EXHIBIT 10.25
SEVERANCE AGREEMENT
     This Severance Agreement (the “Agreement”) is made and entered into
effective as of November 14, 2003 (the “Effective Date”), by and between Anadys
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Steve Worland
(the “Executive”). The Company and the Executive are hereinafter collectively
referred to as the “Parties”, and individually referred to as a “Party”.
Agreement
     In consideration of the mutual promises and covenants herein contained, and
for other good and valuable consideration, the Parties, intending to be legally
bound, agree as follows:
     1. Loyalty; At Will Employment. During the Executive’s employment by the
Company, the Executive shall devote Executive’s full business energies,
interest, abilities and productive time to the proper and efficient performance
of Executive’s duties as an officer of the Company. Executive’s employment with
the Company is at-will and not for any specified period and may be terminated at
any time, with or without cause, by either Executive or Company, subject to the
provisions of section 2.2 below.
     2. Term; Compensation Upon Termination.
          2.1 Term. The term of this Agreement (the “Term”) shall begin on the
Effective Date and shall continue until Executive’s employment with the Company
is terminated for any reason.
          2.2 Compensation Upon Termination.
               2.2.1 Death or Complete Disability. If the Executive’s employment
with the Company is terminated as a result of death or Complete Disability, the
Company shall pay to Executive, and/or Executive’s heirs, the Executive’s base
salary and accrued and unused vacation benefits earned through the date of
termination at the rate in effect at the time of termination, less standard
deductions and withholdings, and the Company shall thereafter have no further
obligations to the Executive and/or Executive’s heirs under this Agreement.
               2.2.2 With Cause or Without Good Reason. If the Executive’s
employment with the Company is terminated by the Company for Cause (as defined
below) or if the Executive terminates his employment with the Company without
Good Reason (as defined below), the Company shall pay the Executive’s base
salary and accrued and unused vacation benefits earned through the date of
termination at the rate in effect at the time of termination, less standard
deductions and withholdings, and the Company shall thereafter have no further
obligations to the Executive under this Agreement.

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               2.2.3 Without Cause or With Good Reason. If the Company
terminates the Executive’s employment without Cause or the Executive resigns
with Good Reason, the Company shall pay the Executive’s base salary and accrued
and unused vacation earned through the date of termination, at the rate in
effect at the time of termination subject to standard deductions and
withholdings. In addition, subject to the limitations stated in Section 2.2.4
herein and upon the Executive’s furnishing to the Company an effective waiver
and release of claims (“Waiver and Release”) (a form of which is attached hereto
as Exhibit A), the Executive shall be entitled to:
               (i) The equivalent of twelve (12) months of the Executive’s
annual base salary in effect at the time of termination, less standard
deductions and withholdings;
               (ii) Reimbursement for continued health insurance coverage under
COBRA, provided that Executive elects such coverage, for the same portion of
Executive’s COBRA health insurance premium that it paid during the Executive’s
employment up until the earlier of either (i) nine (9) months after the date of
termination or, (ii) the date on which the Executive begins full-time employment
with another company or business entity, which provides Executive with similar
benefits; and
               (iii) Outplacement services for a period of six (6) months to be
provided by an outplacement firm mutually acceptable to the Company and
Executive.
               2.2.4 Covenant not to Compete. Notwithstanding any provisions in
this Agreement to the contrary, including any provisions contained in this
Section 2.2, the Company’s obligations, and the Executive’s rights, pursuant to
Section 2.2.3 shall cease and be rendered a nullity immediately should the
Executive violate any provision of Section 1 herein, or should the Executive
violate the terms and conditions of the Executive’s Agreement for Employees
dated March 22, 2001 (proprietary information and inventions agreement) with the
Company.
               2.2.5 Termination of Obligations. In the event of the termination
of the Executive’s employment with the Company, the Company shall have no
obligation to pay Executive any base salary, bonus or other compensation or
benefits, except as provided in this Section 2 or for benefits due to the
Executive (and/or the Executive’s dependents) under the terms of the Company’s
benefit plans. The Company may offset any amounts Executive owes it or its
subsidiaries against any amount it owes Executive pursuant to this Section 2.2.
          2.3 Definitions. For purposes of this Agreement, the following terms
shall have the following meanings:
               2.3.1 Complete Disability. “Complete Disability” shall mean the
inability of the Executive to perform the Executive’s duties under this
Agreement because the Executive has become permanently disabled within the
meaning of any policy of disability income insurance covering employees of the
Company then in force. In the event the Company has no policy of disability
income insurance covering employees of the Company in force when the Executive
becomes disabled, the term “Complete Disability” shall mean the inability of the
Executive to perform the Executive’s duties under this Agreement by reason of
any incapacity,

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physical or mental, which the Board, based upon medical advice or an opinion
provided by a licensed physician acceptable to the Board, determines to have
incapacitated the Executive from satisfactorily performing all of the
Executive’s usual services for the Company for a period of at least one hundred
twenty (120) days during any twelve (12) month period (whether or not
consecutive). Based upon such medical advice or opinion, the determination of
the Board shall be final and binding and the date such determination is made
shall be the date of such Complete Disability for purposes of this Agreement.
               2.3.2 Good Reason. “Good Reason” for the Executive to terminate
the Executive’s employment hereunder shall mean the occurrence of any of the
following events without the Executive’s consent:
               (i) a significant adverse change in the nature or scope of
Executive’s job responsibilities, or in the case of a Change of Control, the
failure to be offered an equivalent position with the successor entity;
               (ii) the relocation (or demand for relocation) of Executive’s
place of employment to a point more than thirty (30) miles from Executive’s
current place of employment; and
               (iii) a reduction in the annual base compensation paid to
Executive, without Executive’s consent.
               2.3.3 For Cause. “Cause” for the Company to terminate Executive’s
employment hereunder shall mean the occurrence of any of the following events:
               (i) the Executive’s failure to satisfactorily perform Executive’s
assigned duties with the Company, or any successor thereof, in the best interest
of the Company and as directed by the Company’s Board of Directors (except for
the failure resulting from Executive’s incapacity due to Complete Disability, or
any such actual or anticipated failure resulting from a Good Reason termination)
which is not corrected within thirty (30) days of receiving notice of such
failure from the Company specifying in reasonable detail the nature of such
failure;
               (ii) the Executive’s commission of an act that materially injures
the business of the Company;
               (iii) the Executive’s conviction of a felony involving moral
turpitude; and
               (iv) the Executive’s engaging or in any manner participating in
any activity which is directly competitive with or injurious to the Company or
any of its Affiliates or which violates any material provisions of the
Executive’s Agreement for Employees dated March 22, 2001 (proprietary
information and inventions agreement) with the Company.
          2.4 Integration. The Parties agree that unless it is determined that
Executive shall be terminated for Cause under this Agreement, there shall be no
termination for Cause under Executive’s Stock Option Agreements dated April 12,
2001 and February 12, 2003.
     3. Change of Control.

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          3.1 Benefits.
               3.1.1 Pursuant to the Executive’s stock option grant dated
April 12, 2001 (the “Hire Grant”), upon a Change of Control of the Company all
shares under the Hire Grant shall be vested and fully exercisable in accordance
with the terms thereof.
               3.1.2 In the event that Executive’s employment with the Company
is terminated without Cause or for Good Reason within the sixty (60) day period
immediately preceding or the thirteen (13) month period immediately following a
Change of Control of the Company, then upon the Executive’s delivery to the
Company of an effective Waiver and Release, the Executive shall be entitled to
the benefits set forth in Section 2.2.3 and accelerated vesting of all unvested
shares subject to any outstanding stock options, such that all shares shall be
vested and fully exercisable as of the date of Executive’s termination.
          3.2 Definition. For purposes of this Agreement, the term Change of
Control shall have the meaning set forth in the Company’s 2002 Equity Incentive
Plan.
          3.3 Parachute Payment. If any payment or benefit Executive would
receive pursuant a Change of Control or otherwise (“Payment”) would
(i) constitute a “parachute payment” within the meaning of Section 280G of the
Code, and (ii) but for this sentence, be subject to the excise tax imposed by
Section 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced
to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being
subject to the Excise Tax or (y) the largest portion, up to and including the
total, of the Payment, whichever amount, after taking into account all
applicable federal, state and local employment taxes, income taxes, and the
Excise Tax (all computed at the highest applicable marginal rate), results in
Executive’s receipt, on an after-tax basis, of the greater amount of the Payment
notwithstanding that all or some portion of the Payment may be subject to the
Excise Tax. If a reduction in payments or benefits constituting “parachute
payments” is necessary so that the Payment equals the Reduced Amount, reduction
shall occur in the following order unless Executive elects in writing a
different order (provided, however, that such election shall be subject to
Company approval if made on or after the effective date of the event that
triggers the Payment): reduction of cash payments; cancellation of accelerated
vesting of stock awards; reduction of employee benefits. In the event that
acceleration of vesting of stock award compensation is to be reduced, such
acceleration of vesting shall be cancelled in the reverse order of the date of
grant of Executive’s stock awards unless Executive elects in writing a different
order for cancellation.
     The accounting firm engaged by the Company for general audit purposes as of
the day prior to the effective date of the Change of Control shall perform the
foregoing calculations. If the accounting firm so engaged by the Company is
serving as accountant or auditor for the individual, entity or group effecting
the Change of Control, then the Company shall appoint a nationally recognized
accounting firm to make the determinations required hereunder. The Company shall
bear all expenses with respect to the determinations by such accounting firm
required to be made hereunder.

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     The accounting firm engaged to make the determinations hereunder shall
provide its calculations, together with detailed supporting documentation, to
Executive and the Company within fifteen (15) calendar days after the date on
which Executive’s right to a Payment is triggered (if requested at that time by
Executive or the Company) or such other time as requested by Executive or the
Company. If the accounting firm determines that no Excise Tax is payable with
respect to a Payment, either before or after the application of the Reduced
Amount, it shall furnish Executive and the Company with an opinion reasonably
acceptable to Executive that no Excise Tax will be imposed with respect to such
Payment. Any good faith determinations of the accounting firm made hereunder
shall be final, binding and conclusive upon Executive and the Company.
     4. General. This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the internal laws of the
State of California. This Agreement supercedes and replaces any other agreement
between Executive and the Company regarding severance benefits and cannot be
amended or modified except by written agreement between Executive and the
Company. This Agreement may be executed in two counterparts, each of which shall
be deemed an original, all of which together shall contribute one and the same
instrument.
     In Witness Whereof, the Parties have executed this Agreement as of the date
first above written.
Anadys Pharmaceuticals, Inc.

     
By: /s/ Kleanthis G. Xanthopoulos, Ph.D.
 
Name: Kleanthis G. Xanthopoulos, Ph.D.
   
 
   
Its: President and Chief Executive Officer
   
 
   
Dated: 11/14/2003
   
 
   
Executive:
   
 
   
/s/ Stephen Worland
 
   
 
   
Steve Worland
   
 
   
Dated: 01/07/2004
   

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EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
     In consideration of the payments and other benefits set forth in
Section 2.2 of the Severance Agreement dated November 13, 2003, to which this
form is attached, I, Steve Worland, hereby furnish Anadys Pharmaceuticals, Inc.
(the “Company”), with the following release and waiver (“Release and Waiver”).
     In exchange for the consideration provided to me by the Severance Agreement
that I am not otherwise entitled to receive, I hereby generally and completely
release the Company and its directors, officers, employees, shareholders,
partners, agents, attorneys, predecessors, successors, parent and subsidiary
entities, insurers, Affiliates, and assigns from any and all claims, liabilities
and obligations, both known and unknown, that arise out of or are in any way
related to events, acts, conduct, or omissions occurring prior to my signing
this Release and Waiver. This general release includes, but is not limited to:
(1) all claims arising out of or in any way related to my employment with the
Company or the termination of that employment; (2) all claims related to my
compensation or benefits from the Company, including, but not limited to,
salary, bonuses, commissions, vacation pay, expense reimbursements, severance
pay, fringe benefits, stock, stock options, or any other ownership interests in
the Company; (3) all claims for breach of contract, wrongful termination, and
breach of the implied covenant of good faith and fair dealing; (4) all tort
claims, including, but not limited to, claims for fraud, defamation, emotional
distress, and discharge in violation of public policy; and (5) all federal,
state, and local statutory claims, including, but not limited to, claims for
discrimination, harassment, retaliation, attorneys’ fees, or other claims
arising under the federal Civil Rights Act of 1964 (as amended), the federal
Americans with Disabilities Act of 1990, the federal Age Discrimination in
Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment
and Housing Act (as amended).
     I also acknowledge that I have 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 favor at
the time of executing the release, which if known by him must have materially
affected his settlement with the debtor.” I hereby expressly waive and
relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the
Company.
     I acknowledge that, among other rights, I am waiving and releasing any
rights I may have under ADEA, that this Release and Waiver is knowing and
voluntary, and that the consideration given for this Release and Waiver is in
addition to anything of value to which I was already entitled as an executive of
the Company. If I am 40 years of age or older upon execution of this Release and
Waiver, I further acknowledge that I have been advised, as required by the Older
Workers Benefit Protection Act, that: (a) the release and waiver granted herein
does not relate to claims under the ADEA which may arise after this Release and
Waiver is executed; (b) I have the right to consult with an attorney prior to
executing this Release and Waiver (although I may choose voluntarily not to do
so); and (c) I have twenty-one (21) days from the date of termination of my
employment with the Company in which to consider this Release and Waiver
(although I may choose voluntarily to execute this Release and Waiver earlier);
(d) I have seven (7) days following the execution of this Release and Waiver to
revoke my consent to this Release

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and Waiver; and (e) this Release and Waiver shall not be effective until the
seven (7) day revocation period has expired.
     If I am less than 40 years of age upon execution of this Release and
Waiver, I acknowledge that I have the right to consult with an attorney prior to
executing this Release and Waiver (although I may choose voluntarily not to do
so); and (c) I have five (5) days from the date of termination of my employment
with the Company in which to consider this Release and Waiver (although I may
choose voluntarily to execute this Release and Waiver earlier).
     I acknowledge my continuing obligations under my Agreement for Employees
dated March 22, 2001 (proprietary information and inventions agreement), a copy
of which is attached hereto as Exhibit B. Pursuant to the Agreement for
Employees I understand that among other things, I must not use or disclose any
confidential or proprietary information of the Company and I must immediately
return all Company property and documents (including all embodiments of
proprietary information) and all copies thereof in my possession or control. I
understand and agree that my right to the severance pay I am receiving in
exchange for my agreement to the terms of this Release and Waiver is contingent
upon my continued compliance with my Agreement for Employees.
     This Release and Waiver, including Exhibit B hereto, constitutes the
complete, final and exclusive embodiment of the entire agreement between the
Company and me with regard to the subject matter hereof. I am not relying on any
promise or representation by the Company that is not expressly stated herein.
This Release and Waiver may only be modified by a writing signed by both me and
a duly authorized officer of the Company.

                     
Date:
          By:        
 
              Steve Worland    

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