Document:

exv10w1

 

Exhibit 10.1

CONSULTING SERVICES AND SEPARATION AGREEMENT

     THIS CONSULTING SERVICES AND SEPARATION AGREEMENT (“Agreement”) is made
and entered into as of September 3, 2004 by and between GUILFORD
PHARMACEUTICALS INC., 6611 Tributary Street, Baltimore, Maryland 21224
(“Guilford”) and CRAIG R. SMITH, M.D., 6437 Cloister Gate Drive, Baltimore,
Maryland 21212 (“Dr. Smith”).

     In consideration of the mutual agreements and other consideration
contained in this Agreement, the parties agree as follows:

     1. Resignation. Dr. Smith has voluntarily resigned, and Guilford
hereby accepts Dr. Smith’s resignation, from his positions as President, Chief
Executive Officer and Chairman of Guilford, and from any executive or board
positions held at any subsidiary of Guilford, all such resignations to be
effective on the earlier of (i) the date designated by the Board of Directors
by written notice to Dr. Smith or (ii) the date of the Company’s 2005 Annual
Meeting of Stockholders (the “Resignation Date”). During the period of time
between the date of this Agreement and the Resignation Date, Guilford agrees to
pay Dr. Smith’s salary, benefits, expenses, and other compensation, if any, in
the same manner as other executive employees of Guilford and consistent with
Guilford’s policies concerning each. It is acknowledged that Dr. Smith is not
hereby resigning from his position as a member of the Guilford Board of
Directors. In the event Dr. Smith voluntarily terminates his employment prior
to the Resignation Date, this Agreement shall be null and void, no payments or
benefits shall be due to Dr. Smith hereunder, and the terms of Dr. Smith’s
termination benefits, if any, will be governed by the terms of the letter
agreements between Guilford and Dr. Smith dated July 14, 1993 and September 6,
1996, together attached as Exhibit A (the “Letter Agreements”).

     2. Consulting Services, Contract Termination and Other Benefits.

          (a) Guilford agrees to, and hereby does, enter into a consulting
arrangement with Dr. Smith for a period of one year commencing from the
Resignation Date by which Dr. Smith agrees, and hereby does agree, to make
himself available to Guilford for and at reasonable times not to exceed forty
(40) hours per week and in reasonable places to consult with regard to various
matters including, but not limited to, product research and development,
clinical trials, and regulatory affairs, and to provide other transitional
services including, but not limited to, service on the SNDC Board, Guilford
Science Committee and other functions as requested by Guilford’s Board and/or
CEO. Guilford agrees to reimburse Dr. Smith for all reasonable out-of-pocket
costs associated with the provision of consulting services including, but not
limited to, transportation costs, lodging, and meals for any travel necessary
to perform these services, subject to Guilford’s policies concerning expense
reimbursement.

          (b) As a contract termination benefit intended to be consistent with the
benefits afforded by the Letter Agreements (and which the parties acknowledge
are, except as provided in Paragraph 1 and this Paragraph 2(b), terminated as
of the date hereof), beginning on the first regular payroll date after the
Resignation Date and continuing for thirty-six months, at such times and in
accordance with Guilford’s usual payroll procedure,

 

 

Guilford agrees to continue to pay to Dr. Smith his current base salary,
subject to all appropriate payroll taxes and withholding amounts. In addition,
Guilford agrees to continue in effect any health, life and disability insurance
coverage that Dr. Smith currently enjoys through Guilford through the same
thirty-six month period. In order to provide this insurance benefit Guilford
may elect to continue to keep Dr. Smith on its payroll as an employee, or may
elect to secure individual coverage for Dr. Smith or any other means it deems
appropriate to provide the benefit. These payments and benefits, and any
continued vesting as described below, will cease upon Dr. Smith’s commencement
of full-time employment during the thirty-six month period, it being understood
that part-time employment, membership on boards of directors or part-time
consulting arrangements, so long as they are not in violation of the covenants
in Paragraph 4 hereof and do not materially impair Dr. Smith’s ability to
perform the consulting services provided for in Paragraph 2(a) hereof, do not
constitute full-time employment for purposes of this Paragraph 2(b).

          (c) As further consideration for entering into the consulting arrangement
and for the covenants contained in this Agreement, Guilford (i) agrees to grant
to Dr. Smith on the Resignation Date 100,000 Restricted Stock Units under
Guilford’s 2002 Stock Option and Incentive Plan which shall vest as to 50,000
shares on the first anniversary of the Resignation Date and 50,000 shares on
the second anniversary of the Resignation Date; (ii) shall pay Dr. Smith a cash
payment equal to 50% of his current annual base salary amount, payable in two
equal installments, the first installment due on the later of the Resignation
Date or January 3, 2005, and the second installment due promptly following the
first anniversary of the Resignation Date, and (iii) shall permit the continued
vesting of any currently unvested stock options in accordance with their terms
during the thirty-six month contract termination benefit period provided for in
Paragraph 2 (b) above. The Restricted Stock Unit grant vesting, cash payment
and stock option vesting provided for in clauses (i), (ii) and (iii) of the
preceding sentence to occur on or after the first anniversary of the
Resignation Date are contingent upon Dr. Smith’s good faith performance of the
consulting services described in Paragraph 2(a) during the term of the
consulting period and adherence to the terms of the covenants contained in
Paragraph 4 below. The terms of the Restricted Share Unit grant shall be
governed by a Restricted Stock Unit agreement of Guilford under the Plan
attached hereto as Exhibit B. Dr. Smith acknowledges that he has consulted
with his tax advisor with regard to the tax treatment to him of the benefits
provided hereby. Dr. Smith further acknowledges and agrees that the
consideration stated in this Paragraph 2(c) is in excess of any amounts which
he may be owed by Guilford under any other employment contract or agreement or
term of employment.

     3. Release. In consideration for the additional agreements in
Paragraphs 2(a), (b) and (c) above, Dr. Smith, on behalf of Dr. Smith, Dr.
Smith’s heirs, executors, administrators, successors and assigns, hereby
releases, acquits and forever discharges Guilford and any and all of its
current or former subsidiaries and other affiliated entities and benefit plans,
as well as its and/or their officers, directors, representatives, attorneys,
agents, servants, employees, stockholders, successors, predecessors and
affiliates (for purposes of this Paragraph 3, all incorporated in the
definition of the “Released Parties”) from any and all claims, liabilities,
demands, causes of action, costs, expenses, attorneys fees, damages,
indemnities and obligations of every kind and nature, in law, in equity or
otherwise, known or unknown, suspected and unsuspected, disclosed and
undisclosed,

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arising out of or in any way related to agreements, acts or
conduct at any time as of or prior
to the date of this agreement, including, but not limited to: all such claims
or demands arising from Dr. Smith’s employment or the termination of Dr.
Smith’s employment; all such claims and demands related to salary, bonuses,
commissions, stock, stock options (except as provided above), expense
reimbursements, or any form of compensation; claims pursuant to any federal,
state or local law or cause of action including, but not limited to, the
Federal Civil Rights Acts of 1964, as amended, the Maryland Fair Employment
Practices Act, as amended, the Age Discrimination in Employment Act of 1967, as
amended, or any law or legal principle of similar effect in any other relevant
jurisdiction; contract claims; tort claims; or claims of wrongful discharge,
discrimination, fraud, defamation, and emotional distress. Dr. Smith further
agrees not to sue or otherwise institute or cause to be instituted or in any
way voluntarily participate in the prosecution of any complaints or charges
against any persons or entities released herein in any federal, state or other
court, administrative agency or other forum concerning any claims released
herein. Dr. Smith further agrees to deliver a release identical to that
contained in this Paragraph to the Company on the Resignation Date, to cover
all periods subsequent to the date of this Agreement and prior to the
Resignation Date, as a condition to his receipt of the benefits provided for in
Paragraphs 2 (a), (b) and (c) above. Notwithstanding the above, Dr. Smith is
not releasing any claims based upon Guilford’s obligations under this Agreement
for salary, benefits, expense reimbursements, or other compensation during the
period from the Effective Date through the Resignation Date.

     4. Noncompetition.

          (a) Dr. Smith covenants and agrees that for the period beginning on the
date hereof and ending on the second anniversary of the Resignation Date, he
shall not (i) establish, accept employment with, provide consulting or similar
services to, or in any other way be involved in an active manner with (whether
as an employee, director, consultant, adviser or owner), any entity in the
pharmaceutical or biotechnology industry involved in the development or
marketing of therapeutic products for commercial uses in the neuroprotective,
neuroregenerative, anesthetic or anti-thrombotic fields, or any other fields
that are the focus of Guilford’s current drug development and commercialization
efforts or that are competitive with products currently under development or
marketed by Guilford, and associated research and development, in any location
in the United States or any other country where Guilford or its subsidiaries or
licensees is engaged in marketing of any Guilford products; (ii) solicit,
divert or accept business from any customer, supplier, distributor, licensor,
licensee or manufacturer of or to Guilford and its subsidiaries or its
affiliates to the detriment of Guilford and its subsidiaries or any of its
affiliates, or otherwise interfere with the relationship between Guilford and
its subsidiaries and any customer, supplier, distributor, licensor, licensee or
manufacturer of or to Guilford and its subsidiaries or its affiliates to the
detriment of Guilford and its subsidiaries or any of its affiliates; or (iii)
solicit, induce or attempt to solicit or induce any person who is an employee
of Guilford or any of its subsidiaries to perform work or services for any
individual or entity other than Guilford or any of its subsidiaries. Dr. Smith
agrees that the scope of this Paragraph 4(a) is reasonable and reflective of
Guilford’s business. As used in the preceding sentence, “products currently
under development” shall mean those products which may reasonably be expected
to be pursued by Guilford based on such factors

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as Guilford’s plans,
strategies, intentions, operations, investments, expenditures and other
activities prior to the end of the one year consulting period provided for in
Paragraph 2(a).

          (b) In the event the restrictions against engaging in a competitive
activity contained in Paragraph 4(a) hereof shall be determined by any court of
competent jurisdiction to be unenforceable by reason of their extending for too
great a period of time or over too great a geographical area or by reason of
their being too extensive in any other respect, such court shall modify the
terms thereof to the minimum extent necessary to make such terms enforceable to
the fullest extent allowed, all as determined by such court in such action.

          (c) Dr. Smith acknowledges and agrees that the covenants in this Paragraph
4 are fair, reasonable in scope, and necessary to protect the legitimate
business interests of Guilford, including its interest in its goodwill, trade
secrets, confidential information, and information concerning actual and
prospective customers, suppliers, distributors, manufacturers, investors,
employees, and financing providers. Dr. Smith acknowledges and agrees that he
has provided and will continue to provide unique and valuable services to
Guilford. Dr. Smith understands that the provisions of this Paragraph 4 may
affect or limit Dr. Smith’s ability to earn a livelihood in a business similar
to or competitive with the business engaged in by Guilford, but Dr. Smith
nevertheless believes and represents that Dr. Smith shall have sufficient
assets, skills, and employment opportunities in non-competitive positions or
roles and that he shall have received sufficient consideration, remuneration
and other benefits from Guilford to make enforceable the restrictions and
limitations contained in this Paragraph 4.

          (d) Dr. Smith acknowledges that Guilford will have no adequate remedy at
law and would be irreparably harmed if Dr. Smith breaches or threatens to
breach any of the provisions of this Paragraph 4 and, therefore, agrees that
Guilford shall be entitled to seek injunctive relief to prevent any breach or
threatened breach thereof and to seek specific performance of the terms of this
Paragraph 4 (in addition to any other legal or equitable remedy Guilford may
have, including without limitation termination of this Agreement by Guilford
and repayment by Dr. Smith of payments under this Agreement, or forfeiture of
unvested restricted stock granted hereunder). Nothing in this Agreement shall
be construed as prohibiting Guilford or Dr. Smith from pursuing any other
remedies or defenses at law or in equity that it may have under and in respect
of this Agreement.

     5. Additional Covenants. Except as pursuant to a court order or
subpoena, Dr. Smith agrees not to make any statements, orally or in writing,
regardless of whether such statements are truthful, or take any actions, which
(i) in any way disparage Guilford, or harm the reputation and/or goodwill of
Guilford, or (ii) in any way, directly or indirectly, knowingly cause, or
encourage or condone the making of such statements or the taking of such
actions by anyone else. Guilford will instruct its directors and officers, as
well as other members of Guilford’s management not to make any statements,
orally or in writing, regardless of whether such statements are truthful, or
take any actions, which (i) in any way disparage Dr. Smith, or which harm Dr.
Smith’s reputation, or (ii) in any way, directly or indirectly, knowingly cause
or encourage or condone the making of such statements or the taking of such
actions by anyone else. In addition, Dr. Smith is party to and bound by

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the
provisions of a Patent and Confidentiality Agreement, dated as of
                    between Dr. Smith and Guilford, which shall survive this
Agreement.

     6. No Admission. Each party understands and agrees that nothing
contained in this Agreement is to be considered an admission any party of any
wrongdoing
under any federal, state or local statute, regulation, public policy, tort law,
contract law, or the common law.

     7. Acknowledgement. Dr. Smith acknowledges that he has read and
understands this Agreement and executes it knowingly, voluntarily and without
coercion. Dr. Smith acknowledges that he is being advised herein in writing to
consult with an attorney prior to executing this Agreement, that he has
consulted with an attorney, and he has been given a period of at least
twenty-one days within which to consider and execute this Agreement, unless he
voluntarily chooses to execute this Agreement before the end of the twenty-one
day period by executing the attached Election to Execute Prior to Expiration of
Twenty-One Day Consideration Period. Dr. Smith understands that he has seven
days following his execution of this Agreement to revoke this Agreement. This
Agreement shall become effective on the eighth day after it is executed and has
not been revoked. For any revocation to be effective, written notice of
revocation must be delivered to Guilford, attention Marge Contessa, Senior Vice
President of Human Resources, Guilford Pharmaceuticals Inc., 6611 Tributary
Street, Baltimore, Maryland 21224, no later than 5:00 p.m. on the seventh
calendar day after Dr. Smith signs this Agreement. If Dr. Smith revokes this
Agreement, it shall not be effective or enforceable and he shall not receive
the benefits described herein. No payments shall be earned or made under the
terms of this Agreement until the seven-day revocation period described in this
paragraph has expired without revocation by Dr. Smith.

     8. Modifications. This Agreement may not be modified in any way
except in a written agreement signed by both Dr. Smith and an authorized
representative of Guilford.

     9. Successors and Assigns. Guilford will require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all the business and/or assets of Guilford,
as the case may be, expressly, absolutely and unconditionally to assume and
agree to perform this Agreement in the same manner and to the same extent that
Guilford would be required to perform it if no such succession or assignment
had taken place.

     10. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Maryland without giving
effect to its conflict of law provisions. The parties agree to submit to the
exclusive jurisdiction of the state and federal courts situated in Baltimore,
Maryland for all disputes arising under or relating to this Agreement.

     11. Entire Agreement. This Agreement, together with the attached
Exhibit B, constitutes the entire agreement and understanding between Guilford
and Dr. Smith relating to Dr. Smith’s consulting services to, and arrangements
with respect to his

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separation from, Guilford and, except as provided in this
Paragraph 10 and in Paragraphs 1, 2(b) and 5, specifically supersedes the
Letter Agreements and any other employment agreements or employment
arrangements between the parties. Dr. Smith acknowledges and agrees that in
executing this Agreement, Dr. Smith has not relied on any promises or
representations other than those set forth in this Agreement.

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     IN WITNESS THEREOF, Dr. Smith and Guilford, after carefully reading the
provisions of this Agreement, herein declare that they understand such
provisions and willingly accept and agree thereto by executing this Agreement.

	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Guilford Pharmaceuticals Inc.
	 
	 	 	 	 	 	 	 	 
	/s/ Craig R.
Smith, M.D.
	 	 	 	By:	 	/s/ Asher M. Rubin
	
 	 	 	 	 	 	
 
	Craig R. Smith, M.D.	 	 	 	 	 	Asher M. Rubin
	 
	 	 	 	 	 	 	 	 
	Date:

	 	September 3, 2004
	 	 	 	Title:
	 	Vice President, General Counsel and Secretary
	

	 	
 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	

	 	 	 	 	 	Date:
	 	September 3, 2004

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Exhibit A

Letter agreements dated
July 14, 1993 and September 6, 1996

July 14, 1993

Craig R. Smith, M.D.

278 Stonegate Drive

Devon, Pennsylvania 19333

Dear Craig:

On behalf of Guilford Pharmaceuticals Inc. (the “Company”), I am pleased to
offer you employment with the Company on the following terms:

1. You will be employed as the President and Chief Executive Officer of the
Company, effective as of September 1, 1993, and you will also be appointed a
member of the Company’s Board of Directors. You will devote your full working
time and attention to such position.

2. In consideration of your services and employment the Company will pay you a
salary of $16,666.67 per month, payable semi-monthly. As an officer of the
Company, you shall also be entitled to receive such bonuses, if any, as are
payable pursuant to any executive, key employee or bonus plan as the Board of
Directors may, in its sole discretion, from time to time adopt, and the Board
will at one of its early meetings consider establishment of a bonus plan based
on achievement of specific objectives set by the Board. The Board will review
your salary annually.

3. The Company will offer and sell to you shares of its Common Stock on the
following basis:

	(a)	 	You shall be entitled to purchase 390,000 shares of Common
Stock of the Company, which will represent 12.7% of the outstanding
stock on a fully diluted basis after giving effect to the proposed
issuance and/or reservation of stock in the next two months to Scios
Nova (2,133,333 shares/70.6%), Dr. Sol Snyder (390,000
shares/12.7%), Johns Hopkins University (60,000 shares/2%) and a
management pool (60,000 shares/2%).
	 
	(b)	 	The purchase price for the shares of Common Stock shall be
the fair market value as of the date of purchase, which is deemed to
be $0.10 per share, payable in cash or by promissory note. If you
would like to purchase by promissory note, the note will be secured
by your shares, will bear interest at the minimum Applicable Federal
Rate (“AFR”) and will be due upon the earlier of five years or the
termination of your employment. The loan would be forgiven at the
rate of -1/4 of the original principal plus accrued interest for
each year of continuous employment with the Company (25% forgiven on
each anniversary of your commencement date, so that the entire loan
would be forgiven after four years).
	 
	(c)	 	The shares purchased will be subject to a right of repurchase
by the Company, at the original purchase price, plus interest at the
AFR applied to your note (except to the extent such interest has
already been forgiven as provided above), in the event your
employment with the Company is terminated for cause of if you leave
the Company other than for good reason, as such terms are defined
below. This repurchase right will terminate at the rate of 1/48th
of the shares for each month of completed employment, so that at the
end of four years, the repurchase right will no longer apply to any
of the shares.

4. You will serve at the discretion of the Company’s Board of Directors.
However, in the event your employment is terminated by the Company other than
for cause, you would be entitled to severance in the form of a continuation of
your then-current base salary, as follows:

	•	 	Three months salary if the termination occurs in the first twelve
months of your employment; and

	•	 	Six months salary if the termination occurs thereafter.

 

Such payments would cease upon your commencement of full-time employment during
the payment period. During the severance period, the Company would also
continue in effect any health, life and disability insurance coverage that had
been established by the Board. Remaining benefits of employment, including
your eligibility for any bonus program, would cease at termination and not
continue to accrue during the severance period.

For purposes of paragraphs 3 and 4 the following terms shall be defined as
follows:

	(a)	 	“Cause” shall mean termination by reason of (i) deliberate
misrepresentation or fraud in connection with your operation of the
Company; (ii) deliberate material injury or attempting to cause
material injury to the Company; (iii) willful breach of duty in the
course of your employment; or (iv) continued failure to
substantially perform the duties of your employment causing material
damage or injury to the Company 20 days after there is delivered to
you by the Board a written demand for substantial performance which
sets forth the specific respects in which it believes you have not
substantially performed your duties.
	 
	(b)	 	“Good reason” shall mean termination by you arising from a
failure by the Company to comply with any material provision of this
Agreement not cured within 20 days after notice is given by you to
the Chairman of the Board; and
	 
	(c)	 	“Material” shall mean causing injury to the Company,
including but not limited to financial injury to the Company, injury
to the reputation of the Company or injury to investor confidence in
the Company and its management.

5. To assist you in relocating to the Baltimore area, the Company will pay the
direct costs of moving your household possessions from Devon, Pennsylvania to
the Baltimore, Maryland area and will pay you $65,000 upon commencement of
employment as a fixed amount to cover all lodging, meals and other expenses
incidental to your relocation. This amount will not be grossed up to cover
taxes payable by you. In addition, the Company will arrange for an
interest-free $175,000 bridge loan to assist you in putting a down payment on a
new home in the Baltimore area. The Company will also reimburse you for the
actual costs of your mortgage payments on your Devon home up to a maximum of
$2,900 per month commencing as of the date you purchase a new home in Baltimore
and continuing until the earlier of (i) six months from such date or (ii) the
date your current home is sold. The bridge loan will be advanced upon your
purchase of a new home prior to the sale of your current home and will be
secured by a second deed of trust on your current residence. The loan will be
repaid after the earlier of the date your current residence is sold or 60 days
after the date your employment terminates. You will use your best efforts to
sell your home as quickly as practical. Any income tax to you arising from the
Company’s forgiveness of interest on the bridge loan, net of the corresponding
imputed interest deduction, will be paid by the Company. You will be
responsible for all other taxes arising from payments by the Company.

6. Until such time as the Company has established its own medical plan, which
we anticipate will take not longer than four months, the Company will at your
option either (i) reimburse you for continuing COBRA payments under Centocor’s
plan or (ii) arrange at the Company’s expense for Scios Nova to provide you and
your dependents with coverage under its medical plan. Additional coverage for
life, disability, officer and director and other insurance will be provided
when and if established by the Company upon the direction of you and the other
members of the Board of Directors.

7. You will be entitled to vacation accrual under such policy as you and the
other members Board of Directors may establish.

8. In accordance with the Immigration Reform Act of 1986, on the first day of
employment you will be required to present documentation (a driver’s license
and either a social security card or a birth certificate) that proves your
identity and authorization to work. Employment is contingent on your being
able to meet this requirement.

9. You will be asked to sign a Patent and Confidential Information Agreement in
connection with your employment by the Company, which will be sent to you under
separate cover.

2

 

10. Finally, please note that this offer is conditioned upon Sol Snyder
entering into new consulting agreements with the Company and with Scios Nova,
drafts of which are being prepared. In the event this extends beyond September
1, the start date of your employment will be extended.

Craig, I believe you will make a vital contribution to the establishment and
growth of the Company, and I look forward to your acceptance of this offer.

Sincerely,

GUILFORD PHARMACEUTICALS INC.

/s/ Richard L. Casey

Richard L. Casey

Chairman of the Board

I have reviewed and hereby accept the above offer of employment with the
Company.

	 	 	 
	/s/ Craig R. Smith, M.D.

	 	Date: July 14, 1993
	Craig R. Smith, M.D.
	 	 

3

 

September 9, 1996

Craig R. Smith, M.D.

6 Blenmont Court

Phoenix, Maryland 21131

Dear Craig:

     Reference is made to your employment letter agreement with the Company
effective July 14, 1993 (the “Employment Agreement”). At the August 20, 1996
meeting of the Company’s Board of Directors, the Board resolved, effective
August 20, 1996, to extend from six months to thirty-six months the period
under your Employment Agreement for which you are entitled to severance (in the
form of a continuation of your then-current base salary) in the event either
(i) your employment with the Company is terminated other than for “cause” (as
defined in the Employment Agreement) or (ii) you terminate your employment with
the Company for “good reason” (as defined in the Employment Agreement). All
other terms of your Employment Agreement remain unchanged.

     To evidence your agreement to the foregoing, please sign and date this
letter agreement as specified below.

	 	 	 	 	 
	 	 	Very truly yours,
	 
	 	 	 	 
	 	 	GUILFORD PHARMACEUTICALS INC.
	 
	 	 	 	 
	

	 	By:
	 	/s/ Andrew R. Jordan
	

	 	 	 	

	

	 	Name:
	 	Andrew R. Jordan
	

	 	Title:
	 	Vice President and Chief Financial Officer

AGREED AND ACCEPTED:

/s/ Craig R. Smith, M.D.

Craig R. Smith, M.D.

Date: 9/12/96

 

 

Exhibit B

Form of Restricted Stock
Unit Agreement

GUILFORD PHARMACEUTICALS INC.

2002 STOCK AWARD AND INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

     Guilford Pharmaceuticals Inc., a Delaware corporation (the “Company”),
hereby grants restricted stock units relating to shares of its common stock,
$.01 par value (the “Stock”), to the individual named below as the Grantee,
subject to the vesting conditions set forth in the attachment. Additional
terms and conditions of the grant are set forth in this cover sheet, in the
attachment and in the Guilford Pharmaceuticals Inc. 2002 Stock Award and
Incentive Plan (the “Plan”).

Grant Date:                                       , 20                   

Name of Grantee:                                                          

Grantee’s Social Security Number:                    -                   -                   

Number of Restricted Stock Units Covered by Grant:                    

     By signing this cover sheet, you agree to all of the terms and conditions
described in this Agreement and in the Plan, a copy of which will be provided
on request. You acknowledge that you have carefully reviewed the Plan and
agree that the Plan will control in the event any provision of this Agreement
should appear to be inconsistent with the terms of the Plan.

	 	 	 	 	 
	Grantee:
	 	 	 	 
	 	

	

	 	(Signature)	 	 
	Company:
	 	 	 	 
	 	

	

	 	(Signature)	 	 
	

	Title:	 	 	 
	

	 	

Attachment

This is not a stock certificate or a negotiable instrument.

 

 

GUILFORD PHARMACEUTICALS INC.

2002 STOCK AWARD AND INCENTIVE PLAN

RESTRICTED STOCK UNIT AGREEMENT

	 	 	 
	Restricted Stock Unit Transferability

	 	This grant is an award of stock
units in the number of units set
forth on the cover sheet,
subject to the vesting
conditions described below
(“Restricted Stock Units”).
Your Restricted Stock Units may
not be transferred, assigned,
pledged or hypothecated, whether
by operation of law or
otherwise, nor may the
Restricted Stock Units be made
subject to execution, attachment
or similar process.
	 
	 	 
	Vesting

	 	Your Restricted Stock Unit grant
vests as to fifty percent (50%)
of the total number of
Restricted Stock Units shown on
the cover sheet on the first
anniversary of the Grant Date
and an additional fifty percent
(50%) of the Restricted Stock
Units under this Restricted
Stock Unit grant will become
vested on the second anniversary
of the Grant Date, provided you
have performed, in good faith,
the consulting services
described in Paragraph 2(a) of
the Consulting Services and
Separation Agreement between you
and the Company dated August    ,
2004 during the term of the
consulting period and have
adhered to the terms of the
covenants contained in Paragraph
4 of the Consulting Services and
Separation Agreement. The
resulting aggregate number of
vested Restricted Stock Units
will be rounded down to the
nearest whole number of
Restricted Stock Units. One
hundred percent (100%) of the
total number of Restricted Stock
Units under this Restricted
Stock Unit grant will become
vested upon your death or total
and permanent disability prior
to the second anniversary of the
Grant Date.
	 
	 	 
	Delivery of Stock Pursuant to Vested
Units

	 	A certificate for the vested
shares of Stock represented by
the Restricted Stock Units shall
be delivered to you on the first
and second anniversaries of the
Grant Date; provided, that, if
any such anniversary of the
Grant Date occurs during a
period in which you are (i)
subject to a lock-up agreement
restricting your ability to sell
Stock in the open market or (ii)
are restricted from selling
Stock in the open market because
a trading window is not
available, delivery of such
vested shares will be delayed
until the date immediately
following the expiration of the
lock-up agreement or the opening
of a trading window.
	 
	 	 
	Forfeiture of Unvested Units

	 	In the event that you fail to
perform, in good faith, the
consulting services described in
Paragraph 2(a) of the

2

 

	 	 	 
	

	 	Consulting
Services and Separation
Agreement between you and the
Company dated August    , 2004
during the term of the
consulting period or have not
adhered to the terms of the
covenants contained in Paragraph
4 of the Consulting Services and
Separation Agreement, you will
forfeit all of the Restricted
Stock Units that have not yet
vested.
	 
	 	 
	Withholding Taxes

	 	You agree, as a condition of
this grant, that you will make
acceptable arrangements to pay
any withholding or other taxes
that may be due as a result of
vesting in Restricted Stock
Units or your acquisition of
Stock under this grant. In the
event that the Company
determines that any federal,
state, local or foreign tax or
withholding payment is required
relating to this grant, the
Company will have the right to:
	

	 	(i) require that you arrange
such payments to the Company,
(ii) withhold such amounts from
other payments due to you from
the Company or any Affiliate, or
(iii) cause an immediate
forfeiture of shares of Stock
subject to the Restricted Units
granted pursuant to this
Agreement in an amount equal to
the withholding or other taxes
due.
	 
	 	 
	Retention Rights

	 	This Agreement does not give you
the right to be retained or
employed by the Company (or any
Affiliates) in any capacity.
The Company (and any Affiliate)
reserve the right to terminate
your Service at any time and for
any reason.
	 
	 	 
	Shareholder Rights

	 	You do not have any of the
rights of a shareholder with
respect to the Restricted Stock
Units unless and until the Stock
relating to the Restricted Stock
Units has been delivered to you.
You will, however, be entitled
to receive, upon the Company’s
payment of a cash dividend on
outstanding Stock, a cash
payment for each Restricted
Stock Unit that you hold as of
the record date for such
dividend equal to the per-share
dividend paid on the Stock.
	 
	 	 
	Adjustments

	 	In the event of a stock split, a
stock dividend or a similar
change in the Company stock, the
number of Restricted Stock Units
covered by this grant will be
adjusted (and rounded down to
the nearest whole number) in
accordance with the terms of the
Plan.
	 
	 	 
	Applicable Law

	 	This Agreement will be
interpreted and enforced under
the laws of the State of
Maryland, other than any
conflicts or choice of law rule
or principle that might
otherwise refer construction or
interpretation of this Agreement
to the substantive law of
another jurisdiction.

3

 

	 	 	 
	Consent to Electronic Delivery

	 	The Company may choose to
deliver certain statutory
materials relating to the Plan
in electronic form. By
accepting this grant you agree
that the Company may deliver the
Plan prospectus and the
Company’s annual report to you
in an electronic format. If at
any time you would prefer to
receive paper copies of these
documents, as you are entitled
to receive, the Company would be
pleased to provide copies.
Please contact Marge Contessa
410-631-6644 to request paper
copies of these documents.
	 
	 	 
	The Plan

	 	The text of the Plan is
incorporated in this Agreement
by reference. This Agreement,
the Plan, and an applicable
employment agreement with the
Company, if any, constitute the
entire understanding between you
and the Company regarding this
grant of Restricted Stock Units.
Any prior agreements,
commitments or negotiations
concerning this grant are
superseded. The Plan will
control in the event any
provision of this Agreement
should appear to be inconsistent
with the terms of the Plan.

     By signing the cover sheet of this Agreement, you agree to all of the
terms and conditions described above and in the Plan.

4

 

ELECTION TO EXECUTE PRIOR TO EXPIRATION

OF TWENTY-ONE DAY CONSIDERATION PERIOD

     I, Craig R. Smith, M.D., understand that I have at least twenty-one days
within which to consider and execute the foregoing Consulting Services and
Separation Agreement. However, after having an opportunity to consult counsel,
I have freely and voluntarily elected to execute the Consulting Services and
Separation Agreement before the twenty-one day period has expired.

	 	 	 	 	 
	 	 	/s/ Craig R. Smith, M.D.
	 	 	
 
	 	 	Craig R. Smith, M.D.
	 
	 	 	 	 
	

	 	Date:
	 	September 3, 2004<PAGE>
                                                                    EXHIBIT 10.1

                           CHANGE IN CONTROL AGREEMENT

August 30, 2004

Richard W. Kramp
575 Navajo Road W.
Medina MN 55340

Dear Mr. Kramp:

You are presently the President and Chief Operating Officer of Synovis
Interventional Solutions, Inc., a Minnesota corporation and an Affiliate of
Synovis Life Technologies, Inc., a Minnesota corporation (the "Company"). The
Company considers the establishment and maintenance of a sound and vital
management to be essential to protecting and enhancing the best interests of the
Company and its shareholders. In this connection, the Company recognizes that,
as is the case with many publicly held corporations, the possibility of a Change
in Control may arise and that such possibility and the uncertainty and questions
which it may raise among management may result in the departure or distraction
of management personnel to the detriment of the Company and its shareholders.

Accordingly, the Board has determined that appropriate steps should be taken to
minimize the risk that Company management will depart prior to a Change in
Control, thereby leaving the Company without adequate management personnel
during such a critical period, and that appropriate steps also be taken to
reinforce and encourage the continued attention and dedication of members of the
Company's management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control. In
particular, the Board believes it important, should the Company or its
shareholders receive a proposal for transfer of control, that you be able to
continue your management responsibilities without being influenced by the
uncertainties of your own personal situation.

The Board recognizes that continuance of your position with the Company involves
a substantial commitment to the Company in terms of your personal life and
professional career and the possibility of foregoing present and future career
opportunities, for which the Company receives substantial benefits. Therefore,
to induce you to remain in the employ of the Company, this Agreement, which has
been approved by the Board, sets forth the benefits which the Company agrees
will be provided to you in the event your employment with the Company is
terminated in connection with a Change in Control under the circumstances
described below.

<PAGE>

August 30, 2004
Page 2

The following terms will have the meaning set forth below unless the context
clearly requires otherwise. Terms defined elsewhere in this Agreement will have
the same meaning throughout this Agreement.

                                   ARTICLE I.
                                   DEFINITIONS

1.       "Affiliate" means (i) any corporation at least a majority of whose
         outstanding securities ordinarily having the right to vote at elections
         of directors is owned directly or indirectly by the Company or (ii) any
         other form of business entity in which the Company, by virtue of a
         direct or indirect ownership interest, has the right to elect a
         majority of the members of such entity's governing body.

2.       "Agreement" means this letter agreement as amended, extended or renewed
         from time to time in accordance with its terms.

3.       "Board" means the board of directors of Synovis Life Technologies, Inc.
         duly qualified and acting at the time in question. On and after the
         date of a Change in Control, any duty of the Board in connection with
         this Agreement is nondelegable and any attempt by the Board to delegate
         any such duty is ineffective.

4.       "Cause" means:

         a.       your gross misconduct;

         b.       your willful and continued failure to perform substantially
                  your duties with the Company (other than any such failure (1)
                  resulting from your Disability or incapacity due to bodily
                  injury or physical or mental illness or (2) relating to
                  changes in your duties after a Change in Control which
                  constitute Good Reason) after a demand for substantial
                  performance is delivered to you by the chair of the Board
                  which specifically identifies the manner in which you have not
                  substantially performed your duties and provides for a
                  reasonable period of time within which you may take corrective
                  actions; or

         c.       your conviction (including a plea of nolo contendere) of
                  willfully engaging in illegal conduct constituting a felony or
                  gross misdemeanor under federal or state law which is
                  materially and demonstrably injurious to the Company or which
                  impairs your ability to perform substantially your duties for
                  the Company.

         An act or failure to act will be considered "gross" or "willful" for
         this purpose only if done, or omitted to be done, by you in bad faith
         and without reasonable belief that it was in, or not opposed to, the
         best interests of the Company. Any act, or failure to act, based upon
         authority given pursuant to a resolution duly adopted by the Company's
         board of directors

<PAGE>

August 30, 2004
Page 3

         (or a committee thereof) or based upon the advice of counsel for the
         Company will be conclusively presumed to be done, or omitted to be
         done, by you in good faith and in the best interests of the Company. It
         is also expressly understood that your attention to matters not
         directly related to the business of the Company will not provide a
         basis for termination for Cause so long as the Board did not expressly
         disapprove in writing of your engagement in such activities either
         before or within a reasonable period of time after the Board knew or
         could reasonably have known that you engaged in those activities.
         Notwithstanding the foregoing, you may not be terminated for Cause
         unless and until there has been delivered to you a copy of a resolution
         duly adopted by the affirmative vote of not less than a majority of the
         entire membership of the Board at a meeting of the Board called and
         held for the purpose (after reasonable notice to you and an opportunity
         for you, together with your counsel, to be heard before the Board),
         finding that in the good faith opinion of the Board you were guilty of
         the conduct set forth above in clauses a., b. or c. of this definition
         and specifying the particulars thereof in detail.

5.       "Change in Control" means any of the following:

         a.       the sale, lease, exchange or other transfer, directly or
                  indirectly, of all or substantially all of the assets of
                  Synovis Life Technologies, Inc. in one transaction or in a
                  series of related transactions, to any Person;

         b.       the approval by the shareholders of Synovis Life Technologies,
                  Inc. of any plan or proposal for the liquidation or
                  dissolution of Synovis Life Technologies, Inc., as the case
                  may be;

         c.       any Person is or becomes the "beneficial owner" (as defined in
                  Rule 13d-3 under the Exchange Act), directly or indirectly, of
                  (1) 20 percent or more, but not more than 50 percent, of the
                  combined voting power of the outstanding securities of Synovis
                  Life Technologies, Inc. ordinarily having the right to vote at
                  elections of directors, unless the transaction resulting in
                  such ownership has been approved in advance by the "continuity
                  directors" or (2) more than 50 percent of the combined voting
                  power of the outstanding securities of Synovis Life
                  Technologies, Inc. ordinarily having the right to vote at
                  elections of directors (regardless of any approval by the
                  continuity directors);

         d.       a merger or consolidation to which the Company is a party if
                  the shareholders of Synovis Life Technologies, Inc.
                  immediately prior to the effective date of such merger or
                  consolidation have, solely on account of ownership of
                  securities of Synovis Life Technologies, Inc. at such time,
                  "beneficial ownership" (as defined in Rule 13d-3 under the
                  Exchange Act) immediately following the effective date of such
                  merger or consolidation of securities of the surviving company
                  representing (1) 50 percent or more, but not more than 80
                  percent, of the combined voting power of the surviving
                  corporation's then outstanding securities ordinarily having
                  the right to

<PAGE>

August 30, 2004
Page 4

                  vote at elections of directors, unless such merger or
                  consolidation has been approved in advance by the continuity
                  directors, or (2) less than 50 percent of the combined voting
                  power of the surviving corporation's then outstanding
                  securities ordinarily having the right to vote at elections of
                  directors (regardless of any approval by the continuity
                  directors);

         e.       the continuity directors cease for any reason to constitute at
                  least a majority the Board; or

         For purposes of this Section 1(e), a "continuity director" means any
         individual who is a member of the Board on August 30, 2004 while he or
         she is a member of the Board, and any individual who subsequently
         becomes a member of the Board whose election or nomination for election
         by Synovis Life Technologies, Inc.'s shareholders was approved by a
         vote of at least a majority of the directors who are continuity
         directors (either by a specific vote or by approval of the proxy
         statement of Synovis Life Technologies, Inc. in which such individual
         is named as a nominee for director without objection to such
         nomination).

         f.       a change in control of a nature that is determined by outside
                  legal counsel to Synovis Life Technologies, Inc., in a written
                  opinion specifically referencing this provision of the
                  Agreement, to be required to be reported (assuming such event
                  has not been "previously reported") pursuant to Section 13 or
                  15(d) of the Exchange Act, whether or not Synovis Life
                  Technologies, Inc. is then subject to such reporting
                  requirement, as of the effective date of such change in
                  control.

6.       "Code" means the Internal Revenue Code of 1986, as amended. Any
         reference to a specific provision of the Code includes a reference to
         such provision as it may be amended from time to time and to any
         successor provision.

7.       "Company" means Synovis Life Technologies, Inc. and/or any Affiliate.

8.       "Confidential Information" means information which is proprietary to
         the Company or proprietary to others and entrusted to the Company,
         whether or not trade secrets. It includes information relating to
         business plans and to business as conducted or anticipated to be
         conducted, and to past or current or anticipated products or services.
         It also includes, without limitation, information concerning research,
         development, purchasing, accounting, marketing and selling. All
         information which you have a reasonable basis to consider confidential
         is Confidential Information, whether or not originated by you and
         without regard to the manner in which you obtain access to that and any
         other proprietary information.

9.       "Date of Termination" following a Change in Control (or prior to a
         Change in Control if your termination was either a condition of the
         Change in Control or was at the request or insistence of any Person
         related to the Change in Control) means:

<PAGE>

August 30, 2004
Page 5

         a.       if your employment is to be terminated for Disability, 30 days
                  after Notice of Termination is given (provided that you have
                  not returned to the performance of your duties on a full-time
                  basis during such 30-day period);

         b.       if your employment is to be terminated by the Company for
                  Cause or by you for Good Reason, the date specified in the
                  Notice of Termination, which date may not be less than 30 days
                  or more than 60 days after the date on which the Notice of
                  Termination is given unless you and the Company otherwise
                  expressly agree;

         c.       if your employment is to be terminated by the Company for any
                  reason other than Cause, Disability, death or Retirement, the
                  date specified in the Notice of Termination, which in no event
                  may be a date earlier than 90 days after the date on which a
                  Notice of Termination is given, unless an earlier date has
                  been expressly agreed to by you in writing either in advance
                  of, or after receiving such Notice of Termination; or

         d.       if your employment is terminated by reason of death or
                  Retirement, the date of death or Retirement, respectively.

         In the case of termination by the Company of your employment for Cause,
         if you have not previously expressly agreed in writing to the
         termination, then within 30 days after receipt by you of the Notice of
         Termination with respect thereto, you may notify the Company that a
         dispute exists concerning the termination, in which event the Date of
         Termination will be the date set either by mutual written agreement of
         the parties or by the judge or arbitrators in a proceeding as provided
         in Article VII, Section 7 of this Agreement. During the pendency of any
         such dispute, you will continue to make yourself available to provide
         services to the Company and the Company will continue to pay you your
         full compensation and benefits in effect immediately prior to the date
         on which the Notice of Termination is given (without regard to any
         changes to such compensation or benefits which constitute Good Reason)
         and until the dispute is resolved in accordance with Article VII,
         Section 7 of this Agreement. You will be entitled to retain the full
         amount of any such compensation and benefits without regard to the
         resolution of the dispute unless the judge or arbitrators decide(s)
         that your claim of a dispute was frivolous or advanced by you in bad
         faith.

10.      "Disability" means a disability as defined in the Company's long-term
         disability plan as in effect immediately prior to the Change in Control
         or; in the absence of such a plan, means permanent and total disability
         as defined in Section 22(e)(3) of the Code.

11.      "Exchange Act" means the Securities Exchange Act of 1934, as amended.
         Any reference to a specific provision of the Exchange Act or to any
         rule or regulation thereunder includes a reference to such provision as
         it may be amended from time to time and to any successor provision.

<PAGE>

August 30, 2004
Page 6

12.      "Good Reason" means:

         a.       change in your status, position(s), duties or responsibilities
                  as an executive of the Company as in effect immediately prior
                  to the Change in Control which, in your reasonable judgment,
                  is an adverse change (other than, if applicable, any such
                  change directly attributable to the fact that the Company is
                  no longer publicly owned) except in connection with the
                  termination of your employment for Cause, Disability or
                  Retirement or as a result of your death or by you other than
                  for Good Reason;

         b.       a reduction by the Company in your base salary (or an adverse
                  change in the form or timing of the payment thereof) as in
                  effect immediately prior to the Change in Control or as
                  thereafter increased;

         c.       the failure by the Company to continue in effect any Plan in
                  which you (and/or your family) are eligible to participate at
                  any time during the 90-day period immediately preceding the
                  Change in Control (or Plans providing you (and/or your family)
                  with at least substantially similar benefits) other than as a
                  result of the normal expiration of any such Plan in accordance
                  with its terms as in effect immediately prior to the 90-day
                  period immediately preceding the time of the Change in
                  Control, or the taking of any action, or the failure to act,
                  by the Company which would adversely affect your (and/or your
                  family's) continued eligibility to participate in any of such
                  Plans on at least as favorable a basis to you (and/or your
                  family) as is the case on the date of the Change in Control or
                  which would materially reduce your (and/or your family's)
                  benefits in the future under any of such Plans or deprive you
                  (and/or your family) of any material benefit enjoyed by you
                  (and/or your family) at the time of the Change in Control;

         d.       the Company's requiring you to be based more than 30 miles
                  from where your office is located immediately prior to the
                  Change in Control, except for required travel on the Company's
                  business, and then only to the extent substantially consistent
                  with the business travel obligations which you undertook on
                  behalf of the Company during the 90-day period immediately
                  preceding the Change in Control (without regard to travel
                  related to or in anticipation of the Change in Control);

         e.       the failure by the Company to obtain from any Successor the
                  assent to this Agreement contemplated by Article VI of this
                  Agreement;

         f.       any purported termination by the Company of your employment
                  which is not properly effected pursuant to a Notice of
                  Termination and pursuant to any other requirements of this
                  Agreement, and for purposes of this Agreement, no such
                  purported termination will be effective;

<PAGE>

August 30, 2004
Page 7

         g.       any refusal by the Company to continue to allow you to attend
                  to matters or engage in activities not directly related to the
                  business of the Company which, at any time prior to the Change
                  in Control, you were not expressly prohibited in writing by
                  the Board from attending to or engaging in; or

         h.       your termination of your employment with the Company for any
                  reason other than death, Disability or Retirement during the
                  twelfth (12th) month following the month in which a Change in
                  Control occurs.

13.      "Highest Monthly Compensation" means one-twelfth of the highest amount
         of your compensation for any 12 consecutive calendar-month period
         during the 36 consecutive calendar-month period prior to the month that
         includes the Date of Termination. For purposes of this definition,
         "compensation" means the amount reportable by the Company, for federal
         income tax purposes, as wages paid to you by the Company, increased by
         the amount of contributions made by the Company with respect to you
         under any qualified cash or deferred arrangement or cafeteria plan that
         is not then includable in your income by reason of the operation of
         Section 402(a)(8) or Section 125 of the Code, and increased further by
         any other compensation deferred for any reason. If you have been
         employed by the Company for less than 12 calendar months at the Date of
         Termination, the highest monthly compensation will be calculated based
         on the number of months that you have been employed by the Company.

14.      "Notice of Termination" means a written notice given on or after the
         date of a Change in Control (unless your termination before the date of
         the Change in Control was either a condition of the Change in Control
         or was at the request or insistence of any Person related to the Change
         in Control) which indicates the specific termination provision in this
         Agreement pursuant to which the notice is given. Any purported
         termination by the Company or by you for Good Reason on or after the
         date of a Change in Control (or before the date of a Change in Control
         if your termination was either a condition of the Change in Control or
         was at the request or insistence of any Person related to the Change in
         Control) must be communicated by written Notice of Termination to be
         effective; provided, that your failure to provide Notice of Termination
         will not limit any of your rights under this Agreement except to the
         extent the Company demonstrates that it suffered material actual
         damages by reason of such failure.

15.      "Person" means any individual, corporation, partnership, group,
         association or other "person," as such term is used in Section 14(d) of
         the Exchange Act, other than the Company, any Affiliate or any employee
         benefit plan(s) sponsored by the Company or an Affiliate.

16.      "Plan" means any compensation plan, program, policy or agreement (such
         as a stock option, restricted stock plan or other equity-based plan),
         any bonus or incentive compensation plan, program, policy or agreement,
         any employee benefit plan, program, policy or agreement

<PAGE>

August 30, 2004
Page 8

         (such as a thrift, pension, profit sharing, medical, dental,
         disability, accident, life insurance, relocation, salary continuation,
         expense reimbursements, vacation, fringe benefits, office and support
         staff plan or policy) or any other plan, program, policy or agreement
         of the Company intended to benefit employees (and/or their families)
         generally, management employees (and/or their families) as a group or
         you (and/or your family) in particular.

17.      "Retirement" means termination of employment on or after the day on
         which you attain the age of 65.

18.      "Successor" means any Person that succeeds to, or has the practical
         ability to control (either immediately or solely with the passage of
         time), the Company's business directly, by merger, consolidation or
         other form of business combination, or indirectly, by purchase of the
         Company's outstanding securities ordinarily having the right to vote at
         the election of directors or, all or substantially all of its assets or
         otherwise.

                                   ARTICLE II.
                                TERM OF AGREEMENT

This Agreement is effective immediately and will continue in effect until August
30, 2005; provided, however; that commencing on August 30, 2005, and each August
30 thereafter, the term of this Agreement will automatically be extended for 12
additional months beyond the expiration date otherwise then in effect, unless at
least 90 calendar days prior to any such August 30, the Company or you has given
notice that this Agreement will not be extended; and, provided, further; that if
a Change in Control has occurred during the term of this Agreement, this
Agreement will continue in effect beyond the termination date then in effect for
a period of 12 months following the month during which the Change in Control
occurs or, if later, until the date on which the Company's obligations to you
arising under or in connection with this Agreement have been satisfied in full.

                                  ARTICLE III.
                           CHANGE IN CONTROL BENEFITS

1.       Benefits upon a Change in Control Termination. You will become entitled
         to the payments and benefits described in clauses (a) and (b) of this
         Article III., subject to the limitations described in clause (c) of
         this Article III., if and only if (i) your employment with the Company
         is terminated for any reason other than death, Cause, Disability or
         Retirement, or if you terminate your employment with the Company for
         Good Reason; and (ii) the termination occurs either within the period
         beginning on the date of a Change in Control and ending on the last day
         of the twelfth month that begins after the month during which the
         Change in Control occurs or prior to a Change in Control if your
         termination was either a condition of the Change in Control or was at
         the request or insistence of a Person related to the Change in Control.

<PAGE>

August 30, 2004
Page 9

         a.       Cash Payment. Within five business days following the Date of
                  Termination or, if later, within five business days following
                  the date of the Change in Control, the Company will make a
                  lump-sum cash payment to you in an amount equal to the product
                  of (i) your Highest Monthly Compensation multiplied by (ii)
                  36.

         b.       Welfare Plans. The Company will maintain in full force and
                  effect, for the continued benefit of you and your dependents
                  for a period terminating 36 months after the Date of
                  Termination, all insured and self-insured employee welfare
                  benefit Plans (including, without limitation, medical, life,
                  dental, vision and disability plans) in which you were
                  eligible to participate at any time during the 90-day period
                  immediately preceding the Change in Control, provided that
                  your continued participation is possible under the general
                  terms and provisions of such Plans and any applicable funding
                  media and without regard to any discretionary amendments to
                  such Plans by the Company following the Change in Control (or
                  prior to the Change in Control if amended as a condition or at
                  the request or insistence of a Person (other than the Company)
                  related to the Change in Control) and provided that you
                  continue to pay an amount equal to your regular contribution
                  under such Plans for such participation (based upon your level
                  of benefits and employment status most favorable to you at any
                  time during the 90-day period immediately preceding the Change
                  in Control). The continuation period under federal and state
                  continuation laws, to the extent applicable, will begin to run
                  from the date on which coverage pursuant to this clause (b)
                  ends. If, at the end of the 36-month period, you have not
                  previously received or are not then receiving equivalent
                  benefits from a new employer (including coverage for any
                  pre-existing conditions), the Company will arrange, at its
                  sole cost and expense, to enable you to convert your and your
                  dependents' coverage under such Plans to individual policies
                  or programs upon the same terms as executives of the Company
                  may apply for such conversions. In the event that your or your
                  dependents' participation in any such Plan is barred, the
                  Company, at its sole cost and expense, will arrange to have
                  issued for the benefit of you and your dependents individual
                  policies of insurance providing benefits substantially similar
                  (on a federal, state and local income and employment after-tax
                  basis) to those which you otherwise would have been entitled
                  to receive under such Plans pursuant to this clause (b) or; if
                  such insurance is not available at a reasonable cost to the
                  Company, the Company will otherwise provide you and your
                  dependents equivalent benefits (on a federal, state and local
                  income and employment after-tax basis). You will not be
                  required to pay any premiums or other charges in an amount
                  greater than that which you would have paid in order to
                  participate in such Plans.

         c.       Limitation on Change in Control Payments. Notwithstanding
                  anything in this Agreement to the contrary, if any of the
                  payments or benefits to be made or provided in connection with
                  this Agreement, together with any other payments, benefits or
                  awards which you have the right to receive from the Company,
                  or any corporation which is a member of an "affiliated group"
                  (as defined in Section 1504(a) of the

<PAGE>

August 30, 2004
Page 10

                  Code without regard to Section 1504(b) of the Code) of which
                  the Company is a member ("Affiliate"), constitute an "excess
                  parachute payment" (as defined in Section 280G(b) of the
                  Code), two calculations will be performed. In the first
                  calculation, the payments, benefits or awards to be received
                  solely pursuant to this Agreement (and excluding any benefits
                  to be received from the existing Stock Option and Incentive
                  Plan) will be reduced by the amount the Company deems
                  necessary so that none of the payments or benefits under the
                  Agreement (including those from the existing Stock Option and
                  Incentive Plan) are excess parachute payments. In the second
                  calculation, the payments will not be reduced so as to
                  eliminate an excess parachute payment, but will be reduced by
                  the amount of the applicable excise tax that the officer will
                  pay related to all change in control benefits received as
                  imposed by Section 4999 of the Code. The two calculations will
                  be compared and the calculation providing the largest net
                  payment to the employee will be utilized to determine the
                  change in control payments made to the officer. The
                  calculations must be made in good faith by legal counsel or a
                  certified public accountant selected by the Company, and such
                  determination will be conclusive and binding upon you and the
                  Company.

                  If a reduction in payments or benefits is required by the
                  comparison above, the payments or benefits under the Agreement
                  shall be reduced in the order that minimizes the amount of
                  total reduction in payments and benefits under the Agreement
                  as a result of this provision.

2.       Disposition. If, on or after the date of a Change in Control, an
         Affiliate is sold, merged, transferred or in any other manner or for
         any other reason ceases to be an Affiliate or all or any portion of the
         business or assets of an Affiliate are sold, transferred or otherwise
         disposed of and the acquiror is not the Company or an Affiliate (a
         "Disposition"), and you remain or become employed by the acquiror or an
         affiliate of the acquiror (as defined in this Agreement but
         substituting "acquiror" for "Company") in connection with the
         Disposition, you will be deemed to have terminated employment on the
         effective date of the Disposition for purposes of this section unless
         (a) the acquiror and its affiliates jointly and severally expressly
         assume and agree, in a manner that is enforceable by you, to perform
         the obligations of this Agreement to the same extent that the Company
         would be required to perform if the Disposition had not occurred and
         (b) the Successor guarantees, in a manner that is enforceable by you,
         payment and performance by the acquiror.

                                  ARTICLE IV.
                                INDEMNIFICATION

Following a Change in Control, the Company will indemnify and advance expenses
to you to the full extent permitted by law and the Company's articles of
incorporation and bylaws for damages, costs and expenses (including, without
limitation, judgments, fines, penalties, settlements and reasonable fees and
expenses of your counsel) incurred in connection with all matters, events and

<PAGE>

August 30, 2004
Page 11

transactions relating to your service to or status with the Company or any other
corporation, employee benefit plan or other entity with whom you served at the
request of the Company.

                                   ARTICLE V.
                                 CONFIDENTIALITY

You will not use, other than in connection with your employment with the
Company, or disclose any Confidential Information to any person not employed by
the Company or not authorized by the Company to receive such Confidential
Information, without the prior written consent of the Company; and you will use
reasonable and prudent care to safeguard and protect and prevent the
unauthorized disclosure of Confidential Information. Nothing in this Agreement
will prevent you from using, disclosing or authorizing the disclosure of any
Confidential Information: (a) which is or hereafter becomes part of the public
domain or otherwise becomes generally available to the public through no fault
of yours; (b) to the extent and upon the terms and conditions that the Company
may have previously made the Confidential Information available to certain
persons; or (c) to the extent that you are required to disclose such
Confidential Information by law or judicial or administrative process.

                                   ARTICLE VI.
                                   SUCCESSORS

The Company will seek to have any Successor, by agreement in form and substance
satisfactory to you, assent to the fulfillment by the Company of the Company's
obligations under this Agreement. Failure of the Company to obtain such assent
at least three business days prior to the time a Person becomes a Successor (or
where the Company does not have at least three business days' advance notice
that a Person may become a Successor, within one business day after having
notice that such Person may become or has become a Successor) will constitute
Good Reason for termination by you of your employment. The date on which any
such succession becomes effective will be deemed the Date of Termination and
Notice of Termination will be deemed to have been given on that date. A
Successor has no rights, authority or power with respect to this Agreement prior
to a Change in Control.

                                  ARTICLE VII.
                                OTHER PROVISIONS

1.       Fees and Expenses. The Company, upon demand, will pay or reimburse you
         for all reasonable legal fees, court costs, experts' fees and related
         costs and expenses incurred by you in connection with any actual,
         threatened or contemplated litigation or legal, administrative,
         arbitration or other proceeding relating to this Agreement to which you
         are or reasonably expect to become a party, whether or not initiated by
         you, including, without limitation: (a) all such fees and expenses, if
         any, incurred in contesting or disputing any such termination; or (b)
         your seeking to obtain or enforce any right or benefit provided by this
         Agreement; provided, however; you will be required to repay (without
         interest) any

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August 30, 2004
Page 12

         such amounts to the Company to the extent that a court issues a final
         and non-appealable order setting forth the determination that the
         position taken by you was frivolous or advanced by you in bad faith.

2.       Binding Agreement. This Agreement inures to the benefit of, and is
         enforceable by, you, your personal and legal representatives,
         executors, administrators, successors, heirs, distributees, devisees
         and legatees. If you die while any amount would still be payable to you
         under this Agreement if you had continued to live, all such amounts,
         unless otherwise provided in this Agreement, will be paid in accordance
         with the terms of this Agreement to your devisee, legatee or other
         designee or; if there be no such designee, to your estate.

3.       No Mitigation. You will not be required to mitigate the amount of any
         payments or benefits the Company becomes obligated to make or provide
         to you in connection with this Agreement by seeking other employment or
         otherwise. The payments or benefits to be made or provided to you in
         connection with this Agreement may not be reduced, offset or subject to
         recovery by the Company by any payments or benefits you may receive
         from other employment or otherwise.

4.       No Setoff. The Company has no right to setoff payments or benefits owed
         to you under this Agreement against amounts owed or claimed to be owed
         by you to the Company under this Agreement or otherwise.

5.       Taxes. All payments and benefits to be made or provided to you in
         connection with this Agreement will be subject to required withholding
         of federal, state and local income, excise and employment-related
         taxes.

6.       Notices. For the purposes of this Agreement, notices and all other
         communications provided for in, or required under, this Agreement must
         be in writing and will be deemed to have been duly given when
         personally delivered or when mailed by United States registered or
         certified mail, return receipt requested, postage prepaid and addressed
         to each party's respective address set forth on the first page of this
         Agreement (provided that all notices to the Company must be directed to
         the attention of the chair of the Board), or to such other address as
         either party may have furnished to the other in writing in accordance
         with these provisions, except that notice of change of address will be
         effective only upon receipt.

7.       Disputes. If you so elect, any dispute, controversy or claim arising
         under or in connection with this Agreement will be settled exclusively
         by binding arbitration administered by the American Arbitration
         Association in Minneapolis, Minnesota in accordance with the Commercial
         Arbitration Rules of the American Arbitration Association then in
         effect. Judgment may be entered on the arbitrator's award in any court
         having jurisdiction; provided, that you may seek specific performance
         of your right to receive payment or benefits until the Date of
         Termination during the pendency of any dispute or controversy arising
         under or in connection with this Agreement. The Company will be
         entitled to seek

<PAGE>

August 30, 2004
Page 13

         an injunction or restraining order in a court of competent jurisdiction
         (within or without the State of Minnesota) to enforce the provisions of
         Article V of this Agreement.

8.       Jurisdiction. Except as specifically provided otherwise in this
         Agreement, the parties agree that any action or proceeding arising
         under or in connection with this Agreement must be brought in a court
         of competent jurisdiction in the State of Minnesota, and hereby consent
         to the exclusive jurisdiction of said courts for this purpose and agree
         not to assert that such courts are an inconvenient forum.

9.       Related Agreements. To the extent that any provision of any other Plan
         or agreement between the Company and you limits, qualifies or is
         inconsistent with any provision of this Agreement, then for purposes of
         this Agreement, while such other Plan or agreement remains in force,
         the provision of this Agreement will control and such provision of such
         other Plan or agreement will be deemed to have been superseded, and to
         be of no force or effect, as if such other agreement had been formally
         amended to the extent necessary to accomplish such purpose. Nothing in
         this Agreement prevents or limits your continuing or future
         participation in any Plan provided by the Company and for which you may
         qualify, and nothing in this Agreement limits or otherwise affects the
         rights you may have under any Plans or other agreements with the
         Company. Amounts which are vested benefits or which you are otherwise
         entitled to receive under any Plan or other agreement with the Company
         at or subsequent to the Date of Termination will be payable in
         accordance with such Plan or other agreement.

10.      No Employment or Service Contract. Nothing in this Agreement is
         intended to provide you with any right to continue in the employ of the
         Company for any period of specific duration or interfere with or
         otherwise restrict in any way your rights or the rights of the Company,
         which rights are hereby expressly reserved by each, to terminate your
         employment at any time for any reason or no reason whatsoever, with or
         without cause.

11.      Funding and Payment. Benefits payable under this Agreement will be paid
         only from the general assets of the Company. No person has any right to
         or interest in any specific assets of the Company by reason of this
         Agreement. To the extent benefits under this Agreement are not paid
         when due to any individual, he or she is a general unsecured creditor
         of the Company with respect to any amounts due. The Company with whom
         you were employed immediately before your Date of Termination has
         primary responsibility for benefits to which you or any other person
         are entitled pursuant to this Agreement but to the extent such Company
         is unable or unwilling to provide such benefits, the Company and each
         other Affiliate are jointly and severally responsible therefor to the
         extent permitted by applicable law. If you were simultaneously employed
         by more than one Company immediately before your Date of Termination,
         each such Company has primary responsibility for a portion of the
         benefits to which you or any other person are entitled pursuant to this
         Agreement that bears the same ratio to the total benefits to which you
         or such other person are entitled

<PAGE>

August 30, 2004
Page 14

         pursuant to this Agreement as your base pay from the Company
         immediately before your Date of Termination bears to your aggregate
         base pay from all such Companies.

12.      Survival. The respective obligations of, and benefits afforded to, the
         Company and you which by their express terms or clear intent survive
         termination of your employment with the Company or termination of this
         Agreement, as the case may be, will survive termination of your
         employment with the Company or termination of this Agreement, as the
         case may be, and will remain in full force and effect according to
         their terms.

                                  ARTICLE VIII.
                                  MISCELLANEOUS

1.       Modification and Waiver. No provision of this Agreement may be
         modified, waived or discharged unless such modification, waiver or
         discharge is agreed to in a writing signed by you and the chair of the
         Board. No waiver by any party to this Agreement at any time of any
         breach by another party to this Agreement of, or of compliance with,
         any condition or provision of this Agreement to be performed by such
         party will be deemed a waiver of similar or dissimilar provisions or
         conditions at the same or at any prior or subsequent time.

2.       Entire Agreement. No agreements or representations, oral or otherwise,
         express or implied, with respect to the subject matter to this
         Agreement have been made by any party which are not expressly set forth
         in this Agreement.

3.       Governing Law. This Agreement and the legal relations among the parties
         as to all matters, including, without limitation, matters of validity,
         interpretation, construction, performance and remedies, will be
         governed by and construed exclusively in accordance with the internal
         laws of the State of Minnesota (without regard to the conflict of laws
         principles of any jurisdiction).

4.       Headings. Headings are for purposes of convenience only and do not
         constitute a part of this Agreement.

5.       Further Acts. The parties to this Agreement agree to perform, or cause
         to be performed, such further acts and deeds and to execute and deliver
         or cause to be executed and delivered, such additional or supplemental
         documents or instruments as may be reasonably required by the other
         party to carry into effect the intent and purpose of this Agreement.

6.       Severability. The invalidity or unenforceability of all or any part of
         any provision of this Agreement will not affect the validity or
         enforceability of the remainder of such provision or of any other
         provision of this Agreement, which will remain in full force and
         effect.

7.       Counterparts. This Agreement may be executed in several counterparts,
         each of which will be deemed to be an original, but all of which
         together will constitute one and the same instrument.

<PAGE>

August 30, 2004
Page 15

If this letter correctly sets forth our agreement on the subject matter
discussed above, kindly sign and return to the Company the enclosed copy of this
letter which will then constitute our agreement on this subject.

Sincerely,

                                        SYNOVIS LIFE TECHNOLOGIES, INC.

                                        By:  /s/ Karen Gilles Larson
                                           -------------------------
                                        Name: Karen Gilles Larson
                                        Title: Chief Executive Officer

                                        Agreed to this 30th day of August, 2004

                                        /s/ Richard W. Kramp
                                        --------------------
                                        Richard W. Kramp

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