SOMAXON PHARMACEUTICALS,
INC.
Employment Agreement (this
“ Agreement ”) made and entered into as
of August 7, 2008, between Somaxon Pharmaceuticals, Inc.
, a Delaware corporation (the “ Company
”), and Richard W. Pascoe, an individual (“
Executive ”). This Agreement shall be effective
as of the date on which Executive’s employment with the
Company commences (the “ Effective Date
”).
Whereas , the Company desires
to employ Executive as its President and Chief Executive Officer,
and Executive desires to accept employment with the Company in such
position, on the terms and conditions hereinafter set
forth.
Now, Therefore, in
consideration of the premises and the mutual covenants hereinafter
set forth, and intending to be legally bound hereby, it is hereby
agreed as follows:
1.
Position and Duties . Executive shall diligently and
conscientiously devote Executive’s full business time,
attention, energy, skill and diligent efforts to the business of
the Company and the discharge of Executive’s duties
hereunder. Executive’s duties under this Agreement shall be
to serve as President and Chief Executive Officer, with the
responsibilities, rights, authority and duties customarily
pertaining to such office and as may be established from time to
time by or under the direction of the Board of Directors of the
Company (the “ Board ”) or its designees.
Executive shall report to the Board. Executive shall also act as an
officer and/or director and/or manager of such affiliates of the
Company as may be designated by the Board from time to time,
commensurate with Executive’s office, all without further
compensation, other than as provided in this Agreement. As an
exempt, salaried employee, Executive will be expected to work such
hours as required by the nature of Executive’s work
assignments.
2.
Place and Term of Employment . Executive’s performance
of services under this Agreement shall be rendered in San Diego
County, California, subject to necessary travel requirements of
Executive’s position and duties hereunder. Executive’s
employment shall not be for a particular term and may be terminated
by either Executive or the Company at any time, for any reason or
no reason, subject to the provisions contained in
Paragraph 7.
(a)
Base Salary . The Company shall pay to Executive base salary
compensation at an annual rate of $415,000. The Board shall review
Executive’s base salary annually in light of the performance
of Executive and the Company, and may, in its sole discretion,
maintain or increase (but not decrease) such base salary by an
amount it determines to be appropriate. Executive’s annual
base salary payable hereunder, as it may be maintained or increased
from time to time, is referred to herein as “ Base
Salary .” Base Salary shall be paid in equal
installments in accordance with the Company’s payroll
practices in effect from time to time for executive officers, but
in no event less frequently than monthly.
(b)
Incentive Plan . The Company shall adopt an incentive
program providing for annual incentive bonus awards to Executive
and the Company’s other eligible employees dependent upon,
among other things, the achievement of certain performance levels
by the Company, the nature, magnitude and quality of the services
performed by Executive for the Company and the
compensation
paid for positions of comparable responsibility and authority
within the Company’s industry (the “ Company
Incentive Plan ”). Executive’s target bonus
under the Company Incentive Plan shall be 45% of his Base Salary;
provided , however , that Executive shall receive a
guaranteed bonus under the Company Incentive Plan for 2008 of at
least $100,000, which bonus shall be payable on the same terms and
conditions as bonuses payable to executive officers of the Company
generally, but in no event later than March 15,
2009.
(c)
Signing Bonus . Executive shall be eligible to receive a
one-time cash bonus payment of $25,000 payable on the first
regularly scheduled payroll date following the Effective Date,
which amount shall be grossed-up for all applicable taxes so that
the net after-tax payment to Executive shall be equal to
$25,000.
(d)
Option Grant . As additional consideration for the services
to be rendered by Executive under this Agreement, the Company will
grant to Executive stock options to purchase 500,000 shares of the
Company’s common stock, subject to approval of the Board. The
exercise price per share of such options will be equal to the fair
market value per share on the date the options are granted. The
stock options will vest over four years with 1/4 of the total
number of shares subject to the stock options vesting on the first
anniversary of the date the stock options are granted, and the
1/48th of the total number of shares subject to the stock options
vesting on the first day of each calendar month thereafter until
all shares are vested. The stock options will be granted under the
Company’s 2005 Equity Incentive Award Plan (the “
Option Plan ”) and will be subject to the terms
and conditions applicable to stock options granted under that plan,
as described in that plan and the applicable stock option
agreement.
4.
Benefits . Executive shall be eligible to participate in all
employee benefit programs of the Company offered from time to time
during the term of Executive’s employment by the Company to
employees or executive officers of Executive’s rank, to the
extent that Executive qualifies under the eligibility provisions of
the applicable plan or plans, in each case consistent with the
Company’s then-current practice as approved by the Board from
time to time. Except to the extent financially feasible for the
Company, the foregoing shall not be construed to require the
Company to establish such plans or to prevent the modification or
termination of such plans once established, and no such action or
failure thereof shall affect this Agreement. Executive recognizes
that the Company has the right, in its sole discretion, to amend,
modify or terminate its benefit plans without creating any rights
in Executive. Notwithstanding the foregoing, the Company’s
failure to provide Executive with compensation and benefits
substantially equivalent (in terms of benefit levels and/or reward
opportunities) in all material respects to those provided for under
each of the Company’s material employee benefit plans,
programs and practices as in effect from time to time shall
constitute a material breach of this Agreement.
5.
Vacation . Executive shall be entitled to paid vacation and
sick time (“ PTO ”) of up to 4 weeks
per calendar year, with such number of weeks being pro-rated for
the remainder of the 2008 calendar year. Executive may roll-over
unused PTO time from one calendar year to another, subject to a
maximum of 6 weeks of accrued PTO, which is to be accrued in
accordance with the Company’s PTO policy.
6.
Reimbursement of Expenses .
(a) The
Company shall promptly reimburse Executive for Executive’s
reasonable and necessary expenditures for travel, entertainment and
similar items made in furtherance of Executive’s duties under
this Agreement consistent with the policies of the Company as
applied to all executive officers. Executive shall document and
substantiate such expenditures as required by the policies of the
Company as applied to all executive officers, including an itemized
list of all expenses
2
incurred, the
business purposes for which such expenses were incurred, and such
receipts as Executive reasonably has been able to
obtain.
(b) The
Company shall enlist the services of a professional relocation firm
to assist Executive with his relocation to San Diego, California.
The Company expects Executive to permanently relocate to the San
Diego, California area as soon as practicable. Prior to completing
his relocation to the San Diego, California area, the Company shall
reimburse Executive for (1) reasonable temporary living expenses in
the San Diego, California area, including a monthly housing
allowance until the first to occur of (A) the date that is six
(6) months following the Effective Date or (B) the date
on which Executive sells his existing home in Newton,
Massachusetts, in an amount not to exceed Executive’s monthly
mortgage obligation on Executive’s existing home in Newton,
Massachusetts and (2) the transportation costs for one
round-trip every three weeks for Executive between Boston,
Massachusetts, and San Diego, California. The Company shall also
reimburse Executive for the reasonable selling expenses of his
current home in Newton, Massachusetts (up to 6% of the selling
price), the reasonable closing costs (excluding loan prepayment
penalties, points or loan origination fees) associated with the
purchase of a his primary residence in the San Diego, California
area, the moving of Executive’s household goods (including up
to two automobiles) and a reasonable number of house hunting trips
for Executive’s spouse. Air travel will be reimbursed at
coach level. In addition, the Company shall gross-up any reimbursed
amounts to the extent such amounts are taxable. The Company will
make such payments within 30 days after receipt of
Executive’s written request therefore, which request shall be
accompanied by documentation supporting the request for
reimbursement. If Executive’s employment with the Company is
terminated by Executive for any reason other than for Good Reason
pursuant to Paragraph 7(c)(i) or if the Company terminates
Executive’s employment for Cause pursuant to
Paragraph 7(b)(i) on or prior to the first anniversary of the
Effective Date, Executive shall repay to the Company such portion
of all relocation expenses incurred by the Company on his behalf as
is determined by multiplying (i) the total relocation expenses
paid by the Company pursuant to this Paragraph 6(b) as of the date
of termination by (ii) a fraction determined by dividing
(A) the total number of days remaining from the date of
termination through the first anniversary of the Effective Date, by
(B) three hundred sixty-five (365). The Company shall have the
right to offset such amounts against any compensation otherwise
payable to Executive on the date of termination. Executive has
executed an Agreement to Repay Prorata Moving Expenses, a copy of
which is attached hereto as Exhibit A .
(c) Any
amounts payable under this Paragraph 6 shall be made in
accordance with Treasury
Regulation Section 1.409A-3(i)(1)(iv) and shall be paid
on or before the last day of Executive’s taxable year
following the taxable year in which Executive incurred the
expenses. The amounts provided under this Paragraph 6 during
any taxable year of Executive’s will not affect such amounts
provided in any other taxable year of Executive’s, and
Executive’s right to reimbursement for such amounts shall not
be subject to liquidation or exchange for any other
benefit.
7.
Termination of Employment .
(a)
Death or Disability .
(i) In
the event of Executive’s death, Executive’s employment
with the Company shall automatically terminate.
(ii) Each
of the Company and Executive shall have the right to terminate
Executive’s employment in the event of Executive’s
Disability. “ Disability ” as used in
this Agreement shall have meaning set forth in
Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the “ Code ”), which as of the
Effective Date is as follows: “An individual is permanently
and totally disabled if he is unable to engage in any substantial
gainful activity by reason of any medically
3
determinable
physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.” A termination
of Executive’s employment by either party for Disability
shall be communicated to the other party by written notice, and
shall be effective on the 10th day after receipt of such notice by
the other party (the “ Disability Effective
Date ”), unless Executive returns to full-time
performance of Executive’s duties before the Disability
Effective Date.
(i) The
Company shall have the right to terminate Executive’s
employment for Cause. “ Cause ” as used
in this Agreement shall mean:
(A)
Executive’s breach of any of the covenants contained in
Paragraphs 8, 9, and 10 of this Agreement;
(B)
Executive’s conviction by, or entry of a plea of guilty or
nolo contendere in, a court of competent and final jurisdiction for
any crime involving moral turpitude or punishable by imprisonment
in the jurisdiction involved;
(C)
Executive’s commission of an act of fraud, whether prior to
or subsequent to the Effective Date upon the Company;
(D)
Executive’s continuing repeated willful failure or refusal to
perform Executive’s duties as required by this Agreement
(including, without limitation, Executive’s inability to
perform Executive’s duties hereunder as a result of chronic
alcoholism or drug addiction and/or as a result of any failure to
comply with any laws, rules or regulations of any governmental
entity with respect to Executive’s employment by the
Company);
(E)
Executive’s gross negligence, insubordination or material
violation of any duty of loyalty to the Company or any other
material misconduct on the part of Executive;
(F)
Executive’s intentional commission of any act which Executive
knows (or reasonably should know) is likely to be materially
detrimental to the Company’s business or goodwill;
or
(G)
Executive’s material breach of any other provision of this
Agreement, provided that termination of Executive’s
employment pursuant to this subsection (G) shall not
constitute valid termination for good cause unless Executive shall
have first received written notice from the Board stating with
specificity the nature of such breach and affording Executive at
least twenty days to correct the breach alleged.
Nothing in this
Paragraph 7(b)(i) shall prevent Executive from challenging the
Board’s determination that Cause exists or that Executive has
failed to cure any act (or failure to act) that purportedly formed
the basis for the Board’s determination, under the
arbitration procedures set forth in Paragraph 19
below.
(ii) The
Company shall have the right to terminate Executive’s
employment hereunder without Cause at any time.
4
(i) Executive
shall have the right to terminate his employment with the Company
for Good Reason (as defined below). Executive’s continued
employment shall not constitute Executive’s consent to, or a
waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(ii) For
purposes of this Agreement “ Good Reason
” shall mean:
(A) a
material diminution in Executive’s base
compensation;
(B) a
material diminution in Executive’s authority, duties or
responsibilities;
(C) a
requirement that Executive report to a corporate officer or
employee instead of reporting directly to the Board;
(D) a
material change in the geographic location at which Executive must
perform his duties; or
(E) any
other action or inaction that constitutes a material breach by the
Company of its obligations to Executive under this
Agreement.
Notwithstanding
the foregoing, Good Reason shall only exist if Executive shall have
provided the Company with written notice within ninety
(90) days of the initial occurrence of any of the foregoing
events or conditions, and the Company fails to eliminate the
conditions constituting Good Reason within thirty (30) days
after receipt of written notice of such event or condition from
Executive. Executive’s termination by reason of resignation
from employment with the Company for Good Reason shall be treated
as involuntary. Executive’s resignation from employment with
the Company for Good Reason must occur within two (2) years
following the initial existence of the act or failure to act
constituting Good Reason.
(iii) Executive
shall have the right to terminate his employment hereunder without
Good Reason upon 30 days’ written notice to the Company,
and such termination shall not in and of itself be a breach of this
Agreement.
(d)
Termination Payments .
(i) If
Executive’s employment with the Company is terminated
pursuant to Paragraph 7(a)(i) ( i.e. , death), the
Company shall pay to Executive’s estate (a) his accrued
but unpaid Base Salary through the date of termination (plus all
accrued and unpaid expenses reimbursable in accordance with
Paragraph 6), (b) any accrued but unused PTO, and
(c) at the discretion of the Board, an annual bonus for the
year in which Executive’s death occurs, prorated through the
date of death, based on the Board’s good-faith estimate of
the actual amount, if any, that would have been payable for such
year under the Company Incentive Plan (assuming Executive had
remained employed by the Company through the end of such year) in
accordance with Paragraph 3(b), in each case payable in a lump
sum within ten (10) days following Executive’s
death.
(ii) If
Executive’s employment with the Company is terminated
pursuant to Paragraph 7(a)(ii) ( i.e. , Disability),
the Company shall pay to Executive (A) his accrued but unpaid
Base Salary through the date of termination (plus all accrued and
unpaid expenses reimbursable in accordance with Paragraph 6),
(B) any accrued but unused PTO, (C) an amount equal to
Executive’s actual Base Salary (not including any bonus
payable) for the 12 month period immediately prior to
such
5
termination,
and (D) at the discretion of the Board, an annual bonus for
the year in which Executive’s Disability occurs, prorated
through the date of termination, based on the Board’s
good-faith estimate of the actual amount, if any, that would have
been payable for such year under the Company Incentive Plan
(assuming Executive had remained employed by the Company through
the end of such year) in accordance with Paragraph 3(b), in
each case payable in a lump sum within ten (10) days following
Executive’s Release Effective Date (as defined
below).
(iii) If
Executive’s employment with the Company is voluntarily
terminated by Executive pursuant to Paragraph 7(c)(i) (
i.e. , Good Reason), or if the Company terminates
Executive’s employment with the Company other than pursuant
to Paragraphs 7(a)(ii) or 7(b)(i), then the Company shall pay to
Executive the following, which Executive acknowledges to be fair
and reasonable, as consideration for the Release described in
Paragraph 7(f):
(A)
Executive’s accrued but unpaid Base Salary through the date
of termination (plus all accrued and unpaid expenses reimbursable
in accordance with Paragraph 6), payable in a lump sum on the
date of termination;
(B)
any accrued but unused PTO, payable in a lump sum on the date of
termination;
(C)
subject to Paragraph 23 below, at the discretion of the Board,
an annual bonus for the year in which Executive’s employment
is terminated, prorated through the date of termination, based on
the Board’s good-faith estimate of the actual amount, if any,
that would have been payable for such year under the Company
Incentive Plan (assuming Executive had remained employed by the
Company through the end of such year) in accordance with
Paragraph 3(b), payable in a lump sum within ten
(10) days following Executive’s Release Effective Date
(as defined below);
(D)
subject to Paragraph 23 below, an amount equal to
Executive’s actual Base Salary (not including any bonus
payable) for the 12 month period immediately prior to such
termination, payable in a lump sum within 10 days following
Executive’s Release Effective Date;
(E)
subject to Paragraph 23 below, the Company shall pay all costs
which the Company would otherwise have incurred to maintain all of
Executive’s health insurance benefits (either on the same or
substantially equivalent terms and conditions) if
Executive
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