AMENDED AND RESTATED SEVERANCE
BENEFIT PLAN
The
Cypress Bioscience, Inc. Amended and Restated Severance Benefit
Plan (the “ Plan ”) was originally
established effective May 21, 2004 and amended and restated
effective December 31, 2008. The purpose of the Plan is to
provide severance benefits to certain eligible service providers of
the Company upon selected terminations of service. This Plan
document is also the Summary Plan Description for the
Plan.
For
purposes of the Plan, the following terms are defined as
follows:
(a) “ Base Salary ” means an
individual’s annual base salary and excludes all bonuses,
commissions, fringe benefits, option grants, equity awards,
employee benefits and other similar items of
compensation.
(b) “ Board ” means the Board of
Directors of the Company.
(c) “ Cause ” means the occurrence of one
or more of the following:
(1) An individual’s conviction of, or plea of
guilty or no contest with respect to, (i) any crime involving
fraud, dishonesty or moral turpitude or (ii) any felony under
the laws of the United States or any state thereof;
(2) An individual’s attempted commission of, or
participation in, a fraud or act of dishonesty against the Company
that results in (or might reasonably result in) material harm to
the Company;
(3) An individual’s intentional and material
violation of any statutory duty owed to the Company;
(4) An individual’s unauthorized use or
disclosure of the Company’s confidential information, trade
secrets or proprietary information; or
(5) An individual’s gross misconduct.
(d) “ Change in Control ” means the
occurrence in a single transaction or in a series of related
transactions of any one or more of the following events:
(1) A sale of all or substantially all of the assets
of the Company;
(2) A merger or consolidation in which the Company is not
the surviving entity and in which the holders of the
Company’s outstanding voting stock immediately prior to such
transaction own, immediately after such transaction,
securities
1.
representing
less than fifty percent (50%) of the voting power of the entity
surviving such transaction or, where the surviving entity is a
wholly-owned subsidiary of another entity, the surviving
entity’s parent;
(3) A reverse merger in which the Company is the
surviving entity but the shares of Common Stock outstanding
immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities of
the surviving entity’s parent, cash or otherwise, and in
which the holders of the Company’s outstanding voting stock
immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%)
of the voting power of the Company or, where the Company is a
wholly-owned subsidiary of another entity, the Company’s
parent;
(4) An acquisition by any person, entity or group
within the meaning of Section 13(d) or 14(d) of the Exchange Act,
or any comparable successor provisions (excluding any employee
benefit plan, or related trust, sponsored or maintained by the
Company or subsidiary of the Company or other entity controlled by
the Company) of the beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least
seventy five percent (75%) of the combined voting power entitled to
vote in the election of directors; or
(5) The Company employs any Chief Executive Officer
other than Jay D. Kranzler.
A transaction
effected exclusively for the purpose of changing the domicile of
the Company shall not constitute a Change in Control and once a
Change in Control has occurred, no future events shall constitute a
Change in Control for purposes of the Plan.
(e) “ Change in Control Covered Termination
” means either a termination of employment by the Company
without Cause or a voluntary resignation of employment for Good
Reason; either of which occurring within one (1) month prior
to, or thirteen (13) months following, the effective date of a
Change in Control.
(f) “ Company ” means Cypress Bioscience,
Inc. or, following a Change in Control, the surviving entity
resulting from such transaction or the parent company of such
surviving entity.
(g) “ Covered Termination ” means either
a termination of employment by the Company without Cause or a
voluntary resignation of employment for Good Reason that does
not occur within one (1) month prior to, or thirteen
(13) months following, the effective date of a Change in
Control.
(h) “ Director Covered Termination ”
means the resignation of a Board member or the termination of a
Board member’s service following the completion of his or her
term as a result of his or her refusal to stand for re-election or
the Company’s failure to nominate such individual for
re-election.
2.
(i) “ Good Reason ” means, with respect
to an individual covered by this Plan, the occurrence of one or
more of the following events without such individual’s
express written consent:
(1) A material reduction in such individual’s
authority, duties or responsibilities (and not simply a change in
title or reporting relationships); provided, however, that Good
Reason shall not be satisfied solely by reason of such individual
retaining the same position held prior to a Change in Control, but
in a distinct legal entity or business unit of a larger entity
following such Change in Control;
(2) A material reduction by the Company in such
individual’s Base Salary; or
(3) An increase in the one-way driving distance from the
individual’s principal residence to the individual’s
principal place of work in effect as of May 21, 2004 by more
than thirty (30) miles.
Notwithstanding
the foregoing, an individual shall have “Good Reason”
for his or her resignation only if: (a) the individual
notifies the Company in writing, within thirty (30) days after
the first occurrence of one of the foregoing events, that he or she
intends to terminate his or her employment no earlier than thirty
(30) days after providing such notice; (b) the Company
does not cure such condition within thirty (30) days following
its receipt of such notice or states unequivocally in writing that
it does not intend to attempt to cure such condition; and
(c) the individual resigns from employment within thirty
(30) days following the end of the period within which the
Company was entitled to remedy the condition constituting Good
Reason but failed to do so.
(j) “ Release Deadline Date ”
means: (1) with respect to a Covered Termination or a Director
Covered Termination, forty-five (45) days following such
termination, and (2) with respect to a Change in Control
Covered Termination, the later of: (a) forty-five
(45) days following such termination, or (b) forty-five
(45) days following the applicable Change in
Control.
Section 3. Eligibility For
Benefits.
(a) General Rules. Subject to the requirements set
forth in this Section, the Company shall provide severance benefits
under the Plan to the individuals and in the capacities set forth
on Appendix A . The Company is free to add individuals
to Appendix A at any time. In order to be eligible to
receive benefits under the Plan, an individual must
(i) experience a Covered Termination, Change in Control
Covered Termination or Director Covered Termination, (ii) be
designated on Appendix A , ( iii) have provided
continuous service to the Company as a Board member or an employee
for at least one (1) year and (iv) execute a general
waiver and release in substantially the form attached hereto as
Exhibit A , Exhibit B or
Exhibit C , as appropriate within the applicable time
period set forth therein, but in no event later than the Release
Deadline Date, and such release must become effective in accordance
with its terms. The Company, in its sole discretion, may modify the
forms of the required release and shall determine the appropriate
form of release.
3.
Section 4. Amount Of Benefit.
Benefits
under the Plan, if any, shall be provided to the employees
described in Section 3 in the following amounts:
(a) Employee Covered Termination Benefits. Upon an
individual employee’s Covered Termination, such individual
shall receive one of the following severance
packages:
(1) If such individual has been employed with the
Company for more than one (1) year, but less than or equal
to two (2) years , then such individual shall
receive:
Cash Severance Benefits . A lump sum cash payment equal to
three (3) months of such individual’s Base
Salary.
COBRA Benefits . If such individual timely elects to
continue coverage under the Consolidated Omnibus Budget
Reconciliation Act of 1985 (“ COBRA ”),
the Company will pay all COBRA premiums for such individual and his
or her eligible dependents through the earliest of (i) the end
of the three (3) month period following the termination of
employment, (ii) the expiration of such individual’s
continuation coverage under COBRA or (iii) the date such
individual becomes eligible for substantially equivalent health
insurance coverage in connection with new employment.
Stock Option Vesting . 25% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such
termination of employment.
(2) If such individual has been employed with the
Company for more than two (2) years, but less than or equal
to three (3) years , then such individual will
receive:
Cash Severance Benefits . A lump sum cash payment equal to
six (6) months of such individual’s Base
Salary.
COBRA Benefits . If such individual timely elects to
continue coverage under COBRA, the Company will pay all COBRA
premiums for such individual and his or her eligible dependents
through the earliest of (i) the end of the six (6) month
period following the termination of employment, (ii) the
expiration of such individual’s continuation coverage under
COBRA or (iii) the date such individual becomes eligible for
substantially equivalent health insurance coverage in connection
with new employment.
Stock Option Vesting . 50% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such
termination of employment.
(3) If such individual has been employed with the
Company for more than three (3) years, but less than or
equal to four (4) years , then such individual shall
receive:
4.
Cash Severance Benefits . A lump sum cash payment equal to
nine (9) months of such individual’s Base
Salary.
COBRA Benefits . If such individual timely elects to
continue coverage under COBRA, the Company will pay all COBRA
premiums for such individual and his or her eligible dependents
through the earliest of (i) the end of the nine (9) month
period following the termination of employment, (ii) the
expiration of such individual’s continuation coverage under
COBRA or (iii) the date such individual becomes eligible for
substantially equivalent health insurance coverage in connection
with new employment.
Stock Option Vesting . 75% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such
termination of employment.
(4) If such individual has been employed with the
Company for more than four (4) years , then such individual
shall receive:
Cash Severance Benefits . A lump sum cash payment equal to
twelve (12) months of such individual’s Base
Salary.
COBRA Benefits . If such individual timely elects to
continue coverage under COBRA, the Company will pay all COBRA
premiums for such individual and his or her eligible dependents
through the earliest of (i) the end of the twelve
(12) month period following the termination of employment,
(ii) the expiration of such individual’s continuation
coverage under COBRA or (iii) the date such individual becomes
eligible for substantially equivalent health insurance coverage in
connection with new employment.
Stock Option Vesting . 100% of such individual’s
unvested outstanding stock options and unvested shares of common
stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such
termination of employment.
(b) Employee Change in Control Covered Termination
Benefits. Upon an individual employee’s Change in Control
Covered Termination, such individual shall receive the following
severance package:
Cash Severance Benefits . A lump sum cash payment equal to
twelve (12) months of such individual’s Base
Salary.
COBRA Benefits. If such individual timely elects to continue
coverage under COBRA, the Company will pay all COBRA premiums for
such individual and his or her eligible dependents through the
earliest of (i) the end of the twelve (12) month period
following the termination of employment, (ii) the expiration
of such individual’s continuation coverage under COBRA or
(iii) the date such individual becomes eligible for
substantially equivalent health insurance coverage in connection
with new employment.
5.
(c) Director Covered Termination Benefits. Upon an
individual’s Director Covered Termination, such individual
shall receive one of the following severance
packages:
(1) If such individual has served on the Board for
more than one (1) year, but less than or equal to two
(2) years , then 25% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock granted under the Company’s equity incentive plans and
programs shall become fully vested and exercisable as of the date
of such termination.
(2) If such individual has served on the Board for
more than two (2) years, but less than or equal to three
(3) years , then 50% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock granted under the Company’s equity incentive plans and
programs shall become fully vested and exercisable as of the date
of such termination.
(3) If such individual has served on the Board for
more than three (3) years, but less than or equal to four
(4) years , then 75% of all of such individual’s
unvested outstanding stock options and unvested shares of common
stock granted under the Company’s equity incentive plans and
programs shall become fully vested and exercisable as of the date
of such termination.
(4) If such individual has served on the Board for
more than four (4) years , then 100% of such
individual’s unvested outstanding stock options and unvested
shares of common stock granted under the Company’s equity
incentive plans and programs shall become fully vested and
exercisable as of the date of such termination.
All cash
severance payment referenced in this Section 4 shall be
subject to all applicable tax withholdings and deductions required
by law and shall be paid within ten (10) business days
following the effective date of the general waiver and release
referenced in Section 3 of the Plan, subject to the provisions
of Section 5(f), if applicable. An individual’s right to
exercise vested option shares shall be as set forth in the
applicable Company equity incentive plans and programs and
applicable stock option or award agreement(s). All terms,
conditions and limitations applicable to an individual’s
options and/or shares of common stock shall remain in full force
and effect.
(d) Certain Reductions. Notwithstanding any other
provision of the Plan to the contrary, any benefits payable to an
individual under this Plan shall be reduced (but not below one week
of Base Salary) by any severance benefits payable by the Company or
an affiliate of the Company to such individual under any other
policy, plan, program, agreement or arrangement, including, without
limitation, a contract between such individual and any entity,
covering such individual. In addition, to the extent that any
federal, state or local laws, including, without limitation the
Worker Adjustment Retraining Notification Act, 29 U.S.C.
Section 2101 et seq., or any similar state statute,
require the Company to give advance notice or make a payment of any
kind to an individual because of that individual’s
involuntary termination due to a layoff, reduction in force, plant
or facility closing, sale of business, change of control, or any
other similar event or reason, the benefits payable under this Plan
shall either be reduced or eliminated by such required payments or
notice. The benefits provided under this Plan are
6.
intended to
satisfy any and all statutory obligations that may arise out of an
individual’s involuntary termination of employment for the
foregoing reasons, and the Plan Administrator shall so construe and
implement the terms of the Plan.
Section 5. Limitations on
Benefits.
(a) Mitigation. Except as otherwise specifically
provided herein, an individual shall not be required to mitigate
damages or the amount of any payment provided under the Plan by
seeking other employment or otherwise, nor shall the amount of any
payment provided for under the Plan be reduced by any compensation
earned by an individual as a result of employment by another
employer or any retirement benefits received by such individual
after the date of service or employment termination.
(b) Termination of Benefits. Benefits under the Plan
shall terminate immediately if the individual, at any time,
violates (i) any proprietary information or confidentiality
obligation to the Company, (ii) any term of this Plan or
(iii) any term of the applicable general waiver and release
referenced in Section 3 above.
(c) Non-Duplication of Benefits. No individual is
eligible to receive benefits under this Plan more than one
time.
(d) Indebtedness of Individuals. If an individual is
indebted to the Company or an affiliate of the Company on the date
of his or her termination of employment or service, the Company
reserves the right to offset any severance benefits under the Plan
by the amount of such indebtedness, to the extent permitted by
law.
(e) Parachute Payments. If any payment or benefit an
individual would receive in connection with a Change in Control
from the Company or otherwise (a “ Payment
”) would (i) constitute a “parachute
payment” within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended (the “
Code ”), and (ii) but for this sentence,
be subject to the excise tax imposed by Section 4999 of the
Code (the “ Excise Tax ”), then such
Payment shall be equal to the Reduced Amount. For the avoidance of
doubt, a Payment shall not be considered a parachute payment for
purposes of this paragraph if such Payment is approved by the
stockholders of the Company in accordance with the procedures set
forth in Section 280G(b)(5)(A)(ii) and (B) of the Code
and the regulations thereunder, and at the time of such shareholder
approval, no stock of the Company is readily tradable on an
established securities market or otherwise (within the meaning of
Section 280G(b)(5)(A)(ii)(I) of the Code). The “
Reduced Amount ” shall be either (x) the
largest portion of the Payment that would result in no portion of
the Payment being subject to the Excise Tax or (y) the largest
portion of the Payment, up to and including the total Payment,
whichever amount, after taking into account all applicable federal,
state and local employment taxes, income taxes, and the Excise Tax
(all computed at the highest applicable marginal rate), results in
the individual’s receipt, on an after-tax basis, of the
greater amount of the Payment notwithstanding that all or some
portion of the Payment may be subject to the Excise Tax. If a
reduction in payments or benefits constituting “parachute
payments” is necessary so that the Payment equals the Reduced
Amount, reduction shall occur in the following order: reduction of
cash payments; cancellation of accelerated vesting of stock awards;
reduction of employee benefits. If acceleration of vesting of stock
award compensation is to be reduced, such acceleration of vesting
shall be cancelled in the reverse order of the date of grant of the
individual’s stock awards.
7.
The
accounting firm engaged by the Company for general audit purposes
as of the day prior to the effective date of the Change in Control
shall perform the foregoing calculations. If the accounting firm so
engaged by the Company is serving as accountant or auditor for the
individual, entity or group effecting the Change in Control, the
Company shall appoint a nationally recognized accounting firm to
make the determinations required hereunder. The Company shall bear
all expenses with respect to the determinations by such accounting
firm required to be made hereunder.
The
accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting
documentation, to the Company and the individual within ten
(10) calendar days after the date on which the
individual’s right to a Payment is triggered (if requested at
that time by the Company or the individual) or such other time as
requested by the Company or the individual. If the accounting firm
determines that no Excise Tax is payable with respect to a Payment,
either before or after the application of the Reduced Amount, it
shall furnish the Company and the individual with an opinion
reasonably acceptable to the individual that no Excise Tax will be
imposed with respect to such Payment. Any go
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