Exhibit 10.3
EMPLOYEE MATTERS AGREEMENT
dated as of
April 30, 2004
between
PHARMACOPEIA, INC.
and
PHARMACOPEIA DRUG DISCOVERY, INC.
TABLE OF CONTENTS
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EMPLOYEE MATTERS
AGREEMENT
THIS IS AN EMPLOYEE MATTERS
AGREEMENT, dated as of April 30 , 2004 (the “
Agreement ”), by and between Pharmacopeia, Inc., a
Delaware corporation (together with its successors and permitted
assigns, “ Supplier ”), and Pharmacopeia Drug
Discovery, Inc., a Delaware corporation (together with its
successors and permitted assigns, “ Spinco ”)
(collectively, the “ Parties ” or individually,
a “ Party ”).
Background
WHEREAS, the Board of Directors of Supplier has
authorized a distribution of Spinco’s common stock to all
holders of outstanding stock of the Supplier (the “
Distribution ”).
WHEREAS, in connection with the Distribution, Supplier
and Spinco will enter into a number of agreements that will govern
certain matters relating to the Distribution and the relationship
of Supplier and Spinco and their respective subsidiaries and
affiliates following the Distribution.
WHEREAS, this Agreement sets forth the arrangements
between the Parties relating to certain employee benefit and
compensation matters.
NOW, THEREFORE
, in consideration of the foregoing
and the respective covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
The following words and phrases used
in this Agreement shall have the meanings set forth below unless a
different meaning is plainly required by the context.
1.1
“
Active Spinco Employee
”
means:
(a)
Any Employee who
is performing services for Spinco on the Distribution Date,
including any such Employee who is not actively performing such
service as a result of sick leave, workers’ compensation
leave, short-term disability or other authorized leave of absence;
and
(b)
Any Employee of
Supplier who is designated by Supplier and Spinco as an Employee to
whom Spinco offers employment beginning on or before the
Distribution Date and who has accepted such offer.
1.2
“
ASO Contract
” means an
administrative services only contract or other contract with a
third-party administrator or service provider that pertains to any
Supplier Welfare Plan or Spinco Welfare Plan.
1.3
“
Beneficiary
” means
the individual(s) designated by an Employee, former Employee, by
operation of law or otherwise, as the party entitled to
compensation, benefits, insurance coverage or any other goods or
services under any Plan.
1.4
“
COBRA ” means the Consolidated
Omnibus Budget Reconciliation Act of 1986
1.5
“
Code ” means the Internal
Revenue Code of 1986, as amended.
1.6
“
Distribution Agreement
” means the
Master Separation and Distribution Agreement between Supplier and
Spinco of even date herewith.
1.7
“
Distribution Date
” means
the date upon which Supplier completes the distribution of
Spinco’s Common Stock.
1.8
“
Employee ” means any individual
who performs services pursuant to a common-law employer-employee
relationship.
1.9
“
ERISA ” means the Employee
Retirement Income Security Act of 1974, as amended.
1.10
“
Foreign Plan
,” when
immediately preceded by “Supplier,” means a Plan
maintained by Supplier or when immediately preceded by
“Spinco,” a Plan maintained by Spinco, in either case
for the benefit of Employees who perform services and/or are
compensated under a payroll that is administered outside the United
States, its territories and possessions, and the District of
Columbia.
1.11
“
Former Spinco Employee
” means an
Employee whose employment with Spinco terminated for any reason
(including retirement or long-term disability) before the
Distribution Date and who, as of the Distribution Date, is not
employed by Supplier or an affiliate of Supplier; provided,
however, that any Employee who terminated employment at any time
prior to the Distribution Date and subsequently became employed by
Supplier after such termination (and did not return to employment
with Spinco), shall not be a Former Spinco Employee for any purpose
hereunder.
1.12
“
Governmental Authority
” means any
federal, state or local court, government, department, commission,
board, bureau, agency, official or other regulatory, administrative
or governmental authority, including, without limitation, the
United States Department of Labor (“ DOL ”), and
the Internal Revenue Service (“ IRS
”).
1.13
“
Group Insurance Policy
” means a
group insurance policy issued under any Supplier Welfare Plan or
any Spinco Welfare Plan, as applicable.
1.14
“ HIPAA ”
means the Health
Insurance Portability and Accountability Act of 1996, as amended
(“ HIPAA ”),
1.15
“
HMO ” means a health
maintenance organization that provides benefits under the Supplier
Welfare Plans or the Spinco Welfare Plans.
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1.16
“
HMO Agreements
” means
contracts, letter agreements, practices and understandings with
HMOs that provide medical services under the Supplier Welfare Plans
or Spinco Welfare Plans.
1.17
“
Key Recipient
” means
the holders of Supplier Options set forth on Schedule I,
attached hereto and made a part hereof.
1.18
“
Liabilities
” means
any and all losses, claims, charges, compensation, benefits, debts,
demands, actions, costs and expenses (including, without
limitation, administrative and related costs and expenses of any
Plan, program or arrangement), of any nature whatsoever, whether
absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever
arising.
1.19
“
Person ” means an individual,
a general or limited partnership, a corporation, a trust, a joint
venture, an unincorporated organization, a limited liability entity
or any other entity.
1.20
“
Plan ” means any plan,
policy, program, payroll practice or other arrangement, whether
written or unwritten, providing benefits to Employees or former
Employees of Supplier or Spinco.
1.21
“
Spinco Common Stock
” means
the shares of common stock, par value $0.01 per share, of
Spinco.
1.22
“
Spinco Welfare Plans
” means
the welfare benefit plans, programs, and policies that are
sponsored by Spinco for all periods after the Distribution
Date.
1.23
“
Subsidiary
” means,
with respect to any specified Person, any corporation or other
legal entity of which such Person or any of its Subsidiaries owns
or controls, directly or indirectly, more than 50% of the stock or
other equity interest entitled to vote on the election of members
to the board of directors or similar governing body.
1.24
“
Supplier Common Stock
” means the
shares of common stock, par value $0.0001 per share, of
Supplier.
1.25
“
Supplier Non-Qualified
Plan ” means the
Pharmacopeia, Inc. Non-Qualified Defined Compensation
Plan.
1.26
“
Supplier Savings Plans
” means the
Employees Tax-Deferred Savings Plan of Pharmacopeia,
Inc.
1.27
“
Supplier Stock Incentive
Plans ” means, collectively,
the Pharmacopeia, Inc. 1994 Incentive Stock Plan, the Pharmacopeia,
Inc. 2000 Stock Option Plan and the Pharmacopeia, Inc. 1994
Director Option Plan.
1.28
“
Supplier Welfare Plans
,” means
the welfare benefit plans, programs, and policies listed that are
sponsored by Supplier.
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1.29
“
Transition End Date
” means
December 31, 2004, or such other date as the parties mutually
agree in writing. The Transition End Date may be different
for different plans, programs or arrangements if the Parties so
provide in writing.
1.30
“
Transition Period
” means
the period beginning on the Distribution Date and ending on the
Transition End Date. The Transition Period may be different
for different plans, programs or arrangements if the Parties so
provide in writing.
ARTICLE II
EMPLOYEES AND ALLOCATIONS OF LIABILITIES
2.1
Identification and
Employment. Effective as of the
Distribution Date, Supplier and Spinco shall jointly compile a list
by name, social security number, job title and assigned location of
all Active Spinco Employees. Effective as of the Distribution
Date, Spinco shall employ all such identified Active Spinco
Employees. Effective as of the Distribution Date, Supplier
and Spinco shall jointly compile a list by name and social security
number of all Former Spinco Employees who are identifiable at such
time. An individual who would be classified as a Former
Spinco Employee shall be treated as such for all purposes of this
Agreement notwithstanding that such individual is not on the list
provided for in the preceding sentence.
2.2
Spinco Assumption of
Liabilities. Except as specifically
provided otherwise in this Agreement, Spinco shall, on behalf of
itself and its Subsidiaries, assume (i) all Liabilities related to
Active Spinco Employees and Former Spinco Employees incurred in
connection with their employment by Spinco or Supplier prior to the
Distribution Date; (ii) all Liabilities related to Active Spinco
Employees and Former Spinco Employees arising on or after the
Distribution Date relating to employment with any affiliate of
Spinco; and (iii) all other Liabilities related to, arising out of,
or resulting from obligations, liabilities and responsibilities
assumed or retained by Spinco under this Agreement or a Plan
sponsored or maintained by Spinco.
3.1
Transition Period
(a)
Spinco will take
all such actions as are necessary to adopt the Supplier Savings
Plan, effective as of the Distribution Date, as another
participating “Employer,” within the meaning of the
Supplier Savings Plan; such adoption shall be limited by this
Agreement and shall solely relate to the Spinco Employees and any
new employees of Spinco who become eligible to participate in the
Supplier Savings Plan. Supplier hereby consents to the
adoption of the Plan by Spinco and agrees to take all such actions
as are reasonably necessary to facilitate the adoption of the Plan
by Spinco. Supplier and Spinco agree to cooperate and share
the costs on a pro rata basis (determined by number of participants
in the Savings Plan who are Active or Former Spinco or Supplier
Employees) of (i) communicating with the trustee, recordkeepers and
all other providers with respect to the Supplier Savings Plan, and
(ii) communicating with Supplier Savings Plan participants,
including providing any summary of material modifications necessary
under ERISA.
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(b)
Spinco and
Supplier acknowledge and understand that the Supplier Savings Plan
will be a “multiple employer plan” within the meaning
of section 413(c) of the Code for the period that both Spinco
and Supplier participate in the Plan simultaneously.
(c)
Spinco hereby
agrees to: (i) to withhold all elective deferrals, and make any
required matching contributions as described in the Supplier
Savings Plan, and deliver them to the trustee of the Supplier
Savings Plan; (ii) in its discretion, make any other
contributions (such as qualified non-elective or qualified matching
contributions) as described in the Supplier Savings Plan, and
deliver them to the Trustee of the Plan; (iii) provide Spinco
Employees who are participants in the Supplier Savings Plan (or
become participants) with access to their accounts and opportunity
to make investment fund elections in accordance with the terms of
the Plan; and (iv) account for all hours of service earned under
the Supplier Savings Plan, hirings, terminations and attainment of
eligibility under the Supplier Savings Plan, and communicate such
events as necessary with the recordkeeper or trustee of the
Supplier Savings Plan.
(d)
Supplier, as the
primary employer under the Supplier Savings Plan, hereby agrees to
retain sole responsibility for (i) amending the Supplier Savings
Plan for purposes of maintaining tax-qualification under the Code
and compliance with the provisions of ERISA; (ii) communicating
with the recordkeeper, trustee, custodian and other similar service
providers for the Supplier Savings Plan (except as set forth
above); and (iii) (A) correcting any qualification failures or plan
document failures (as described in the IRS Employee Plans
Compliance Resolution System), and (B) correcting any fiduciary
violations with the DOL (including corrections under the Voluntary
Fiduciary Compliance Program). Supplier shall share a pro
rata portion (relating to the period after adoption by Supplier
with respect to Supplier’s employees and former employees who
participate or participated in the Supplier Savings Plan due to
their employment with Supplier) of the costs and expenses
associated with each of the foregoing provisions, except paragraph
(iii). The costs of paragraph (iii) shall be borne by the party at
fault (and shared based upon fault if both parties are at
fault).
(e)
Effective as of
the Distribution Date, Supplier shall amend the Supplier Savings
Plan to provide that (i) any matching contributions to be made on
or after the Distribution Date with respect to Active Spinco
Employees shall be made in Spinco Common Stock, and (ii) any
matching contributions to be made on or after the Distribution Date
with respect to any Supplier employees shall be made in Supplier
Common Stock; provided, however, that Supplier and Spinco shall be
permitted to exercise their discretion to permit the investment of
matching contributions in any other investment fund available under
the Supplier Savings Plan excluding the common stock fund of the
other Party.
(f)
As of the
Distribution Date, any matching contributions or other amounts
credited to Spinco Employees’ accounts under the Supplier
Savings Plan that are invested in Supplier Common Stock, shall
receive a distribution of Spinco Common Stock in accordance with
the Distribution Agreement. After the Distribution Date, such
amounts shall be invested in accordance with the terms of the Plan,
as amended by either Party.
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3.2
Establishment of and Transfer to the
Spinco Savings Plan.
(a)
Spinco shall only
be an employer participating in the Plan with respect to the Spinco
Employees for the period beginning on the Distribution Date and
ending on the Transition End Date. Effective as of the
Transition End Date, Spinco shall establish a separate savings plan
for the benefit of Spinco Employees (“ Spinco Savings
Plan ”).
(b)
Effective as of
the Transition End Date, Spinco shall adopt the Spinco Savings
Plan, which shall provide benefits with respect to Active Spinco
Employees, their Beneficiaries and their respective alternate
payees immediately after the Transition End Date. For
purposes of eligibility and vesting, all service recognized under
the Supplier Savings Plan (for periods immediately before the
Transition End Date) shall, as of immediately after the
Distribution Date, be recognized and taken into account under the
Spinco Savings Plan.
(c)
Effective as of
the Transition End Date, Spinco shall establish or cause to be
established with respect to the Spinco Savings Plan, a trust, which
shall be exempt from taxation under Code
section 501(a).
(d)
As soon as
practicable after the Transition End Date, but no later than 30
days after the Transition End Date, Supplier shall cause the
accounts (if any) of the Active Spinco Employees and Former Spinco
Employees, their Beneficiaries and their respective alternate
payees, if any, under the Supplier Savings Plan that are held by
its related trust to be transferred to the Spinco Savings Plan and
its related trust, and Spinco shall cause such transferred accounts
to be accepted by such plan and trust, in accordance with
Section 414(l) of the Code to the extent applicable. The
transfer of such accounts shall be made: (A) in kind, to the
extent the assets consist of investments in the Spinco Common Stock
Fund and (B) otherwise in cash, interests in mutual funds,
securities, or other property or in a combination thereof, as the
Parties may agree, but, to the extent practicable, shall be
invested initially in comparable investment options in the Spinco
Savings Plan as such accounts were invested immediately before the
date of transfer. Any outstanding loan balances under any
Supplier Savings Plans to Active Spinco Employees and Former Spinco
Employees shall also be transferred with the underlying
accounts. After the transfer, (i) Active and Former Spinco
Employees will be able to sell the Supplier Common Stock held in
their account under the Spinco Savings Plan, and (ii) Active and
Former Supplier Employees will be able to sell the Spinco Common
Stock held in their account under the Supplier Savings
Plan.
(e)
Spinco shall
apply to the IRS for favorable determination letters with respect
to the tax-qualified status of the Spinco Savings Plan as soon as
practicable after the Transition End Date, and Spinco, consistent
with the terms of this Agreement, shall make such amendments to
such Savings Plans as may be required by the IRS in order for
Spinco to receive favorable determination letters with respect to
these Plans.
(f)
After the
Transition End Date, all beneficiary designations made by Active
Spinco Employees or their respective alternate payees with respect
to the Supplier Savings Plan shall be transferred to and be in full
force and effect under the Spinco Savings Plans until such
beneficiary designations are replaced or revoked by the individual
who made such beneficiary designation.
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3.3
Governmental Filings
. Supplier
and Spinco shall cooperate to make any and all filings required
with respect to the Supplier Savings Plans and the Spinco Savings
Plans under the Code or ERISA or in connection with any of the
transactions described in this Article III.
4.1
Continuation in Supplier Welfare
Plans
(a)
Spinco will take
all such actions as are necessary to adopt the Supplier Welfare
Plans, effective as of the Distribution Date; such adoption shall
be limited by this Agreement and shall solely relate to the Spinco
Employees and any new employees of Spinco who become eligible to
participate in the Supplier Welfare Plan. Supplier hereby
consents to the adoption of the Plan by Spinco and agrees to take
all such actions as are reasonably necessary to facilitate the
adoption of the Welfare Plans by Spinco. Supplier and Spinco
agree to cooperate and share the costs on a pro rata basis
(determined by number of participants in the relevant Welfare Plan
who are Active or Former Spinco or Supplier Employees) of (i)
communicating with the insurance companies, HMOs and all other
providers or third-party administrators with respect to the
benefits provided under the Welfare Plans, and (ii) communicating
with Welfare Plan participants, including providing any summary of
material modifications necessary under ERISA. Spinco and
Supplier acknowledge and understand that the Supplier Welfare Plans
will be “multiple employer welfare arrangements” within
the meaning of Section 3 (40) ERISA.
(b)
Supplier, as the
primary employer under the Welfare Plan, hereby agrees to retain
sole responsibility for (i) amending the Plan for purposes of
maintaining compliance with the provisions of ERISA and (ii)
correcting any fiduciary violations with the DOL. Supplier
and Spinco shall share a pro rata portion (determined by number of
participants in the relevant Welfare Plan who are Active or Former
Spinco or Supplier Employees) of the costs and expenses associated
with each of the foregoing provisions (relating to the period after
adoption by Supplier with respect to Supplier’s employees and
former employees who participate or participated in the Plans due
to their employment with Supplier), except paragraph (ii). The
costs of paragraph (ii) shall be borne by Supplier.
(c)
Spinco hereby
agrees to (i) withhold all employee contributions and make all
employer contributions as required by any applicable Supplier
Welfare Plan, and pay such contributions as directed by the
Supplier and (ii) notify the Supplier regarding any changes of
status or termination of employment by any Spinco Employees, Spinco
Former Employees or Beneficiaries who are participants in the
Welfare Plans, within the meaning of section 125 of the Code
and the regulations thereunder.
(d)
Vendor
Contracts .
(i)
Before the
Distribution Date, Supplier shall take such steps as are necessary
under each ASO Contract, Group Insurance Policy and HMO Agreement
in existence as of the date of this Agreement to permit Spinco to
participate in the terms and conditions of such ASO Contract, Group
Insurance Policy or HMO Agreement beginning immediately after the
Distribution Date.
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(ii)
Supplier shall
determine, and shall promptly notify Spinco of, the manner in which
Spinco’s participation in the terms and conditions of ASO
Contracts, Group Insurance Policies and HMO Agreements, as set
forth above is to be effectuated. Spinco hereby authorizes
Supplier to act on its behalf to extend to Spinco the terms and
conditions of the ASO Contracts, Group Insurance Policies and HMO
Agreements during the Transition Period. Spinco shall fully
cooperate with Supplier in such efforts.
(iii)
Supplier and
Spinco shall use their reasonable best efforts to cause each of the
insurance companies, HMOs, paid provider organizations and
third-party administrators providing services and benefits under
the Supplier Welfare Plans and the Spinco Welfare Plans to maintain
the premium and/or administrative rates, based on the aggregate
number of participants in both the Supplier Welfare Plans, during
the Transition Period, and the Spinco Welfare Plans.
(iv)
For the
Transition Period, Spinco shall be responsible, subject to the
direction and control of Supplier, for the management of the
existing contractual and other arrangements pertaining to the
administration of the Spinco Welfare Plans. Immediately after
the Distribution Date, Spinco shall be responsible for the
management and control of the ASO contracts, Group Insurance
Policies and HMO Agreements and other vendor contracts and
relationships to the extent such contracts, policies and agreements
apply to the Spinco Welfare Plans. Notwithstanding the
foregoing, nothing contained in this Section 4.1(d)(iv) shall
permit Spinco to direct any insurance carrier, third-party vendor
or claims administrator with respect to any contractual
arrangement, policy or agreement under any Supplier Welfare
Plan.
(e)
For the period
before the Distribution Date and for the Transition Period,
Supplier shall be responsible for administering compliance with the
continuation coverage requirements for “group health
plans” under Title X of COBRA, and the portability
requirements under HIPAA, with respect to Active Spinco Employees,
Former Spinco Employees and their Beneficiaries and shall be
responsible for furnishing all necessary employee change notices
with respect to these persons in accordance with applicable
Supplier policies and procedu
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