Exhibit 10.4

[PDL LETTERHEAD]

May 1, 2002

 

Laurence Jay Korn
34801 Campus Drive
Fremont, CA 94555

Re: Special Compensation and Continued Employment Agreement

Dear Laurence:

As we have discussed, Protein Design Labs, Inc. (the "Company") wishes to
acknowledge your resignation as the Company's Chief Executive Officer and
memorialize the terms of your continued employment with the Company as its
Chairman of the Board of Directors ("Chairman") by entering into this Special
Compensation and Continued Employment Agreement (the "Agreement") with you.

1. Resignation. You hereby resign from your position as Chief Executive Officer
of the Company effective as of May 1, 2002, and accept continued employment with
the Company as its Chairman.

2. Services. As the Company's Chairman, you shall have the following duties:

(a) take the lead role in forming a Corporate Governance committee of the Board
of Directors (the "Board") and/or a Nominating Committee (to review and evaluate
potential nominees to the Board, and to make recommendations to the Board
regarding such potential nominees) of the Board, and make recommendations to the
Board as to the scope and charter of such committee(s);

(b) participate in leading investor relations in coordination with the Chief
Executive Officer and Vice President, Business Development and Corporate
Communications (or the successor head of Corporate Communications); in this role
you will have access to the Chief Executive Officer's direct reports in
Corporate Communications on strategy and implementation;

(c) participate in leading business development activities for the Company in
coordination with the Chief Executive Officer and Vice President, Business
Development and Corporate Communications (or the successor head of Business
Development); in this role you will have access to the Chief Executive Officer's
direct reports in Business Development on strategy and implementation;

(d) such other duties as the Company's Board may reasonably assign to you; and

(e) serve as Chairman and as a member of the Board and preside at all Board
meetings and stockholder meetings.

You will be given access to all Company information necessary to perform your
duties hereunder, which information would be deemed material under the federal
securities laws. With respect to your duties for the Company, including but not
limited to those set forth in subsections (b) - (d) above (but excluding your
activities as a member of the Board or of any Board committee), you shall
coordinate and consult with the Company's Chief Executive Officer and his/her
designees to carry out such duties. In the event of any disagreement between you
and the Chief Executive Officer, the decision of the Chief Executive Officer
shall control.

3. Compensation. During the remainder of your employment, you will be
compensated for your services to the Company as follows:

(a) Base Salary. Until April 30, 2004, your base salary shall be equal to your
final base salary as the Company's Chief Executive Officer ($515,000 per year).
Although it will be under no obligation to do so, the Board may increase your
base salary at any time, in its sole discretion. If you continue to be employed
by the Company after April 30, 2004, your salary shall be subject to
negotiation.

(b) Stock Options. All of your current unvested options to purchase the
Company's common stock shall continue to vest at the full time vesting rate.
Notwithstanding anything to the contrary contained in the applicable stock
option agreements, such stock options shall continue to vest at that rate for as
long as you are an employee and/or director of the Company, except that stock
options granted under the 1991 Stock Option Plan will continue to vest only as
long as you remain an employee. Although it will be under no obligation to do
so, the Board may grant you additional stock options at any time in its sole
discretion.

(c) Benefits. The Company will continue to provide you with the following
employee fringe benefits that you were receiving as of the effective date of
your resignation as the Company's Chief Executive Officer: group health
insurance (including dependent coverage), short and long-term disability
insurance, life insurance, accidental death and dismemberment insurance,
business travel accident insurance, 401(k) matching, employee stock purchase
plan and tuition reimbursement. You will also remain eligible to participate in
the Company's retiree medical insurance plan. The Company will increase, or may
reduce, your fringe benefits under the plans identified in this paragraph if
such increase or reduction is similarly applicable to the Company's Chief
Executive Officer. In addition, so long as you remain an employee of the
Company, the Company will continue to provide you with at least your current
level of vacation, sick leave, holiday leave and comp time and reimbursement of
travel expenses.

(d) Administrative Support/Office. The Company will continue to provide you, at
the Company's sole expense, with the services of a full-time administrative
assistant, and with reasonable office facilities for you and your administrative
assistant in Palo Alto or Menlo Park, California (or any other reasonable
location in the San Francisco Bay Area), which shall be your principal office
and be equipped with standard office equipment, such as telephone lines, desktop
personal computers and office furniture. To the extent that she is agreeable to
doing so, Jeanne Mager will serve as your administrative assistant. Ms. Mager
will continue to be employed by the Company while serving as your administrative
assistant. If Ms. Mager's employment is terminated by the Company without
"Cause" (as defined below) or if Ms. Mager elects to resign from her employment
with the Company within 30 days following the termination of your employment
with the Company for any reason, and if Ms. Mager executes and delivers to the
Company a general release of all known and unknown claims in a form satisfactory
to the Company, the Company will pay Ms. Mager a lump sum severance payment
equal to the greater of (i) six months' base pay at Ms. Mager's final base pay
rate, or (ii) two weeks' base pay at Ms. Mager's final base pay rate for each
full year of her employment with the Company, and will accelerate her stock
options for the same period.

You will enter Company facilities (other than the office at a location other
than the Fremont facilities provided to you pursuant to this paragraph) only as
(i) reasonably necessary to perform your duties under paragraph 2(a) - (e), or
(ii) requested by the Chief Executive Officer. The Company also will provide an
office at its Fremont facilities for your use during visits to such facilities
in carrying out your duties under paragraph 2(b), 2(c) and 2(d).

You will not be entitled to any other compensation or benefits from the Company
during the remainder of your employment, except as provided in paragraph 8 of
this Agreement.

4. Term of Employment. Your employment is for no specified term, and may be
terminated by you or the Company at any time, with or without cause, in
accordance with the terms and conditions of this Agreement.

5. No Conflict. During the remainder of your employment with the Company, you
agree to devote such business time, energy and skill to your duties at the
Company as is reasonably necessary to perform your duties hereunder (which we
anticipate will be less than full-time employment). Notwithstanding the previous
sentence, you may engage in such personal and other business activities as you
wish (including but not limited to service on other Boards of Directors) so long
as such activities do not violate your fiduciary obligations to the Company.

6. Benefits Upon Termination. As noted above, you or the Company can terminate
our employment relationship at any time, with or without cause. If the Company
terminates your employment for a reason other than (i) "Cause" (as defined
below), (ii) your death, or (iii) your inability to perform the essential
functions of your job due to disability even after reasonable accommodation,
such termination shall be an "Involuntary Termination". In the event of an
Involuntary Termination, and if you execute and deliver to the Company within 60
days following your Involuntary Termination a general release of all known and
unknown claims against the Company existing as of the date of execution of the
release, in a form reasonably satisfactory to the Company (which release shall
also obligate you to refrain from soliciting employees, other than Ms. Mager, or
any other administrative assistant provided to you pursuant to this Agreement,
contractors, vendors, strategic partners, and customers to terminate their
relationships with the Company, and to refrain from disparaging the Company, its
directors, employees, products or services), you shall receive continued payment
of your base salary at your final base salary rate, as well as any employee
fringe benefits identified in paragraph 3(c), above (to the extent such fringe
benefits can be made generally available to directors or former employees of the
Company pursuant to the terms of the applicable fringe benefit plan or policy),
for the Specified Period (as defined below) following your Involuntary
Termination, and you will immediately become vested in that portion of any
unvested stock options previously granted to you by the Company that would have
become vested during the Specified Period, including stock options granted under
the 1991 Stock Option Plan. In addition, to the extent that you are not eligible
for continued group health insurance coverage under the Company's group health
insurance plan upon your Involuntary Termination or resignation, the Company
will pay the premiums necessary to continue equal or greater coverage for you
under COBRA until the earlier of (a) the end of the Specified Period, (b) the
end of your COBRA eligibility, or (c) the date on which you first become covered
under another group health insurance plan of equal or greater coverage.

If your Involuntary Termination occurs more than 1year after the date of this
Agreement, the Specified Period will be 1 year. If your Involuntary Termination
occurs less than 1year after the date of this Agreement, the Specified Period
will be 2 years less the amount of time that you were employed by the Company
following the date of this Agreement.

For purposes of this Agreement, your resignation for "Good Reason" (as defined
below) shall also constitute an Involuntary Termination. If you resign for Good
Reason pursuant to paragraph 7(b)(v) below, in addition to the salary
continuation payments that you will receive for the Specified Period, any
unvested stock options the Company has previously granted to you will become
immediately and fully vested.

If the termination of your employment by the Company is for (i) "Cause" (as
defined in this paragraph 6), (ii) your death, or (iii) your inability to
perform the essential functions of your job due to disability even after
reasonable accommodation, or if you resign from your employment for other than
Good Reason, you will not be entitled to any payments or benefits upon the
termination of your employment other than the salary earned by you through the
date of your termination, except the retiree medical insurance plan.
Notwithstanding the foregoing, in the event that you resign from your employment
for other than Good Reason within 90 days following the first day of employment
of the Company's next, non-interim Chief Executive Officer, and you sign the
general release of claims described above, you shall receive a one-time payment
of your base salary at your final base salary rate (no less than $515,000); if
you also resign from your position as a member of the Board at the same time,
you will immediately become vested in the portion of any unvested stock options
previously granted to you by the Company that would have become vested during
the one year period following your resignation date.

If you do not execute and deliver to the Company the general release described
above within 60 days following; i) your Involuntary Termination, or ii) your
resignation within 90 days following the first day of employment of the
Company's next, non-interim Chief Executive Officer, you will not be entitled to
receive any severance or termination compensation or benefits from the Company,
including those described in this paragraph 6, except the retiree medical
insurance plan. The Company agrees that after you cease being either an employee
or a director, it will instruct its officers and human resources personnel to
respond to any inquiries regarding your employment by only confirming the fact
and dates of your employment, except as otherwise required by law.

7. Definitions.

(a) For purposes of this Agreement, "Cause" shall exist for termination of your
employment if you: (i) engage in a material act of theft or dishonesty,
intentional misrepresentations regarding the Company or falsification of any
employment or Company records; (ii) improperly use or disclose the Company's
confidential or proprietary information; or (iii) are convicted of (including
entering a plea of guilty or no contest to) any criminal act, which conviction
impairs your ability to perform your services for the Company.

(b) For purposes of this Agreement, "Good Reason" shall mean the existence of
any of the following conditions 10 days after the Company's Chief Executive
Officer or a majority of the Board actually receives a written notice from you
of such condition(s), provided that such notice is provided to the Company's
Chief Executive Officer or a majority of the Board within 90 days of the date on
which you become aware of the condition:

(i) a decrease in your base salary before April 30, 2004;

(ii) a material decrease in any of your employee fringe benefits described in
paragraph 3(c), above, which decrease is not similarly applicable to the Chief
Executive Officer of the Company;

(iii) a material, adverse change in your title or duties for the Company, as
measured against your title or duties immediately prior to such change;

(iv) the Board's assignment to you of additional duties pursuant to paragraph
2(d) which you choose not to perform;

(v) the failure of the Board to nominate you for re-election to the Board at the
conclusion of your current term and/or the Board's failure to undertake the same
efforts to secure your re-election to the Board as it undertakes on behalf of
the other Board nominees on the slate at that election; or

(vi) any material breach of this Agreement by the Company.

8. Benefits Upon Termination Following a Change in Control. In the event that
the Company is subject to a "Change in Control" (as that phrase is defined in
the Company's Executive Retention and Severance Plan of October 10, 2001 (the
"Plan")), you will be eligible to receive all compensation and benefits in
accordance with the terms of that Plan as if you were the Company's Chief
Executive Officer. In the event that you receive the severance compensation or
benefits pursuant to Section 5 of the Plan, you will not receive the severance
compensation or benefits under paragraph 6 of this Agreement.

9. Invention and Assignment Agreement. You shall continue to be bound by the
terms and conditions of any agreements between you and the Company related to
the protection of the Company's confidential and proprietary information and/or
assignment of inventions. At your request, the Company will allow you to sign
its current Invention and Assignment Agreement, provided that it shall be made
effective as of the first day of your employment with the Company.

10. Assignment. In view of the personal nature of the services to be performed
under this Agreement by you, you cannot assign or transfer any of your rights or
obligations under this Agreement.

11. Press Release. The Company will promptly issue the press release attached
hereto as Exhibit A to announce your acceptance of the Chairman position and
your resignation from your position as Chief Executive Officer.

12. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California. In any litigation arising
out or in connection with or relating to the terms of this Agreement or the
breach or alleged breach thereof, the prevailing party shall be entitled to
recover its attorneys' fees.

13. Attorneys' Fees. The Company will reimburse you for up to $30,000 of
reasonable, documented attorneys' fees incurred by you in the negotiation and
documentation of this Agreement.

14. Entire Agreement. This Agreement, along with any agreements described in
Paragraphs 3, 8 and 9 above and any agreements concerning your indemnification
by the Company, constitutes the entire agreement between you and the Company
regarding the terms and conditions of your continued employment with the
Company, and it supersedes all prior negotiations, representations, and
agreements, whether written or oral, concerning your employment with the Company
and/or the termination of your employment. (This Agreement does not affect any
stock option or restricted stock agreements between you and the Company, which
remain in full force and effect.) This Agreement may only be modified or amended
by a supplemental written agreement signed by you and the Chief Executive
Officer or the General Counsel of the Company.

Laurence, we look forward to your continued service with the Company. Please
sign and date this letter on the spaces provided below to acknowledge your
acceptance of the terms of this Special Compensation and Continued Employment
Agreement.

 

Sincerely,

Protein Design Labs, Inc.

 

By:___________________________

Douglas O. Ebersole,
Senior Vice President,
Legal and Licensing

 

I agree to and accept continued employment with Protein Design Labs, Inc. on the
terms and conditions set forth in this Special Compensation and Continued
Employment Agreement.

 

 

Date: May 1, 2002           _________________________
                                      Laurence Jay Korn, Ph.D.

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