Exhibit 10.3

 

THRESHOLD PHARMACEUTICALS, INC.

 

CHANGE OF CONTROL SEVERANCE AGREEMENT

 

The Control Severance Agreement (the “Agreement”) is made and entered into
effective as of April 9, 2012 (the “Effective Date”), by and between Stewart M.
Kroll (the “Employee”) and Threshold Pharmaceuticals, Inc., a Delaware
corporation (the “Company”). Certain capitalized terms used in this Agreement
are defined in Section 1 below.

  

RECITALS

 

A.  It is expected that the Company from time to time will consider the
possibility of a Change of Control. The Board of Directors of the Company (the
“Board”) recognizes that such consideration can be a distraction to the Employee
and can cause the Employee to consider alternative employment opportunities.

 

B.  The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue Employee’s
employment and to maximize the value of the Company upon a Change of Control for
the benefit of its stockholders.

 

C.  In order to provide the Employee with enhanced financial security and
sufficient encouragement to remain with the Company notwithstanding the
possibility of a Change of Control, the Board believes that it is imperative to
provide the Employee with certain severance benefits upon the Employee’s
termination of employment following a Change of Control.

 

AGREEMENT

 

In consideration of the mutual covenants herein contained and the continued
employment of Employee by the Company, the parties agree as follows:

 

1.  Definition of Terms. The following terms referred to in this Agreement shall
have the following meanings:

 

(a)  Cause. “Cause” shall mean (i) Employee’s gross negligence or willful
failure substantially to perform his or her duties and responsibilities to the
Company or deliberate violation of a Company policy; (ii) Employee’s commission
of any act of fraud, embezzlement, dishonesty or any other willful misconduct
that has caused or is reasonably expected to result in material injury to the
Company; (iii) unauthorized use or disclosure by Employee of any proprietary
information or trade secrets of the Company or any other party to whom the
Employee owes an obligation of nondisclosure as a result of his or her
relationship with the Company; or (iv) Employee’s willful breach of any of his
or her obligations under any written agreement or covenant with the Company. The
determination as to whether an Employee is being terminated for Cause shall be
made in good faith by the Company and shall be final and binding on the
Employee.

 

 

 

  

(b)  Change of Control. “Change of Control” shall mean the occurrence of any of
the following events:

 

(i)  the approval by stockholders of the Company of a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than fifty percent (50%) of the total voting power represented by
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation;

 

(ii)  the approval by the stockholders of the Company of 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; or

 

(iii)  any “person” (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended) becoming the “beneficial owner” (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing 50% or more of the total voting power represented by
the Company’s then outstanding voting securities.

 

(c)  Involuntary Termination. “Involuntary Termination” shall mean (i) without
the Employee’s express written consent, a material reduction of the Employee’s
duties, position or responsibilities relative to the Employee’s duties, position
or responsibilities in effect immediately prior to such reduction, or the
removal of the Employee from such position, duties and responsibilities, unless
the Employee is provided with comparable or greater duties, position and
responsibilities; (ii) without the Employee’s express written consent, a
material reduction by the Company of the Employee’s base salary as in effect
immediately prior to such reduction; (iii) without the Employee’s express
written consent, the imposition of a requirement for the relocation of the
Employee to a facility or a location more than fifty (50) miles from the
Employee’s current work location; (iv) any purported termination of the
Employee’s employment by the Company which is not effected for Cause or for
which the grounds relied upon are not valid; or (v) the failure of the Company
to obtain the assumption of this Agreement by any successors contemplated in
Section 6 below. In order to be considered an Involuntary Termination with
regards to parts (i)-(iii) and (v) of this Section 1(c), (1) the Employee’s
termination from employment must have occurred within six (6) months following
the initial existence of the condition giving rise to the Involuntary
Termination, (2) within thirty (30) days following the initial existence of the
condition giving rise to the Involuntary Termination, the Employee must have
provided the Company with notice of the existence of such condition pursuant to
Section 8(b), and (3) upon receipt of the notice of the condition from Employee,
the Company failed to cure the condition within thirty (30) days.

 

(d)  Termination Date. “Termination Date” shall mean the effective date of any
notice of termination delivered by one party to the other hereunder.

 

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2.  Term of Agreement. Other than Section 4(b) of this Agreement which shall
survive indefinitely until all obligations under such Section have been
satisfied, this Agreement shall terminate upon the earlier of (i) two (2) years
after a Change of Control, or (ii) the date that all obligations of the parties
hereto under this Agreement have been satisfied.

 

3.  At-Will Employment. The Company and the Employee acknowledge that the
Employee’s employment is and shall continue to be at-will, as defined under
applicable law. If the Employee’s employment terminates for any reason, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
established under the Company’s then existing employee benefit plans or policies
at the time of termination.

 

4.  Severance Benefits.

 

(a)  Termination Following a Change of Control. If the Employee’s employment
with the Company terminates as a result of an Involuntary Termination at any
time within eighteen (18) months after a Change of Control, and the Employee
signs and does not revoke the release of claims pursuant to Section 7 hereto,
Employee shall be entitled to the following severance benefits:

 

(1)  Twelve months of Employee’s base salary and any applicable allowances as in
effect as of the date of the termination or, if greater, as in effect in the
year in which the Change of Control occurs, plus an amount equal to the full
amount of Employee’s target bonus for the calendar year of the date of
termination plus a pro rata portion (based on number of full weeks during such
year) of the amount of such bonus, or, if no target bonus has been established,
an amount equal to Employee’s bonus in the prior year plus a pro rata portion
(based on number of full weeks during such year) of the amount of such bonus,
less applicable withholding, payable in a lump sum within twenty (20) days
following the effective date of the release of claims pursuant to Section 7
hereto;

 

(2)  all stock options granted by the Company to the Employee prior to the
Change of Control shall accelerate and become vested under the applicable option
agreements to the extent such stock options are outstanding and unexercisable at
the time of such termination and all stock subject to a right of repurchase by
the Company (or its successor) that was purchased prior to the Change of Control
shall have such right of repurchase lapse;

 

(3)  the Employee shall be permitted to exercise all vested (including shares
that vest as a result of this Agreement) stock options granted by the Company to
the Employee prior to the Change of Control for a period of two (2) years
following the Termination Date; and

 

(4)  the same level of Company-paid health (i.e., medical, vision and dental)
coverage and benefits for such coverage as in effect for the Employee (and any
eligible dependents) on the day immediately preceding the Employee’s Termination
Date; provided, however, that (i) the Employee constitutes a qualified
beneficiary, as defined in Section 4980B(g)(1) of the Internal Revenue Code of
1986, as amended; and (ii) Employee elects continuation coverage pursuant to the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“COBRA”),
within the time period prescribed pursuant to COBRA. The Company shall continue
to provide Employee with such Company-paid coverage until the earlier of (i) the
date Employee (and his/her eligible dependents) is no longer eligible to receive
continuation coverage pursuant to COBRA, or (ii) twelve (12) months from the
Termination Date.

 

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(b)  Termination Apart from a Change of Control. If (but without duplication
with the provisions set forth above in subsection 4(a)(1)) the Employee’s
employment with the Company terminates as a result of an Involuntary
Termination, and the Employee signs and does not revoke the release of claims
pursuant to Section 7 hereto, the Employee shall be entitled to severance
benefits in the form of twelve (12) months of Employee’s base salary as in
effect as of the date of termination, less applicable withholding, payable in a
lump sum within twenty (20) days following the effective date of the release of
claims pursuant to Section 7.

  

(c)  Accrued Wages and Vacation, Expenses. Without regard to the reason for, or
the timing of, Employee’s termination of employment: (i) the Company shall pay
the Employee any unpaid base salary due for periods prior to the Termination
Date; (ii) the Company shall pay the Employee all of the Employee’s accrued and
unused vacation through the Termination Date; and (iii) following submission of
proper expense reports by the Employee, the Company shall reimburse the Employee
for all expenses reasonably and necessarily incurred by the Employee in
connection with the business of the Company prior to the Termination Date. With
respect to parts (i) and (ii) of this Section 4(c), payments shall be made as
soon as practicable, but no later than ninety (90) days following Employee’s
termination of employment. Reimbursements made pursuant to part (iii) of this
Section 4(c) shall be made as soon as practicable, but no later than December
31st of the year following the calendar year in which such expense was incurred.

 

(d)  Six Month Delay. Notwithstanding anything to the contrary in this
Agreement, if the Employee is a “specified employee” (as determined in
accordance with Section 409A of the Code and related Treasury guidance and
regulations) and a payment under this Agreement arising from Employee’s
“separation from service” (as defined under Section 409A of the Code and related
Treasury guidance and regulations) would be subject to additional taxes under
Section 409A of the Code, then any such payment that the Employee would
otherwise be entitled to receive during the first six (6) months following the
date of the Employee’s “separation from service” shall be accumulated and paid
on the date that is six (6) months and one (1) day following the date of the
Employee’s “separation from service”, or if earlier, upon the Employee’s death.

 

5.  Limitation on Payments. In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to the Employee (i)
constitute “parachute payments” within the meaning of Section 280G of the Code,
and (ii) would be subject to the excise tax imposed by Section 4999 of the Code
(the “Excise Tax”), then Employee’s benefits under this Agreement shall be
either

 

(a)  delivered in full, or

 

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(b)  delivered as to such lesser extent which would result in no portion of such
benefits being subject to the Excise Tax,

 

whichever of the foregoing amounts, taking into account the applicable federal,
state and local income taxes and the Excise Tax, results in the receipt by
Employee on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be taxable under
Section 4999 of the Code.

 

Unless the Company and the Employee otherwise agree in writing, any
determination required under this Section shall be made in- writing by the
Company’s independent public accountants (the “Accountants”), whose
determination shall be conclusive and binding upon the Employee and the Company
for all purposes. For purposes of making the calculations required by this
Section, the Accountants may make reasonable assumptions and approximations
concerning applicable taxes and may rely on reasonable, good faith
interpretations concerning the application of Section 280G and 4999 of the Code.
The Company and the Employee shall furnish to the Accountants such information
and documents as the Accountants may reasonably request in order to make a
determination under this Section. The Company shall bear all costs the
Accountants may reasonably incur in connection with any calculations
contemplated by this Section.

 

6.  Successors.

 

(a)  Company’s Successors. Any successor to the Company (whether direct or
indirect and whether by purchase, lease, merger, consolidation, liquidation or
otherwise) to all or substantially all of the Company’s business and/or assets
shall assume the Company’s obligations under this Agreement and agree expressly
to perform the Company’s obligations under this Agreement in the same manner and
to the same extent as the Company would be required to perform such obligations
in the absence of a succession. For all purposes under this Agreement, the term
“Company” shall include any successor to the Company’s business and/or assets
which executes and delivers the assumption agreement described in this
subsection (a) or which becomes bound by the terms of this Agreement by
operation of law.

 

(b)  Employee’s Successors. Without the written consent of the Company, Employee
shall not assign or transfer this Agreement or any right or obligation under
this Agreement to any other person or entity. Notwithstanding the foregoing, the
terms of this Agreement and all rights of Employee hereunder shall inure to the
benefit of, and be enforceable by, Employee’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees.

 

7.  Execution of Release Agreement upon Termination. As a condition of entering
into this Agreement and receiving the benefits under Section 4, the Employee
agrees to execute and not revoke a general release of claims within forty-five
(45) days following the termination of employment with the Company.

 

8.  Notices.

 

(a)  General. 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 when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to Employee at the home address which Employee 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 Chief Executive Officer.

 

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(b)  Notice of Termination. Any termination by the Company for Cause or by the
Employee as a result of a voluntary resignation shall be communicated by a
notice of termination to the other party hereto given in accordance with this
Section. Such notice shall indicate the specific termination provision in this
Agreement 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 Termination Date (which shall be not more than
30 days after the giving of such notice, such period to be extended to the
extent a 30 day cure period under Section 1(c) applies). Except for the notice
required under Section 1(c), the failure by the Employee to provide notice under
this Section 8(b) shall not waive any right of the Employee hereunder or
preclude the Employee from asserting any fact or circumstance in enforcing his
rights hereunder.

 

9.  Arbitration.

 

(a)  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 Santa Clara, California, in accordance with the National Rules for the
Resolution of Employment Disputes 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. Judgment may be
entered on the arbitrator’s decision in any court having jurisdiction. The
arbitrator may require one party to pay the costs and attorney fees of the
prevailing party.

 

(b)  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. Employee hereby consents to the
personal jurisdiction of the state and federal courts located in California for
any action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.

 

(c)  Employee understands that nothing in this Section modifies Employee’s
at-will employment status. Either Employee or the Company can terminate the
employment relationship at any time, with or without Cause.

 

(d)  EMPLOYEE HAS READ AND UNDERSTANDS THIS SECTION, WHICH DISCUSSES
ARBITRATION. EMPLOYEE UNDERSTANDS THAT SUBMITTING 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 EMPLOYEE’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:

 

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(i)  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.

 

(ii)  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, 1 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 20 1, et
seq;

 

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

 

10.  Miscellaneous Provisions.

 

(a)  Effect of Statutory Benefits. To the extent that any severance benefits are
required to be paid to the Employee 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 4 hereof shall be reduced by such amount.

 

(b)  No Duty to Mitigate. The Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement, nor shall any such payment
be reduced by any earnings that the Employee may receive from any other source.

 

(c)  Waiver. No provision of this Agreement may be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of compliance
with, any condition or provision of this Agreement by the other party shall be
considered a waiver of any other condition or provision or of the same condition
or provision at another time.

 

(d)  Integration. This Agreement and any outstanding stock option agreements and
any restricted stock purchase agreements referenced herein represent the entire
agreement and understanding between the parties as to the subject matter herein
and supersede all prior or contemporaneous agreements, whether written or oral
(including the Prior Agreement), with respect to this Agreement and any stock
option agreement or any restricted stock purchase agreement, provided, that, for
clarification purposes, this agreement shall not affect any agreements between
the Company and Employee regarding intellectual property matters or confidential
information of the Company.

 

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(e)   Choice of Law. The validity, interpretation, construction and performance
of this Agreement shall be governed by the internal substantive laws, but not
the conflicts of law rules, of the State of California.

 

(f)  Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.

 

(g)  Employment Taxes. All payments made pursuant to this Agreement shall be
subject to withholding of applicable income and employment taxes.

 

(h)  Counterparts. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together will constitute one and
the same instrument.

 

IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case
of the Company by its duly authorized officer, as of the day and year first
above written.

 

COMPANY: Threshold Pharmaceuticals, Inc.       By: /s/ Harold E. Selick, Ph.D.  
        Title: Title: Chief Executive Officer       EMPLOYEE: /s/ Stewart M.
Kroll   Signature       Stewart M. Kroll   Printed Name

  

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