Exhibit 10.1

MAST THERAPEUTICS, INC.

EXECUTIVE SEVERANCE AGREEMENT

This Executive Severance Agreement (“Agreement”) is dated March 23, 2016
(“Effective Date”), and is between Brian M. Culley (“Executive”) and Mast
Therapeutics, Inc., a Delaware corporation (“Company”).  Each of the Company and
Executive are a “Party” and, collectively, they are the “Parties.”  Any
capitalized but undefined term in this Agreement shall have the meaning assigned
to it in Section 3 of this Agreement.

Executive was a Participant under the ADVENTRX Pharmaceuticals, Inc. Retention
and Severance Plan dated as of July 21, 2009 (the “Prior Agreement”); and

The Parties acknowledge and agree that this Agreement shall replace and
supersede the Prior Agreement in its entirety; and

The Parties desire to enter into this Agreement to continue to provide certain
benefits to Executive in the event of Executive’s separation from employment
with the Company.

Accordingly, in consideration of the mutual promises and covenants contained
herein, the Parties agree to the following:

1.Severance Benefits.

1.1Eligibility for Severance Benefits.  In the event that (a) Executive’s
employment has been terminated due to an Involuntary Termination or due to
Executive’s resignation for Good Reason, in either case, prior to or within
twenty-four (24) months after the effective date of a Change in Control (such
event is referred to as a “Covered Termination”) and (b) Executive complies with
the obligations described below in Section 1.3, then Executive will be eligible
for the severance benefits describe below in Section 1.2, subject to the
restrictions and limitations in this Agreement.  If Executive’s employment with
the Company terminates for any reason other than a Covered Termination, then
Executive will not be eligible to receive any compensation under this Agreement.

1.2Severance Benefits.  Following a Covered Termination and subject to the terms
and conditions set forth in Section 1.3, Executive will be eligible for the
following severance benefits:

(a)An amount payable by the Company to Executive equal to twenty four (24)
months of Executive’s base salary in effect on the Termination Date,
disregarding any decrease in Executive’s base salary that forms the basis for
Good Reason (the “Benefit Period”), which payment will be subject to standard
payroll deductions and withholdings and will be made in a lump sum within ten
(10) business days following the date the Release described in Section 1.3
becomes effective and can no longer be revoked by Executive (the “Release
Effective Date”), provided the Company has received the Release from Executive
by such date;

(b)If Executive is participating in the Company’s group health insurance plans
on the Termination Date, an amount payable by the Company to Executive equal to
the premiums necessary to continue Executive’s health insurance coverage in
effect for Executive and Executive’s covered dependents under the Consolidated
Omnibus Reconciliation Act of 1985, for a period equal to the Benefit Period,
which payment will be subject to standard payroll deductions and withholdings
and will be made in a lump sum within ten (10) business days following the
Release Effective Date, provided the Company has received the Release from
Executive by such date;

(c)Each stock option granted to Executive (individually, an “Option”) to
purchase certain shares of common stock of the Company, par value $0.001 per
share (the “Shares”) pursuant to the Mast Therapeutics, Inc. 2015 Omnibus
Incentive Plan, as may be amended or restated from time to time, or such other
equity incentive plan as may be adopted by the Board of Directors and approved
by the stockholders of the

 

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Company (the “Plan”), regardless of whether such Option was granted before, on,
or after the Effective Date, shall immediately prior to such Covered Termination
(unless such Option has earlier terminated) become vested with respect to 25% of
the total number of Shares that were subject to such Option on its date of
grant; provided, however, that notwithstanding the increased vesting provided
for in the preceding sentence, in no event shall any Option become vested and
exercisable for more than the total number of Shares that were subject to such
Option on its date of grant (subject to adjustment as provided in the applicable
Grant Agreement);  

(d)The exercise period for each Option (regardless of whether granted before,
on, or after the Effective Date) shall be extended such that Executive may
exercise each such Option, to the extent vested as of such Covered Termination
(for clarity, after taking into account the vesting acceleration provision of
paragraph (c) of this Section 1.2) and in accordance with the terms of the
written agreement, contract or other instrument or document evidencing such
Option (the “Grant Agreement”), any time after the Release Effective Date
(provided that the Company has received the Release from Executive by such date)
and prior to the close of business on the last calendar day of the 12th full
calendar month following the date of such Covered Termination; and

(e)Notwithstanding paragraphs (c) and (d) of this Section 1.2, in the event of a
Covered Termination following a Change in Control in which the successor company
(or a subsidiary or parent thereof) assumed or substituted for an Option on
substantially the same terms and conditions (which may include providing for
settlement in the common stock of the successor company (or a subsidiary or
parent thereof)), then (i) any such Option (regardless of whether granted
before, on, or after the Effective Date) shall become fully (100%) vested; and
(ii) any such Option (regardless of whether granted before, on, or after the
Effective Date) may be exercised in accordance with the terms of the Grant
Agreement at any time after the Release Effective Date (provided that the
Company or the successor company, as applicable, has received the Release from
Executive by such date) and prior to the close of business on the tenth (10th)
anniversary of the date of grant of the Option.

1.3Release and Other Conditions.  Before any severance benefits will be payable
to Executive or will be continued under this Agreement, Executive much satisfy
all of the following conditions: (i) Executive executes and delivers to the
Company and does not revoke a general release of claims in favor of the Company,
its subsidiaries, affiliates, successors and assigns, and its and their
directors, officers, shareholders, employees and representatives, in a form
acceptable to the Company (the “Release”), such that the Release Effective Date
occurs no later than sixty (60) days following the Termination Date; (ii) if
Executive holds any other positions with the Company, Executive resigns such
position(s) to be effective no later than the Termination Date (or such other
date as requested by the Company);  (iii) Executive returns all Company
property; (iv) Executive complies with any confidentiality, non-disclosure,
non-competition, non-solicitation, trade secret, and/or assignment of inventions
and other intellectual property provisions to which Executive’s employment was
subject; and (v) Executive complies with the terms of the Release, including
without limitation any non-disparagement and confidentiality provisions
contained in the Release.  The Release shall specifically relate to all of
Executive’s rights and claims in existence at the time of such
execution.  Notwithstanding Section 1.2 of this Agreement, in the event the
severance benefits described in Section 1.2 are subject to the requirements of
Section 409A of the Internal Revenue Code of 1986, as amended, and the
regulations and other guidance thereunder and any state law of similar effect
(collectively, “Section 409A”), and the sixty (60) day period following the
Termination Date begins in one calendar year and ends in a subsequent calendar
year, the severance payments will not be paid until the subsequent calendar year
even if the Release Effective Date occurs in the first year.

1.4No Other Severance.  The severance benefits provided to Executive pursuant to
this Agreement are in lieu of, and not in addition to, any benefits to which
Executive may otherwise be entitled under any other severance agreement between
Executive and the Company, any Company severance plan, policy or program, and
any individually negotiated severance provisions as part of any offer letter or
employment agreement between the Company and Executive.

1.5Effect of Statutory Benefits. To the extent that any severance benefits are
required to be paid to Executive upon termination of employment with the Company
as a result of any requirement of law or any governmental entity in any
applicable jurisdiction, the aggregate amount of severance benefits payable
pursuant to Section 1.2 shall be reduced by such amount.

1.6Basis of Payments.  All payments under this Agreement shall be paid by the
Company.  This Agreement shall be unfunded, and benefits hereunder shall be paid
by the Company or the Company’s successor or parent (if subsequent to a Change
in Control).

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1.7Tax Consequences - Loss of Incentive Stock Option Status.  The parties
acknowledge that by amending the Options granted to Executive before the
Effective Date to extend their post-termination exercise periods as set forth in
Section 1.2(e) above, such Options that currently qualify as incentive stock
options may no longer qualify as incentive stock options and instead may be
treated as nonstatutory stock options.  

1.8Expiration of Offer to Amend Option.  If this Agreement is not agreed to and
executed by Executive on or before the earlier of (a) the date on which
Executive executes the Agreement and (b) twenty-one (21) days after the
Agreement is delivered to Executive, the offer to amend an Option that was
granted to Executive before the Effective Date as set forth in Section 1.2(e)
above shall be terminated and the provisions described therein shall not be
effective.

2.General Provisions.

2.1Employment Status.  This Agreement does not constitute a contract of
employment or impose on Executive any obligation to remain as an employee, or
impose on the Company any obligation to (a) retain Executive as an employee, (b)
change the status of Executive as an at-will employee or (c) change the
Company’s policies regarding termination of employment.

2.2Notices.  Notices and all other communications contemplated by this Agreement
shall be in writing and shall be deemed to have been duly given when personally
delivered or three (3) days after having been mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of
Executive, mailed notices shall be addressed to him or her at the home address
that he or she most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.

2.3Severability.  Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provisions had never been contained herein.

2.4Waiver.  If either Party should waive any breach of any provisions of this
Agreement, Executive or the Company shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision of this
Agreement.

2.5Complete Agreement.  This Agreement, including Exhibit A, constitutes the
entire agreement between Executive and the Company with regard to the subject
matter hereof.  This Agreement is the complete, final, and exclusive embodiment
of their agreement with regard to this subject matter and supersedes any prior
oral discussions or written communications and agreements, including the
provisions addressing this subject matter in the Prior Agreement.  With respect
to the benefits provided in Sections 1.2(c) and (d) of this Agreement, the terms
of this Agreement are intended to supersede the specific provisions of any Grant
Agreement that may conflict with the terms hereof.  For clarity, Section 1.2(d)
does not supersede any provision in any Grant Agreement regarding effect on an
Option to the extent a successor company (or a subsidiary or parent thereof)
does not assume or substitute for an Option on substantially the same terms and
conditions (which may include settlement in the common stock of the successor
company (or a subsidiary or parent thereof).  This Agreement is entered into
without reliance on any promise or representation other than those expressly
contained herein.  

2.6Amendments.  This Agreement may be amended, modified or terminated only in
writing signed by the Company and Executive, except as set forth in Section
2.14(a) below.  The Company may only consent to an amendment or modification of
this Agreement after such amendment or modification has been approved by the
Company’s Board of Directors (the “Board”).

2.7Counterparts.  This Agreement may be executed in separate counterparts, any
one of which need not contain signatures of more than one Party, but all of
which taken together will constitute one and the same Agreement.

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2.8Headings.  The headings of the sections hereof are inserted for convenience
only and shall not be deemed to constitute a part hereof nor to affect the
meaning thereof. 

2.9Successors and Assigns.  This Agreement is intended to bind and inure to the
benefit of and be enforceable by Executive and the Company, and their respective
successors, assigns, heirs, executors and administrators, except that Executive
may not assign any of Executive’s duties hereunder and Executive may not assign
any of Executive’s rights hereunder without the written consent of the
Company.  For all purposes under this Agreement, the term “Company” shall
include any successor (or, if warranted, a subsidiary or parent of such
successor) to the Company’s business and/or assets which is required to assume
the Company's obligations as described in this section or which becomes bound by
the terms of this Agreement by operation of law.

2.10Choice of Law.  All questions concerning the construction, validity and
interpretation of this Agreement will be governed by the law of the State of
California.  

2.11Arbitration. The terms and provisions of Exhibit A hereto are incorporated
herein as if fully set forth herein.

2.12Opportunity for Independent Counsel and Advisors.  Executive acknowledges
that Executive has had an opportunity to retain and consult with independent
counsel and tax advisors to review this Agreement.

2.13Withholding and Employment Taxes.  Executive shall be responsible for any
applicable taxes of any nature (including any penalties or interest that may
apply to such taxes) that the Company reasonably determines apply to any payment
made hereunder. Executive’s receipt of any benefit hereunder is conditioned on
his or her satisfaction of any applicable withholding or similar obligations
that apply to such benefit, and any cash payment owed hereunder will be reduced
to satisfy any such withholding or similar obligations that may apply.

2.14Section 409A of the Code.

(a)The Company is offering severance to Executive in reliance on Treasury
Regulation Section 1.409A-1(b)(9) and the short term deferral exemption in
Treasury Regulation Section 1.409A-1(b)(4), and this Agreement is intended to
comply with, or otherwise be exempt from, Section 409A and any regulations and
Treasury guidance promulgated thereunder. The Company shall undertake to
administer, interpret, and construe this Agreement in a manner that does not
result in the imposition on Executive of any additional tax, penalty, or
interest under Section 409A. If the Company determines in good faith that any
provision of this Agreement would cause Executive to incur an additional tax,
penalty, or interest under Section 409A, the Board may, without the consent of
Executive amend this Agreement as may be necessary to ensure compliance with the
distribution provisions of Section 409A or as otherwise needed to ensure that
this Agreement complies with Section 409A. The preceding provisions, however,
shall not be construed as a guarantee by the Company of any particular tax
effect to Executive under this Agreement. The Company shall not be liable to
Executive for any payment made under this Agreement that is determined to result
in an additional tax, penalty, or interest under Section 409A, nor for reporting
in good faith any payment made under this Agreement as an amount includible in
gross income under Section 409A.

(b)To the extent required to avoid the imposition of additional taxes and
penalties under Section 409A, amounts payable under this Agreement on account of
any termination of employment shall only be paid if Executive experiences a
“separation from service” as defined in Section 409A.

(c)If upon Executive’s “separation from service” (within the meaning of Section
409A) with the Company, Executive is then a “specified employee” (as defined in
Section 409A), then solely to the extent necessary to comply with Section 409A
and avoid the imposition of taxes under Section 409A, the Company shall defer
payment of “nonqualified deferred compensation” subject to Section 409A which is
payable as a result of and within six (6) months following such separation from
service until the earlier of: (a) the first business day of the seventh month
following Executive’s separation from service, or (b) ten (10) days after the
Company receives written notification of such Executive’s death. All such
delayed payments shall be made without accrual of interest.

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(d)Notwithstanding anything to the contrary contained in any other document or
agreement pursuant to which Executive becomes entitled to severance payments
that constitute “deferred compensation” within the meaning of Section 409A, the
form and timing of such payments shall be determined based on the form and
timing rules set forth in this Agreement. 

3.Definitions.  

For purposes of this Agreement, the following terms shall have the following
meanings:

3.1“Cause” shall mean (i) any act of personal dishonesty taken by Executive in
connection with Executive’s responsibilities as an employee which is intended to
result in substantial personal enrichment of Executive; (ii) Executive’s
conviction of a felony that the Board reasonably believes has had or will have a
material detrimental effect on the reputation or business of the Company, its
parents, affiliates or subsidiaries; (iii) a willful act by Executive that
constitutes misconduct and is materially injurious to the Company, its parents,
affiliates or subsidiaries; (iv) any material breach by Executive of any offer
letter, confidential information, non-solicitation or invention assignment
agreement or other agreement by and between the Parties; or (v) continued
willful violations by Executive of Executive’s obligations to the Company, its
parents, affiliates or subsidiaries after there has been delivered to Executive
a written demand for performance from the Company that describes the basis for
the Company’s belief that Executive has not substantially performed Executive’s
duties.

3.2“Change in Control” shall have the meaning ascribed to such term in the
Plan.  Notwithstanding the foregoing, an event is not a “Change in Control”
unless it also is a “change in ownership of a corporation” or a “change in
ownership of a substantial portion of a corporation’s assets” under Treasury
Regulation section 1.409A-3(i)(5)(v) and (vii).

3.3“Disability” shall mean either (a) Executive is unable due to a physical or
mental condition to perform the essential functions of Executive’s position with
or without reasonable accommodation for one hundred eighty (180) days in the
aggregate during any twelve (12) month period, or (b) a determination of
disability due to mental or physical impairment by Executive’s medical
practitioner that it is reasonably likely that an impairment exists with respect
to Executive which will, with the passage of time, satisfy clause (a).  This
definition shall be interpreted and applied consistent with the Americans with
Disabilities Act, the Family and Medical Leave Act, and other applicable law.

3.4“Involuntary Termination” shall mean that Executive’s employment is
terminated by the Company without Cause; provided, however, that the termination
of Executive’s employment as a result of Executive’s death or Disability shall
not be deemed to be an “Involuntary Termination.”  For clarity, transferring
employment to the acquiring, surviving or successor entity in the Change in
Control or their affiliates shall not be deemed to be an “Involuntary
Termination.”

3.5“Good Reason” shall mean: (i) without Executive’s express written consent, a
material reduction or alteration of Executive’s duties, position or
responsibilities relative to Executive’s duties, position or responsibilities in
effect immediately prior to such reduction or alteration, or Executive’s removal
from such position, duties or responsibilities; (ii) without Executive’s express
written consent, a material reduction by the Company of Executive’s base salary
as in effect immediately prior to such reduction (unless pursuant to a salary
reduction program applicable generally to the Company’s similarly situated
employees); and (iii) without Executive’s express written consent, the
relocation of Executive’s principal place of employment with the Company by more
than fifty (50) miles.  Notwithstanding the foregoing, “Good Reason” shall not
be deemed to occur until the Company has received written notice from Executive
of the occurrence of an event triggering Good Reason and had thirty (30) days
after the Company's receipt of such notice to cure or remedy such Good Reason
(the “Remedy Period”).  Any such notice provided by Executive shall indicate the
specific termination provision relied upon, shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination under the
provision so indicated, and shall specify the effective date of Executive’s
“separation from service” within the meaning of Section 409A of the Code.  In
order to be effective, a resignation for Good Reason must occur within ten (10)
business days after the end of the Remedy Period in which the Company failed to
cure or remedy the Good Reason and Executive must have provided the foregoing
written notice of the occurrence of a Good Reason event to the Company within
ninety (90) days of Executive’s awareness of the initial existence of the
applicable Good Reason event.  

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3.6“Termination Date” shall mean the effective date of a Covered Termination
that constitutes a “separation from service” (as such term is defined in
Treasury Regulation Section 1.409A-1(h)).   

[Signature Page Follows]

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In Witness Whereof, the Parties have executed this Executive Severance Agreement
on the Effective Date first written above.

 

Mast Therapeutics, Inc.

 

 

By:

/s/ Brandi L. Roberts

 

 

Name:

Brandi L. Roberts

 

 

Title:

CFO and Senior VP

 

Brian M. Culley

 

 

By:

/s/ Brian M. Culley

 

 

 

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Exhibit A

ARBITRATION

Any dispute or controversy arising out of, relating to, or in connection with
this Agreement, or the interpretation, validity, construction, performance,
breach, or termination thereof, shall be settled by binding arbitration to be
held in the County of San Diego, State of California in accordance with the
Employment Arbitration Rules and Mediation Procedures (or its successor rules)
then in effect of the American Arbitration Association (the “Rules”). The
arbitrator may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
Parties to the arbitration, and judgment may be entered on the arbitrator's
decision in any court having jurisdiction.

The arbitrator(s) shall apply California law to the merits of any dispute or
claim, without reference to conflicts of law rules. The arbitration proceedings
shall be governed by federal arbitration law and by the Rules, without reference
to state arbitration law. Nothing in this Agreement is intended to prevent
either Executive or the Company from obtaining injunctive relief in court to
prevent irreparable harm pending the conclusion of any such
arbitration.  Executive and the Company consent to the personal jurisdiction of
the state and federal courts located in California for such action or for any
action or proceeding relating to any arbitration in which the Parties are
participants.

Nothing in this Exhibit A modifies Executive’s at-will employment status. Either
Executive or the Company can terminate the employment relationship at any time,
with or without Cause.

SUBMISSION OF ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH THIS
AGREEMENT, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR
TERMINATION THEREOF TO BINDING ARBITRATION, CONSTITUTES A WAIVER OF THE PARTY'S
RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL DISPUTES RELATING TO
ALL ASPECTS OF THE EMPLOYER-EMPLOYEE RELATIONSHIP, INCLUDING BUT NOT LIMITED TO,
THE FOLLOWING CLAIMS:

ANY AND ALL CLAIMS FOR WRONGFUL DISCHARGE OF EMPLOYMENT; BREACH OF CONTRACT,
BOTH EXPRESS AND IMPLIED; BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING,
BOTH EXPRESS AND IMPLIED; NEGLIGENT OR INTENTIONAL INFLICTION OF EMOTIONAL
DISTRESS; NEGLIGENT OR INTENTIONAL MISREPRESENTATION; NEGLIGENT OR INTENTIONAL
INTERFERENCE WITH CONTRACT OR PROSPECTIVE ECONOMIC ADVANTAGE; AND DEFAMATION;

ANY AND ALL CLAIMS FOR VIOLATION OF ANY FEDERAL STATE OR MUNICIPAL STATUTE,
INCLUDING, BUT NOT LIMITED TO, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE
CIVIL RIGHTS ACT OF 1991, THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, THE
AMERICANS WITH DISABILITIES ACT OF 1990, THE FAIR LABOR STANDARDS ACT, THE
CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, AND LABOR CODE SECTION 201, et seq.;
and

ANY AND ALL CLAIMS ARISING OUT OF ANY OTHER LAWS AND REGULATIONS RELATING TO
EMPLOYMENT OR EMPLOYMENT DISCRIMINATION.