EXHIBIT 10.25**SEVERANCE AGREEMENT**     This**Severance Agreement** (the **“Agreement”**) is made and entered into effective as ofNovember 14, 2003 (the **“Effective Date”**), by and between **Anadys Pharmaceuticals, Inc.**, aDelaware corporation (the **“Company”**), and **Steve Worland** (the **“Executive”**). The Companyand the Executive are hereinafter collectively referred to as the **“Parties”**, and individuallyreferred to as a **“Party”**.**Agreement**     In consideration of the mutual promises and covenants herein contained, and for other good andvaluable consideration, the Parties, intending to be legally bound, agree as follows:     **1.****Loyalty**; **At Will Employment**. During the Executive’s employmentby the Company, the Executive shall devote Executive’s full business energies, interest, abilitiesand productive time to the proper and efficient performance of Executive’s duties as an officer ofthe Company. Executive’s employment with the Company is at-will and not for any specified periodand may be terminated at any time, with or without cause, by either Executive or Company, subjectto 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 shallcontinue 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 isterminated as a result of death or Complete Disability, the Company shall pay to Executive, and/orExecutive’s heirs, the Executive’s base salary and accrued and unused vacation benefits earnedthrough the date of termination at the rate in effect at the time of termination, less standarddeductions and withholdings, and the Company shall thereafter have no further obligations to theExecutive 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 isterminated by the Company for Cause (as defined below) or if the Executive terminates hisemployment with the Company without Good Reason (as defined below), the Company shall pay theExecutive’s base salary and accrued and unused vacation benefits earned through the date oftermination at the rate in effect at the time of termination, less standard deductions andwithholdings, and the Company shall thereafter have no further obligations to the Executive underthis Agreement.
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               **2.2.3 Without Cause or With Good Reason.**If the Company terminates the Executive’s employmentwithout Cause or the Executive resigns with Good Reason, the Company shall pay the Executive’s basesalary and accrued and unused vacation earned through the date of termination, at the rate ineffect 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 tothe Company an effective waiver and release of claims (“Waiver and Release”) (a form of which isattached 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 atthe time of termination, less standard deductions and withholdings;               **(ii) **Reimbursement for continued health insurance coverage under COBRA, provided thatExecutive elects such coverage, for the same portion of Executive’s COBRA health insurance premiumthat it paid during the Executive’s employment up until the earlier of either (i) nine (9) monthsafter the date of termination or, (ii) the date on which the Executive begins full-time employmentwith 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 outplacementfirm mutually acceptable to the Company and Executive.               **2.2.4 Covenant not to Compete.**Notwithstanding any provisions in this Agreement to thecontrary, including any provisions contained in this Section 2.2, the Company’s obligations, andthe Executive’s rights, pursuant to Section 2.2.3 shall cease and be rendered a nullity immediatelyshould the Executive violate any provision of Section 1 herein, or should the Executive violate theterms and conditions of the Executive’s Agreement for Employees dated March 22, 2001 (proprietaryinformation and inventions agreement) with the Company.               **2.2.5 Termination of Obligations**. In the event of the termination of the Executive’semployment 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 dueto the Executive (and/or the Executive’s dependents) under the terms of the Company’s benefitplans. The Company may offset any amounts Executive owes it or its subsidiaries against any amountit owes Executive pursuant to this Section 2.2.          **2.3 Definitions**. For purposes of this Agreement, the following terms shall have the followingmeanings:               **2.3.1 Complete Disability**. **“Complete Disability”**shall mean the inability of the Executive toperform the Executive’s duties under this Agreement because the Executive has become permanentlydisabled within the meaning of any policy of disability income insurance covering employees of theCompany then in force. In the event the Company has no policy of disability income insurancecovering employees of the Company in force when the Executive becomes disabled, the term **“CompleteDisability”**shall mean the inability of the Executive to perform the Executive’s duties under thisAgreement by reason of any incapacity,
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physical or mental, which the Board, based upon medical advice or an opinion provided by alicensed physician acceptable to the Board, determines to have incapacitated the Executive fromsatisfactorily performing all of the Executive’s usual services for the Company for a period of atleast one hundred twenty (120) days during any twelve (12) month period (whether or notconsecutive). Based upon such medical advice or opinion, the determination of the Board shall befinal and binding and the date such determination is made shall be the date of such CompleteDisability for purposes of this Agreement.               **2.3.2 Good Reason. “Good Reason”**for the Executive to terminate the Executive’s employmenthereunder 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 thesuccessor entity;               **(ii) **the relocation (or demand for relocation) of Executive’s place of employment to a pointmore 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’sconsent.               **2.3.3 For Cause**. **“Cause”**for the Company to terminate Executive’s employment hereunder shallmean the occurrence of any of the following events:               **(i) **the Executive’s failure to satisfactorily perform Executive’s assigned duties with theCompany, or any successor thereof, in the best interest of the Company and as directed by theCompany’s Board of Directors (except for the failure resulting from Executive’s incapacity due toComplete Disability, or any such actual or anticipated failure resulting from a Good Reasontermination) which is not corrected within thirty (30) days of receiving notice of such failurefrom 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 directlycompetitive with or injurious to the Company or any of its Affiliates or which violates anymaterial provisions of the Executive’s Agreement for Employees dated March 22, 2001 (proprietaryinformation and inventions agreement) with the Company.          **2.4****Integration**. The Parties agree that unless it is determined that Executiveshall be terminated for Cause under this Agreement, there shall be no termination for Cause underExecutive’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 fullyexercisable in accordance with the terms thereof.               **3.1.2**In the event that Executive’s employment with the Company is terminated without Cause orfor Good Reason within the sixty (60) day period immediately preceding or the thirteen (13) monthperiod immediately following a Change of Control of the Company, then upon the Executive’s deliveryto the Company of an effective Waiver and Release, the Executive shall be entitled to the benefitsset forth in Section 2.2.3 and accelerated vesting of all unvested shares subject to anyoutstanding stock options, such that all shares shall be vested and fully exercisable as of thedate of Executive’s termination.          **3.2 Definition.**For purposes of this Agreement, the term Change of Control shall have themeaning 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 ofControl or otherwise (“Payment”) would (i) constitute a “parachute payment” within the meaning ofSection 280G of the Code, and (ii) but for this sentence, be subject to the excise tax imposed bySection 4999 of the Code (the “Excise Tax”), then such Payment shall be reduced to the ReducedAmount. The “Reduced Amount” shall be either (x) the largest portion of the Payment that wouldresult in no portion of the Payment being subject to the Excise Tax or (y) the largest portion, upto and including the total, of the Payment, whichever amount, after taking into account allapplicable federal, state and local employment taxes, income taxes, and the Excise Tax (allcomputed at the highest applicable marginal rate), results in Executive’s receipt, on an after-taxbasis, of the greater amount of the Payment notwithstanding that all or some portion of the Paymentmay be subject to the Excise Tax. If a reduction in payments or benefits constituting “parachutepayments” is necessary so that the Payment equals the Reduced Amount, reduction shall occur in thefollowing order unless Executive elects in writing a different order (*provided, however,*that suchelection shall be subject to Company approval if made on or after the effective date of the eventthat triggers the Payment): reduction of cash payments; cancellation of accelerated vesting ofstock awards; reduction of employee benefits. In the event that acceleration of vesting of stockaward compensation is to be reduced, such acceleration of vesting shall be cancelled in the reverseorder of the date of grant of Executive’s stock awards unless Executive elects in writing adifferent order for cancellation.     The accounting firm engaged by the Company for general audit purposes as of the day prior tothe effective date of the Change of Control shall perform the foregoing calculations. If theaccounting 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 nationallyrecognized accounting firm to make the determinations required hereunder. The Company shall bearall expenses with respect to the determinations by such accounting firm required to be madehereunder.
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     The accounting firm engaged to make the determinations hereunder shall provide itscalculations, together with detailed supporting documentation, to Executive and the Company withinfifteen (15) calendar days after the date on which Executive’s right to a Payment is triggered (ifrequested at that time by Executive or the Company) or such other time as requested by Executive orthe Company. If the accounting firm determines that no Excise Tax is payable with respect to aPayment, either before or after the application of the Reduced Amount, it shall furnish Executiveand the Company with an opinion reasonably acceptable to Executive that no Excise Tax will beimposed with respect to such Payment. Any good faith determinations of the accounting firm madehereunder shall be final, binding and conclusive upon Executive and the Company.     **4.****General**. This Agreement is made in San Diego, California. This Agreementshall 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 Companyregarding severance benefits and cannot be amended or modified except by written agreement betweenExecutive and the Company. This Agreement may be executed in two counterparts, each of which shallbe 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 firstabove 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 SeveranceAgreement dated November 13, 2003, to which this form is attached, I, **Steve Worland**,hereby furnish **Anadys Pharmaceuticals, Inc.** (the **“Company”**), with the following releaseand waiver (**“Release and Waiver”**).     In exchange for the consideration provided to me by the Severance Agreement that I am nototherwise entitled to receive, I hereby generally and completely release the Company and itsdirectors, officers, employees, shareholders, partners, agents, attorneys, predecessors,successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and allclaims, liabilities and obligations, both known and unknown, that arise out of or are in any wayrelated to events, acts, conduct, or omissions occurring prior to my signing this Release andWaiver. This general release includes, but is not limited to: (1) all claims arising out of or inany way related to my employment with the Company or the termination of that employment; (2) allclaims 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 ofcontract, 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, emotionaldistress, and discharge in violation of public policy; and (5) all federal, state, and localstatutory 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 Discriminationin 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 Codewhich reads as follows: “**A general release does not extend to claims which the creditor does notknow or suspect to exist in his favor at the time of executing the release, which if known by himmust have materially affected his settlement with the debtor.**” I hereby expressly waive andrelinquish all rights and benefits under that section and any law of any jurisdiction of similareffect 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 underADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given forthis Release and Waiver is in addition to anything of value to which I was already entitled as anexecutive of the Company. If I am 40 years of age or older upon execution of this Release andWaiver, I further acknowledge that I have been advised, as required by the Older Workers BenefitProtection Act, that: (a) the release and waiver granted herein does not relate to claims underthe ADEA which may arise after this Release and Waiver is executed; (b) I have the right to consultwith an attorney prior to executing this Release and Waiver (although I may choose voluntarily notto do so); and (c) I have twenty-one (21) days from the date of termination of my employment withthe Company in which to consider this Release and Waiver (although I may choose voluntarily toexecute this Release and Waiver earlier); (d) I have seven (7) days following the execution of thisRelease 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) dayrevocation period has expired.     If I am less than 40 years of age upon execution of this Release and Waiver, I acknowledgethat 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 oftermination 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 ExhibitB. Pursuant to the Agreement for Employees I understand that among other things, I must not use ordisclose any confidential or proprietary information of the Company and I must immediately returnall Company property and documents (including all embodiments of proprietary information) and allcopies thereof in my possession or control. I understand and agree that my right to the severancepay I am receiving in exchange for my agreement to the terms of this Release and Waiver iscontingent upon my continued compliance with my Agreement for Employees.     This Release and Waiver, including Exhibit B hereto, constitutes the complete, final andexclusive embodiment of the entire agreement between the Company and me with regard to the subjectmatter hereof. I am not relying on any promise or representation by the Company that is notexpressly stated herein. This Release and Waiver may only be modified by a writing signed by bothme and a duly authorized officer of the Company.           Date:     By:            **Steve Worland**  
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