Exhibit 10.1

 

Cypress Bioscience, Inc.

 

SEVERANCE BENEFIT PLAN

 

Section 1.                                          INTRODUCTION.

 

The Cypress Bioscience, Inc. Severance Benefit Plan (the “Plan”) was established
effective May 21, 2004.  The purpose of the Plan is to provide severance
benefits to certain eligible service providers of the Company upon selected
terminations of service.  This Plan document is also the Summary Plan
Description for the Plan.

 

Section 2.                                          DEFINITIONS.

 

For purposes of the Plan, the following terms are defined as follows:

 

(a)                                  “Base Salary” means an individual’s annual
base salary and excludes all bonuses, commissions, fringe benefits, option
grants, equity awards, employee benefits and other similar items of
compensation.

 

(b)                                  “Board” means the Board of Directors of the
Company.

 

(c)                                  “Cause” means the occurrence of one or more
of the following:

 

(1)                                 An individual’s conviction of, or plea of
guilty or no contest with respect to, (i) any crime involving fraud, dishonesty
or moral turpitude or (ii) any felony under the laws of the United States or any
state thereof;

 

(2)                                 An individual’s attempted commission of, or
participation in, a fraud or act of dishonesty against the Company that results
in (or might reasonably result in) material harm to the Company;

 

(3)                                 An individual’s intentional and material
violation of any statutory duty owed to the Company;

 

(4)                                 An individual’s unauthorized use or
disclosure of the Company’s confidential information, trade secrets or
proprietary information; or

 

(5)                                 An individual’s gross misconduct.

 

(d)                                  “Change in Control” means the occurrence in
a single transaction or in a series of related transactions of any one or more
of the following events:

 

(1)                                 A sale of all or substantially all of the
assets of the Company;

 

(2)                                 A merger or consolidation in which the
Company is not the surviving entity and in which the holders of the Company’s
outstanding voting stock immediately prior to such transaction own, immediately
after such transaction, securities representing less than fifty percent (50%) of
the voting power of the entity surviving such

 

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transaction or, where the surviving entity is a wholly-owned subsidiary of
another entity, the surviving entity’s parent;

 

(3)                                 A reverse merger in which the Company is the
surviving entity but the shares of Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities of the surviving entity’s parent, cash or
otherwise, and in which the holders of the Company’s outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) of the voting power of the
Company or, where the Company is a wholly-owned subsidiary of another entity,
the Company’s parent;

 

(4)                                 An acquisition by any person, entity or
group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any
comparable successor provisions (excluding any employee benefit plan, or related
trust, sponsored or maintained by the Company or subsidiary of the Company or
other entity controlled by the Company) of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company representing at least seventy five
percent (75%) of the combined voting power entitled to vote in the election of
directors; or

 

(5)                                 The Company employs any Chief Executive
Officer other than Jay D. Kranzler.

 

A transaction effected exclusively for the purpose of changing the domicile of
the Company shall not constitute a Change in Control and once a Change in
Control has occurred, no future events shall constitute a Change in Control for
purposes of the Plan.

 

(e)                                  “Change in Control Covered Termination”
means either a termination of employment by the Company without Cause or a
voluntary resignation of employment for Good Reason; either of which occurring
within one (1) month prior to, or thirteen (13) months following, the effective
date of a Change in Control.

 

(f)                                    “Company” means Cypress Bioscience, Inc.
or, following a Change in Control, the surviving entity resulting from such
transaction or the parent company of such surviving entity.

 

(g)                                 “Covered Termination” means either a
termination of employment by the Company without Cause or a voluntary
resignation of employment for Good Reason that does not occur within one (1)
month prior to, or thirteen (13) months following, the effective date of a
Change in Control.

 

(h)                                 “Director Covered Termination” means the
resignation of a Board member or the termination of a Board member’s service
following the completion of his or her term as a result of his or her refusal to
stand for re-election or the Company’s failure to nominate such individual for
re-election.

 

(i)                                    “Good Reason” means, with respect to an
individual covered by this Plan,  the occurrence of one or more of the following
events without such individual’s express written consent:

 

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(1)                                 A material reduction in such individual’s
authority, duties or responsibilities (and not simply a change in title or
reporting relationships); provided, however, that Good Reason shall not be
satisfied solely by reason of such individual retaining the same position held
prior to a Change in Control, but in a distinct legal entity or business unit of
a larger entity following such Change in Control;

 

(2)                                 A reduction by the Company in such
individual’s Base Salary;

 

(3)                                 Any Board action or assignment related to
such individual that (i) is contrary to applicable law, regulatory guidelines,
accounting standards or which constitutes an unethical business practice and
(ii) is not cured by the Board with thirty (30) days of receipt of written
notice concerning such action or assignment; or

 

(4)                                 A relocation of the Company’s primary office
to a location more than thirty (30) miles from the location as of May 21, 2004.

 

Section 3.                                          ELIGIBILITY FOR BENEFITS.

 

(a)                                  General Rules.  Subject to the requirements
set forth in this Section, the Company shall provide severance benefits under
the Plan to the individuals and in the capacities set forth on Appendix A.  The
Company is free to add individuals to Appendix A at any time.  In order to be
eligible to receive benefits under the Plan, an individual must (i) experience a
Covered Termination, Change in Control Covered Termination or Director Covered
Termination,  (ii) be designated on Appendix A, (iii) have provided continuous
service to the Company as a Board member or an employee for at least one (1)
year and (iv) execute a general waiver and release in substantially the form
attached hereto as Exhibit A, Exhibit B or Exhibit C, as appropriate, and such
release must become effective in accordance with its terms. The Company, in its
sole discretion, may modify the forms of the required release and shall
determine the appropriate form of release.

 

Section 4.                                          AMOUNT OF BENEFIT.

 

Benefits under the Plan, if any, shall be provided to the individuals described
in Section 3 in the following amounts:

 

(a)                                  Covered Termination Benefits.  Upon an
individual’s Covered Termination, such individual shall receive one of the
following severance packages:

 

(1)                                 If such individual has been employed with
the Company for more than one (1) year, but less than or equal to two (2) years,
then such individual shall receive:

 

Cash Severance Benefits.  A lump sum cash payment equal to three (3) months of
such individual’s Base Salary.

 

COBRA Benefits.  If such individual timely elects to continue coverage under the
Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), the Company
will reimburse all premiums paid by such individual under COBRA through the
earliest of (i) the end of the three (3) month period following the termination
of employment, (ii) the expiration of

 

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such individual’s continuation coverage under COBRA or (iii) the date such
individual becomes eligible for substantially equivalent health insurance
coverage in connection with new employment.

 

Stock Option Vesting.  25% of all of such individual’s unvested outstanding
stock options and unvested shares of common stock under the Company’s equity
incentive plans and programs shall become fully vested and exercisable as of the
date of such termination of employment.

 

(2)                                 If such individual has been employed with
the Company for more than two (2) years, but less than or equal to three (3)
years, then such individual will receive:

 

Cash Severance Benefits.  A lump sum cash payment equal to six (6) months of
such individual’s Base Salary.

 

COBRA Benefits.  If such individual timely elects to continue coverage under
COBRA, the Company will reimburse all premiums paid by such individual under
COBRA through the earliest of (i) the end of the six (6) month period following
the termination of employment, (ii) the expiration of such individual’s
continuation coverage under COBRA or (iii) the date such individual becomes
eligible for substantially equivalent health insurance coverage in connection
with new employment.

 

Stock Option Vesting.  50% of all of such individual’s unvested outstanding
stock options and unvested shares of common stock under the Company’s equity
incentive plans and programs shall become fully vested and exercisable as of the
date of such termination of employment.

 

(3)                                 If such individual has been employed with
the Company for more than three (3) years, but less than or equal to four (4)
years, then such individual shall receive:

 

Cash Severance Benefits.  A lump sum cash payment equal to nine (9) months of
such individual’s Base Salary.

 

COBRA Benefits.  If such individual timely elects to continue coverage under
COBRA, the Company will reimburse all premiums paid by such individual under
COBRA through the earliest of (i) the end of the nine (9) month period following
the termination of employment, (ii) the expiration of such individual’s
continuation coverage under COBRA or (iii) the date such individual becomes
eligible for substantially equivalent health insurance coverage in connection
with new employment.

 

Stock Option Vesting.  75% of all of such individual’s unvested outstanding
stock options and unvested shares of common stock under the Company’s equity
incentive plans and programs shall become fully vested and exercisable as of the
date of such termination of employment.

 

(4)                                 If such individual has been employed with
the Company for more than four (4) years, then such individual shall receive:

 

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Cash Severance Benefits.  A lump sum cash payment equal to twelve (12) months of
such individual’s Base Salary.

 

COBRA Benefits.  If such individual timely elects to continue coverage under
COBRA, the Company will reimburse all premiums paid by such individual under
COBRA through the earliest of (i) the end of the twelve (12) month period
following the termination of employment, (ii) the expiration of such
individual’s continuation coverage under COBRA or (iii) the date such individual
becomes eligible for substantially equivalent health insurance coverage in
connection with new employment.

 

Stock Option Vesting.  100% of such individual’s unvested outstanding stock
options and unvested shares of common stock under the Company’s equity incentive
plans and programs shall become fully vested and exercisable as of the date of
such termination of employment.

 

(b)                                  Change in Control Covered Termination
Benefits.  Upon an individual’s Change in Control Covered Termination, such
individual shall receive the following severance package:

 

Cash Severance Benefits.  A lump sum cash payment equal to twelve (12) months of
such individual’s Base Salary.

 

COBRA Benefits.  If such individual timely elects to continue coverage under
COBRA, the Company will reimburse all premiums paid by such individual under
COBRA through the earliest of (i) the end of the twelve (12) month period
following the termination of employment, (ii) the expiration of such
individual’s continuation coverage under COBRA or (iii) the date such individual
becomes eligible for substantially equivalent health insurance coverage in
connection with new employment.

 

(c)                                  Director Covered Termination Benefits. 
Upon an individual’s Director Covered Termination, such individual shall receive
one of the following severance packages:

 

(1)                                 If such individual has served on the Board
for more than one (1) year, but less than or equal to two (2) years, then 25% of
all of such individual’s unvested outstanding stock options and unvested shares
of common stock under the Company’s equity incentive plans and programs shall
become fully vested and exercisable as of the date of such termination.

 

(2)                                 If such individual has served on the Board
for more than two (2) years, but less than or equal to three (3) years, then 50%
of all of such individual’s unvested outstanding stock options and unvested
shares of common stock under the Company’s equity incentive plans and programs
shall become fully vested and exercisable as of the date of such termination.

 

(3)                                 If such individual has served on the Board
for more than three (3) years, but less than or equal to four (4) years, then
75% of all of such individual’s unvested outstanding stock options and unvested
shares of common stock under the Company’s equity

 

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incentive plans and programs shall become fully vested and exercisable as of the
date of such termination.

 

(4)                                 If such individual has served on the Board
for more than four (4) years, then 100% of such individual’s unvested
outstanding stock options and unvested shares of common stock under the
Company’s equity incentive plans and programs shall become fully vested and
exercisable as of the date of such termination.

 

All cash severance payment referenced in this Section 4 shall be subject to all
applicable tax withholdings and deductions required by law and shall be paid
within ten (10) business days following the effective date of the general waiver
and release referenced in Section 3 of the Plan.  An individual’s right to
exercise vested option shares shall be as set forth in the applicable Company
equity incentive plans and programs and applicable stock option or award
agreement(s).  All terms, conditions and limitations applicable to an
individual’s options and/or shares of common stock shall remain in full force
and effect.

 

(d)                                  Certain Reductions.  Notwithstanding any
other provision of the Plan to the contrary, any benefits payable to an
individual under this Plan shall be reduced (but not below zero) by any
severance benefits payable by the Company or an affiliate of the Company to such
individual under any other policy, plan, program, agreement or arrangement,
including, without limitation, a contract between such individual and any
entity, covering such individual.  In addition, to the extent that any federal,
state or local laws, including, without limitation the Worker Adjustment
Retraining Notification Act, 29 U.S.C. Section 2101 et seq., or any similar
state statute, require the Company to give advance notice or make a payment of
any kind to an individual because of that individual’s involuntary termination
due to a layoff, reduction in force, plant or facility closing, sale of
business, change of control, or any other similar event or reason, the benefits
payable under this Plan shall either be reduced or eliminated by such required
payments or notice.  The benefits provided under this Plan are intended to
satisfy any and all statutory obligations that may arise out of an individual’s
involuntary termination of employment for the foregoing reasons, and the Plan
Administrator shall so construe and implement the terms of the Plan.

 

Section 5.                                          LIMITATIONS ON BENEFITS.

 

(a)                                  Mitigation.  Except as otherwise
specifically provided herein, an individual shall not be required to mitigate
damages or the amount of any payment provided under the Plan by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
the Plan be reduced by any compensation earned by an individual as a result of
employment by another employer or any retirement benefits received by such
individual after the date of service or employment termination.

 

(b)                                  Termination of Benefits.  Benefits under
the Plan shall terminate immediately if the individual, at any time, violates
(i) any proprietary information or confidentiality obligation to the Company,
(ii) any term of this Plan or (iii) any term of the applicable general waiver
and release referenced in Section 3 above.

 

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(c)                                  Non-Duplication of Benefits.  No individual
is eligible to receive benefits under this Plan more than one time.

 

(d)                                  Indebtedness of Individuals.  If an
individual is indebted to the Company or an affiliate of the Company on the date
of his or her termination of employment or service, the Company reserves the
right to offset any severance benefits under the Plan by the amount of such
indebtedness.

 

(e)                                  Parachute Payments.  If any payment or
benefit an individual would receive in connection with a Change in Control from
the Company or otherwise (a “Payment”) would (i) constitute a “parachute
payment” within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (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 equal to the Reduced Amount.  For the avoidance of doubt, a
Payment shall not be considered a parachute payment for purposes of this
paragraph if such Payment is approved by the stockholders of the Company in
accordance with the procedures set forth in Section 280G(b)(5)(A)(ii) and (B) of
the Code and the regulations thereunder, and at the time of such shareholder
approval, no stock of the Company is readily tradable on an established
securities market or otherwise (within the meaning of
Section 280G(b)(5)(A)(ii)(I) of the Code).  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 of the
Payment, up to and including the total 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 the individual’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 the
individual elects in writing a different order (provided, however, that such
election shall be subject to Company approval if made on or after the date on
which the event that triggers the Payment occurs):  reduction of cash payments;
cancellation of accelerated vesting of stock awards; reduction of employee
benefits.  If 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 the individual’s stock awards unless the individual 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 in 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 in Control, 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.

 

The accounting firm engaged to make the determinations hereunder shall provide
its calculations, together with detailed supporting documentation, to the
Company and the individual within ten (10) calendar days after the date on which
the individual’s right to a Payment is triggered (if requested at that time by
the Company or the individual) or such other

 

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time as requested by the Company or the individual.  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 the
Company and the individual with an opinion reasonably acceptable to the
individual 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 the Company and the individual.

 

Section 6.                                          RIGHT TO INTERPRET PLAN;
AMENDMENT AND TERMINATION.

 

(a)                                  Exclusive Discretion.  The Plan
Administrator shall have the exclusive discretion and authority to establish
rules, forms, and procedures for the administration of the Plan and to construe
and interpret the Plan and to decide any and all questions of fact,
interpretation, definition, computation or administration arising in connection
with the operation of the Plan, including, but not limited to, the eligibility
to participate in the Plan and amount of benefits paid under the Plan.  The
rules, interpretations, computations and other actions of the Plan Administrator
shall be binding and conclusive on all persons.

 

(b)                                  Amendment or Termination.  The Company
reserves the right to amend or terminate this Plan or the benefits provided
hereunder at any time; provided, however, that no such amendment or termination
shall affect the rights of any individual designated on Appendix A unless such
individual consents to such amendment or termination of the Plan in writing.
   Any action amending, terminating or extending the Plan shall be in writing
and executed by the Chief Executive Officer of the Company.

 

Section 7.                                          CONTINUATION OF CERTAIN
EMPLOYEE BENEFITS.

 

(a)                                  COBRA Continuation.  Each individual who is
enrolled in a health or dental plan sponsored by the Company or an affiliate of
the Company may be eligible to continue coverage under such health or dental
plan (or to convert to an individual policy), at the time of the individual’s
termination of employment under COBRA.  The Company will notify the individual
of any such right to continue health coverage at the time of termination.  No
provision of this Plan will affect the continuation coverage rules under COBRA. 
Therefore, the period during which an individual may elect to continue the
Company’s group medical or dental coverage at his or her own expense under
COBRA, the length of time during which COBRA coverage will be made available to
the individual, and all other rights and obligations of the individual under
COBRA  will be applied in the same manner that such rules would apply in the
absence of this Plan.  At the conclusion of the COBRA premium reimbursements
made by the Company, if any, the individual will be responsible for the entire
payment of premiums required under COBRA for the duration, if any, of the COBRA
period.

 

(b)                                  Other Employee Benefits.  All non-health
benefits (such as life insurance, disability and 401(k) plan coverage) terminate
as of an employee’s termination date (except to the extent that a conversion
privilege may be available thereunder).

 

Section 8.                                          NO IMPLIED EMPLOYMENT
CONTRACT.

 

The Plan shall not be deemed (i) to give any employee or other person any right
to be retained in the employ or service of the Company or (ii) to interfere with
the right of the

 

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Company to discharge any employee or other person at any time and for any
reason, which right is hereby reserved.

 

Section 9.                                          LEGAL CONSTRUCTION.

 

This Plan is intended to be governed by and shall be construed in accordance
with the Employee Retirement Income Security Act of 1974, as amended (“ERISA”)
and, to the extent not preempted by ERISA, the laws of the State of California.

 

Section 10.                                   CLAIMS, INQUIRIES AND APPEALS.

 

(a)                                  Applications for Benefits and Inquiries. 
Any application for benefits, inquiries about the Plan or inquiries about
present or future rights under the Plan must be submitted to the Plan
Administrator in writing by an applicant (or his or her authorized
representative).  The Plan Administrator is:

 

Cypress Bioscience, Inc.

4350 Executive Drive, Suite 325

San Diego, CA 92121

Attn: Chief Executive Officer

 

(b)                                  Denial of Claims.  In the event that any
application for benefits is denied in whole or in part, the Plan Administrator
must provide the applicant with written or electronic notice of the denial of
the application, and of the applicant’s right to review the denial.  Any
electronic notice will comply with the regulations of the U.S. Department of
Labor.  The written notice of denial will be set forth in a manner designed to
be understood by the employee and will include the following:

 

(1)                                 the specific reason or reasons for the
denial;

 

(2)                                 references to the specific Plan provisions
upon which the denial is based;

 

(3)                                 a description of any additional information
or material that the Plan Administrator needs to complete the review and an
explanation of why such information or material is necessary; and

 

(4)                                 an explanation of the Plan’s review
procedures and the time limits applicable to such procedures, including a
statement of the applicant’s right to bring a civil action under section 502(a)
of ERISA following a denial on review of the claim, as described in
Section 10(d) below.

 

This written notice will be given to the applicant within ninety (90) days after
the Plan Administrator receives the application, unless special circumstances
require an extension of time, in which case, the Plan Administrator has up to an
additional ninety (90) days for processing the application.  If an extension of
time for processing is required, written notice of the extension will be
furnished to the applicant before the end of the initial ninety (90) day period.

 

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This notice of extension will describe the special circumstances necessitating
the additional time and the date by which the Plan Administrator is to render
its decision on the application.

 

(c)                                  Request for a Review.  Any person (or that
person’s authorized representative) for whom an application for benefits is
denied, in whole or in part, may appeal the denial by submitting a request for a
review to the Plan Administrator within sixty (60) days after the application is
denied.  A request for a review shall be in writing and shall be addressed to:

 

Cypress Bioscience, Inc.

4350 Executive Drive, Suite 325

San Diego, CA 92121

Attn: Chief Financial Officer

 

A request for review must set forth all of the grounds on which it is based, all
facts in support of the request and any other matters that the applicant feels
are pertinent.  The applicant (or his or her representative) shall have the
opportunity to submit (or the Plan Administrator may require the applicant to
submit) written comments, documents, records, and other information relating to
his or her claim.  The applicant (or his or her representative) shall be
provided, upon request and free of charge, reasonable access to, and copies of,
all documents, records and other information relevant to his or her claim.  The
review shall take into account all comments, documents, records and other
information submitted by the applicant (or his or her representative) relating
to the claim, without regard to whether such information was submitted or
considered in the initial benefit determination.

 

(d)                                  Decision on Review.  The Plan Administrator
will act on each request for review within sixty (60) days after receipt of the
request, unless special circumstances require an extension of time (not to
exceed an additional sixty (60) days), for processing the request for a review. 
If an extension for review is required, written notice of the extension will be
furnished to the applicant within the initial sixty (60) day period.  This
notice of extension will describe the special circumstances necessitating the
additional time and the date by which the Plan Administrator is to render its
decision on the review.  The Plan Administrator will give prompt, written or
electronic notice of its decision to the applicant. Any electronic notice will
comply with the regulations of the U.S. Department of Labor.  In the event that
the Plan Administrator confirms the denial of the application for benefits in
whole or in part, the notice will set forth, in a manner calculated to be
understood by the applicant, the following:

 

(1)                                 the specific reason or reasons for the
denial;

 

(2)                                 references to the specific Plan provisions
upon which the denial is based;

 

(3)                                 a statement that the applicant is entitled
to receive, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information relevant to his or her claim;
and

 

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(4)                                 a statement of the applicant’s right to
bring a civil action under section 502(a) of ERISA.

 

(e)                                  Rules and Procedures.  The Plan
Administrator will establish rules and procedures, consistent with the Plan and
with ERISA, as necessary and appropriate in carrying out its responsibilities in
reviewing benefit claims.  The Plan Administrator may require an applicant who
wishes to submit additional information in connection with an appeal from the
denial of benefits to do so at the applicant’s own expense.

 

(f)                                    Exhaustion of Remedies.  No legal action
for benefits under the Plan may be brought until the claimant (i) has submitted
a written application for benefits in accordance with the procedures described
by Section 10(a) above, (ii) has been notified by the Plan Administrator that
the application is denied, (iii) has filed a written request for a review of the
application in accordance with the appeal procedure described in Section 10(c)
above, and (iv) has been notified in writing that the Plan Administrator has
denied the appeal.  Notwithstanding the foregoing, if the Plan Administrator
does not respond to a Participant’s claim or appeal within the relevant time
limits specified in this Section 10, then the Participant may bring legal action
for benefits under the Plan pursuant to Section 502(a) of ERISA.

 

Section 11.                                   BASIS OF PAYMENTS TO AND FROM
PLAN.

 

All benefits under the Plan shall be paid by the Company.  The Plan shall be
unfunded, and benefits hereunder shall be paid only from the general assets of
the Company.

 

Section 12.                                   OTHER PLAN INFORMATION.

 

(a)                                  Employer and Plan Identification Numbers. 
The Employer Identification Number assigned to the Company (which is the “Plan
Sponsor” as that term is used in ERISA) by the Internal Revenue Service is
22-2389839.  The Plan Number assigned to the Plan by the Plan Sponsor pursuant
to the instructions of the Internal Revenue Service is 501.

 

(b)                                  Ending Date for Plan’s Fiscal Year.  The
date of the end of the fiscal year for the purpose of maintaining the Plan’s
records isDecember 31.

 

(c)                                  Agent for the Service of Legal Process. 
The agent for the service of legal process with respect to the Plan is Cypress
Bioscience, Inc., Attn: Chief Financial Officer, 4350 Executive Drive, Suite
325, San Diego, CA 92121.

 

(d)                                  Plan Sponsor and Administrator.  The “Plan
Sponsor” and the “Plan Administrator” of the Plan is Cypress Bioscience, Inc.,
4350 Executive Drive, Suite 325, San Diego, CA 92121.  The Plan Sponsor’s and
Plan Administrator’s telephone number is (858) 452-2323.  The Plan Administrator
is the named fiduciary charged with the responsibility for administering the
Plan.

 

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Section 13.                                   STATEMENT OF ERISA RIGHTS.

 

Participants in this Plan (which is a welfare benefit plan sponsored by the
Company) are entitled to certain rights and protections under ERISA.  If you are
listed on Appendix A, you are considered a participant in the Plan and, under
ERISA, you are entitled to:

 

Receive Information about the Plan and Your Benefits

 

(a)                                  Examine, without charge, at the Plan
Administrator’s office and at other specified locations, such as work sites, all
documents governing the Plan and a copy of the latest annual report (Form 5500
Series) filed by the Plan with the U.S. Department of Labor and available at the
Public Disclosure Room of the Pension and Welfare Benefit Administration;

 

(b)                                  Obtain, upon written request to the Plan
Administrator, copies of documents governing the operation of the Plan and
copies of the latest annual report (Form 5500 Series) and updated Summary Plan
Description.  The Plan Administrator may make a reasonable charge for the
copies; and

 

(c)                                  Receive a summary of the Plan’s annual
financial report.  The Plan Administrator is required by law to furnish each
Participant with a copy of this summary annual report.

 

Prudent Actions by Plan Fiduciaries

 

In addition to creating rights for Plan participants, ERISA imposes duties upon
the people who are responsible for the operation of the employee benefit plan. 
The people who operate the Plan, called “fiduciaries” of the Plan, have a duty
to do so prudently and in the interest of you and other Plan participants and
beneficiaries.

 

Enforce Your rights

 

No one, including your employer or any other person, may fire you or otherwise
discriminate against you in any way to prevent you from obtaining a Plan benefit
or exercising your rights under ERISA.

 

Under ERISA, there are steps you can take to enforce the above rights.  For
instance, if you request a copy of Plan documents or the latest annual report
from the Plan and do not receive them within 30 days, you may file suit in a
Federal court.  In such a case, the court may require the Plan Administrator to
provide the materials and pay you up to $110 a day until you receive the
materials, unless the materials were not sent because of reasons beyond the
control of the Plan Administrator.

 

If you have a claim for benefits that is denied or ignored, in whole or in part,
you may file suit in a state or Federal court.  In addition, if you disagree
with the Plan’s decision or lack thereof concerning the qualified status of a
domestic relations order or a medical child support order, you may file suit in
Federal court.

 

12

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If it should happen that the Plan fiduciaries misuse the Plan’s money, or if you
are discriminated against for asserting your rights, you may seek assistance
from the U.S. Department of Labor, or you may file suit in a Federal court.  The
court will decide who should pay court costs and legal fees.  If you are
successful, the court may order the person you have sued to pay these costs and
fees.  If you lose, the court may order you to pay these costs and fees, for
example, if it finds your claim is frivolous.

 

Assistance with Your Questions

 

If you have any questions about the Plan, you should contact the Plan
Administrator.  If you have any questions about this statement or about your
rights under ERISA, or if you need assistance in obtaining documents from the
Plan Administrator, you should contact the nearest office of the Pension and
Welfare Benefits Administration, U.S. Department of Labor, listed in your
telephone directory or the Division of Technical Assistance and Inquiries,
Pension and Welfare Benefits Administration, U.S. Department of Labor, 200
Constitution Avenue N.W., Washington, D.C. 20210.  You may also obtain certain
publications about your rights and responsibilities under ERISA by calling the
publications hotline of the Pension and Welfare Benefits Administration.

 

Section 14.                                   EXECUTION.

 

To record the adoption of the Plan as set forth herein, effective as of May 21,
2004, Cypress Bioscience, Inc. has caused its duly authorized officer to execute
the same this 21st day of May, 2004.

 

 

Cypress Bioscience, Inc.

 

 

 

 

 

/s/ Dr. Jay Kranzler

 

 

Dr. Jay Kranzler

 

Chief Executive Officer

 

13

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Appendix A

 

List of Participants

 

Name

 

Position

 

Effective Hire Date

 

Mike Gendreau

 

Officer/employee

 

October 17, 1994

 

Denise Woolard

 

Officer/employee

 

February 4, 2004

 

Sabrina Johnson

 

Officer/employee

 

August 3, 1998

 

Srinivas Rao

 

Officer/employee

 

January 1, 2001

 

Jay Kranzler

 

Officer/employee/director

 

December 1, 1995

 

Samuel Anderson

 

Director

 

March 9, 1998

 

Jon McGarity

 

Director

 

March 26, 2004

 

Jean Pierre Millon

 

Director

 

March 25, 2004

 

Daniel Petree

 

Director

 

June 18, 2004

 

Jack Vaughn

 

Director

 

March 15, 1992

 

 

14

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Example

For Employees Age 40 and Over

(Group Termination)

 

EXHIBIT A

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the Cypress
Bioscience, Inc. Severance Benefit Plan (the “Plan”).  I understand that this
release and waiver (the “Release”), together with the Plan, 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.

 

In consideration of benefits I will receive under the Plan, I hereby generally
and completely release the Company and its directors, officers, employees,
shareholders, members, 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.  This 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 acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA.  I also acknowledge that the consideration
given for the waiver and release in the preceding paragraph hereof is in
addition to anything of value to which I was already entitled.  I further
acknowledge that I have been advised by this writing, as required by the ADEA,
that:  (a) my waiver and release do not apply to any rights or claims that may
arise after I execute this Release; (b) I should consult with an attorney prior
to executing this Release; (c) I have forty-five (45) days from the date I
receive this Release and the information specified in (f) below to consider this
Release (although I voluntarily may choose to execute this Release earlier);
(d) I have seven (7) days following the execution of this Release to revoke the
Release; and (e) this Release shall not be effective until the later of (i) the
date upon which the revocation period has expired, which shall be the eighth
(8th) day after I execute this Release, and (ii) the date I return this Release,
fully executed, to the Company; and (f) I have received with this Release a
detailed list of the job titles and ages of all employees who were terminated in
this group termination and the ages of all employees of the Company and its
affiliates in the same job

 

--------------------------------------------------------------------------------

 

classification or organizational unit who were not terminated.  As required by
Title 29 U.S. Code Section 626(f)(1)(H), the Company is providing you with the
Disclosure attached hereto as Exhibit A-1.  The information in the disclosure is
confidential and should not be shared with anyone except your professional
advisors.

 

I represent that I have not filed any claims against the Company, and agree
that, except as such waiver may be prohibited by statute, I will not file any
claim against the Company or seek any compensation for any claim other than the
payments and benefits referenced herein.  I agree to indemnify and hold the
Company harmless from and against any and all loss, cost, and expense,
including, but not limited to court costs and attorney’s fees, arising from or
in connection with any action which may be commenced, prosecuted, or threatened
by me or for my benefit, upon my initiative, or with my aid or approval,
contrary to the provisions of this Release.

 

I 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 my release of any claims I may have against the Company,
its affiliates, and the entities and persons specified above.

 

 

 

EMPLOYEE

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

 

2

--------------------------------------------------------------------------------

 

Example

For Employees Age 40 and Over

(Group Termination)

 

Exhibit A-1

 

DISCLOSURE UNDER TITLE 29 U.S. CODE SECTION 626(f)(1)(H)

 

Confidentiality Provision:                                                The
information contained in this document is private and confidential.  You may not
disclose this information to anyone except your professional advisors.

 

1.                                       The following departments have been
selected for the severance package program:

 

a.

 

b.

 

[ADD MORE IF NECESSARY]

 

2.                                       In the [two] departments listed above,
employees whose employment will be eliminated on [date of termination] are
eligible to participate in the severance package program.

 

3.                                       An individual age 40 or more years will
have up to forty-five (45) days to review the terms and conditions of the
severance package.

 

EMPLOYEES ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

 

JOB TITLE

 

AGE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

--------------------------------------------------------------------------------

 

EMPLOYEES NOT ELIGIBLE FOR THE SEVERANCE PACKAGE PROGRAM

 

JOB TITLE

 

AGE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

--------------------------------------------------------------------------------

 

Example

For Employees Under Age 40

(Group Termination)

 

EXHIBIT B

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the Cypress
Bioscience, Inc. Severance Benefit Plan (the “Plan”). I understand that this
release and waiver (the “Release”), together with the Plan, 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.

 

In consideration of benefits I will receive under the Plan, I hereby generally
and completely release the Company and its directors, officers, employees,
shareholders, members, 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.  This 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 and the California Fair Employment and
Housing Act (as amended).

 

I represent that I have not filed any claims against the Company, and agree
that, except as such waiver may be prohibited by statute, I will not file any
claim against the Company or seek any compensation for any claim other than the
payments and benefits referenced herein.  I agree to indemnify and hold the
Company harmless from and against any and all loss, cost, and expense,
including, but not limited to court costs and attorney’s fees, arising from or
in connection with any action which may be commenced, prosecuted, or threatened
by me or for my benefit, upon my initiative, or with my aid or approval,
contrary to the provisions of this Release.

 

I acknowledge that to become effective, I must sign and return this Release to
the Company so that it is received not later than ten (10) days following the
date of my employment termination.  I 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 my release of any claims I
may have against the Company, its affiliates, and the entities and persons
specified above.

 

 

EMPLOYEE

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

 

2

--------------------------------------------------------------------------------

 

Example

For Employees Age 40 and Over

(Individual Termination)

 

EXHIBIT C

 

RELEASE AGREEMENT

 

I understand and agree completely to the terms set forth in the Cypress
Bioscience, Inc. Severance Benefit Plan (the “Plan”). I understand that this
release and waiver (the “Release”), together with the Plan, 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.

 

In consideration of benefits I will receive under the Plan, I hereby generally
and completely release the Company and its directors, officers, employees,
shareholders, members, 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.  This 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 acknowledge that I am knowingly and voluntarily waiving and releasing any
rights I may have under the ADEA.  I also acknowledge that the consideration
given under the Release for the waiver and release in the preceding paragraph
hereof is in addition to anything of value to which I was already entitled.  I
further acknowledge that I have been advised by this writing, as required by the
ADEA, that:  (A) my waiver and release do not apply to any rights or claims that
may arise on or after the date I execute this Release; (B) I should consult with
an attorney prior to executing this Release; (C) I have twenty-one (21) days to
consider this Release (although I may choose to voluntarily execute this Release
earlier); (D) I have seven (7) days following my 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 I execute this Release.

 

I represent that I have not filed any claims against the Company, and agree
that, except as such waiver may be prohibited by statute, I will not file any
claim against the Company or seek any compensation for any claim other than the
payments and benefits referenced herein.  I agree to indemnify and hold the
Company harmless from and against any and all loss, cost, and expense,
including, but not limited to court costs and attorney’s fees, arising from or
in

 

--------------------------------------------------------------------------------

 

connection with any action which may be commenced, prosecuted, or threatened by
me or for my benefit, upon my initiative, or with my aid or approval, contrary
to the provisions of this Release.

 

I 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 my release of any claims I may have against the Company,
its affiliates, and the entities and persons specified above.

 

 

 

EMPLOYEE

 

 

 

 

 

 

 

 

 

 

Name:

 

 

 

 

 

Date:

 

 

 

2

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