Exhibit 10.1


 


SETTLEMENT
AGREEMENT


 


THIS AGREEMENT (the “Settlement Agreement”) is
entered into this 22nd day of March, 2006 by and between Tapestry
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and
Patricia A. Pilia, Ph.D. (“Dr. Pilia”).


 


RECITALS


 


A. WHEREAS, Dr. Pilia is currently a member of
the Board of Directors of the Company, and was an employee of the Company,
pursuant to an employment agreement effective as of October 1, 2001 by and
between the Company and the Employee (the “2001 Employment Agreement”);


 


B. WHEREAS, the Company has terminated Dr. Pilia’s
employment with the Company pursuant to the 2001 Employment Agreement;


 


C. WHEREAS,
in settlement of certain disputed claims under the 2001 Employment Agreement,
and other disputed claims, Dr. Pilia and the Company have determined to enter into this Settlement Agreement as
final settlement of all claims now existing between Dr. Pilia and Company
and to clarify certain rights and responsibilities of the parties.


 


TERMS AND
CONDITIONS


 


In consideration of the respective covenants and
agreements of the parties contained in this Agreement, the parties agree as
follows:


 


1.                                       Service on the Board of
Directors; Resignations and Removals.


 


The Company hereby agrees that it will take no
action to remove Dr. Pilia from her position on the Board of Directors and
will allow her to serve as a member of the Board of Directors for the remainder
of her current term, consistent with the Company’s Bylaws, which shall
terminate as of the annual meeting of shareholders to be held in June of
2007. The Company also hereby agrees that Dr. Pilia will be allowed to
continue to serve as a member of the Research and Development Committee of the
Board of Directors during her tenure as a member of the Board of Directors. Dr. Pilia
will be entitled to receive Board and Committee fees, reimbursement of expenses
and other such remuneration as is provided to other non-employee directors. Furthermore,
Dr. Pilia shall be entitled to receive automatic grants pursuant to stock
option plans as are granted to non-employee Directors and committee members,
commencing with a grant of options to acquire 1000 shares of common
stock (1,500 if the 2006 stock option plan is approved) on the day following
the 2006 annual meeting of shareholders. The Company acknowledges and agrees that except with respect to Dr. Pilia’s
service as a member of the Board of Directors and a member of the Research and
Development Committee of the Board of Directors, following the termination of Dr. Pilia’s
employment with the Company by the Company, Dr. Pilia has resigned or been
removed from all positions and appointments that Dr. Pilia may have held on behalf of the Company,
including without limitation all fiduciary


 

















 


appointments with respect
to any Company employee benefit plans and all designations as the responsible
party or contact person for the Company with respect to any regulatory or
governmental filings or agencies, and Company hereby accepts all such
resignations and removals. The
Company shall take all actions as shall be reasonably required in order to
effectuate such resignations and removals, including without limitation
removing Dr. Pilia’s name from any such appointments or designations and
designating a qualifying replacement.


 


2.                                       Severance and Benefits Payments.


 


The Company acknowledges
and agrees that Dr. Pilia’s “Employment Period” has been terminated by the
Company without “Cause” and after or in anticipation of a “Change in Control”
for purposes of the 2001 Employment Agreement. The Company and Dr. Pilia
shall enter into the amendment to the 2001 Employment Agreement attached as Exhibit A
hereto, authorizing and obligating Company to delay certain payments to Dr. Pilia
which would otherwise be immediately due and payable pursuant to the terms of
the 2001 Employment Agreement. Company will make all such payments due under
the 2001 Employment Agreement pursuant to the schedule set forth on Exhibit B
attached hereto. Dr. Pilia and the Company agree that she is not entitled
to receive any bonus payments for the 2005 or 2006 fiscal years.


 


3.                                       Non-compete. The Company hereby affirms that Dr. Pilia
will not be in violation of the non-compete provisions of the 2001 Employment
Agreement in the event that Dr. Pilia becomes involved in the development
or marketing of paclitaxel or docetaxel in any formulation that is formally
approved for sale in any market as of the effective date of this Settlement
Agreement, provided that nothing in this Settlement Agreement shall be deemed
to limit Dr. Pilia’s confidentiality obligations to the Company in
relation to paclitaxel or docetaxel.


 


4.                                       Further Assistance. Dr. Pilia will not make any public
disclosure or other public communication to any person, issue any public
statements or otherwise cause to be disclosed any information which is
designed, intended or might reasonably be anticipated to discourage any persons
from doing business with the Company or otherwise have a negative impact or
adverse effect on the Company, except to the extent such disclosure is required
by law. At the Company’s written request, Dr. Pilia will provide
assistance reasonably requested by the Company in connection with actions taken
by Dr. Pilia during the period that she was employed by the Company or
served on the Board of Directors, including but not limited to assistance in
connection with any lawsuits or other claims against the Company arising from
events during the Dr. Pilia’s employment period or Board service, provided
that the Company shall reimburse all reasonable expenses and shall compensate Dr. Pilia
for any such assistance at the rate of $400 per hour for any such service that
is requested in writing by the Company. Within five (5) days of execution
of this Settlement Agreement, Dr. Pilia hereby undertakes to submit a proxy
for all shares of Company common stock over which she has beneficial ownership
or voting power, providing her proxy to vote in favor of all of proposals 1
through 5 set forth in the Company’s proxy statement dated February 24,
2006 relating to the special meeting of shareholders to be held on April 4,
2006 and any adjournment of such meeting. Within five (5) days of receipt
of the Company’s definitive proxy materials, Dr. Pilia hereby undertakes
to submit a proxy for all shares of Company common stock over which she has
beneficial ownership or voting power, providing her proxy to vote in favor of
all of proposals 1 through 7 as described in the


 


2

















 


Company’s
preliminary proxy statement filed with the Securities and Exchange Commission
as of March 17 relating to the Annual Meeting of Stockholders to be
held on May 1, 2006, and
any adjournment of such meetings. At Dr. Pilia’s request, the Company will
provide assistance reasonably requested by Dr. Pilia to assist her in
complying with her obligations to provide such proxies.


 


5.                                       Company Communications. The Company will not make any public
disclosure or other public communication to any person, issue any public
statements or otherwise cause to be disclosed any information which is
designed, intended or might reasonably be anticipated to discourage any persons
from hiring Dr. Pilia in any capacity or otherwise have a negative impact
or adverse effect on Dr. Pilia, except to the extent such disclosure is
required by law. The Company shall, in any description of Dr. Pilia’s
termination, indicate that such termination was not for cause and was not the
result of any action or inaction on Dr. Pilia’s part.


 


6.                                       Severability and Modification. If any provision of this Agreement shall be
held or declared by a court of competent jurisdiction to be illegal, invalid or
unenforceable, then, at the option of the party who is adversely affected by
such unenforcability, this entire Agreement shall be rendered null and void.


 


7.                                       Notices. Except as otherwise expressly set forth in
this Agreement, all notices, requests and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be given (and, except as otherwise provided in this
Agreement, shall be deemed to have been duly given if so given) when delivered
if given in person or by telegram, three days after being mailed by first class registered
or certified mail, return receipt requested, postage prepaid, or one business
day after being sent prepaid via reputable overnight courier to the parties at
the following addresses (or such other address as shall be furnished in writing
by like notice; provided, however, that notice of change of address shall be
effective only upon receipt):


 


Notices to Employee


Her last known address as shown in the records of
the Company


 


Notices to Company


Tapestry Pharmaceuticals, Inc.


4840 Pearl East Circle, Suite 300W


Boulder, Colorado 80301


Attn Vice President and General Counsel


 


8.                                       Governing Law. All questions concerning the construction,
validity and interpretations of this Agreement will be governed by the law of
the State of Colorado, other than such laws, rules, regulations and case
law that would result in the application of the laws of a jurisdiction other
than the State of Colorado.


 


9.                                       Counterparts. This Settlement Agreement may be
executed in separate counterparts, each of which is deemed to be an original
and all of which taken together constitute one and the same agreement. This
Settlement Agreement may be signed and executed via facsimile or pdf.


 


3

















 


10.                                 Remedies. Each of the parties to this Agreement will be
entitled to enforce its rights under this Agreement specifically, to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights to which it may be entitled. Any suit to
enforce any provision of this Agreement, or arising out of or based upon this
Agreement, shall be brought in the United States District Court for the
District of Colorado or the District Court in and for the County of Boulder,
State of Colorado. Each party hereby agrees that such courts shall have in
personam jurisdiction and venue with respect to such party, and each party
hereby submits to the in personam jurisdiction and venue of such courts.
The parties agree and acknowledge that
money damages may not be an adequate remedy for breach of the provisions
of this Agreement and that any party may in its sole discretion apply for
specific performance and/or injunctive relief in order to enforce or prevent
any violations of the provisions of this Agreement. The prevailing party in any
suit shall be entitled to recover reasonable attorneys’ fees and costs from the
other party.


 


11.                                 Modifications and Waivers. No provision of this Agreement may be
modified, altered or amended except by an instrument in writing executed by the
parties hereto. No waiver by either party hereto of any breach by the other
party hereto of any term or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar terms or
provisions at the time or at any prior or subsequent time.


 


12.                                 UNDERSTAND AGREEMENT. EMPLOYEE REPRESENTS AND WARRANTS THAT (a) EMPLOYEE
HAS READ AND UNDERSTOOD EACH AND EVERY PROVISION OF THIS AGREEMENT, (b) EMPLOYEE
HAS HAD THE OPPORTUNITY TO OBTAIN ADVICE FROM LEGAL COUNSEL OF EMPLOYEE’S
CHOICE, OTHER THAN COUNSEL TO THE COMPANY (WHO IS NOT REPRESENTING THE
EMPLOYEE), IN ORDER TO INTERPRET ANY AND ALL PROVISIONS OF THIS AGREEMENT, (c) EMPLOYEE
HAS HAD THE OPPORTUNITY TO ASK THE COMPANY QUESTIONS ABOUT THIS AGREEMENT AND
ANY OF SUCH QUESTIONS EMPLOYEE HAS ASKED HAVE BEEN ANSWERED TO EMPLOYEE’S
SATISFACTION, AND (d) EMPLOYEE HAS BEEN GIVEN A COPY OF THIS AGREEMENT.


 


13.                                 Pilia
Release. Subject to the
second paragraph of this Section 13, Dr. Pilia,
on behalf of herself, and her representatives, heirs, administrators,
executors, and assigns, and on behalf of any other persons or entities claiming
by, through, or under Dr. Pilia, does hereby fully release, acquit and
forever discharge the Company, the Company’s directors, and its subsidiaries or
affiliates, and their respective employees, officers, directors, trustees,
committee members, boards, members of such boards, chairmen of the boards,
contractors, consultants, agents, representatives, attorneys, successors, and
assigns (the “Company Released Entities”), from and against any and all
actions, suits, proceedings, hearings, investigations, charges, complaints,
claims, demands, injunctions, judgments, orders, decrees, rulings, damages,
dues, penalties, fines, costs, amounts paid in settlement, liabilities,
obligations, taxes, liens, losses, expenses, and fees, including court costs
and reasonable attorneys’ fees and expenses (“Claims”) in law or equity, of any
and every character, kind and nature whatsoever, including without limitation,
for personal injury, property damage or economic loss, whether known or
unknown, contingent or fixed, either in or arising out of the law of contracts,
torts, or under statutory law, arising out of, 


 


4

















 


resulting from, or based upon or in any way relating to any prior action or
inaction of the Company
Released
Entities. Subject to the second
paragraph of this Section 13, this
release is to be broadly construed and shall extend to and extinguish any and
all Claims, demands or causes of action of every kind or nature whatsoever,
known or unknown, suspected or unsuspected from the beginning of the world
through the date of this Agreement, including, without limitation 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, the Age Discrimination in Employment Act of 1967, the Americans with
Disabilities Act of 1990, the Fair Labor Standards Act, the Employee Retirement
Income Security Act of 1974, and Older Workers Benefits Protection Act.


 


Notwithstanding
the release in favor of the Company
Released Entities as set forth in the preceding paragraph of this Section 13,
nothing in this Agreement shall release the Company Released
Entities from any of the
following obligations:


 


A:                                   Claims to Workers Compensation benefits and
benefits of employment that have previously vested by operation of law, if any,
including without limitation rights under any “employee pension benefit
plan” as such term is defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), or any “welfare
benefit plan” as such term is defined in Section 3(1) of ERISA.


 


B:                                     Future
Claims that may arise after Dr. Pilia’s separation from employment
with the Company, if based entirely on alleged acts, omissions or occurrences
occurring after the date of this Agreement, including without limitation the
right to receive Board and Committee fees (commencing with the payment of the
first quarterly installment of the annual retainer in the amount of $2,500.00
to be made as of March 31, 2006), reimbursement of expenses, grants
pursuant to stock option plans and other such remuneration as is provided to
other non-employee directors of the Company.


 


C:                                     The
termination benefits, medical, dental and any other health insurance, life
insurance, accidental death and dismemberment insurance coverage, and
disability insurance to which Dr. Pilia is entitled due to Section 6(c) of
the 2001 Employment Agreement, as amended.


 


D:                                    Reimbursement
for reasonable out-of-pocket expenses to which Dr. Pilia is entitled due
to Section 4 of the 2001 Employment Agreement, as amended.


 


E.                                      Obligations
of the Company or of any subsidiary or affiliate of the Company as in effect on
the effective date of this Settlement Agreement to indemnify Dr. Pilia in
accordance with applicable law, the Articles of Incorporation or Bylaws of the
Company or of any subsidiary or affiliate of the Company, or pursuant to any
contractual obligation between Dr. Pilia and the Company or any subsidiary
or affiliate of the Company, for service as an employee, officer, director or
other fiduciary or representative of the Company, and for serving at the
Company’s


 


5

















 


request
as a director, officer, employee, manager, partner, trustee, agent or fiduciary
of another corporation, partnership, joint venture, trust, other enterprise or
employee benefit plan of the Company or any subsidiary or affiliate of the
Company, all of which obligations shall remain in full force and effect. The
Company agrees that it shall not take any action to alter, impair or cancel any
such obligations or any insurance coverage that may apply with respect to Dr. Pilia.


 


F.                                      Obligations
of the Company owed to Dr. Pilia
with respect to stock options granted to or held by Dr. Pilia under any of
the Company’s stock option or equity compensation plans.


 


G.                                     Actions
to enforce the terms of this Agreement to the extent that specific rights and
benefits are conferred by this Agreement.


 


14.                                 Important Notice to Regarding the Older Workers
Benefit Protection Act


 


Employees who are 40
years of age or older have special rights under a federal law known as the
Older Workers Benefit Protection Act. If you have attained age 40, you have a
right under federal law to be free from age discrimination in all aspects of
your employment relationship with the Company. Discrimination against employees
who have attained age 40 is prohibited by federal and state law. By signing
this Settlement Agreement Dr. Pilia acknowledges that she is giving up the
right to sue the Company for age discrimination by signing this Agreement. Employees
aged 40 or older also have the right under federal law to be given 45 days to
decide whether or not to sign this Agreement. Dr. Pilia may sign
the Agreement before the expiration of 45 days, but Dr. Pilia is not
required to do so and has the right to take the entire 45 days to consider this
Agreement. Employees over age 40 also have the right to revoke this
Agreement within seven (7) days after signing it. Such revocation must
be in writing to the Company’s address.


 


15.                                 Company Release. Subject to the last sentence of this Section 15,
the Company and all of its affiliates, on behalf of themselves and their successors
and assigns, and on behalf of any other persons or entities claiming by,
through, or under the Company or any of its affiliates, do hereby fully release, acquit
and forever discharge Dr. Pilia, and her representatives, heirs,
administrators, executors, and assigns, (the “Pilia Released Entities”), from
and against any and all Claims in law or equity, of any and every character,
kind and nature whatsoever, including without limitation, for personal injury,
property damage or economic loss, whether known or unknown, contingent or
fixed, either in or arising out of the law of contracts, torts, or under
statutory law, arising out of, resulting from, or based upon or in any way relating to any prior action or
inaction of the Pilia Released Entities. Subject to the last sentence of this Section 15,
this release is to be broadly construed and
shall extend to and extinguish any and all Claims, demands or causes of action
of every kind or nature whatsoever, known or unknown, suspected or unsuspected
from the beginning of the world through the date of this Agreement. Notwithstanding
the release in favor of the Pilia Released
Entities as set forth in this Section 15, nothing in this
Agreement shall release the Pilia Released Entities from
any of the following obligations:  (i) future Claims that may arise
after Dr. Pilia’s separation from employment with


 


6

















 


the
Company, if based entirely on alleged acts, omissions or occurrences occurring
after the date of this Agreement, (ii) obligations of Dr. Pilia
pursuant to Sections 9 through 15 of the 2001 Employment Agreement, all of
which obligations shall remain in full force and effect, and (iii) actions
to enforce the terms of this Agreement to the extent that specific rights and
benefits are conferred by this Agreement


 


IN WITNESS WHEREOF, the parties hereto have caused
this Agreement to be duly executed on the day and year first above written.


 


 


	
  /s/ Patricia A. Pilia

  	
   

  
	
  Patricia A. Pilia, Ph.D.

  
	
   

  
	
   

  
	
  Tapestry Pharmaceuticals, Inc.

  
	
   

  
	
   

  
	
  By:

  	
  /s/ Kai P. Larson

  	
   

  
	
  Kai P. Larson, Vice President and General Counsel

  
			



 


7

















 


Exhibit A


 


Amendment to Employment
Agreement


 


February 23, 2006


 


This Amendment is made to
that Employment Agreement dated October 1, 2001 by and between Tapestry
Pharmaceuticals, Inc. (Tapestry) and Patricia Pilia (Executive.)


 


Whereas, Executive and
Tapestry are desirous to conform the terms of the Employment Agreement to
changes made in the law relating to taxation of severance payments.


 


Now, therefore, Executive
and Tapestry hereby agree as follows:


 


In the event that the
Company and Executive determine that any compensation payable to Executive
under any nonqualified deferred compensation plan, including without limitation
any severance benefit provided under the Employment Agreement, fails to satisfy
the distribution requirement of Section 409A(a)(2)(A) of the Internal
Revenue Code of 1986, as amended (the “Code”), as a result of Executive’s
status as a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of
the Code, then the payment of such benefits shall be automatically delayed to
the minimum extent necessary so that such benefits are not subject to the
provisions of Section 409A(a)(1) of the Code.


 


All other provisions of
the Employment Agreement shall remain unchanged.


 


Tapestry Pharmaceuticals,
Inc


 


	
  By: 

  	
   

  	
   

  
	
   

  
	
   

  
	
   

  	
   

  
	
  Patricia Pilia

  



 


8

















 


Exhibit B


 


Accrued but unpaid
vacation and salary has been paid.


 


Reimbursement for company
expenses through the date of termination will be paid promptly after submission
of an expense report.


 


The severance payment of
$646,250 (less required tax withholding) will be paid six months and a day
following termination.


 


Health benefits will be reimbursed
as set forth in the 2001 Employment Agreement, as amended.


 


Long term disability and
life insurance will be reimbursed as set forth in the 2001 Employment
Agreement, as amended. The first such reimbursement will cover the previous six
months, and thereafter, the payments will cover the current month.


 


9