Exhibit 10.5
May 9, 2002
Xxxxx X. XxXxxxxxxx
0 Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxxxx 00000
Dear Xx. XxXxxxxxxx:
In consideration of your continued employment with PRAECIS
PHARMACEUTICALS INCORPORATED ("PRAECIS" or the "Company"), the Company is
pleased to extend the following severance benefits to you. Please acknowledge
your agreement to the terms and conditions of these severance benefits by
executing this letter agreement (this "agreement") where indicated below.
CHANGE OF CONTROL SEVERANCE BENEFITS.
If a "Change of Control" occurs and your employment with the Company is
terminated upon, or within a one-year period following, the effective date of
such Change of Control by (i) the Company, other than for "Cause," or (ii) you
for "Good Reason," you shall be entitled to a lump sum payment equal to either
(A) your annual salary for the year in which such Change of Control occurs, plus
the full amount of your target award under the Company's Executive Management
Bonus Plan (the "Bonus Plan") for that year, if such termination occurs during
the twelve months immediately following the date of this agreement, or (B) two
times the sum of (x) your annual salary for the year in which such Change of
Control occurs and (y) the full amount of your target award under the Bonus Plan
for that year, if such termination occurs at any time after the first
anniversary of the date of this agreement. In addition, in the event of such
termination, then for a period of either (i) one year following the effective
date of such termination, if such termination occurs during the twelve months
immediately following the date of this agreement, or (ii) two years following
the effective date of termination, if such termination occurs at any time after
the first anniversary of the date of this agreement, the Company shall, at its
sole cost and expense, maintain in full force and effect for your benefit (and
the benefit of your spouse and children, if applicable) the long-term disability
and medical and dental insurance coverage maintained by the Company and as in
effect immediately prior to the Change of Control or, if more favorable to you
(and your spouse and children, if applicable), as in effect immediately prior to
the occurrence of the first event or circumstance constituting Good Reason;
provided that if the general terms and conditions of such insurance do not
permit the continued coverage of you (and of your spouse and children, if
applicable) as provided above, the Company shall, provide or arrange to provide
you (and your spouse and children, if applicable) for the applicable period as
provided above, at its sole cost and expense, with such insurance coverage
having benefits substantially similar (with no reduction in benefits) to those
which you (and you spouse and children, if applicable) would otherwise have been
entitled had the continued coverage of you (and of your spouse and children, if
applicable) as provided above been permitted under the general terms and
conditions of such insurance.
Xxxxx X. XxXxxxxxxx
May 9, 2002
Page 2
ACCELERATION OF VESTING OF FUTURE STOCK OPTIONS.
The Company hereby acknowledges that as of the date hereof, you hold stock
options granted under the Company's Second Amended and Restated 1995 Stock Plan
(as it has been or may be amended from time to time, the "Stock Plan") to
purchase shares of PRAECIS common stock, upon the terms and conditions set forth
in the respective stock option agreements between you and the Company with
respect to such stock options (such stock option agreements, together with each
other stock option agreement entered into between you and the Company with
respect to any stock options granted to you under the Stock Plan after the date
hereof, being collectively referred to as "Stock Option Agreements"). The
parties further acknowledge and agree that (i) notwithstanding any provisions of
the Stock Plan to the contrary, any additional stock options granted to you
under the Stock Plan after the date hereof (including any such options assumed
by another entity in connection with a Change of Control) shall automatically
become fully vested and exercisable upon the termination of your employment upon
or after a Change of Control if such termination would entitle you to a lump sum
payment pursuant to the immediately preceding paragraph of this agreement
("Change of Control Severance Benefits"), (ii) immediately upon a Change of
Control, the section of each Stock Option Agreement captioned "No Exercise of
Option if Employment Terminated for Misconduct" shall automatically cease to be
of any force or effect and, accordingly, no termination of your employment with
the Company upon or after a Change of Control will be, or will be deemed to be,
a termination for "Misconduct" for purposes of any Stock Option Agreement, (iii)
the provisions of clause (ii) of this sentence shall constitute amendments to
the respective Stock Option Agreements entered into prior to the date hereof and
(iv) any Stock Option Agreement entered into after the date hereof will include
provisions to the effect provided in clauses (i) and (ii) of this sentence.
WITHHOLDING.
The Company may withhold from any amounts payable hereunder such federal, state,
local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
PARACHUTE TAX TREATMENT.
In the event that any payment or benefit you receive from the Company or an
affiliate (collectively, the "Payments") would be subject to the excise tax (the
"Excise Tax") imposed on "excess parachute payments" pursuant to Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"), then the Payments
shall be reduced to the extent necessary so that no portion of the Payments is
subject to the Excise Tax, provided that such reduction shall occur only if (A)
the net amount of such Payments, as so reduced (and after subtracting the net
amount of federal, state and local income taxes on such reduced Payments) is
greater than (B) the net amount of such Payments without such reduction (but
after subtracting the net amount of federal, state and local income taxes on
such Payments and the amount of Excise Tax to which you would be subject in
respect of such unreduced Payments). Determinations with respect to the
preceding sentence shall be made by the Company's auditors which were serving as
such prior to the Change of Control, in consultation with tax counsel selected
by the Company.
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May 9, 2002
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CERTAIN DEFINITIONS.
For the purposes of this agreement:
A "Change of Control" shall occur or be deemed to have occurred if:
(i) any individual, entity or "person" (within the meaning of Section 13(d)(3)
or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of Company in substantially the
same proportion as their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company representing more than 50% of the
combined voting power of the Company's then outstanding securities entitled to
vote generally for the election of directors;
(ii) individuals who, as of the date hereof, constitute the Company's Board of
Directors (as of the date hereof, the "Incumbent Board") cease for any reason to
constitute a majority of the Company's Board of Directors, provided that any
person becoming a director subsequent to the date hereof whose election, or
nomination for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board (other
than an election or nomination of an individual whose initial assumption of
office is in connection with an actual or threatened election contest relating
to the election of the directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Exchange Act) shall be, for purposes of this
agreement, considered as though such person were a member of the Incumbent
Board;
(iii) the stockholders of the Company approve a merger or consolidation of the
Company or any direct or indirect subsidiary of the Company with any other
entity or entities (whether or not the Company would be the surviving
corporation), other than a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior to such merger or
consolidation representing (either by remaining outstanding or by being
converted into or exchanged for voting securities of the surviving entity or any
parent thereof), immediately after such merger or consolidation, more than 50%
of the combined voting power of the voting securities of such surviving entity
or any parent thereof entitled to vote generally for the election of directors;
or
(iv) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
"Cause" shall mean: (i) your substantial and continuing willful failure to
perform your assigned duties (other than any such failure resulting from
incapacity due to injury or physical or mental illness), which failure is not
cured within 30 days after a written demand for substantial performance is
delivered to you by the Company at the direction of the Company's Board of
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May 9, 2002
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Directors which specifically identifies the manner in which you have not
substantially performed your assigned duties, and provided you have had a
reasonable opportunity, after receipt of such written demand, to be heard (and
to be represented by counsel) at a meeting of the Company's Board of Directors,
or (ii) (A) your conviction of a felony (other than unintentional motor vehicle
felonies) or (B) your engaging in gross misconduct which is materially and
demonstrably injurious to the Company, provided (in the case of this clause (B))
you have received written notice from the Company at the direction of the Board
of Directors specifically identifying the acts or omissions constituting such
gross misconduct and you have had a reasonable opportunity, after receipt of
such notice, to be heard (and to be represented by counsel) at a meeting of the
Company's Board of Directors. For purposes of this definition, no act or failure
to act shall be considered "willful" unless it is done, or omitted to be done,
in bad faith or without reasonable belief that the action or omission was in the
best interests of the Company.
"Good Reason" shall mean: (i) any adverse and material alteration or diminution
in your position, title or responsibilities as they existed immediately prior to
the Change of Control, if the Company does not remedy such alteration or
diminution within 30 days following notice from you; (ii) the Company's material
reduction of your annual base salary or targeted bonus opportunity, in each case
as in effect immediately prior to the Change of Control; or (iii) relocation of
the Company's offices at which you are employed immediately prior to the Change
of Control which increases your daily commute by more than 50 miles on a round
trip basis.
LEGAL FEES.
The Company shall pay to you or as you direct all legal fees and expenses
incurred by you or on your behalf in seeking in good faith to obtain or enforce
any benefit or right provided by this agreement or in connection with any tax
audit or proceeding to the extent attributable to the application of section
4999 of the Code to any payment or benefit provided hereunder. Such payments
shall be made within five (5) business days after your delivery to the Company
of written request for payment accompanied by invoices reflecting such fees and
expenses incurred as to which payment is being requested. You shall be entitled
to seek specific performance of your rights under this paragraph during the
pendency of any dispute or controversy arising under or in connection with this
agreement, and in such event the Company will not assert that there is an
adequate remedy at law.
SUCCESSORS.
This agreement shall inure to the benefit of and be binding upon the Company and
its successors and assigns (whether direct or indirect, by purchase, merger,
consolidation or otherwise). The Company will require any assignee(s) or
transferee(s) of all or substantially all of assets of the Company to assume
expressly and agree to perform this agreement in the same manner and to the same
extent that the Company would be required to perform it if no such assignment or
transfer had taken place. As used in this agreement, "Company" shall mean the
Company as hereinbefore defined and its successors and assigns as aforesaid.
This agreement is personal to you and without the prior written consent of the
Company shall not be assignable by you except
Xxxxx X. XxXxxxxxxx
May 9, 2002
Page 5
by will or the laws of descent and distribution. This agreement shall inure to
the benefit of and be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If you should die while any amount would still be payable to you
hereunder if you had continued to live, all such amounts shall be paid in
accordance with the terms of this agreement to your devisee, legatee or other
designee or legal representative.
MISCELLANEOUS.
This agreement shall be governed by and construed in accordance with the laws of
the State of Delaware, without reference to principles of conflict of laws. The
captions of this agreement are not part of the provisions hereof and shall have
no force or effect. This agreement may not be amended or modified otherwise than
by a written agreement executed by the parties hereto or their respective
successors or assigns or, in your case, legal representative(s). No delay or
omission by a party in exercising any right under this agreement shall operate
as a waiver of that of any other right. A waiver or consent given by a party on
any one occasion shall be effective only in that instance and shall not be
construed as a bar or waiver of any right on any other occasion. In case any
provision of this agreement shall be invalid, illegal or otherwise
unenforceable, the validity, legality and enforceability of the remaining
provisions shall in no way be affected or impaired thereby. The captions of the
sections of this agreement are for convenience of reference only and in no way
define, limit or affect the scope or substance of any section of this agreement.
This agreement may be executed in counterparts, each of which when executed
shall be deemed to be an original but which taken together shall constitute one
and the same agreement.
By signing this agreement, you acknowledge that your employment with
PRAECIS continues to be at-will. Therefore, your employment can terminate, with
or without cause, and with or without notice, at any time, at your option or the
Company's option, and the Company can terminate or change all other terms and
conditions of your employment, with or without cause, and with or without
notice, at any time; provided that this sentence is not intended to, and shall
not, limit or impair in any manner your rights and the Company's obligations
hereunder or under any other written agreement between you and the Company.
Sincerely yours,
PRAECIS PHARMACEUTICALS INCORPORATED
By /s/ Xxxxxxx X. Xxxxxx
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Xxxxxxx X. Xxxxxx, Ph.D.
Chairman and Chief Executive Officer
Xxxxx X. XxXxxxxxxx
May 9, 2002
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Your signature below indicates that you have read, understand and agree to the
terms and conditions of this agreement. Please retain a copy of this document
for your files and return the executed original to the attention of Xxxx Xxxx
XxXxxx, Vice President, Legal.
Agreed and Accepted by:
/s/ Xxxxx X. XxXxxxxxxx
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Xxxxx X. XxXxxxxxxx
Date: May 9, 2002
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