EXHIBIT 10.286
[Ligand Letterhead]
July 28, 2005
Xx. Xxxxxx X. Xxxxxx
Senior Vice President,
Regulatory Affairs and Compliance
LIGAND PHARMACEUTICALS INCORPORATED
00000 Xxxxxxx Xxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Dear Xxxxxx:
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.
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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).
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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
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July 28, 2005
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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
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July 28, 2005
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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.
Xx. Xxxxxx X. Xxxxxx
July 28, 2005
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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
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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.
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July 28, 2005
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(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").
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July 28, 2005
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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)
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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
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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.
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Very truly yours,
LIGAND PHARMACEUTICALS INCORPORATED
/s/ Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx
Chairman, President and CEO
DER:bjo
agree\Severance Xxxxxx 07.28.05
ACCEPTED BY AND AGREED TO
Signature: /s/ Xxxxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
Dated: 8/18/05
