SOMAXON PHARMACEUTICALS,
INC.
Employment Agreement (this
“ Agreement ”) made and entered into as
of November 9, 2006, between Somaxon Pharmaceuticals, Inc.
, a Delaware corporation (the “ Company
”), and Brian Dorsey, an individual (“
Executive ”).
Whereas , the Company desires
to employ Executive and Executive desires to accept employment with
Company upon 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 Vice President,
Manufacturing and Program Management , 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 and the President and Chief
Executive Officer of the Company. 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 $215,000. Following the end of
the Company’s fiscal year 2007, and annually thereafter, the
Board shall review Executive’s base salary 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)
Bonus Plan . The Company shall adopt a bonus program
providing for annual 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 Employee Bonus Plan
”).
(c)
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 33,000 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 shares
subject to the stock options vesting on the first anniversary of
the date the stock options are granted, and the remainder vesting
monthly at a rate of 1/36th of such remainder 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.
5.
Vacation . Executive shall be entitled to paid vacation and
sick time (“ PTO ”) of up to four weeks
per calendar year. Executive may roll-over unused PTO time from one
calendar year to another, subject to a maximum of six weeks of
accrued PTO, which is to be accrued in accordance with the
Company’s PTO policy.
6.
Business Expenses . 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 incurred, the business purposes for which such expenses
were incurred, and such receipts as Executive reasonably has been
able to obtain.
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, which as of the
date of this Agreement 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
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 date hereof 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.
(i) Executive
shall have the right to terminate his employment with the Company
for Good Reason (as defined below), upon 30 days’
written notice to the Board given
within
60 days following the occurrence of an event constituting Good
Reason; provided that the Company shall have 20 days
after the date such notice has been given to the Board in which to
cure the conduct specified in such notice. Executive’s
continued employment during such 20-day period 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
change in Executive’s position or responsibilities (including
reporting responsibilities) that represents a substantial reduction
in the position or responsibilities as in effect immediately prior
thereto; the assignment to Executive of any duties or
responsibilities that are materially inconsistent with such
position or responsibilities; or any removal of Executive from or
failure to reappoint or reelect Executive to any of such positions,
except in connection with the termination of Executive’s
employment for Cause, as a result of his or her Disability or
death, or by Executive other than for Good Reason;
(b) a
reduction in Executive’s Base Salary other than in connection
with a general reduction in wages for all employees of the Company
and its parent and subsidiaries, if any;
(c) the
Company requiring Executive (without Executive’s consent) to
be based at any place outside a 50-mile radius of his or her
initial place of employment with the Company, except for reasonably
required travel on the Company’s business;
(d) the
Company’s failure to provide Executive with compensation and
benefits substantially equivalent (in terms of benefit levels
and/or reward opportunities) to those provided for under each of
the Company’s material employee benefit plans, programs and
practices as in effect from time to time; or
(e) any
material breach by the Company of its obligations to Executive
under this Agreement.
(iii) Executive
shall have the right to terminate his or her 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 (a) his or her 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 Employee Bonus Plan (assuming Executive had
remained employed by the Company through the end of such year) in
accordance with Paragraph 3(b).
(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 or her 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 6 month
period immediately prior to such termination, payable in 6 equal
installments during the 6 month period following such
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
Employee Bonus Plan (assuming Executive had remained employed by
the Company through the end of such year) in accordance with
Paragraph 3(b).
(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) 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);
(b) any
accrued but unused PTO;
(c) 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 Employee Bonus Plan (assuming Executive had
remained employed by the Company through the end of such year) in
accordance with Paragraph 3(b);
(d) subject
to Paragraphs 7(d)(vi) and 7(g) below, an amount equal to
Executive’s actual Base Salary (not including any bonus
payable) for the 6 month period immediately prior to such
termination, payable in 6 equal installments during the
6 month period following such termination;
(e) the
Company shall pay all costs which the Company would otherwise have
incurred to maintain all of Executive’s health, welfare and
retirement benefits (either on the same or substantially equivalent
terms and conditions) if Executive had continued to render services
to the Company for 6 continuous months after the date of his or her
termination of employment; and
(f) notwithstanding
any provision to the contrary in Executive’s options under
the Option Plan or other plan (including, without limitation, the
expiration dates or vesting provisions thereof) or any restricted
stock agreement, (i) the unvested portion, if any, of
Executive’s outstanding options shall be deemed to have
vested on the date of termination with respect to the number of
shares that would have vested had Executive remained employed by
the Company for 12 months following such termination, and
Executive shall have the lesser of (A) 180 days or
(B) the maximum period permitted under Section 409A of
the Code from the date of termination to exercise such options, and
(ii) any restrictions with respect to any restricted shares of
the Company’s capital stock that Executive then holds shall
immediately lapse with respect to the number of restricted shares
that would have vested had Executive remained employed by the
Company for 12 months following such termination.
(iv) If
Executive’s employment with the Company is terminated by the
Company pursuant to Paragraph 7(b)(i) ( i.e. , for
Cause), or Executive voluntarily terminates his
employment with
the Company other than pursuant to Paragraphs 7(a) or 7(c)(i),
without limiting or prejudicing any other legal or equitable rights
or remedies which the Company may have upon such breach by
Executive, the Company shall pay Executive his or her accrued but
unpaid Base Salary and any accrued but unused PTO (plus all accrued
and unpaid expenses reimbursable in accordance with
Paragraph 6) through the date of termination.
(v) In
addition to the foregoing, upon the termination of
Executive’s employment, Executive shall be entitled to any
other rights, compensation and/or benefits as may be due to
Executive in accordance with the terms and provisions of any other
benefit, compensation, incentive, medical, disability or life
insurance plans, programs or agreements of the Company in effect
upon such termination.
(vi) Executive
shall not be required to mitigate amounts payable under this
Agreement by seeking other employment or otherwise; provided,
however , if the termination giving rise to the payments
described in Paragraph 7(d)(iii)(d) above results from the
Executive’s voluntary termination of his employment with the
Company pursuant to Paragraph 7(c)(i) ( i.e. , Good
Reason), then during the 6 month period specified in
Paragraph 7(d)(iii)(d) above, any compensation, income, or
benefits earned by or paid to Executive (in cash or otherwise) by
any company, business, enterprise, or other employer other than the
Company (whether as an employee of, or consultant or independent
contractor to, such employer, or otherwise) shall reduce the amount
of severance payments payable pursuant to
Paragraph 7(d)(iii)(d) on a dollar-for-dollar basis. If any
payment to be made to Executive pursuant to
Paragraph 7(d)(iii)(d) is delayed pursuant to Paragraph 7(g)
below, and such payment is reduced pursuant to this
Paragraph 7(d)(iv), the net payment that would be due to
Executive absent the operation of Paragraph 7(g) shall be paid to
Executive in a lump sum as soon as permitted under Paragraph 7(g)
below.
(vii) The
termination payments described above shall supersede any severance
program, plan or policy that may be adopted by the Company with
respect to its employees generally, and the terms of this Paragraph
7(d) shall control in the event of any discrepancy with such
severance program, plan or policy.
(i) In
the event of any Change in Control (defined below) during the term
of Executive’s employment with the Company, notwithstanding
any provision to the contrary in Executive’s options under
the Option Plan or other plan (including, without limitation, the
expiration dates or vesting provisions thereof) or any restricted
stock agreement (1) (A) 50% of any unvested portion of such
options shall be deemed to have vested on the date of the Change in
Control and (B) the remaining unvested portion of such options
shall vest on the date that is 12 months from the closing of such
Change in Control, subject to Executive’s continuing service
with the Company or any parent or subsidiary or successor on such
date, and (2) (A) the restrictions with respect to 50% of the
restricted shares of the Company’s capital stock that
Executive then holds shall immediately lapse on the date of the
Change in Control and (B) the restrictions with respect to any
remaining restricted shares shall lapse on the date that is
12 months from the closing of such Change in Control, subject
to Executive’s continuing service with the Company or any
parent or subsidiary or successor on such date.
(ii) Following
a Change in Control, 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) or 7(b)(i), then, in
addition to the application of Paragraph 7(d)(iii) to such
situation, notwithstanding any provision to the contrary in
Executive’s options under the Option Plan or other
plan
(including,
without limitation, the expiration dates or vesting provisions
thereof) or any restricted stock agreement, (1) any unvested
portion of such options shall be deemed to have vested on the date
of termination and Executive shall have the lesser of
(i) 180 days or (ii) the maximum period permitted
under Section 409A of the Internal Revenue Code (the “
Code ”)from the date of termination to exercise
such options and (2) any restrictions with respect to
restricted shares of the Company’s capital stock that
Executive then holds shall immediately lapse on the date of
termination.
(iii) “
Change in Control ” means and includes each of
the following:
(a) the
acquisition, directly or indirectly, by any “person” or
“group” (as those terms are defined in
Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the
rules thereunder) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of
securities entitled to vote generally in the election of directors
(“ voting securities ”) of the Company
that represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities, other
than:
(1)
an acquisition by a trustee or other fiduciary holding securities
under any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company
or by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company,
or
(2)
an acquisition of voting securities by the Company or a corporation
owned, directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the stock
of the Company, or
(3)
an acquisition of voting securities pursuant to a transaction
described in subsection (c) below that would not be a Change
in Control under subsection (c);
Notwithstanding
the foregoing, the following event shall not constitute an
“acquisition” by any person or group for purposes of
this Paragraph 7(e)(iii)(a): an acquisition of the
Company’s securities by the Company which causes the
Company’s voting securities beneficially owned by a person or
group to represent 50% or more of the combined voting power of the
Company’s then outstanding voting securities; provided
, however , that if a person or group shall become the
beneficial owner o
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