EXHIBIT 10.278
October 1, 2004
Xxxx X. Xxxxxx, M.D., Ph.D.
Vice-President, Project Management
Ligand Pharmaceuticals Incorporated
00000 Xxxxxxx Xxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Dear Xxxx:
The purpose of this letter agreement is to document the terms of the
severance package to which you will be entitled should your employment with
Ligand Pharmaceuticals Incorporated (the "Company") terminate under certain
specified circumstances.
Part One of this letter agreement sets forth certain definitional
provisions to be in effect for purposes of determining your benefit
entitlements. Part Two specifies the terms and conditions upon which you may
become entitled to receive severance benefits. Severance benefits accrue under
this letter agreement in the event your employment with the Company were to be
terminated involuntarily in connection with certain changes in control of the
Company. Part Three concludes this letter agreement with a series of general
terms and conditions applicable to your severance benefits.
PART ONE -- DEFINITIONS
Definitions. For purposes of this letter agreement, including in
particular the application of the special benefit limitations of Part Three, the
following definitions will be in effect:
1. Average Compensation means your average W-2 wages from the Company for
the five (5) calendar years completed immediately prior to the
calendar year in which the Change in Control is effected. Any W-2
wages for a partial year of employment will be annualized, in
accordance with the frequency with which such wages are paid during
such partial year, before inclusion within your Average Compensation.
2. Board means the Company's Board of Directors.
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 2
3. Change in Control means any of the following events:
(i) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated,
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company other than in the
ordinary course of business,
(iii) any reverse merger in which the Company ceases to exist as
an independent corporation and becomes the subsidiary of another
corporation, except where there is an insubstantial change in the de
facto voting control of the Company (e.g. the creation of a holding
company),
(iv) any Hostile Take-Over,
(v) the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the Company's
stockholders, private purchases from one or more of the Company's
stockholders, open market purchases or any other transaction, of
beneficial ownership of securities possessing more than thirty percent
(30%) of the total combined voting power of the Company's outstanding
securities,
(vi) the acquisition by any person (or related group of persons),
whether by tender or exchange offer made directly to the Company's
stockholders, private purchases from one or more of the Company's
stockholders, open market purchases or any other transaction, of
additional securities of the Company which increase the total holdings
of such person (or group) to a level of securities possessing more
than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities, or
(vii) the acquisition by any person (or related group of
persons), whether by tender or exchange offer made directly to the
Company's stockholders, private purchases from one or more of the
Company's stockholders, open market purchases or any other
transaction, of securities of the Company possessing sufficient voting
power in the aggregate to elect an absolute majority of the members of
the Board (rounded up to the nearest whole number).
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 3
4. COBRA means the continuation-of-coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.
5. Code means the Internal Revenue Code of 1986, as amended.
6. Common Stock means the Company's common stock, par value $0.001 per
share.
7. Equity Incentive Plans means any of the following equity incentive
plans of the Company: 1992 Stock Option/Stock Issuance Plan, the 2002
Stock Incentive Plan, and the Restricted Stock Purchase Plan, together
with any amendments or successors to such plans.
8. Equity Parachute Payment means, with respect to any Option (whether
Acquisition-Accelerated or Severance-Accelerated) or unvested Stock
Issuance, the portion deemed to be a parachute payment under Code
Section 280G and the Treasury Regulations issued thereunder. Such
Equity Parachute Payment shall be calculated in accordance with the
valuation provisions established under Code Section 280G and the
applicable Treasury Regulations and will include an appropriate dollar
adjustment to reflect the lapse of your obligation to remain in the
Company's employ as a condition to your vesting in the accelerated
portion of such Option or Stock Issuance.
9. ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
10. Health Care Coverage means the health care benefits provided by the
Company to you and your eligible dependents for which you are eligible
to continue coverage under the provisions of COBRA.
11. Hostile Take-Over means either of the following events:
(i) the acquisition by any person (or related group of persons)
whether by tender or exchange offer made directly to the Company's
stockholders, private purchases from one or more of the Company's
stockholders, open market purchases or any other transaction, of
beneficial ownership of securities possessing more than thirty percent
(30%) of the total combined voting power of the Company's outstanding
securities pursuant to a tender offer made directly to the Company's
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 4
stockholders which the Board does not recommend such stockholders to
accept, or
(ii) a change in the composition of the Board over a period of
thirty-six (36) consecutive months or less such that a majority of the
Board members (rounded up to the next whole number) ceases, by reason
of one or more contested elections for Board membership, to be
comprised of individuals who either (a) have been Board members
continuously since the beginning of such period or (b) have been
elected or nominated for election as Board members during such period
by at least a majority of the Board members described in clause (a)
who were still in office at the time such election or nomination was
approved by the Board.
12. Involuntary Termination means the termination of your employment with
the Company:
(i) upon your involuntary discharge or dismissal, or
(ii) upon your resignation in connection with any of the
following changes to the terms and conditions of your employment: (A)
a change in your position with the Company which materially reduces
your level of responsibility, (B) a greater than ten percent (10%)
reduction in your level of compensation (including base salary, fringe
benefits and participation in non-discretionary bonus programs under
which awards are payable pursuant to objective financial or
performance standards, but excluding equity compensation) or (C) a
relocation of your principal place of employment by more than fifty
(50) miles.
The following guidelines shall determine whether one or more
reductions in compensation should be taken into account for purposes
of clause (ii)(B):
(a) Any reduction in compensation which occurs in connection
with an across-the-board reduction in the level of compensation
payable to the Company's executive officers or senior management
shall not constitute grounds for a clause (ii)(B) resignation,
unless implemented within eighteen (18) months after a Change in
Control.
(b) In the event of a Hostile Take-Over, the greater than
ten percent (10%) standard of clause (ii)(B) shall be reduced to
zero percent (0%) so that any reduction in the level of your
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 5
compensation shall constitute grounds for a clause (ii)(B)
resignation.
In no event shall an Involuntary Termination be deemed to
occur should your employment terminate by reason of death or permanent
disability.
13. Option means any option granted to you under any of the Equity
Incentive Plans which is outstanding at the time of your Involuntary
Termination or any earlier Change in Control. Your outstanding options
are to be divided into two separate categories as follows:
(i) Acquisition-Accelerated Options: any outstanding Option (or
installment thereof) which accelerates upon a Change in Control in
accordance with the automatic acceleration provisions of the Equity
Incentive Plans.
(ii) Severance-Accelerated Options: any outstanding Option (or
installment thereof) which is not an Acquisition-Accelerated Option
but which accelerates upon your Involuntary Termination, whether or
not in connection with a Change in Control, as part of your severance
benefits under this letter agreement.
14. Other Parachute Payments mean any payments in the nature of
compensation to which you may become entitled under this letter
agreement (other than the Equity Parachute Payment) or any other
arrangement with the Company, to the extent such payments qualify as
parachute payments within the meaning of Code Section 280G(b)(2) and
the Treasury Regulations issued thereunder or would so qualify if the
aggregate present value of such payments exceeded the amount specified
in Code Section 280G(b)(2)(ii).
15. Stock Issuance means the issuance of unvested shares of Common Stock
under the Company's Restricted Stock Plan or any other Equity
Incentive Plan.
16. Termination for Cause means an Involuntary Termination or resignation
of your employment with the Company by reason of your conviction of
any felony or other criminal act, your commission of any act of fraud
or embezzlement, your unauthorized use or disclosure of confidential
or proprietary information or trade secrets of the Company or its
subsidiaries, or any other intentional misconduct on your part which
adversely affects the business or affairs of the Company in a material
manner.
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 6
PART TWO -- INVOLUNTARY TERMINATION BENEFITS
You will be entitled to receive the severance benefits specified below
should there occur an Involuntary Termination of your employment during the term
of this letter agreement effected in connection with a Change in Control, other
than a Termination for Cause. However, in the absence of a Hostile Take-Over,
these benefits will continue to be paid you only for so long as you remain
available for any consulting services required of you under Part Two, Paragraph
4 and abide by the restrictive covenants set forth in Part Two, Paragraph 5.
1. Severance Payments. You will receive severance payments from the
Company for a period of twelve (12) months following your Involuntary
Termination in an aggregate amount equal to the sum of (A) one (1)
times the annual rate of base salary in effect for you at the time of
your Involuntary Termination or at the time of the relevant Change in
Control, whichever is higher plus (B) one (1) times the average of the
bonuses (excluding any signing bonus) paid to you for services
rendered in the two (2) fiscal years immediately preceding the fiscal
year of your Involuntary Termination (annualized if paid for a partial
fiscal year). If a bonus is paid to you for only one of those years,
then the bonus amount under Clause (B) will be equal to one (1) times
such bonus amount. The aggregate severance payments shall be paid to
you in equal installments over the twelve-month period in accordance
with the Company's normal payroll practices and subject to all
applicable withholding taxes. The severance payments will immediately
terminate if and only if (i) you should cease to remain available for
the consulting services required of you under Section 4, or (ii) you
fail to abide by the restrictive covenants set forth in Section 5 .
However, in the event your Involuntary Termination occurs in
connection with a Hostile Take-Over, your severance payments will be
paid to you in the form of a single lump sum amount within thirty (30)
days after such Involuntary Termination, and the provisions of
Sections 4 and 5 of this Part Two will not apply.
2. Health Care Coverage. The Company will, at its expense, make any COBRA
payments for you and your eligible dependents in order to continue
your Health Care Coverage until the earlier of (i) twelve (12) months
after the effective date of your Involuntary Termination (other than a
Termination for Cause) or (ii) the first date that you are covered
under another employer's (or, in the event of rehire, the Company's)
health benefit program which provides substantially the same level of
benefits without exclusion for pre-existing medical conditions. Such
payments will be in lieu of any other continued health care coverage
to
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 7
which you or your dependents would otherwise be entitled pursuant to
the requirements of Code Section 4980B by reason of your termination
of employment.
3. Option Acceleration and Lapse of Restrictions. Each of your
outstanding Options under the Equity Incentive Plans will (to the
extent not then otherwise exercisable) automatically accelerate so
that each such Option will become immediately exercisable for the
total number of shares of Common Stock at the time subject to that
Option. Each such accelerated Option, together with all of your other
vested Options, will remain exercisable for a period of twelve (12)
months following your Involuntary Termination until the end of the
specified ten (10)-year option term. Such Option(s) may be exercised
for any or all of the option shares in accordance with the exercise
provisions of the option agreement evidencing the grant. In addition,
all restrictions applicable to the Stock Issuances you hold (to the
extent those restrictions have not previously lapsed in accordance
with the terms of the issuance agreements) will automatically lapse
upon your Involuntary Termination (except a Termination for Cause).
4. Consulting Services. Unless your Involuntary Termination occurs in
connection with a Hostile Take-Over, you will make yourself available
to perform consulting services reasonably requested of you during the
twelve (12)-month period following your Involuntary Termination. You
will be compensated at an hourly rate to be agreed upon by you and the
Company at the time such consulting services are to be rendered, and
you will be reimbursed for all reasonable out-of-pocket expenses
incurred in rendering such services upon your submission of
appropriate documentation for those expenses.
5. Restrictive Covenants. For the one hundred twenty (120)-day period
following your Involuntary Termination:
(i) You will not directly or indirectly, whether for your own
account or as an employee, director, consultant or advisor, provide
services to any business enterprise which is at the time in
competition with any of the Company's then existing or formally
planned product lines and which is located geographically in an area
where the Company maintains substantial business activities, unless
you obtain the prior written consent of the Board of Directors.
(ii) You will not directly or indirectly encourage or solicit any
individual to leave the Company's employ for any reason or interfere
in any other manner with the employment relationships at the time
existing between the Company and its current or prospective employees.
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 8
(iii) You will not induce or attempt to induce any customer,
supplier, distributor, licensee or other business relation of the
Company to cease doing business with the Company or in any way
interfere with the existing business relationship between any such
customer, supplier, distributor, licensee or other business relation
and the Company.
You acknowledge that monetary damages may not be sufficient to
compensate the Company for any economic loss which may be incurred by
reason of your breach of the foregoing restrictive covenants.
Accordingly, in the event of any such breach, the Company shall, in
addition to the cessation of the severance benefits provided you under
this letter agreement and any remedies available to the Company at
law, be entitled to obtain equitable relief in the form of an
injunction precluding you from continuing to engage in such breach.
None of the foregoing restrictive covenants in this section 5 shall be
applicable in the event your Involuntary Termination occurs in
connection with a Hostile Take-Over.
6. Benefit Reduction.
(i) Benefit Reduction. If the Change in Control does not
constitute a Hostile Take-Over, first the dollar amount of your
severance payment under Paragraph 1 will be reduced to the extent
necessary to assure that the present value of those benefits will not,
when added to the present value of your Equity Parachute Payment and
your Other Parachute Payments, exceed 2.99 times your Average
Compensation. In the event of a Hostile Take-Over, no reduction will
be made to your severance payment (or any other benefit to which you
become entitled hereunder), unless necessary to provide you with the
maximum after-tax benefit available, after taking into account any
parachute excise tax which might otherwise be payable by you under
Code Section 4999 and any analogous State income tax provision.
(ii) Resolution of Disputes. In the event there is any
disagreement between you and the Company as to whether one or more
benefits to which you become entitled (whether under this letter
agreement or otherwise) in connection with a Change in Control
constitute Equity Parachute Payments or Other Parachute Payments, such
dispute is to be resolved as follows:
A. The matter shall be submitted for resolution to
independent counsel mutually acceptable to you and the Company
("Independent Counsel").
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 9
The resolution reached by Independent Counsel shall be final and
controlling. However, should the Independent Counsel determine that
the status of the benefits in dispute can be resolved by obtaining a
private letter ruling from the Internal Revenue Service, a formal and
proper request for such ruling shall be prepared and submitted by
Independent Counsel, and the determination made by the Internal
Revenue Service in the issued ruling shall be controlling. All
expenses incurred in connection with the retention of Independent
Counsel and (if applicable) the preparation and submission of the
ruling request shall be paid by the Company.
B. The present value of each Equity Parachute Payment and
each of the Other Parachute Payments (including your severance payment
and Health Care Coverage) shall be determined in accordance with the
provisions of Code Section 280G(d)(4) and the Treasury Regulations
issued thereunder.
The full amount of your severance benefit under Paragraph 1 shall not
be paid to you until any amounts in dispute under this Paragraph 6(ii)
have been resolved in accordance herewith. However, any portion of
such severance payment which would not otherwise exceed the benefit
limitation of Paragraph 6(i) even if all amounts in dispute under this
Paragraph 6(ii) were to be resolved against you will be paid to you in
accordance with the applicable provisions of this letter agreement.
(iii) Overriding Limitation. You will in all events be entitled
to receive the full amount of your severance payment under Paragraph
1, to the extent those benefits, when added to the present value of
your Equity Parachute Payment and your Other Parachute Payments
(excluding such severance payment), will nevertheless qualify as
reasonable compensation within the standards established under Code
Section 280G(b)(4).
(iv) Interpretation. The provisions of this Section 6 shall in
all events be interpreted in such manner as will avoid the imposition
of excise taxes under Code Section 4999, and the disallowance of
deductions under Code Section 280G(a), with respect to your severance
benefits under this letter agreement.
PART THREE -- MISCELLANEOUS PROVISIONS
1. Termination for Cause. Should your termination constitute a
Termination for Cause, then the Company shall only be required to pay
you (i) any unpaid compensation earned for services previously
rendered through the date of such termination and (ii) any accrued but
unpaid vacation benefits or sick days, (iii)
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 10
any reimbursements then owed to you by the Company and no benefits
will be payable to you under this letter agreement.
2. Term of Agreement. The provisions of this letter agreement will
continue in effect for a period of five (5) years from the date
hereof.
3. General Creditor Status. The benefits to which you may become entitled
under this letter agreement (except those attributable to your Options
or Stock Issuances) will be paid, when due, from the general assets of
the Company. Your right (or the right of the executors or
administrators of your estate) to receive any such payments will at
all times be that of a general creditor of the Company and will have
no priority over the claims of other general creditors of the Company.
4. Death. Should you die before receipt of all benefits to which you
become entitled under this letter agreement, then the payment of such
benefits will be made, on the due date or dates hereunder had you
survived, to the executors or administrators of your estate. Should
you die before you exercise your Severance-Accelerated Options (if
any) or any other of your outstanding vested Options, then each such
Option may be exercised, during the applicable exercise period in
effect hereunder for those options at the time of your death, by the
executors or administrators of your estate or by person to whom the
Option is transferred pursuant to your will or in accordance with the
laws of inheritance.
5. Miscellaneous. The provisions of this letter agreement will be
construed and interpreted under ERISA. To the extent ERISA is
inapplicable, then the laws of the State of California shall control,
without regard to that state's choice of law provisions. This letter
agreement incorporates the entire agreement between you and the
Company relating to the subject of severance benefits and supersedes
all prior agreements and understandings with respect to such subject
matter. This letter agreement may only be amended by written
instrument signed by you and another duly-authorized officer of the
Company. If any provision of this letter agreement as applied to any
party or to any circumstance should be adjudged by an arbitrator or
court of competent jurisdiction to be void or unenforceable for any
reason, the invalidity of that provision shall in no way affect (to
the maximum extent permissible by law) the application of such
provision under circumstances different from those so adjudicated, the
application of any other provision of this letter agreement, or the
enforceability or invalidity of this letter agreement as a whole.
Should any provision of this letter agreement become or be determined
to be invalid, illegal or unenforceable in any jurisdiction by reason
of the scope, extent or duration of
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 11
its coverage, then such provision shall be deemed amended to the
extent necessary to conform to applicable law so as to be valid and
enforceable or, if such provision cannot be so amended without
materially altering the intention of the parties, then such provision
shall be stricken and the remainder of this letter agreement shall
continue in full force and effect.
6. Remedies. All rights and remedies provided pursuant to this letter
agreement or by law will be cumulative, and no such right or remedy
will be exclusive of any other. A party may pursue any one or more
rights or remedies hereunder or may seek damages or specific
performance in the event of another party's breach hereunder or may
pursue any other remedy by law or equity, whether or not stated in
this letter agreement.
7. Arbitration. Any controversy which may arise between you and the
Company with respect to the construction, interpretation or
application of any of the terms, provisions or conditions of this
letter agreement or any monetary claim arising from or relating to
this letter agreement will be submitted to and exclusively decided by
final and binding arbitration in San Diego, California in accordance
with the rules of the American Arbitration Association then in effect.
8. No Employment or Service Contract. Nothing in this letter agreement
shall confer upon you any right to continue in the employment of the
Company for any period of specific duration or interfere with or
otherwise restrict in any way the rights of the Company or you, which
rights are hereby expressly reserved by each, to terminate your
employment at any time for any reason whatsoever, with or without
cause.
9. Proprietary Information. You hereby acknowledge that the Company may,
from time to time during your employment with the Company, disclose to
you confidential information pertaining to the Company's business and
affairs. All information and data, whether or not in writing, of a
private or confidential nature concerning the business or financial
affairs of the Company is and will remain subject to a separate
Proprietary Information and Inventions Agreement (or the like) between
you and the Company.
Please indicate your acceptance of the foregoing provisions of
this severance agreement by signing the enclosed copy of this letter agreement
and returning it to the Company.
Xxxx X. Xxxxxx, M.D., Ph.D.
October 1, 2004
Page 12
Very truly yours,
LIGAND PHARMACEUTICALS INCORPORATED
/S/ XXXXX X. XXXXXXXX
--------------------------------------
Xxxxx X. Xxxxxxxx
Chairman, President and CEO
DER:bjo
severance xxxxxx 2004-10-01.doc
ACCEPTED BY AND AGREED TO
Signature: /S/ XXXX X. XXXXXX
---------------------------
Dated: 11/5/04
