) Change of Control

     In the event of a Change of Control, as defined in Section 4(g) hereof, 36 months of vesting
for unvested stock options granted to the Executive pursuant to the Employer’s Equity Ownership
Plans (or any other or successor plans) shall be immediately accelerated (but the period during
which Executive may exercise the stock options shall not be extended under this Agreement).

      4. Termination of Agreement.

           (a) General

     Upon Executive’s Separation from Service for any reason, (i) the Employer shall pay the
Executive any Base Salary that was earned through the effective date of his Separation from Service
but which remained unpaid as of that date, and (ii) Executive shall be entitled to any benefits
that have been accrued and vested under any of Employer’s employee benefit plans in accordance with
and to the extent provided in such benefit plans. Except as otherwise provided in this Agreement,
Executive shall not be entitled to any other benefits or payments under this Agreement in the event
of his Separation from Service.

           (b) Involuntary Termination

     Employer recognizes that the Executive would incur substantial damage to personal and
professional reputation in the event of an Involuntary Termination. Consequently, should such
Involuntary Termination occur during the Period of Employment, the Employer shall pay to the
Executive, as liquidated damages, an amount (the “Severance Amount”) equivalent to the sum of (i)
two times Executive’s then current annualized Base Salary and (ii) a percentage of the target
Incentive Compensation otherwise stipulated for the benefit of Executive pursuant to Section 3(b)
of this Agreement for the calendar year in which the Involuntary Termination occurs as follows:

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	Aggregate Period of Employment	 	Percentage of Target Incentive
	with Employer	 	Compensation Payable
	 
	 	 	 	 
	Under one year
	 	None
	 
	 	 	 	 
	One year up to two years
	 	 	100	%
	 
	 	 	 	 
	Two years and over
	 	 	200	%

     Employer, upon Executive’s Separation from Service, shall pay to Executive one-half of the
Severance Amount in a lump sum in cash within thirty (30) days after the date of Executive’s
Separation from Service and the remaining one-half of the Severance Amount shall be paid in equal
installments over a twelve (12) month period commencing on the first day of the month following the
month of Executive’s Separation from Service and at the same time that Base Pay would have been
paid has this Agreement continued; provided, Employer’s obligation to make such payments shall be
contingent upon Executive signing a general release of all claims, in a form attached hereto as
Exhibit A, within twenty-one (21) days following his Separation from Service and not
revoking such release within his seven (7) day revocation period.

     Upon Executive’s becoming ineligible to participate in the group health plan(s) sponsored by
the Employer, Executive may elect continuation coverage (“Continuation Coverage”) under such
plan(s) as permitted by the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
(“COBRA”). During such COBRA coverage period, the Employer will pay (or will reimburse the
Executive for paying) the premiums for COBRA Continuation Coverage (excluding any medical flexible
spending account coverage) until the first to occur of (i) the second anniversary of the
Involuntary Termination, or (ii) the date on which the Executive commences employment with a new
employer and is eligible to participate in a subsequent employer’s medical and healthcare employee
benefits program with respect to the Employer’s insured group health plan; provided, however, that
such payments or reimbursements shall not exceed the amount paid by Employer for the medical and
healthcare coverage in effect for Executive and his dependents immediately prior to the COBRA
coverage period. All other premiums shall be paid by Executive.

     If the Executive has an Involuntary Termination, the Employer shall accelerate the vesting of
its stock options previously granted to Executive pursuant to the Employer’s Equity Ownership Plan
(or any other or successor plans) as follows (but the period during which Executive may exercise
the stock options shall not be extended under this Agreement):

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	 	 	Options to Have Accelerated
	Aggregate Period of	 	Vesting as of Date of
	Employment with Employer	 	Involuntary Termination
	 
	 	 
	Under one year

	 	None
	 
	 	 
	One year up to two years

	 	Options otherwise vesting within 12 months

following Involuntary Termination
	 
	 	 
	Two years and over

	 	Options otherwise vesting within 24 months

following Involuntary Termination

     If the Involuntary Termination or a Constructive Discharge occurs within 24 months following a
Change of Control, in lieu of the Severance Amount provided in the first paragraph of this Section
4(b) (but paid in the same manner as provided in Section 4(b)), the Severance Amount shall be the
aggregate of (i) three times annualized Base Salary and (ii) three times the target Incentive
Compensation otherwise payable to him for the year in which the Involuntary Termination or
Constructive Discharge occurs. In addition, vesting for all unvested stock options granted
pursuant to the Employer’s Equity Ownership Plan (or any other or successor plans) shall be
immediately accelerated (but the period during which Executive may exercise the stock options shall
not be extended under this Agreement). In order to reduce the impact of any possible excise tax,
AtheroGenics agrees to provide a gross up payment equal to the sum of a) the excise tax under Code
Section 4999 payable on the severance package and b) the federal, state, local, employment tax and
excise tax on the gross up payment. Such gross up payment shall be made no later than the end of
the calendar quarter next following the calendar quarter in which the Executive remits the related
taxes.

     Except as provided under this Section 4(b), as of the effective date of an Involuntary
Termination, all other obligations of the Employer to Executive under this Agreement shall cease.

           (c) Voluntary Resignation

     Except in the case of a voluntary resignation which results from a Constructive Discharge, if
the Executive has a Separation from Service because he voluntarily resigns from the positions
described in Section 2 during the period in which this Agreement is in effect, then the Employer
shall pay the Executive the benefits provided in Section 4(a) of this Agreement. No Incentive
Compensation will be paid to the Executive following the date of a voluntary resignation. The
respective terms and provisions of any other employee benefit or perquisite program shall control
in the case of a voluntary resignation.

-6-

 

     Unless otherwise specifically stated in this Agreement, as of the effective date of a
voluntary resignation, all obligations of the Employer to Executive under this Agreement shall
cease.

     The Executive must notify the Board of Directors in writing of his intent to voluntarily
terminate employment at least thirty (30) days prior to the effective date of such voluntary
resignation.

           (d) Termination for Cause

     Notwithstanding any other provision contained in this Agreement, the Employer has the right,
at any time, to effect a “Termination for Cause” (as defined in Section 4(g)), of Executive’s
employment under this Agreement. Upon the date of such Termination for Cause, the Employer shall
pay the Executive the benefits provided in Section 4(a) of this Agreement. No Incentive
Compensation will be paid to the Executive following the date of a Termination for Cause. The
respective terms and provisions of any other employee benefit or perquisite program shall control
in the case of a Termination for Cause.

     Unless otherwise specifically stated in this Agreement, as of the effective date of a
Termination for Cause, all obligations of the Employer to Executive under this Agreement shall
cease.

           (e) Disability

     In the event the Executive becomes Disabled at any time during the term of this Agreement, the
Employer shall make payments to the Executive in amounts equal solely to those specified in Section
3(e) and for the time period specified in Section 3(e). Such payments shall be paid in the same
manner and at the same time that Base Salary would have been paid had this Agreement continued.
Notwithstanding the foregoing, the Executive shall also be entitled to a pro rata portion of his
target Incentive Compensation otherwise stipulated for the benefit of Executive for the calendar
year in which he became Disabled, provided Executive still is Disabled as of the end of such
calendar year. Such pro rata portion shall be determined by multiplying (i) the total target
Incentive Compensation that the Executive was projected to receive in respect of the year of his
Disability by (ii) the quotient of the number of days in such year prior to his Disability, divided
by 365. Such pro rata Incentive Compensation will be payable at the same time that the full
Incentive Compensation would have been payable to the Executive as provided in Section 3(b) hereof.

     Except as provided under this Section 4(e) and Section 3(e), as of the effective date of the
Disability, all other obligations of the Employer to Executive under this Agreement shall cease.

           (f) Death

     In the event of the death of Executive during the term of this Agreement, the heirs, personal
representatives or beneficiaries designated in writing by Executive, as required by applicable law,
shall receive (i) the benefits and payments described in Section 4(a) of this Agreement; (ii) a pro
rata portion of the target Incentive Compensation otherwise stipulated for

-7-

 

the benefit of Executive for the calendar year in which Executive dies (such pro rata portion
determined by multiplying (x) the total target Incentive Compensation that the Executive was
projected to receive in respect of the year of his death by (y) the quotient of the number of days
in such year prior to his death, divided by 365); and (iii) accelerated vesting of 100% of the
stock options previously granted to Executive following Executive’s death. Such pro rata Incentive
Compensation will be payable at the same time that the full Incentive Compensation would have been
payable to the Executive as provided in Section 3(b) hereof.

           (g) Certain Definitions

     “Change of Control” shall be deemed to have occurred if (i) a tender offer shall be made and
consummated for the ownership of 50% or more of the outstanding voting securities of the Employer,
(ii) the Employer shall be merged or consolidated with another corporation and as a result of such
merger or consolidation less than 50% of the outstanding voting securities of the surviving or
resulting corporation shall be owned in the aggregate by the former shareholders of the Employer,
(iii) the Employer shall sell all or substantially all of its assets to another corporation which
corporation is not wholly owned by the Employer, (iv) a person, within the meaning of Section
3(a)(9) or of Section 13(d)(3) (as in effect on the date hereof) of the Securities Exchange Act of
1934, as amended (“Exchange Act”), or other legal entity shall acquire 50% or more of the
outstanding voting securities of the Employer (whether directly, indirectly, beneficially or of
record), or (v) individuals who, as of the date hereof, together with those directors (x) for whose
election proxies shall have been solicited by the board and (y) who are then serving as directors
appointed by the board to fill pre-existing vacancies on the board or vacancies caused by death or
resignation, but not by either removal or to fill newly created directorships, constitute the Board
of Directors of the Employer (the “Incumbent Board”) cease to constitute at least a majority of the
Board as a result of an actual or threatened election contest with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or consents by or on
behalf of a person other than the Incumbent Board. For purposes hereof, ownership of voting
securities shall take into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange Act.

     “Code” means the Internal Revenue Code of 1986, as amended.

     “Constructive Discharge” means a Separation from Service by the Executive on account of, and
within two years of the initial existence of, one or more of the following conditions arising
without the consent of the Executive: (i) a material diminution in the Executive’s then-current
Base Salary; (ii) a material diminution in the authority, duties, or responsibilities of the
Executive or the supervisor to whom the Executive is required to report; or (iii) a material change
in the geographic location at which the Executive must perform the services; provided, however,
that no Separation from Service by the Executive shall be considered a Constructive Discharge
unless, within ninety (90) days of the initial existence of a condition described in (i), (ii) or
(iii) above, Executive has first provided written notice to the Chief Executive Officer of Employer
of the factual circumstances forming the basis for the claim of constructive discharge and of
Executive’s intent to treat those circumstances as a Constructive

-8-

 

Discharge under this Agreement, and has further provided the Employer with a period of at
least thirty (30) days in which to cure such alleged breach.

     “Delayed Payment Date” means the date that is six (6) months and one (1) day after the date of
Executive’s Separation from Service.

     “Involuntary Termination” means the Executive’s (i) involuntary Separation from Service with
the Employer, other than as a result of his death, Disability, mandatory retirement pursuant to a
retirement policy of Employer or Termination for Cause, or (ii) receipt of notice of the Employer’s
intent not to extend the Period of Employment as specified in Section 1. Involuntary Termination
also means Executive’s Separation from Service by reason of a voluntary resignation of employment
within 90 days following events constituting a Constructive Discharge. Any other type of voluntary
termination of employment shall not be deemed an Involuntary Termination.

     “Prime Rate” means the “Prime Rate” of interest as reported in “Interest Rates & Bonds” in the
Wall Street Journal, compounded daily.

     “Separation from Service” means a separation from service with the Employer within the meaning
of Code Section 409A.

     “Separation Pay” means separation pay within the meaning of Treasury Regulations Section
1.409A-1(m), issued under Code Section 409A.

     “Specified Employee” means a specified employee of the Employer within the meaning of Code
Section 409A.

     “Termination for Cause” means the Executive’s Separation from Service as a result of conduct
by the Executive amounting to (i) fraud or dishonesty against the Employer, (ii) willful
misconduct, or repeated refusal to follow the reasonable directions of the Board of Directors or
chief executive officer of the Employer, (iii) knowing violation of law in the course of
performance of the duties of Executive’s employment with the Employer, (iv) any violation of the
Employer’s formal policies regarding nondiscrimination and equal employment opportunity, sexual
harassment and other forms of unlawful workplace harassment, or insider trading of Employer’s
securities (whether directly or indirectly), (v) repeated and frequent absences from work without a
reasonable excuse, (vi) intoxication with alcohol or drugs while on the Employer’s premises during
regular business hours, (vii) a conviction or plea of guilty or nolo contendere to
a felony or other crime of moral turpitude in the course of his employment (e.g., fraud, theft,
embezzlement and the like), (viii) gross negligence in the performance of Executive’s duties; or
(ix) a breach or violation of the terms of this Agreement. With respect to (ii) above, Termination
for Cause shall not be permitted until after the Executive has been given written notice of his
alleged actions described in clause (ii), listing in reasonable specificity such alleged actions,
and after the Executive shall have failed to improve such performance within the time period (which
shall have been a reasonable time period) specified in such notice, such time period to be not less
than 15 days.

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      5. Indemnification.

     The Employer will indemnify the Executive to the fullest extent permitted by applicable laws
and regulations in accordance with the Bylaws and Amended and Restated Articles of Incorporation of
the Employer. The Employer shall insure and provide a defense to the Executive against all costs,
charges and expenses incurred in connection with any action, suit or proceeding to which he may be
made a party by reason of his good faith execution of his duties as described in Section 2. In the
event that the Executive is found to be liable or culpable, in any action, suit or proceeding
involving sexual harassment, discrimination or fraud, the Executive will be obliged to repay to the
Employer any costs, charges or expenses incurred by the Employer in connection therewith. The
Employer shall enter into an Indemnification Agreement (the “Indemnification Agreement”) with the
Executive which sets forth in greater detail the indemnification obligations of the Employer.

      6. Consolidation, Merger or Sale of Assets.

     Nothing in this Agreement shall preclude the Employer from consolidating or merging into or
with, or transferring all or substantially all of its assets to another organization which assumes
this Agreement and all obligations and undertakings of the Employer hereunder. Upon such a
consolidation, merger or sale of assets, the term “Employer” as used will mean the other
organization, no termination of Executive’s employment under this Agreement shall be deemed to have
occurred merely because of the consummation of a transaction described in this Section 6, and this
Agreement shall continue in full force and effect.

     7. Assignment.

     The Employer, with the prior written approval of the Executive, shall have the right to assign
this Agreement to an affiliate or subsidiary corporation, and all covenants and agreements
hereunder shall inure to the benefit of and be enforceable by or against its successors and
assigns.

     This Agreement provides for the personal services of the Executive. The Executive shall not
have the right to assign or transfer any of the rights or benefits hereunder, nor shall they be
subject to voluntary or involuntary alienation.

      8. Amendment, Modification, Termination or Waiver.

     The parties hereby irrevocably agree that no attempted amendment, modification, restatement,
termination, discharge or change (collectively, “Amendment”) of this Agreement shall be valid and
effective, unless the parties shall unanimously agree in writing to such Amendment. No waiver of
any provision of this Agreement shall be effective unless it is in writing and signed by the party
against whom it is asserted, and any such written waiver shall only be applicable to the specific
instance to which it relates and shall not be deemed to be a continuing or future waiver.

-10-

 

      9. Non-Competition.

           (a) Noncompetition

     The parties acknowledge and agree that, because of Executive’s access to the Trade Secrets and
Confidential Information (each as hereinafter defined) as well as his duties as described in
Section 2, efforts by Executive to engage in directly competitive activities would cause
significant, irreparable harm to Employer. The parties further agree that the relevant competitive
market for the Restricted Activities (defined below) is nationwide, that Executive will be actively
working on behalf of Employer throughout the United States of America, and that Employer would be
directly and severely harmed by competitive activities anywhere in the United States of America.
Therefore, the parties agree that, during his employment and the applicable Restricted Period,
except on behalf of the Employer, Executive shall not engage in the Restricted Activities within
the United States of America. For purposes of this Section, the “Restricted Activities” shall mean
activities substantially similar to the Executive’s responsibilities described in Section 2 of this
Agreement for any company, entity or individual that engages in the research, development,
marketing or commercialization of pharmaceuticals or biopharmaceuticals that use an
anti-inflammatory mechanism to treat or prevent atherosclerosis. For purposes of this Section, the
“Restricted Period” shall be one (1) year after termination of employment.

           (b) Nonsolicitation of joint venture partners.

     During his employment and for one (1) year thereafter, Executive will not solicit or induce
any company with whom (i) Employer had a joint venture relationship or similar partnering
relationship during the last 24 months of Executive’s employment and (ii) Executive had material
contact within the last 24 months of Executive’s employment, for the purpose of establishing a
similar joint venture relationship on behalf of another entity with regard to the research,
development, marketing or commercialization of pharmaceuticals or biopharmaceuticals that use an
anti-inflammatory mechanism to treat or prevent atherosclerosis.

           (c) Nonsolicitation of customers

     During his employment and for one (1) year thereafter, Executive will not solicit or induce
any customer or actively sought prospective customer of Employer, with whom Executive had material
contact during the last 24 months of his employment, for the purpose of providing products or
services relating to pharmaceuticals or biopharmaceuticals used to treat or prevent
atherosclerosis.

           (d) Nonsolicitation of employees

     During his employment and for one (1) year thereafter, Executive will not solicit or hire any
employee of Employer who was employed by Employer at any time during the three (3) month period
prior to the date of Executive’s termination, and will not solicit, encourage, or induce any such
employee to leave the employ of Employer.

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           (e) Nondisparagement.

     During his employment and for three (3) years thereafter, Executive will refrain from making
derogatory or disparaging statements to any person or entity regarding the Company, its management,
its products or its services. This provision shall not prohibit Executive from responding
truthfully to a subpoena or an inquiry from a governmental agency or as otherwise required by law.

           (f) Reasonableness of covenants

     Executive acknowledges and agrees that the covenants in this section are reasonably limited
and are necessary to protect the legitimate business interests of Employer. Executive further
acknowledges and agrees that he is capable of finding adequate employment and making a living
without violating these covenants.

           (g) Remedies

     Executive acknowledges and agrees that, in the event of a breach of the above covenants, the
harm to Employer would be immediate, significant, and irreparable. Executive agrees that, in
addition to and without waiving any other remedies to which Employer may be entitled (including
recovery of damages), Employer shall be entitled to obtain an injunction to prevent actual or
threatened violation of these covenants, and shall not be required to post a bond or other security
in order to obtain preliminary or permanent injunctive relief.

      10. Intellectual Property.

           (a) For purposes of this Agreement, the following definitions apply:

               (i) “Trade Secret” means any scientific, technical or non-technical data or information of
Employer, without regard to form, including but not limited to, formulas, techniques, processes,
procedures, improvements, know-how, patterns, compilations, programs, computer software, devices,
methods, techniques, drawings, processes, financial data, financial plans, product or website
plans, market feasibility studies, designs and design concepts, documents and manuals related to
product plans, designs and design concepts, or lists (whether in written form or otherwise) of
actual or potential customers or suppliers, which (i) derive economic value, actual or potential,
from not being generally known to and not being readily ascertainable by proper means by other
persons who can obtain economic value from its disclosure or use and (ii) are the subject of
efforts that are reasonable under the circumstances to maintain its secrecy. Trade Secrets also
include any information described in this Section 10(a)(i) which Employer obtains from another
party and which Employer treats as proprietary or designates as trade secrets, whether or not owned
or developed by Employer.

               (ii) “Confidential Information” means any data or information, without regard to form, other
than Trade Secrets, that is of value to Employer and is not generally known to competitors of
Employer, including without limitation, lists of any information about Employer’s employees, sales
and marketing techniques and information, price lists, pricing policies, Employer’s business
methods, training and operations materials, and contracts, records

-12-

 

and contractual relations with Employer’s customers and suppliers. Confidential Information
also includes any information described in this Section 10(a)(ii) which Employer obtains from
another party and which Employer treats as proprietary or designates as confidential information,
whether or not owned or developed by Employer.

               (iii) Failure to mark any of the Trade Secrets or Confidential Information as confidential
shall not affect its status as Trade Secrets or Confidential Information under this Agreement.

          (b) Executive recognizes and acknowledges that Employer is engaged in the business of
research, development, marketing and commercialization of pharmaceuticals and biopharmaceuticals
used to treat or prevent specific medical conditions, which activities involve the use of skilled
experts and the expenditure of substantial amounts of time and money. As a result of such
investments of skill, time and money, Employer has developed certain Confidential Information and
Trade Secrets which give Employer significant advantages over its competitors. Due to the nature
of Executive’s employment with Employer, Executive understands that he has had, and may have in the
future, frequent direct and indirect contact with various suppliers, sources and customers of
Employer and may be presented with, have access to, and/or participate in the development of both
Confidential Information and Trade Secrets. These Trade Secrets and Confidential Information
constitute valuable, special and unique assets of Employer and any disclosure thereof contrary to
the terms of this Agreement would cause substantial loss of competitive advantage and other serious
injury to Employer.

          (c) For the reasons recited in Section 10(b) above, Executive covenants and agrees that:

                    (i) During Executive’s employment with Employer and after the termination thereof, whether
such termination is at Executive’s instance or Employer’s, Executive will not, except as expressly
authorized or directed by Employer, use, copy, or disclose, or permit any unauthorized person
access to, any Trade Secrets belonging to Employer or any third party; and

                    (ii) During Executive’s employment with Employer and for a period of five (5) years after
termination, whether such termination is at Executive’s instance or Employer’s, Executive will not
use, copy, or disclose, or permit any unauthorized person access to, any Confidential Information
belonging to Employer or any third party.

                    (iii) Upon request of Employer and in any event upon the termination of Executive’s employment
with Employer, Executive will deliver to Employer all memoranda, notes, records, tapes,
documentation, disks, manuals, files or other documents, and all copies thereof, concerning or
containing Confidential Information or Trade Secrets in his possession, whether made or compiled by
Executive or furnished to Executive by Employer.

                    (iv) All inventions, discoveries, developments, designs, Trade Secrets, trademarks,
copyrightable subject matter and other proprietary information or work product, whether or not
patentable (collectively, “Inventions”), which Executive has made or conceived,

-13-

 

or may make or conceive, either solely or jointly with others, while providing services to
Employer or relating to any of Employer’s actual or anticipated business known to Executive while
employed by Employer, or suggested by or resulting from any task assigned to Executive or work
performed by Executive for or on behalf of Employer, shall be the exclusive property of Employer.
During Executive’s employment and thereafter, Executive will promptly disclose any and all such
Inventions to Employer and will promptly execute and deliver, without requiring Employer to provide
any further consideration therefor, such confirmatory assignments, instruments or documents as
Employer deems necessary or desirable to vest title thereto in Employer. During Executive’s
employment and thereafter, Executive will assist Employer in obtaining, maintaining, and enforcing
patents and other proprietary rights in connection with any Invention, without requiring Employer
to provide any further consideration therefor. In addition, during Executive’s employment and
thereafter, Executive will promptly execute and deliver, without requiring Employer to provide any
further consideration therefor, any documents necessary or appropriate to comply with any
regulatory requirements, inquiries or requests by the Food and Drug Administration or other
regulatory bodies, agencies, political entities or the like regarding matters for which Executive
had responsibility during his employment.

          (d) Executive acknowledges that Employer does not wish to incorporate any unlicensed or
unauthorized materials into its products or technology. Therefore, Executive agrees that Executive
will not knowingly disclose to Employer, knowingly use in Employer’s business, or knowingly cause
Employer to use, any information or material which is confidential to any third party unless
Employer has a written agreement with such third party or Employer otherwise has the right to
receive and use such information. Executive will not knowingly incorporate into Executive’s work
any material which is subject to the copyrights or patent of any third party unless Employer has a
written agreement with such third party or otherwise has the right to receive and use such
material.

          (e) Executive represents that there are no other contracts to assign inventions that are now
in existence between Executive and any other person or entity. Executive further represents that
there are no contracts or other restrictions which would restrict or impair Executive’s performance
under this Agreement. As a matter of record, Executive attaches as Exhibit B a brief description
of all Inventions made or conceived by Executive prior to Executive’s employment with the Employer
which Executive desires to be excluded from this Agreement.

      11. Litigation Assistance.

     Following the termination of Executive’s employment for whatever reason, Executive agrees to
assist the Employer (upon the Employer’s request) with regard to threatened or actual litigation
concerning the Employer where Executive has knowledge of the facts relating to such threatened or
actual litigation. Executive’s assistance in such matter may include, but not be limited to,
meeting with the Employer’s attorneys and other professional advisors; providing truthful testimony
at a deposition, hearing and/or trial; and providing witness statements or affidavits. Employer
agrees to provide Executive with reasonable notice of the need for such assistance and to use
reasonable efforts to accommodate Executive’s schedule and minimize the burdens on Executive.
Employer shall, as soon as practicable, reimburse Executive’s reasonable

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out-of-pocket expenses associated with such assistance and shall, as soon as practicable, pay
to Executive the sum of $150 per hour for Executive’s time devoted to these obligations; provided,
however, that any reimbursement payments or other payments made to Executive pursuant to this
Section 11 shall be paid no later than March 15 of the calendar year immediately following the
expiration of the calendar year in which the related expense was incurred or the service was
rendered, as applicable.

      12. Dispute Resolution.

     Any controversy or claim arising out of or relating to the interpretation or application of
this Agreement, or any breach hereof, shall be settled by arbitration in the Fulton County, Georgia
area in accordance with the rules of the American Arbitration Association (“AAA”) then in effect,
and judgment upon the award rendered by the arbitrator(s) shall be final and binding on the parties
hereto and may be entered in any court having jurisdiction thereof.

     All arbitrations pursuant to this Agreement shall be determined by a single arbitrator
selected from a panel proposed by the AAA pursuant to the then-current arbitrator selection
procedures of the AAA. Each party will bear equally the costs and expenses of arbitration, and
each party will bear the costs and expenses of its own counsel, technical advisors and expert
witnesses, unless the decision of the arbitrator otherwise directs.

     Any arbitration award rendered in accordance with this Section 12 will be satisfied promptly
and without the need for the prevailing party to seek enforcement, which may be sought in any court
having competent jurisdiction. In the event resort to enforcement proceedings are required for any
award or decision, the party which has not complied with the arbitral award or decision will be
responsible for both parties’ reasonable attorneys’ fees and all costs in the enforcement
proceeding. The decision of the arbitrators shall be tendered within sixty (60) days of final
submission of the parties in writing or any hearing before the arbitrators and shall include their
individual votes.

     Notwithstanding the foregoing, in the event of a breach or threatened breach of sections 9 or
10, Employer shall be permitted to seek temporary injunctive relief in a court of competent
jurisdiction. Any damages claims arising out of an alleged breach of sections 9 or 10 shall be
resolved by arbitration in accordance with this Section 12.

     The parties hereto expressly agree to this arbitration provision:

     Initials:                                                   Initials:
                                        

      13. Amendment of Equity Ownership Agreements.

     The various Equity Ownership Agreements entered into with respect to stock option grants made
by the Employer to Executive before or during the term of this Agreement (the “Equity Ownership
Agreements”), are hereby amended to reflect the accelerated option vesting and other option-related
provisions of this Agreement. Except as modified herein, the terms of the Equity Ownership
Agreements shall remain in full force and effect, and nothing in this

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Agreement shall extend the period during which Executive may exercise the stock options
subject to the Equity Ownership Agreements.

      14. Entire Agreement.

     This Agreement and the Indemnification Agreement set forth all the promises, covenants,
agreements, conditions and understandings between the parties hereto with respect to the subject
matter hereof, and supersede all prior and contemporaneous agreements, understandings, inducements
or conditions expressed or implied, oral or written, except as contained herein or in the
Indemnification Agreement. This Agreement shall not supersede any prior grant of stock options to
Executive pursuant to a formal written stock option agreement.

      15. Change in Taxation.

     If subsequent to the effective date of this Agreement, there occurs a change in the tax laws,
regulations or administrative interpretations which would materially impact the taxation of the
benefits hereunder, either party to this Agreement may propose an amendment. Any such proposed
amendment shall be subject to Section 8. The provisions of this Agreement have been structured by
the Employer acting in good faith to avoid to the extent practicable any additional tax on
Executive under Section 409A of the Code.

      16. Provisions Severable.

     This Agreement is intended to be performed in accordance with, and only to the extent
permitted by, all applicable laws, ordinances, rules, and regulations of the jurisdiction in which
the parties do business. If any provision of this Agreement, or the application thereof to any
person or circumstance shall, for any reason or to any extent, be invalid or unenforceable, the
remainder of this Agreement and the application of such provision to other persons or circumstances
shall not be affected thereby, but rather shall be enforced to the greatest extent permitted by
law.

      17. Withholding.

     The Employer shall have the right to withhold from any and all payments required to be made to
the Executive pursuant to this Agreement all federal, state, local, and/or other taxes which the
Employer determines are required to be withheld in accordance with applicable statutes or
regulations.

      18. Governing Law.

     This Agreement shall be construed in accordance with the laws of the State of Georgia and the
venue of any dispute or litigation shall be Fulton County, Georgia.

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      19. ERISA Rules.

     Notwithstanding anything to the contrary contained in this Agreement, all benefits provided
hereunder will be subject to applicable rules and regulations promulgated under the Employee
Retirement Income Security Act of 1974, as amended.

     IN
WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the
14th day
of December, 2007.

	 	 	 	 	 
	 	ATHEROGENICS, INC.

 	 
	 	By:  	/s/ Joseph M. Gaynor, Jr.	 
	 	Title: 	Sr. V.P., General Counsel & Corporate Secretary	 
	 	Date: 	December 14, 2007	 
	 
	 	RUSSELL M. MEDFORD, M.D.:

 	 
	 	/s/ Russell M. Medford	  	 
	 	 	 	 
	 	Date: 	December 14, 2007	 
	 

     [NOTE: The parties must initial paragraph 12 in addition to signing on this page.]

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EXHIBIT A

FORM OF GENERAL RELEASE

     For and in consideration of the severance payments provided to                      (“Executive”)
pursuant to the Employment Agreement between AtheroGenics, Inc. (“Employer”) and Executive,
effective as of                     , 200     , which is expressly incorporated by reference herein, along
with other consideration, the receipt and sufficiency of which are hereby acknowledged, Executive
does hereby release, acquit, and forever discharge Employer (or any affiliate, officer, director or
employee of Employer) from, and does hereby covenant and agree never to institute or cause to be
instituted any suit or other form of action or proceeding of any kind or nature whatsoever against
Employer (or any affiliate, officer, director, or employee of Employer) based upon, any and all
claims, demands, indebtedness, agreements, promises, causes of action, obligations, damages, or
liabilities of any nature whatsoever, in law or in equity, whether or not known, suspected or
claimed, that Executive ever had, has claimed to have, now has, or may hereafter have or claim to
have against Employer by reason of any act, event, occurrence, or thing occurring on or before the
date of this General Release.

     The claims released herein specifically include, but are not limited to, any claims arising in
tort or contract, any claim based on wrongful discharge, any claim based on breach of contract, any
claim based on sexual harassment or any other form of workplace harassment, and any claim arising
under federal, state or local law prohibiting race, sex, age, religion, national origin, handicap,
disability or other forms of discrimination, or retaliation, including but not limited to Title VII
of the Civil Rights Act of 1964, as amended; 42 U.S.C. § 1981; the Age Discrimination in Employment
Act; the Older Workers Benefit Protection Act; the Pregnancy Discrimination Act; the Americans with
Disabilities Act; the Family and Medical Leave Act; and the Employee Retirement Income Security
Act, each as amended.

     Executive acknowledges that he has been advised to consult with an attorney of his choice
regarding the form and content of this General Release, and that he enters into this General
Release voluntarily and of his own free will. Executive further acknowledges that he has been
provided with a period of at least twenty-one (21) days within which to consider the terms of this
General Release. Executive understands that he may revoke this General Release within seven (7)
days after signing it, by delivering written notice of revocation to the Chief

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Executive Officer of Employer, and that this General Release will not become effective or
enforceable until the seven-day revocation period has expired. Executive acknowledges that
execution of this General Release is a condition precedent to receipt of the severance payments
provided in the Employment Agreement, and that, in the absence of fulfilling this condition
precedent by executing this General Release, Executive would not be entitled to receive those
severance payments. If Executive revokes this General Release within seven (7) days after signing
it, it will become null and void, and Executive will not be entitled to any of the severance
benefits provided in the Employment Agreement.

     This General Release and the releases and covenants contained herein shall be binding upon
Executive, his heirs, executors, administrators, assigns, agents, attorneys in fact, attorneys at
law, and representatives. This General Release and the releases and covenants contained herein
shall inure to the benefit of Employer and each of its predecessors, successors, and assigns, and
to each of its and their past and present employees, agents, attorneys in fact, attorneys at law,
representatives, officers, directors, shareholders, partners, joint venturers, and all of said
individuals’ heirs, executors, administrators and assigns.

     Witness the execution of this General Release on the            day of                     , 200     .

	 	 	 	 	 
	 	 	 
	 	  	
 	 
	 	 	Executive 	 
	 	 	 	 

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EXHIBIT B

LIST OF PRIOR INVENTIONS

-20-

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