AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
THIS AMENDED
AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) is
made and entered into effective as of this 31
st day of December 2008, by and between
Cypress Bioscience,
Inc. , a Delaware corporation (the
‘Company”) and Jay D. Kranzler, M.D., Ph.D. (the
“Employee”).
WHEREAS ,
the Company desires to employ the Employee in an executive capacity
as Chief Executive Officer on the terms and conditions set forth
herein and the Employee is willing to accept and undertake such
employment.
WHEREAS ,
the Company and the Employee desire to amend and restate this
Agreement in its entirety as set forth herein, effective as of the
date set forth above, to, among other things, clarify the
application of Section 409A of the Internal Revenue Code of
1986, as amended (the “Code”) to the benefits that may
be provided to the Employee.
NOW
THEREFORE , in consideration of the premises and the mutual
covenants herein set forth, the Company and the Employee agree as
follows:
1.1
Employment. Upon the terms and conditions hereinafter set
forth, the Company hereby employs the Employee, and the Employee
hereby accepts continued employment, as Chief Executive Officer
(CEO) of the Company.
1.2
Directorship; Chairman of the Board. The Employee currently
serves as a member of the Board of Directors and as Chairman of the
Board of Directors of the Company (the “Board”). The
Employee’s continued service (i) as a member of the
Board is subject to re-election by the Company stockholders in
accordance with the Company’s Certificate of Incorporation
and Bylaws; and (ii) as Chairman of the Board is subject to
the on-going approval of the Board. The Employee shall devote such
additional time to the business of the Company as is necessary for
the fulfillment of the Employee’s duties as Chairman of the
Board.
1.3 Term.
Unless sooner terminated as provided in Article 5 hereof, the
Employee’s employment hereunder shall be for a term
commencing on August 1, 2003 and ending on August 1,
2006, subject to automatic renewal for one year periods unless
written notice has been provided by either party at least
seventy-five (75) days prior to the date of such automatic
renewal (a “Non-Renewal Notice”). Notwithstanding
anything herein to the contrary, either party may terminate the
Employee’s employment under this Agreement at any time, with
or without Cause, subject to the terms and conditions of
Article 5 herein. The actual term of employment hereunder,
giving effect to any early termination of employment under
Article 5 hereof, is referred to as the
“Term.”
1
1.4
Duties. During the Term, the Employee shall perform such
executive duties for the Company and for its subsidiaries,
consistent with his position hereunder and as typically associated
with the duties of a Chief Executive Officer of a publicly-held
corporation and as reasonably may be assigned to him from time to
time by the Board. Except as contemplated by Section 1.6, the
Employee shall devote his entire business time, attention and
energies to the performance of his duties hereunder.
1.5 Exclusive
Agreement. The Employee represents and warrants to the Company
that he is not a party to any agreement or arrangement, whether
written or oral, in effect which would prevent the Employee from
rendering the services contemplated hereunder to the Company during
the Term.
1.6 Other
Activity. Notwithstanding the foregoing, subject to his
fiduciary duties to the Company under applicable law, the Company
acknowledges and understands that the Employee may serve as a
director of other companies not in competition with the Company
provided, however, that the performance of such services shall not
restrict or limit in any manner the Employee’s ability to
perform his duties hereunder.
1.7
Insurance. The Company shall obtain, and shall use its
commercially reasonable best efforts to maintain during the Term,
Director’s and Officer’s Insurance and Product
Liability Insurance policies, with full defense coverage of at
least $10,000,000 for each, respectively, with regard to all
actions undertaken by the Employee in his capacity as an officer,
director and employee of the Company.
2.1 Base
Salary. For all services rendered by the Employee hereunder and
in consideration of all covenants and conditions undertaken by him
pursuant to this Agreement, the Company shall pay the Employee an
annual base salary (“Base Salary”) of $578,111.94 per
year in equal semi-monthly installments. Each year during the Term,
the Board shall review the Base Salary with a view to determining
whether it would be appropriate to increase such Base Salary. The
annual Base Salary payable to the Employee hereunder, as it may be
so increased, thereafter shall constitute the Base
Salary.
If the first or
last month of the Term is not a full calendar month, then any
calculation of Base Salary for such period shall be prorated for
the number of days in such months during which the Employee was
employed.
(a) In addition to the Base Salary, the Employee may be
eligible at the end of fiscal year 2004 and each year thereafter
for a cash bonus (the “Bonus Amount”) equal to an
amount up to 66 2/3% of the Base Salary and such Bonus Amount shall
be paid no later than the fifteenth day of the third month
following the end of the Company’s fiscal year for which such
Bonus Amount was earned. The Bonus Amount, if any, shall be based
on the performance of the Employee during a fiscal year, as
evaluated by the Board in its sole discretion. It is
2
acknowledged
and agreed that the determination and the payment of the Bonus
Amount to the Employee shall be at the sole discretion of the Board
which may consider, among other matters, the financial condition of
the Company at the time. In exercising its discretion pursuant to
this subsection, the Board shall act in a manner at least as
favorable to the Employee as governs the award of bonuses to other
executive officers and key employees of the Company.
2.3
Deductions. The Company shall deduct from the compensation
described in this Section 2 any Federal, state or city
withholding taxes, social security contributions and any other
amounts which may be required to be deducted or withheld by the
Company pursuant to any federal, state or city laws, rules or
regulations.
2.4 Disability
Adjustments. Any compensation otherwise payable to the Employee
pursuant to Section 2.1 in respect of any period during which
the Employee is disabled (as contemplated in Section 5.1)
shall be reduced by any amounts paid to the Employee for loss of
earnings or the like under any disability insurance plan or policy,
the premiums for which are paid for in their entirety by the
Company.
3.1
Benefits. During the Term, the Employee shall be entitled to
participate in such compensation and incentive plans and group
life, health, accident, disability and hospitalization insurance
plans, pension plans and retirements plans as the Company may make
available to its other executive officers.
3.2 Life
Insurance. The Company agrees that it will provide the Employee
with $2 million of life insurance policy or policies
(including any policies currently in place), subject to
availability of such insurance at commercially reasonable costs and
the mutual agreement of the Company and the Employee as to the type
and nature of the policies.
3.3 Disability
Insurance. During the Term, the Company shall procure and
provide the Employee with a Company-paid long-term disability
insurance policy providing for benefits of not less than 100% of
his Base Salary so long as the Employee is insurable at a
commercially reasonable cost.
3.4
Expenses. The Company agrees that the Employee is authorized to
incur reasonable and customary expenses in the performance of his
duties hereunder, including travel and entertainment costs, and
upon presentation of appropriate documentation thereof, the Company
promptly, but in no event later than December 31 of the
calendar year following the year in which such expenses were
incurred by the Employee, shall pay or reimburse the Employee for
such reasonable expenses. In the event that any reimbursement by
the Company of expenses of the Employee hereunder is deducted by
the Company, and results in additional taxes due and payable by the
Employee, the Company shall pay to the Employee an additional tax
gross-up payment to the Employee in an amount that shall fully fund
the payment by the Employee of any income and employment taxes on
such reimbursement payment and tax gross-up payment. Any tax
gross-up payment shall be made as soon as practicable, but in no
event
3
later than the
end of the Employee’s taxable year following the year in
which the Employee pays the related taxes.
3.5
Vacations. During each full year of the Term, the Employee
shall be entitled to four (4) weeks of paid vacation, to be taken
at times determined by the Employee which do not unreasonably
interfere with the performance of his duties hereunder.
3.6 Legal
Fees. The Company will reimburse the Employee for legal fees
incurred in connection with the preparation of this Agreement in an
amount not to exceed $5,000. Such reimbursement payment shall be
made as soon as practicable following the date Employee incurred
such legal fees, but in no event later than the end of the
Employee’s taxable year following the year in which the
Employee pays such legal fees.
3.7 Family
Estate Planning. During the Term, the Company will reimburse
the Employee for family estate planning or counseling fees in an
amount not to exceed $5,000 per year. Such reimbursement payment
shall be made as soon as practicable following the date Employee
incurred such fees, but in no event later than the end of the
Employee’s taxable year following the year in which the
Employee pays such fees.
(a) In the event of a termination (as described in
Article 5), and except as otherwise provided in
Section 4.1(b) and 4.1(c) hereof, all Stock Awards which have
not vested as of the Termination Date shall cease vesting and any
unvested Stock Awards shall be cancelled as of the Termination
Date. Unless otherwise set forth in the applicable equity incentive
plan or stock award agreement, and except as otherwise provided in
Section 4.1(b) and 4.1(c) hereof, all vested and exercisable
Stock Awards shall be cancelled three (3) months after the
Termination Date if not exercised prior to such expiration
date.
(b) Upon the Employee’s death or Disability (as
defined in Section 5.1 below), all Stock Awards shall vest
immediately and all rights under such Stock Awards shall transfer
to the Employee’s designated beneficiary, if applicable.
Unless otherwise set forth in the applicable equity incentive plan
or stock award agreement, all Stock Awards shall be cancelled
twelve (12) months after the Employee is terminated due to
Disability if not exercised prior to such expiration date. In the
event of the Employee’s death, the Employee’s legal
representatives shall have eighteen (18) months following the
Termination Date to exercise any exercisable Stock Awards before
they are cancelled.
(c) Notwithstanding anything to the contrary in the
foregoing, in the event of a termination of this Agreement in any
of the cases identified in Section 5.2(b) or 5.4 hereof, all
Stock Awards shall vest immediately upon such Termination Date. In
addition, all Stock Awards shall vest immediately upon a
Change-in-Control (as defined in paragraph 5.6 herein).
4
(d) The Company may grant the Employee Stock Awards to
purchase the Company’s common stock at such times and on such
terms as may be decided from time to time by the Board, in its sole
discretion.
(e) For purposes of this Agreement, “Stock
Awards” means all stock options, restricted stock, and other
equity awards granted pursuant to the Company’s stock option
and equity incentive award plans or agreements and any shares of
Company stock issued upon exercise thereof. However, “Stock
Awards” does not include stock awards issued under or held in
any plan sponsored by the Company that is intended to be qualified
under Section 401(a) of the Internal Revenue Code (e.g., the
Company’s 401(k) plan).
DEATH, DISABILITY;
TERMINATION
5.1 Death;
Disability. The Employee’s employment hereunder shall
terminate upon his death or, at the election of the Company, by
written notice to the Employee if the Employee becomes Disabled (as
such term is hereinafter defined), to the extent permitted by law.
In the event of a termination of the Employee’s employment
for death, the Company shall pay the Employee (or his legal
representatives, as the case may be) a lump sum amount equal to the
Employee’s Base Salary for one year, reduced (but not to a
negative number) by any amounts paid or to be paid to the Employee
(or his legal representatives, as the case may be) by insurance
provided by the Company pursuant to Section 3.2 hereof.
Subject to the provisions of Section 5.7, if applicable, such
lump sum payment shall be made promptly, but in no event later than
sixty (60) days following the Employee’s termination due
to death or Disability.
For the purposes
of this Agreement, the Employee shall be deemed to be
“Disabled” or have a “Disability” if as a
result of the occurrence of mental or physical disability during
the Term he has been unable to perform his duties hereunder for six
(6) consecutive months or one hundred eighty (180) days
in any twelve (12) consecutive month period, as determined in
good faith by the Board; provided, however, that if the Employee
develops a mental or physical disability during the Term, and it is
determined, in the reasonable professional judgment of an
independent, objective and qualified medical expert in the field of
such disability, that the Employee will be unable to perform his
duties hereunder and that such disability will continue for six
(6) consecutive months or one hundred eighty (180) days
in any twelve (12) consecutive month period, then, to the
extent permitted by applicable laws, the Company shall be permitted
to terminate the Employee’s employment immediately, subject
to payment by the Company of the Employee’s Base Salary for
the number of months following the Termination Date until
disability insurance payments are to commence, subject to a maximum
payment by the Company in a lump sum amount equal to the
Employee’s Base Salary for one year.
In the event that
the employment of the Employee hereunder is terminated by the
Company upon the Employee’s death or Disability, the
Employee’s family (including the Employee, if applicable),
for a period of two (2) years from the Termination Date, shall
be entitled to maintain coverage under the Company’s health
and hospitalization insurance plans on the same terms as existed
prior to such Termination Date, subject to the payment of
applicable
5
costs therefore
by the Employee’s representatives, and further subject to the
policies and provisions of such insurance carriers and applicable
law.
The Employee
acknowledges that the payments referred to in this Section 5.1
constitute the only payments to which the Employee (or his legal
representatives, as the case may be) shall be entitled to receive
from the Company under this Agreement in the event of a termination
of his employment for death or Disability, and that except for such
payments and subject to Section 4.1(c) hereof, the Company
shall have no further liability or obligation to his (or his legal
representatives, as the case may be) under this
Agreement.
The date of any
termination of employment under this Section 5.1 or
Sections 5.2, 5.3 or 5.4 is referred to herein as the
“Termination Date.”
5.2
Termination of Employment by Employee.
(a) Notwithstanding any provision to the contrary herein,
unless otherwise provided herein or unless otherwise provided by
law, the Employee at any time, upon thirty (30) days’
written notice to the Company, may terminate his employment by the
Company hereunder. Except as otherwise provided in
Section 5.2(b) below, the Company shall not be liable to the
Employee for the payment of any amount on such
termination.
(b) In the event that the Employee terminates his employment
as CEO following (i) an uncured material breach of this
Agreement by the Company, (ii) the occurrence of a Change in
Control (as defined in paragraph 5.6 herein), (iii) the
relocation of the Company’s executive offices or principal
business location to a point more than 30 miles from the
San Diego, California area, (iv) any action by the Board
or direction given by the Board to the Employee that in the
reasonable and good faith belief of the Employee is contrary to
applicable law or accounting standards or constitutes an unethical
business practice, or (v) a demotion or, in the
Employee’s reasonable and good faith belief, the occurrence
of a material reduction in the Employee’s authority,
functions or responsibilities as Chief Executive Officer without
his consent, then such termination by the Employee shall be deemed
for all purposes, including for purposes of severance payments and
benefits provided under Section 5.4 hereof, to be a
termination by the Company of the employment of the Employee
hereunder without cause pursuant to Section 5.4. The Company
shall have thirty (30) days following receipt of written notice by
the Employee to the Company of the material breach described in
items (i), (iv) and (v) above, setting forth in
reasonable detail the matter constituting such breach, to cure such
breach.
5.3
Termination of Employment With Cause. In addition to any other
remedies available to it at law, in equity or as set forth in this
Agreement, the Company shall have the right, upon written notice to
the Employee, to immediately terminate his employment hereunder if
the Employee (a) evidences a pattern of willful breach in any
material respect of any material provision of this Agreement or a
pattern of willful violation of any reasonable policies or orders
of the Board and such pattern of willful breach or violation does
not cease within thirty (30) days after the Employee’s
receipt of written notice thereof from the Board setting forth in
reasonable detail the matters constituting such pattern; or
(b) has been convicted of a felony.
6
5.4
Termination of Employment Without Cause or for
Non-Renewal.
(a) Notwithstanding any provision to the contrary herein and
unless otherwise provided by law, the Company, at any time upon
thirty (30) days’ written notice to the Employee, in its
sole and absolute discretion and for any or no reason, may
terminate the employment of the Employee as CEO hereunder without
cause. In such event, if the Company issues the Employee a
Non-renewal Notice, or if the Agreement expires and the Employee is
not rehired, then upon the Employee furnishing the Company with a
Release and Waiver of Claims in the form of either Exhibit A
or Exhibit B attached hereto, as applicable (the
“Release”) within the applicable time period set forth
therein, but in no event later than forty-five (45) days
following termination of employment, and permitting such Release to
become effective in accordance with its terms, the Company shall
pay the Employee an amount equal to eighteen months of the
Employee’s Base Salary, payable in a single lump sum, within
ten (10) days following the effective date of the Release.
Notwithstanding the foregoing, the timing of the severance payments
is subject to the provisions of Section 5.7, to the extent
applicable.
(b) In the event that the employment of the Employee
hereunder is terminated by the Company without cause, all Stock
Awards shall vest immediately upon the Termination Date as provided
in Section 4.1(d) hereof.
(c) In the event that the employment of the Employee
hereunder is terminated by the Company without cause, the Company,
at no cost to the Employee and for a period of two (2) years
from the Termination Date, shall continue to provide the Employee
with at least the same life, health, accident, disability and
hospitalization insurance plans as were in effect with respect to
the Employee on the date of such termination, including the
coverage provided for in Sections 3.2 and 3.3 hereof, and
shall continue to provide coverage for the Employee’s family
on the same terms as existed prior to such Termination Date.
Subject to the provisions of Section 5.7, to the extent
applicable, the Company shall make any coverage payments directly
to any insurer on a monthly basis or otherwise in accordance with
the insurer’s standard billing practices.
(d) The Employee acknowledges that the payments referred to
in Section 5.2 and this Section 5.4 constitute the only
payments which the Employee shall be entitled to receive from the
Company under this Agreement in the event of any termination
pursuant to Section 5.2, 5.3 and this Section 5.4, and that
except for such payments and such other obligations as are
expressly provided herein the Company shall have no further
liability or obligation to him under this Agreement.
(e) The Employee shall have no duty to mitigate damages in
order to receive any severance payments and benefits provided in
this Section 5.4.
5.5 Golden
Parachute Tax. In the event that the benefits provided for in
this Agreement or otherwise payable to the Employee constitute
“parachute payments” within the meaning of Section 280G
of the Code and will be subject to the excise tax imposed by
Section 4999 of the Code, then the Company shall pay to the
Employee an amount (the “Gross-Up Payment”) sufficient
to pay such excise tax (such excise tax, together with any such
interest and penalties are hereinafter collectively referred to as
the “Excise Tax”) as well as all income and
7
employment
taxes imposed on the Gross-Up Payment, any Excise Tax imposed on
the Gross-Up Payment, and any interest or penalties with respect to
income and employment taxes imposed on the Gross-Up Payment;
provided that such payment by the Company to the Employee
shall not exceed two hundred fifty thousand dollars ($250,000.
Unless the Company and the Employee otherwise agree in writing, the
determination of the Employee’s excise tax liability and the
amount required to be paid under this Section 5.5 shall be
made in writing by a nationally recognized accounting firm
satisfactory to both parties (the “Accountants”). For
purposes of making the calculations required by this
Section 5.5, the Accountants may make reasonable assumptions
and approximations concerning applicable taxes and may rely on
interpretations of the Code for which there is a “substantial
authority” tax reporting position; however, such calculations
shall be performed assuming that Employee pays taxes at the highest
applicable marginal tax rate. The Company and the Employee shall
furnish to the Accountants such information and documents the
Accountants may reasonably request in order to make a determination
under this Section 5.5. The Company shall bear all costs the
Accountants may reasonably incur in connection with any
calculations contemplated by this Section 5.5. Any Gross-Up
Payment shall be made as soon as practicable following the
triggering event, but in no event later than the end of the
Employee’s taxable year following the year in which the
Employee pays the related Excise Taxes.
5.6 Definition
of Change-in-Control. For purposes of this Agreement, Change in
Control means: (i) a sale of all or substantially all of the
assets of the Company; (ii) 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 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; (iii) 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; or (iv) an acquisition by any
person, entity or group within the meaning of Section 13(d) or
14(d) of the Exchange Act of 1934, as amended (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 of the Company; provided, however,
that nothing in this paragraph shall apply to a
|
