EXHIBIT 10.4
SEPARATION AGREEMENT
     This Separation Agreement (this “Agreement”) is entered into between James
J. L’Italien, Ph.D. (“Employee”), and Somaxon Pharmaceuticals, Inc. (the
“Company”) as of May 1, 2009, effective as of April 23, 2009 (the “Effective
Date”).
     WHEREAS, the Company and Employee previously entered into that certain
Amended and Restated Employment Agreement dated as of December 1, 2007 (the
“Existing Agreement”);
     WHEREAS, the Company and Employee wish to enter into this Agreement for the
purpose of terminating and superseding the Existing Agreement; and
     WHEREAS, the Company and Employee terminated their employment relationship
effective as of April 24, 2009 (the “Termination Date”) and wish to resolve
amicably all of their obligations to each other, including, without limitation,
under the Existing Agreement.
     NOW, THEREFORE, in consideration of the mutual promises herein contained,
the parties agree as follows:
     1. Existing Agreement. Effective as of the Effective Date, the Existing
Agreement shall be superseded entirely by this Agreement, the Existing Agreement
shall be terminated and be of no further force or effect and the Company’s
obligations to Employee pursuant to Section 7 of the Existing Agreement shall be
abrogated in all respects.
     2. Employment Status; Consulting Agreement. Effective as of the Termination
Date, Employee’s employment and other service relationships with the Company,
including as Senior Vice President, Regulatory Affairs and Quality Assurance of
the Company (and any other positions he or she may hold with the Company) shall
terminate. Effective as of the Termination Date, Employee will be offered a
consulting arrangement with the Company on substantially the terms attached
hereto as Exhibit A.
     3. Compensation.
          (a) Base Salary and Accrued Benefits. On or prior to the Termination
Date, the Company issued to Employee his or her final paycheck, reflecting
(i) his or her earned but unpaid base salary through the Termination Date and
(ii) all accrued, unused vacation or PTO due Employee through the Termination
Date. The Company and Employee agree that Employee did not accrue any PTO for
any period after April 16, 2009. Except as set forth in Sections 3(b), 3(c) and
4 below, Employee acknowledges and agrees that with his or her final check,
Employee will have received all monies, bonuses, commissions, expense
reimbursements, paid time off or other compensation he or she earned or was due
during his or her employment by the Company, including severance pay.
          (b) Partial Severance. As partial consideration for Employee’s
agreement to be bound by the terms of this Agreement as of the Effective Date,
the Company hereby agrees to pay to Employee the sum of $48,333.33, which
amount, together with any amount to be paid pursuant to Section 4(a) below,
shall be the exclusive severance benefits to which Employee is entitled.
          (c) Expense Reimbursements. The Company, within thirty (30) days after
the Termination Date, will reimburse Employee for any and all reasonable and
necessary business expenses incurred by Employee in connection with the
performance of his or her job duties prior to

 

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the Termination Date, which expenses shall be submitted to the Company with
supporting receipts and/or documentation no later than twenty-one (21) days
after the Termination Date.
          (d) Benefits. Employee’s entitlement to benefits from the Company, and
eligibility to participate in the Company’s benefit plans, shall cease on the
last day of the month of the Termination Date, except to the extent Employee
elects to and is eligible to receive continued healthcare coverage pursuant to
the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended (“COBRA”), for himself or herself and any covered dependents, at his or
her sole expense in accordance with the provisions of COBRA.
          (e) Stock Awards.
               (i) As of the Termination Date, Employee has been granted the
stock options, restricted stock and restricted stock units listed on Exhibit B
attached hereto. Employee’s stock awards shall continue to be governed in
accordance with and subject to the terms of the stock option agreements and the
related plan pursuant to which they were granted. Employee’s vested stock
options will remain exercisable for one hundred eighty (180) days after the date
on which Employee’s services to the Company (whether as an employee or as a
consultant) terminate in accordance with the terms of the stock option
agreements and the related plan pursuant to which they were granted.
               (ii) Notwithstanding any provision to the contrary in Employee’s
options under the Company’s 2005 Equity Incentive Award Plan (the “Option Plan”)
or other plan (including, without limitation, the expiration dates or vesting
provisions thereof) or any restricted stock agreement, (1) the unvested portion,
if any, of Employee’s outstanding options and restricted stock units shall be
deemed to have vested on the Termination Date with respect to the number of
shares that would have vested had Employee remained employed by the Company for
twelve (12) months following such termination, and (2) any restrictions with
respect to any restricted shares of the Company’s capital stock that Employee
then holds shall immediately lapse with respect to the number of restricted
shares that would have vested had Employee remained employed by the Company for
twelve (12) months following such termination; provided, however, that this
Section 3(e)(ii) shall not apply to the shares of restricted stock granted to
Employee on October 8, 2007 or the stock options granted to Employee on
February 17, 2009. Employee’s vested and unvested stock awards after giving
effect to this Section 3(e)(ii), are reflected on Exhibit B.
     4. Future Cash Payment.
          (a) As partial consideration for Employee’s agreement to be bound by
the terms of this Agreement as of the Effective Date, and subject to Sections
4(b) and 4(c) below, the Company hereby agrees to pay to Employee the sum of
$292,744.17 on December 31, 2010, provided that if any of the following events
occurs prior to such date, such amount will be payable to Employee upon the date
of such event (each, an “Acceleration Event”): (i) a Qualified Financing, (ii) a
Change in Control (as such term is defined in the Option Plan) (other than a
Change in Control that results from the consummation of a financing or strategic
collaboration transaction, or a series of such transactions, that results in
working capital for the Company of less than $10 million), or (iii) the Company
files a petition in bankruptcy, applies for or consents to the appointment of a
receiver or trustee, makes an assignment for the benefit of its creditors or
suffers or permits the entry of any order adjudicating it to be bankrupt or
insolvent and such order is not discharged within sixty (60) days, or the
Company’s Board of Directors otherwise approves a liquidation or dissolution of
the Company. The foregoing amount, together with the amount paid pursuant to
Section 3(b) above, shall be the exclusive severance benefits to which Employee
is entitled. For purposes of this Agreement, a “Qualified Financing” means the
consummation of a

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financing or strategic collaboration transaction, or the last in a series of
such transactions, resulting in working capital for the Company of at least
$10 million in the aggregate.
          (b) Employee’s right to receive the payment described in Section 4(a)
above shall be contingent on Employee providing to the Company (and failing to
revoke) a general release in the form attached hereto as Exhibit C (the “Release
”). Employee shall have twenty-one (21) days following the earlier of
December 31, 2010 or the date of an Acceleration Event to execute such Release.
It is understood that, in the event that Employee is at least forty (40) years
old on the date of the termination of his or her employment with the Company,
Employee has a certain period to consider whether to execute such Release, and
Employee may revoke such Release within seven (7) days after execution. In the
event Employee does not execute such Release within the applicable period, or if
Employee revokes such Release within the subsequent seven (7) day period,
Employee shall not be entitled to the aforesaid payments and benefits. The date
on which Employee’s Release becomes effective and the applicable revocation
period lapses shall be the “Release Effective Date.”
          (c) The payment described in Section 4(a) above shall be paid within
five (5) days following the Employee’s Release Effective Date.
          (d) Notwithstanding the foregoing or anything to the contrary
contained in this Agreement, in the event that Employee is re-hired by the
Company on a full-time basis prior to the payment of the amount set forth in
Section 4(a) above, this Section 4 shall immediately terminate and be of no
further force and effect as of the date of commencement of such full-time
employment, and such amount shall no longer be payable.
     5. Proprietary Information. Employee acknowledges that he or she continues
to be bound by the Proprietary Information and Inventions Agreement (the “
Confidential Information Agreement ”) that he or she signed in connection with
his or her employment, in accordance with the terms thereof.
     6. Return of Equipment. Within five (5) days of the Termination Date,
Employee shall return to the Company in good working order any equipment,
instruments, or accessories of the Company in his or her custody for the purpose
of conducting the business of the Company without deleting, removing, or
duplicating any data reflecting the Company’s proprietary information, or if not
returned, account to the Company to its reasonable satisfaction for all such
equipment, instruments, or accessories.
     7. Miscellaneous.
          (a) Entire Agreement, Amendments. This Agreement, together with the
Exhibits hereto and the documents referred to herein and therein, sets forth the
entire understanding and agreement of the parties with respect to the subject
matter hereof and supersedes all prior oral and written understandings and
agreements, including, without limitation, the Existing Agreement. There are no
representations, agreements, arrangements or understandings, oral or written,
among the parties relating to the subject matter hereof which are not expressly
set forth herein, and no party hereto has been induced to enter into this
Agreement, except by the agreements expressly contained herein.
          (b) Amendments. No amendment or modification of this Agreement shall
be effective unless set forth in a writing signed by the Company and Employee.
          (c) Successors and Assigns. This Agreement shall inure to the benefit
of and be enforceable by Employee and Employee’s heirs, executors,
administrators and legal representatives, and

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by the Company and its successors and assigns. This Agreement and all rights
hereunder are personal to Employee and shall not be assignable.
          (d) Severability. If any provision of this Agreement or the
application thereof is held invalid, the invalidity shall not affect the other
provisions or application of this Agreement that can be given effect without the
invalid provisions or application, and to this end the provisions of this
Agreement are declared to be severable.
          (e) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California without reference to
principles of conflict of laws.
          (f) Taxes. All payments required to be made to Employee hereunder,
whether during the term of Employee’s employment hereunder or otherwise, shall
be subject to all applicable federal, state and local tax withholding laws.
Employee acknowledges and agrees that neither the Company nor the Company’s
counsel has provided any tax advice to Employee and that Employee is free to
consult with a tax advisor of his or her choosing.
          (g) Headings. The headings set forth herein are included solely for
the purpose of identification and shall not be used for the purpose of
construing the meaning of the provisions of this Agreement.
          (h) Arbitration. Any dispute or controversy between Company and
Employee, arising out of or relating to this Agreement, the breach of this
Agreement, or otherwise, shall be settled by arbitration in San Diego,
California administered by the American Arbitration Association in accordance
with its National Rules for the Resolution of Employment Disputes then in effect
and judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The arbitrator shall have the authority to award
any remedy or relief that a court of competent jurisdiction could order or
grant, including, without limitation, the issuance of an injunction. However,
either party may, without inconsistency with this arbitration provision, apply
to any court having jurisdiction over such dispute or controversy and seek
interim provisional, injunctive or other equitable relief until the arbitration
award is rendered or the controversy is otherwise resolved. Except as necessary
in court proceedings to enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an arbitrator may
disclose the existence, content or results of any arbitration hereunder without
the prior written consent of Company and Employee. The Company shall pay all of
the direct costs and expenses in any arbitration hereunder and the arbitrator’s
fees and costs; provided, however, that the arbitrator shall have the discretion
to award the prevailing party reimbursement of its, his or her reasonable
attorney’s fees and costs. The Company and Employee hereby expressly waive their
right to a jury trial.
          (i) Construction. Each party has cooperated in the drafting and
preparation of this Agreement. Therefore, in any construction to be made of this
Agreement, the same shall not be construed against any party on the basis that
the party was the drafter.
          (j) Section 409A of the Code. This Agreement is not intended to
provide for any deferral of compensation subject to Section 409A of the Code. To
the extent applicable, this Agreement shall be interpreted in accordance with
Code Section 409A and Department of Treasury regulations and other interpretive
guidance issued thereunder.
          (k) RIGHT TO ADVICE OF COUNSEL. EMPLOYEE ACKNOWLEDGES THAT HE HAS THE
RIGHT, AND IS ENCOURAGED, TO CONSULT

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WITH HIS OR HER LAWYER; BY HIS OR HER SIGNATURE BELOW, EMPLOYEE ACKNOWLEDGES
THAT HE HAS CONSULTED WITH HIS OR HER LAWYER CONCERNING THIS AGREEMENT.
(Signature Page Follows)

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     In Witness Whereof, the parties have executed this Agreement as of the date
first above written.

            COMPANY:

Somaxon Pharmaceuticals, Inc.
      By:   /s/ Meg M. McGilley         Name:   Meg M. McGilley         Title:  
CFO        EMPLOYEE:
      /s/ James J. L’Italien, Ph.D.       James J. L’Italien, Ph.D.   

SIGNATURE PAGE TO SEPARATION AGREEMENT

 

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EXHIBIT A
FORM OF CONSULTING AGREEMENT
[Attached]

 

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EXHIBIT B
SCHEDULE OF STOCK AWARDS
[Attached]

 

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EXHIBIT C
GENERAL RELEASE OF CLAIMS
[The language in this Release may change based on legal developments and
evolving best practices;
this form is provided as an example of what will be included in the final
Release document.]
     Certain capitalized terms used in this Release are defined in the
Separation Agreement by and between Somaxon Pharmaceuticals, Inc., a Delaware
corporation (the “Company”), and James J. L’Italien, Ph.D. (“Employee”)
effective as of the 23rd day of April, 2009 (the “Agreement”), which Employee
has previously executed and of which this Release is a part.
     Pursuant to the Agreement, and in consideration of and as a condition
precedent to the payment to be provided under Section 4(a) of the Agreement,
Employee hereby furnishes the Company with this Release.
     Employee hereby confirms his/her obligations under the Company’s
Confidential Information Agreement.
     On Employee’s own behalf and on behalf of Employee’s heirs, estate and
beneficiaries, Employee hereby waives, releases, acquits and forever discharges
the Company, and each of its Subsidiaries and affiliates, and each of their
respective past or present officers, directors, agents, servants, employees,
shareholders, predecessors, successors and assigns, and all persons acting by,
through, under, or in concert with them, or any of them, of and from any and all
suits, debts, liens, contracts, agreements, promises, claims, liabilities,
demands, causes of action, costs, expenses, attorneys’ fees, damages,
indemnities and obligations of every kind and nature, in law, equity, or
otherwise, known and unknown, fixed or contingent, suspected and unsuspected,
disclosed and undisclosed (“Claims”), from the beginning of time to the date
hereof, including without limitation, Claims that arose as a consequence of
Employee’s employment with the Company, or arising out of the termination of
such employment relationship, or arising out of any act committed or omitted
during or after the existence of such employment relationship, or based upon or
arising from the Existing Agreement, or based upon or arising from the Company’s
non-performance of its obligations under the Existing Agreement, all up through
and including the date on which this Release is executed, including, but not
limited to, Claims which were, could have been, or could be the subject of an
administrative or judicial proceeding filed by Employee or on Employee’s behalf
under federal, state or local law, whether by statute, regulation, in contract
or tort. This Release includes, but is not limited to: (1) Claims for
intentional and negligent infliction of emotional distress; (2) tort Claims for
personal injury; (3) Claims or demands related to salary, bonuses, commissions,
stock, stock options, or any other ownership interest in the Company, vacation
pay, fringe benefits, expense reimbursements, severance pay, front pay, back pay
or any other form of compensation; (4) Claims for breach of contract; (5) Claims
for any form of retaliation, harassment, or discrimination; (6) Claims pursuant
to any federal, state or local law or cause of action including, but not limited
to, the federal Civil Rights Act of 1964, as amended, the federal Age
Discrimination in Employment Act of 1967, as amended (“ADEA”), the federal
Employee Retirement Income Security Act of 1974, as amended, the federal
Americans with Disabilities Act of 1990, the California Fair Employment and
Housing Act, as amended, and the California Labor Code; and (7) all other Claims
based on tort law, contract law, statutory law, common law, wrongful discharge,
constructive discharge, fraud, defamation, emotional distress, pain and
suffering, breach of the implied covenant of good faith and fair dealing,
compensatory or punitive damages, interest, attorneys’ fees, and reinstatement
or re-employment. If any court rules that Employee’s waiver of the right to file
any administrative or judicial charges or complaints is ineffective, Employee
agrees not to seek or accept any money damages or any other relief upon the
filing of any such administrative or judicial charges or complaints.

 

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     Employee acknowledges that he/she has read and understand Section 1542 of
the California Civil Code which reads as follows: “A general release does not
extend to claims which the creditor does not know or suspect to exist in his or
her favor at the time of executing the release, which if known by him or her
must have materially affected his or her settlement with the debtor.” Employee
hereby expressly waives and relinquishes all rights and benefits under that
section and any law of any jurisdiction of similar effect with respect to
his/her release of any unknown Claims Employee may have against the Company.
     Notwithstanding the foregoing, nothing in this Release shall constitute a
release by Employee of any claims or damages based on any right Employee may
have to enforce the Company’s executory obligations under the Agreement, any
right Employee may have to vested or earned compensation and benefits, or
Employee’s eligibility for indemnification under applicable law, Company
governance documents, Employee’s indemnification agreement with the Company or
under any applicable insurance policy with respect to Employee’s liability as an
employee or officer of the Company.
     If Employee is forty (40) years of age or older at the time of the
termination, Employee acknowledges that he/she is knowingly and voluntarily
waiving and releasing any rights he/she may have under ADEA. Employee also
acknowledges that the consideration given under the Agreement for the Release is
in addition to anything of value to which he/she was already entitled. Employee
further acknowledges that he/she has been advised by this writing, as required
by the ADEA, that: (A) his/her waiver and release do not apply to any rights or
claims that may arise on or after the date he/she executes this Release;
(B) Employee has the right to consult with an attorney prior to executing this
Release; (C) Employee has twenty-one (21) days following the earlier of
December 31, 2010 or the date of an Acceleration Event to consider this Release
(although he/she may choose to voluntarily execute this Release earlier);
(D) Employee has seven (7) days following the execution of this Release to
revoke the Release; and (E) this Release shall not be effective until the date
upon which the revocation period has expired, which shall be the eighth (8th)
day after this Release is executed by Employee, without Employee’s having given
notice of revocation.
     Employee further acknowledges that Employee has carefully read this
Release, and knows and understands its contents and its binding legal effect.
Employee acknowledges that by signing this Release, Employee does so of
Employee’s own free will, and that it is Employee’s intention that Employee be
legally bound by its terms. Employee further acknowledges that if Employee does
not sign this release within twenty-one (21) days following the earlier of
December 31, 2010 or the date of an Acceleration Event, or revokes this Release
within the foregoing revocation period, if applicable, Employee shall not be
entitled to the payments and benefits provided under Section 4(a) of the
Agreement.

                      James J. L’Italien, Ph.D.  
 
       
 
  Date:      
 
       

SIGNATURE PAGE TO RELEASE