EXHIBIT 10.22
ENDO PHARMA LLC
AMENDED AND RESTATED 1997 EMPLOYEE STOCK OPTION PLAN
1. Purpose. The purpose of this Endo Pharma LLC Amended and
Restated 1997 Employee Stock Option Plan (the "Plan") is to advance the
interests of Endo Pharma LLC, a Delaware limited liability company ("Endo
Pharma"), by affording certain directors, officers, employees, consultants
and agents of Endo Pharmaceuticals Holdings Inc. (the "Company") and its
subsidiaries an opportunity to acquire a substantial proprietary interest
in shares of common stock of the Company held by Endo Pharma and thus to
stimulate in such persons increased personal interest in the success and
future growth of the Company.
2. Definitions.
"Acquiring Person" shall mean, with reference to the
transactions referred to in Section 12(a), (i) the continuing or surviving
entity of a consolidation or merger with the Company (if other than the
Company), (ii) the transferee of all or substantially all of the assets of
the Company, (iii) the parent entity of any corporation consolidating with
or merging into the Company in a consolidation or merger in connection with
which the Common Stock is changed into or exchanged for stock or other
securities of any other Person (including such parent entity) or cash or
any other property if the Company becomes a subsidiary of such entity, or
(iv) in the case of a capital reorganization or reclassification or in any
case in which the Company is a surviving corporation in a merger not
described in clause (i) or (iii) above, the Company.
"Affiliate" shall mean, with respect to a specified person, a
person that directly or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the person
specified.
"Board" shall mean the Board of Managers of Endo Pharma.
"Business Day" shall mean any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the City of New
York are authorized by law to be closed. Any reference herein to "days"
(unless Business Days are specified) shall mean calendar days.
"Cash Gross Profit" shall have the meaning ascribed to such
term in Section 5.21(d) of the Merger Agreement.
"Cash Gross Profit Target" shall mean the Company's attainment
of a Cash Gross Profit for the fiscal year ending December 31, 2000 that
equals or exceeds $147.4 million.
"Class A Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class A Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(a) hereof.
"Class B Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class B Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(b) hereof.
"Class C Options" shall mean, collectively, Class C1 Options,
Class C2 Options, Class C3 Options and Class C4 Options.
"Class C1 Option" shall mean, collectively, Class C1A Options
and Class C1B Options.
"Class C1A Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class C1A Option," which shall be subject to the exercise and
termination provisions set forth in Section 8(c) hereof.
"Class C1B Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class C1B Option," which shall be subject to the exercise and
termination provisions set forth in Section 8(c) hereof.
"Class C2 Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class C2 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.
"Class C3 Option" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class C3 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.
"Class C4 Options" shall mean an option to purchase a number of
shares of Common Stock, as specified in an option agreement, identified as
a "Class C4 Option," which shall be subject to the exercise and termination
provisions set forth in Section 8(c) hereof.
"Class C Option Exercise Date" shall have the meaning ascribed
to such term in Section 8(c)(ii) hereof.
"Closing Date" shall mean August 26, 1997.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
"Committee" shall mean the committee appointed by the Board to
administer the Plan and to perform the functions set forth herein.
"Common Stock" shall mean the common stock, par value $0.01 per
share, of the Company held by Endo Pharma, such term to include any stock
into which such Common Stock shall have been changed or any stock resulting
from any reclassification of such Common Stock.
"Company" shall have the meaning ascribed to such term in
Section 1 hereof.
"Compelled Exercise and Sale" shall have the meaning ascribed
to such term in Section 12(b) hereof.
"Credit Agreement" shall mean the Credit Agreement, dated as of
August 26, 1997, among Endo Pharmaceuticals, Chase Manhattan Bank, as
Administrative Agent, Chase Securities Inc., as Arranger and the Lenders
party thereto.
"EBITDA" shall have the meaning ascribed to "Consolidated
EBITDA" in the Credit Agreement.
"Eligible Person" shall have the meaning ascribed to such term
in Section 5 hereof.
"Employee Stockholders Agreement" shall mean the Stockholders
Agreement, dated as of July 14, 2000, by and among the Company, Endo
Pharma, KIA V and the Employee Stockholders (as such term is defined
therein).
"Endo Pharma" shall have the meaning ascribed to such term in
Section 1 hereof.
"Endo Pharmaceuticals" shall mean Endo Pharmaceuticals Inc., a
Delaware corporation, and any successor thereto.
"Exercise Notice" shall have the meaning ascribed to such term
in Section 8(a) hereof.
"Existing Stock Option Plans" shall mean collectively the Plan
and the Endo Pharma LLC Amended and Restated 1997 Executive Stock Option
Plan.
"Exit Event" shall mean a sale, disposition or transfer
(collectively, a "sale") of shares of common stock of the Company after
which neither Endo Pharma nor Kelso any longer holds any shares of common
stock of the Company.
"Fair Market Value" shall have the meaning ascribed to such
term in Section 4.1 of the Employee Stockholders Agreement.
"Holder" shall mean a person to whom an Option is granted
pursuant to the Plan.
"Implied Public Stock Price Threshold", with respect to any
Class C Option, shall mean:
(i) in the case of Class C1A Options, $8.09 per share,
provided, however, that the Implied Public Stock Price Threshold with
respect to Class C1 Options shall be adjusted in accordance with Schedule
II attached hereto;
(ii) in the case of Class C1B Options, $8.09 per share,
provided, however, that the Implied Public Stock Price Threshold with
respect to Class C1 Options shall be adjusted in accordance with Schedule
II attached hereto;
(iii) in the case of Class C2 Options, $12.50 per share,
provided, however, that the Implied Public Stock Price Threshold with
respect to Class C2 Options shall be adjusted in accordance with Schedule
II attached hereto;
(iv) in the case of Class C3 Options, $19.99 per share,
provided, however, that the Implied Public Stock Price Threshold with
respect to Class C3 Options shall be adjusted in accordance with Schedule
II attached hereto;
(v) in the case of Class C4 Options, $32.66 per share,
provided, however, that the Implied Public Stock Price Threshold with
respect to Class C4 Options shall be adjusted in accordance with Schedule
II attached hereto.
"Kelso" shall mean, collectively, KIA V, KEP V and their
permitted transferees.
"KEP V" shall mean Kelso Equity Partners V, L.P., a Delaware
limited partnership.
"KIA V" shall mean Kelso Investment Associates V, L.P., a
Delaware limited partnership.
"Merger Agreement" shall mean the Agreement and Plan of Merger,
dated as of November 26, 1999 (as may be amended and/or restated from time
to time), by and among, the Company, Endo, Inc., a Delaware corporation,
and Algos Pharmaceutical Corporation, a Delaware corporation.
"MorphiDex(R) Approval" shall mean the Company's receipt of
approval from the U.S. Food and Drug Administration with respect to its New
Drug Application for MorphiDex(R) for the treatment of any pain.
"Options" shall mean, collectively, Class A Options, Class B
Options, and Class C Options.
"Option Price" shall mean, with respect to any Option, the
price per share for which shares of Common Stock may be purchased pursuant
to such Option, which shall initially be $2.42 per share, except for Class
C1A Options as to which the Option Price shall initially be $3.42 per
share.
"Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other Person (corporate
or otherwise) which the Holders of the Options at any time shall be
entitled to receive, or shall have received, upon the exercise of the
Options, in lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities.
"Permitted Transferee" of a Holder shall mean Endo Pharma and
(A) the spouses, family members, heirs, executors, administrators,
testamentary trustees or legatees or beneficiaries of the Holder and (B)
any trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only the
Holder or the spouse or family members of the Holder; provided, however,
that each such transferor has obtained the prior written consent of the
Company; provided further that the transfer to any such person is in
compliance with all applicable federal, state and foreign securities laws.
"Person" shall mean a corporation, an association, a
partnership, an organization, a business, an individual, a government or
political subdivision thereof or a governmental agency.
"Plan" shall have the meaning ascribed to such term in Section
1 hereof.
3. Options Available for Grant Pursuant to the Existing Stock
Option Plans. The Options available for grant pursuant to the Existing
Stock Option Plans shall in no case exceed, in the aggregate, the following
quantities (subject to adjustment as provided in Section 11 hereof):
(a) in the case of Class A Options, options to purchase
2,650,382 shares of Common Stock;
(b) in the case of Class B Options, options to purchase
2,977,957 shares of Common Stock;
(c) in the case of Class C1A Options, options to purchase
2,000,000 shares of Common Stock;
(d) in the case of Class C1B Options, options to purchase
2,561,911 shares of Common Stock;
(e) in the case of Class C2 Options, options to purchase
4,743,458 shares of Common Stock;
(f) in the case of Class C3 Options, options to purchase
7,119,725 shares of Common Stock;
(g) in the case of Class C4 Options, options to purchase
3,561,906 shares of Common Stock.
Notwithstanding the foregoing, the Company may from to time to time
reallocate the number of Options available for grant, in the case of either
Class A Options or Class B Options, from such Class A Options or Class B
Options to Class C Options to the extent such Class A Options or Class B
Options available for grant are not then subject to outstanding Options
under the Existing Stock Option Plans.
4. Reservation of Shares. Endo Pharma has reserved (subject to
adjustment as provided in Section 11 hereof), solely for issuance and
delivery upon exercise of the Options pursuant to the Existing Stock Option
Plans 25,615,339 shares of Common Stock. All shares of Common Stock (or
Other Securities) issuable upon exercise of any Options shall be duly
authorized and, when issued upon such exercise, shall be validly issued
and, in the case of shares, fully paid and nonassessable with no liability
on the part of the Holders thereof.
5. Grant of Options. Options may be granted by Endo Pharma to
directors, officers, employees, consultants and agents of the Company or
any of its subsidiaries, from time to time, as determined by the Committee
(each, an "Eligible Person"). In determining (i) who shall be an Eligible
Person or (ii) grants under the Plan, the Committee shall take into account
such factors as it shall deem relevant in connection with accomplishing the
purposes of the Plan.
6. No Right to Employment or Continued Service. Nothing in the
Plan or in any Option shall confer any right on any Eligible Person to
continue in the employ or service of the Company or any of its subsidiaries
or shall interfere in any way with the right of the stockholders of the
Company or any of its subsidiaries to terminate such Eligible Person's
employment or service at any time.
7. Administration of the Plan. The Plan shall be administered
by the Committee. The Committee shall have full power to construe and
interpret the Plan, to establish rules for its administration and to grant
Options to Eligible Persons, in each case in accordance with the provisions
of the Plan. In addition, the Committee may delegate such of its duties
under the Plan as may be deemed by the Committee to be clerical or
ministerial to such delegates as the Committee deems appropriate. All
actions taken and decisions made by the Committee pursuant to the Plan
shall be binding and conclusive on all persons interested in the Plan.
8. Exercisability of Options.
(a) Class A Options.
(i) Subject to the acceleration and forfeiture provisions
set forth in this Section 8(a), Class A Options shall become exercisable
with respect to an equal proportion of the Common Stock subject thereto on
each anniversary of the date of grant of such Class A Option, through and
until the end of the fifth anniversary of the date of grant of such Class A
Option.
(ii) Subject to Section 10 hereof, Class A Options shall
become exercisable in full upon the occurrence of an Exit Event and the
right to exercise such Option shall terminate at 12:00 p.m. on the date of
the Exit Event. In the event that any Exit Event is contemplated, Endo
Pharma will mail or deliver to each Holder of such Option at least ten days
prior to the date of such Exit Event a notice (an "Exercise Notice")
specifying that (x) an Exit Event is contemplated and that upon such Exit
Event such Option will become exercisable pursuant to its terms, (y) the
date of the contemplated Exit Event and the terms thereof, and (z) such
Option shall expire at 12:00 p.m., New York City time, on the date of the
Exit Event if not exercised prior thereto.
(iii) Notwithstanding anything to the contrary herein, in
the event that a Holder's employment or service with the Company or any of
its subsidiaries is terminated for any reason, with or without cause,
initiated either by the Company or any of its subsidiaries or by the
Holder, any unexercisable portion of any Class A Option held by a Holder
shall expire immediately upon termination. Any portion of any Class A
Option exercisable upon termination shall expire on the 90th day after the
termination of the Holder's employment or service if unexercised.
(iv) Notwithstanding anything to the contrary herein, the
Committee may accelerate the exercisability or delay or postpone the
expiration of any outstanding Class A Option at such time and under such
circumstances as the Committee, in its sole discretion, deems appropriate.
(b) Class B Options.
(i) Subject to the acceleration and forfeiture provisions
set forth in this Section 8(b), Class B Options shall become exercisable
after December 31, 2006; provided, however, that, in the event that the
EBITDA targets set forth on Schedule I are achieved for a particular fiscal
year by Endo Pharmaceuticals, a portion of such Class B Option equal to the
fraction, the numerator of which is one and the denominator of which is the
number of fiscal years ending between the date of the grant of such Class B
Option and end of the fifth full fiscal year of the Company after the
Closing Date, inclusive, shall become exercisable at the end of such fiscal
year of the Company. Notwithstanding the foregoing, in the event that Endo
Pharmaceuticals fails to achieve the EBITDA target for a fiscal year, and
the portion of a Class B Option with respect to such fiscal year therefore
does not become exercisable on an accelerated basis, such portion of such
Class B Option will nevertheless become exercisable at the end of a
subsequent fiscal year, if Endo Pharmaceuticals exceeds such fiscal year's
EBITDA target by a margin which equals or exceeds the shortfall amount for
the year in which the EBITDA target was not achieved. Endo Pharmaceuticals'
excess over the EBITDA target for subsequent years, for purposes of the
Class B Options, shall be treated on a cumulative basis, and applied to
portions of the Class B Options in chronological order, such that the
portion of Class B Options with respect to the earliest fiscal year in
which Endo Pharmaceuticals failed to achieve the EBITDA target would become
exercisable first. The Committee may, in its discretion, delay the
acceleration of the exercisability of any fiscal year's portion of Class B
Options, or any portion thereof, until the completion of the audited
financial statements for the applicable fiscal year, in order to verify the
satisfaction of the preceding exercisability requirements.
(ii) Subject to Section 10 hereof, Class B Options shall
become exercisable in full upon the occurrence of an Exit Event and the
right to exercise such Option shall terminate at 12:00 p.m. on the date of
the Exit Event, provided, however, that in order for such Class B Options
to become exercisable pursuant to this clause (ii), either (A) the EBITDA
targets for all previous fiscal years must have been achieved by Endo
Pharmaceuticals by the date of the Exit Event, either in the
contemporaneous fiscal year or in a subsequent fiscal year, or (B) any of
the Class C1 Options have become exercisable. In the event that any Exit
Event is contemplated, Endo Pharma will mail or deliver to each Holder of
such Option at least ten days prior to the date of such Exit Event an
Exercise Notice specifying that (x) an Exit Event is contemplated and
whether such Option will become exercisable pursuant to its terms upon such
Exit Event, (y) the date of the contemplated Exit Event and the terms
thereof, and (z) such Option shall expire at 12:00 p.m., New York City
time, on the date of the Exit Event if not exercised prior thereto.
(iii) Notwithstanding anything to the contrary herein, in
the event that a Holder's employment or service with the Company or any of
its subsidiaries is terminated for any reason, with or without cause,
initiated either by the Company or any of its subsidiaries or by the
Holder, any unexercisable portion of any Class B Option held by a Holder
shall expire immediately upon termination. Any portion of any Class B
Option exercisable upon termination shall expire on the 90th day after the
termination of the Holder's employment or service if unexercised.
(iv) Notwithstanding anything to the contrary herein, the
Committee may accelerate the exercisability or delay or postpone the
expiration of any outstanding Class B Option at such time and under such
circumstances as the Committee, in its sole discretion, deems appropriate.
(c) Class C Options.
(i) In the event (I) the Fair Market Value of a share of
Common Stock exceeds the Implied Public Stock Price Threshold with respect
to such subclass of Class C Option (for purposes of this Section 8(c)(i)
only, "Fair Market Value" shall have the meaning ascribed to such term in
Section 3.1 of the Employee Stockholders Agreement, except that "90
consecutive trading days" shall be substituted for "ten consecutive trading
days" wherever it appears in such term and, in any event, any such
90-consecutive-trading-day-period shall not commence until the consummation
of the merger contemplated by the Merger Agreement), (II) such Fair Market
Value of each share of Common Stock on the last trading day of such 90
consecutive trading day period is greater than or equal to 85% of such
Implied Public Stock Price Threshold, and (III) the Holder is a director,
officer, employee, consultant or agent of the Company or any of its
subsidiaries on the date on which the conditions set forth in clauses (I)
and (II) of this Section 8(c)(i) are satisfied, then the Holder shall
become vested, with respect to each subclass of such Class C Options, in
options with respect to the number of shares equal to the product of (x)
the number of outstanding Class C Options of that subclass held by a Holder
and (y) the quotient of (A) number of Class C Options of that subclass set
forth on Schedule II attached hereto and (B) the aggregate number of
outstanding Class C Options of that subclass granted pursuant to the
Existing Stock Option Plans. Whether or not some of the Holder's Class C
Options vest prior to December 31, 2000 in accordance with the foregoing
sentence, any Class C Options then still unvested will continue to vest in
accordance with the foregoing sentence and Schedule II attached hereto.
(ii) Subject to Section 10 hereof, Class C Options shall
be exercisable, solely to the extent vested pursuant to Section 8(c)(i)
hereof, upon the earlier of the occurrence of an Exit Event or January 1,
2006 (the "Class C Option Exercise Date") and the right to exercise such
Options shall terminate at 12:00 p.m. on the Class C Option Exercise Date.
In the event that any Exit Event is contemplated prior to January 1, 2006
and that the conditions in clauses (I), (II) and (III) of Section 8(c)(i)
hereof will be satisfied, Endo Pharma will mail or deliver to each Holder
of such Option at least ten days prior to the date of such Exit Event an
Exercise Notice specifying that (i) an Exit Event is contemplated and that
upon such Exit Event such Option will become exercisable pursuant to its
terms, (ii) the date of the contemplated Exit Event and the terms thereof,
and (iii) such Option shall expire at 12:00 p.m., New York City time, on
the Class C Option Exercise Date if not exercised prior thereto. Any Class
C Options not vested as of the Class C Option Exercise Date shall terminate
at 12:00 p.m., New York City time, on the Class C Option Exercise Date.
(iii) Notwithstanding anything to the contrary herein,
any unexercisable portion of any Class C Option held by a Holder will
become immediately exercisable in full, solely to the extent then vested
pursuant to Section 8(c)(i) hereof, in the event that such Holder's
employment or service with the Company or any of its subsidiaries is
terminated for any reason; provided, however, that any such Option shall
expire on the 90th day after termination of the Holder's employment or
service if unexercised.
9. Manner of Exercise.
(a) Each Option shall further state the terms and conditions of
the Option (including the conditions to exercisability thereof) and the
Option Price. An Option may be exercised, subject to this Section 9, for
any or all whole number of shares which have become purchasable under such
Option. To the extent necessary upon the exercise of an Option, Endo Pharma
shall round each fractional share issuable upon such exercise up to the
next whole number.
(b) Subject to the terms and conditions set forth in this Plan
(including the conditions to exercisability thereof), an Option may be
exercised by the Holder during normal business hours on any Business Day,
by surrender of the Option to Endo Pharma at its principal office,
accompanied by a subscription, in cash or by certified or official bank
check payable to the order of Endo Pharma, in the amount obtained by
multiplying (x) the number of shares of Common Stock designated in such
subscription (up to the amount of shares which such Holder is entitled to
receive at such time upon exercise of the Option) by (y) the Option Price.
(c) Each exercise of an Option shall be deemed to have been
effected immediately prior to the close of business on the Business Day on
which an Option shall have been surrendered to Endo Pharma, and at such
time the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock (or Other Securities) shall be
issuable upon such exercise shall be deemed to have become the Holder or
Holders of record thereof.
(d) Endo Pharma at its expense shall deliver to the relevant
Holder (or as such Holder may direct pursuant to the Option) a certificate
or certificates representing shares of the Common Stock so purchased as
soon as reasonably practicable, but in any event within five Business Days,
after receipt of such notice. Each such certificate shall bear the legend
required by the Employee Stockholders Agreement to the effect that there
are restrictions on the transfer of shares of Common Stock.
(e) In the event that such exercise is in part only, Endo
Pharma shall deliver a new Option of the same class and tenor, calling in
the aggregate on the face thereof for the number of shares of Common Stock
equal to the number of such shares which such Holder would be entitled to
receive at such time upon exercise of this Option, after giving effect to
such recent exercise.
(f) Notwithstanding anything to the contrary in the Plan, in no
event may any Option be exercised prior to the time at which the Option
becomes exercisable (as set forth in the Option) or after the expiration of
such Option, and each Option shall terminate upon the terms set forth in
Sections 8 and 10 hereof.
(g) If, at any time, the Committee shall determine, in its sole
discretion, that the listing, registration or qualification of the shares
of Common Stock upon any securities exchange or under any applicable
securities laws, or the consent or approval of any governmental or
self-regulatory agency or body, is necessary or reasonably desirable as a
condition of, or in connection with, the issue or purchase of the shares of
Common Stock under any Option, such Option may not be exercised in whole or
in part unless such listing, registration, qualification, consent or
approval shall have been effected or obtained free of any conditions
unacceptable to the Committee.
10. Expiration of Options. Notwithstanding the provisions of
Section 8 above, the Options will expire no later than December 31, 2012;
provided, however, that in the event that any shares of Common Stock have
been sold to the public pursuant to an effective registration statement,
other than a registration statement on Form S-4 or S-8 or any successor
forms under the Securities Act of 1933, the Options will expire no later
than on August 26, 2007. Any outstanding unexercised Option, or portion
thereof, shall be forfeited, whether or not exercisable, upon the
expiration of such Option.
11. Adjustment of Number of Shares of Common Stock Issuable
Upon Exercise. The number and kind of shares of Common Stock purchasable
upon the exercise of Options shall be subject to adjustment from time to
time as follows:
(a) Stock Dividends; Stock Splits; Reverse Stock Splits. In
case the Company shall (i) pay a dividend or make any other distribution
with respect to the common stock of the Company in shares of its capital
stock, (ii) subdivide the outstanding common stock of the Company, or (iii)
combine the outstanding common stock of the Company into a smaller number
of shares, the number of shares of Common Stock issuable upon exercise of
the Options immediately prior to the record date for such dividend or
distribution or the effective date of such subdivision or combination shall
be adjusted so that the Holder of the Options shall thereafter be entitled
to receive the kind and number of shares of Common Stock or Other
Securities of the Company that such Holder would have owned or have been
entitled to receive after the happening of any of the events described
above, had such Options been exercised immediately prior to the happening
of such event or any record date with respect thereto. An adjustment made
pursuant to this Section 11 shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for
such event.
(b) No Adjustment for Dividends; No Adjustment of Option Price.
Except as otherwise provided in this Section 11, no adjustment in respect
of any dividends declared and paid on common stock of the Company, or on
any other capital stock of the Company, shall be made during the term of an
Option or upon the exercise of an Option. Notwithstanding anything to the
contrary contained in this Plan, in the event of any adjustments to Options
pursuant to this Section 11, adjustments shall be made solely to the number
and kind of securities purchasable upon the exercise of Options and no
adjustments shall be made to the Option Price.
(c) Other Adjustments. In the event that at any time, as a
result of an adjustment made pursuant to this Section 11, the registered
Holders shall become entitled to receive any securities of the Company
other than shares of Common Stock, thereafter the number of such Other
Securities so receivable upon exercise of the Options shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the shares of Common Stock
contained in this Section 11.
(d) Notice of Adjustment. Whenever the number of shares of
Common Stock purchasable upon the exercise of an Option is adjusted, as
herein provided, the Company shall give notice to each Holder of such
adjustment or adjustments.
12. Purchase Rights Upon Merger, Consolidation, etc.
(a) In the event of any consolidation of the Company with or
merger of the Company with or into another corporation or in case of any
sale, transfer or lease to another corporation of all or substantially all
the assets of the Company, the consummation of which transaction, in any
such case, would not constitute an Exit Event, the Acquiring Person shall
execute an agreement under which the Acquiring Person shall assume each
Option and each such assumed Option shall continue to vest and become
exercisable in accordance with its terms (adjusted, in the discretion of
the Committee, to reflect the effect of such transaction) and shall
thereafter become exercisable, subject to the conditions and other terms of
such options, for the number and/or kind of capital stock, securities
and/or other property into which the Common Stock subject to the Option
would have been changed or exchanged had the Option been exercised in full
prior to such transaction, provided that, if necessary, the provisions of
the Option shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of capital stock, securities
and/or other property thereafter issuable or deliverable upon exercise of
the Option. The Company shall mail by first class mail, postage prepaid, to
each Holder, notice of the execution of any such agreement (including a
copy thereof). Such agreement shall provide for adjustments, which shall be
as nearly equivalent as may be practicable to the adjustments provided for
in this Section 12. The provisions of this Section 12 shall similarly apply
to successive consolidations, mergers, sales, transfers or leases. The
Acquiring Person shall mail to Holders a notice describing any supplemental
Option Agreement. In the event that this Section 12 shall be applicable,
the provisions of Section 11(a) shall not be applicable.
(b) In the event of any sale of all or substantially all of the
Company to a third party, whether pursuant to a sale of capital stock of
the Company, merger, consolidation, sale of assets or similar transaction
or in the event of any other merger or consolidation of the Company with or
into a third party, the Company shall have the right to compel the Holder
of any Option which is then exercisable, or which would become exercisable
upon the consummation of such transaction, to exercise such Option (a
"Compelled Exercise") and any Option which is not subject to the Compelled
Exercise shall terminate upon the date of such Compelled Exercise. In the
event that the Company determines to exercise its right to a Compelled
Exercise, it shall mail to Holders written notice of such event.
13. Employee Stockholders Agreement. Notwithstanding anything
in the Plan to the contrary, all shares of Common Stock issued upon the
exercise of Options shall be subject to all terms and conditions set forth
in the Employee Stockholders Agreement. As a condition to the exercise of
any Option, each Holder shall be required to execute and deliver to Endo
Pharma (i) an executed copy of the Employee Stockholders Agreement, in the
form in effect at the time of such exercise, if such Holder had not
previously done so and (ii) such written representations and other
documents as may be necessary or reasonably desirable, in the opinion of
the Committee, for purposes of compliance with federal or state securities
or other laws. For purposes of the Employee Stockholders Agreement, each
Holder shall be deemed to be a "Employee Stockholder."
14. Restrictions on Transfer.
(a) Restrictive Legend. Except as otherwise permitted by this
Section 14, each Option (including each Option issued upon the transfer of
any option) shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Option and any shares acquired upon the exercise of this option
have not been registered under the Securities Act of 1933, as
amended, and may not be transferred, sold or otherwise disposed of
except while a registration under such Act is in effect or pursuant
to an exemption therefrom under such Act and in all cases in
compliance with all applicable state securities laws, and in any
event may not be transferred to any party other than a Permitted
Transferee as defined in this Option."
(b) Restrictions on Transfer. Each Holder, by acceptance of an
Option, shall acknowledge and agree that such Option may not be sold,
assigned, transferred, exchanged, mortgaged, pledged or granted a security
interest in, or otherwise disposed of or encumbered by or to any party
other than by or to a Permitted Transferee.
15. Registration and Transfer of Options, etc.
(a) Option Register; Ownership of Options. Endo Pharma will
keep at its principal office a register in which Endo Pharma will provide
for the registration of Options and the registration of transfers of
Options. Endo Pharma may treat the Person in whose name any Option is
registered on such register as the owner thereof for all other purposes,
and Endo Pharma shall not be affected by any notice to the contrary, except
that, if and when any Option is accompanied by an instrument of assignment
in a form acceptable to Endo Pharma, it may (but shall not be obligated to)
treat the bearer thereof as the owner of such Option for all purposes.
Subject to Section 14(b) hereof, an Option, if properly assigned, may be
exercised by a new Holder without a new Option first having been issued.
(b) Transfer and Exchange of Options. Upon surrender of any
Option for registration of transfer or for exchange to the Company at its
principal office, the Company at its expense will (subject to compliance
with Section 14(b) hereof, if applicable) execute and deliver in exchange
therefor a new Option or Options of the same class and tenor, in the name
of such Holder or as such Holder (upon payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the
face or faces of the Option or Options so surrendered.
(c) Replacement of Options. Upon receipt of evidence reasonably
satisfactory to Endo Pharma of the loss, theft, destruction or mutilation
of any Option and, in the case of any such loss, theft or destruction of
any Option, upon delivery of an indemnity bond in such reasonable amount as
Endo Pharma may determine (or, at the sole option of Endo Pharma, of an
indemnity agreement reasonably satisfactory to Endo Pharma), or, in the
case of any such mutilation, upon the surrender of such Option for
cancellation to Endo Pharma at its principal office, Endo Pharma at its
expense will execute and deliver, in lieu thereof, a new Option of the same
class and tenor.
16. Rights as Option Holders of Shares. Neither the Holder of
an Option nor any Permitted Transferees shall have any rights as a
stockholder of the Company (including, without limitation, any right to
vote or to receive dividends or to consent or to receive notice as a
stockholder in respect of any meeting of stockholders for the election of
directors of the Company or any other matter, or any right whatsoever as a
stockholder of the Company (except for those notices and other matters
expressly set forth under the Plan or in the Option)). An Option does not
impose any obligation on a Holder or any of its Permitted Transferees to
purchase any securities or impose any liabilities on a Holder as a
stockholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
17. Withholding. Endo Pharma shall have the right to require a
Holder or other person entitled to receive shares of Common Stock upon the
exercise of Options (or, if the Holder makes an election under Section
83(b) of the Code, in connection with such grant) under the Plan to pay to
Endo Pharma the amount which Endo Pharma is or will be required to withhold
with respect to the issuance of such shares in order for Endo Pharma or the
Company to pay taxes or to claim an income tax deduction with respect to
the issuance of such shares. In lieu of a portion of such payment equal to
the amount of the minimum statutory tax withholding, Endo Pharma may
retain, at the discretion of the Committee, a sufficient number of such
shares (valued at the Fair Market Value thereof) to cover the amount equal
to the minimum statutory tax withholding. A Holder, however, may elect to
pay to Endo Pharma all or a portion of the total amount Endo Pharma is
required to withhold by tendering shares of Common Stock with a Fair Market
Value equal to the amount Endo Pharma is required to withhold; provided,
however, that such Holder must have owned such tendered shares of Common
Stock continuously through the date of issuance (or lapse) for a period of
a least six months. With respect to Class C Options, a Holder may elect to
pay to Endo Pharma all or a portion of the total amount Endo Pharma is
required to withhold by having shares of Common Stock with a Fair Market
Value equal to the minimum statutory amount Endo Pharma is required to
withhold withheld by Endo Pharma. The Holder shall promptly notify Endo
Pharma of any election made pursuant to Section 83(b) of the Code.
18. Liability. Endo Pharma, and not the Company, the Board,
the Committee, or any member thereof, shall be liable for any and all
claims made against Endo Pharma, the Company, the Board or the Committee in
connection with the Plan or any Option.
19. Legal Requirements.
(a) Endo Pharma shall be responsible and shall pay for any
transfer, revenue or documentary stamps with respect to shares of Common
Stock issued upon the exercise of Options granted under the Plan (other
than any transfer tax applicable to a transfer to a Permitted Transferee
which shall be payable by a Holder).
(b) Endo Pharma shall not be required to issue a certificate or
certificates for shares upon the exercise of any Option if such issuance
would result in a violation of any federal or state securities or other
laws. Endo Pharma agrees to use its reasonable efforts to clear the legal
impediment as soon as possible.
20. Amendment and Termination of the Plan. The Committee may at
any time and from time to time alter, amend, suspend, or terminate the Plan
in whole or in part. Notwithstanding the foregoing, no amendment,
suspension, or termination shall affect adversely any of the rights of any
Holder, unless such amendment suspension or termination is approved by a
majority of the members of the Committee that includes a Committee member
who is a representative of the Management Stockholders.
21. Nonqualified Stock Options. Options granted hereby shall
be treated as nonqualified stock options under the Code.
22. Effective Date. The Plan shall take effect upon its
adoption by the Board.
23. Interpretations. Except as otherwise expressly provided in
the Plan, the following rules of interpretation apply to the Plan and each
Option: (i) the singular includes the plural and the plural includes the
singular; (ii) "include" and "including" are not limiting and "or" is not
exclusive; (iii) a reference to any agreement or other contract includes
permitted supplements and amendments; (iv) a reference to a law includes
any amendment or modification to such law and any rules or regulations
issued thereunder; and (v) a reference to any person, corporation or other
entity includes its permitted successors and assigns.
24. GOVERNING LAW. THE PLAN AND ANY AND ALL OPTIONS AND OPTION
AWARD AGREEMENTS SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF
DELAWARE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.
SCHEDULE I
ENDO PHARMACEUTICALS
EBITDA TARGETS FOR CLASS B OPTIONS
Fiscal Year EBITDA Target
1998 $43.0 million
1999 $60.0 million
2000 $80.0 million
2001 $100.0 million
2002 $120.0 million
<TABLE>
<CAPTION>
SCHEDULE II
VESTING MATRIX AND IMPLIED PUBLIC STOCK PRICE THRESHOLDS FOR CLASS C OPTIONS
-------------------------------------------------------------------------------------------------------------------------------
PRIOR TO
OPTION DECEMBER 31, CASH GROSS PROFIT TARGET IS
CLASS 2000 ACHIEVED CASH GROSS PROFIT TARGET IS NOT ACHIEVED
-------------------------------------------------------------------------------------------------------------------------------
Implied Public Implied Public
Stock Price Implied Public Stock Price
Threshold is met Stock Price Threshold is met
on or prior to MorphiDex(R) Threshold is met and MorphiDex(R) MorphiDex(R)
December 31, Approval does and MorphiDex(R) Approval has not Approval does
Implied Public 2002, regardless not occur on Approval has yet occurred or not occur on
Stock Price of whether or or prior to occurred prior occurs or prior to
Threshold is not MorphiDex(R) December 31, to March 31, subsequent to December 31,
met. Approval occurs. 2002. 2001. March 31, 2001. 2002.
----------------------------------------------------------------------------------------------------------------------
Implied Total Implied Total Implied Total Implied Total Implied Total Implied Total
Public Number Public Number Public Number Public Number Public Number Public Number
Stock of Stock of Stock of Stock of Stock of Stock of
Price Vested Price Vested Price Vested Price Vested Price Vested Price Vested
Thresh- Class C Thresh- Class C Thresh- Class C Thresh- Class C Thresh- Class C Thresh- Class C
old Options old Options old Options old Options old Options old Options
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Class $8.09 2,000,000 $6.06 2,000,000 $4.28 2,000,000 $7.51 2,000,000 $8.09 2,000,000 $6.06 2,000,000
C1A
Class $8.09 14,349 $6.06 2,561,911 $4.28 2,561,911 $7.51 602,248 $8.09 14,349 $6.06 14,349
C1B
Class $12.50 3,557,594 $9.38 4,743,458 $6.62 4,743,458 $11.61 3,831,255 $12.50 3,557,594 $9.38 3,557,594
C2
Class $19.99 5,339,794 $14.99 7,119,725 $10.58 7,119,725 $18.56 5,750,547 $19.99 5,339,794 $14.99 5,339,794
C3
Class $32.66 2,671,429 $24.50 3,561,906 $17.29 3,561,906 $30.33 2,876,924 $32.66 2,671,429 $24.50 2,671,429
C4
</TABLE>
