Exhibit 10.4


 


CHANGE-IN-CONTROL AGREEMENT


FOR CERTAIN EXECUTIVES


OF
DISCOVERY PARTNERS INTERNATIONAL, INC.


MARCH 2005


 


PERSONAL AND CONFIDENTIAL


 


Michael C. Venuti, PhD


Chief Scientific Officer


Discovery Partners International, Inc.


9640 Towne Centre Drive


San Diego, CA 92121


 


Dear Michael:


 


Discovery Partners
International, Inc.  (the
“Company”) considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel.  In this connection, the Board of Directors of
the Company (the “Board”) recognizes that the possibility of a change in
ownership or control of the Company may result in the departure or distraction
of such personnel to the detriment of the Company and its stockholders.  As you are a skilled and dedicated executive
with important management responsibilities and talents, the Company believes
that its best interests will be served if you are encouraged to remain with the
Company.


 


The Company has determined that
your ability to perform your responsibilities and utilize your talents for the
benefit of the Company, and the Company’s ability to retain you as an employee,
will be significantly enhanced if you are provided with fair and reasonable
protection from the risks of a change in ownership or control of the
Company.  Accordingly, in order to induce
you to remain in the employ of the Company, you and
the Company agree as follows:


 


1.               TERM OF AGREEMENT.


 


(a)          GENERALLY. 
Except as provided in Section 1(b) hereof, (i) this Agreement shall
be effective immediately and shall continue in effect through December 31, 2005
and (ii) commencing on January 1, 2006 and each January 1 thereafter, this
Agreement shall be automatically extended for one additional year unless, not
later than September 30th of the preceding year, either party to
this Agreement gives notice to the other that the Agreement shall not be
extended under this Section 1(a); provided, however, that no such notice by the
Company shall be effective if a Change in Control (as defined herein) shall
have occurred within 18 months before the date of such notice.


 


(b)         UPON A CHANGE IN CONTROL.  If a Change in Control shall have occurred at
any time during the period in which this Agreement is effective, this Agreement
shall continue in effect for 365 days beyond the date on which such Change in
Control occurred (such 365-day period hereinafter referred to as the “Protected
Period”).


 





















 


2.               “CHANGE IN CONTROL” DEFINED.  A “Change in Control” shall be deemed to have
occurred if, during the term of this Agreement:


 


(a)          any Person becomes the beneficial
owner, directly or indirectly, of securities of the Company representing 15% or
more of the combined voting power of the Company’s then-outstanding
securities.  “Person” has the same
meaning as in section 13(d) or 14(d) of the Securities Exchange Act.  However, for purposes of this Section 2(a), “Person”
does not

include—


 


(A)                              any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or


 


(B)                                any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as their
ownership of stock of the Company);


 


(b)         during any period of 24 months or less (not including
any period before the effective date of this Agreement), individuals who at the
beginning of such period constitute the Board, and any Approved New Directors,
cease for any reason to constitute at least a majority of the Board.  “Approved New Directors” means new
director(s) whose election by the Board or nomination for election by the
Company’s stockholders was approved in advance by a vote of at least two-thirds
(2/3) of the directors then still in office who either were directors at the
beginning of the period or who were themselves Approved New Directors.  However, the following persons cannot be
Approved New Directors—


 


(A)                              a director nominated by a Person who has entered into an
agreement with the Company to effect a transaction described in Sections 2(a),
(c) or (d) of this Agreement,


 


(B)                                a director nominated by any Person who publicly announced an
intention to take or to consider taking actions (including, but not limited to,
an actual or threatened proxy contest) which if consummated would constitute a
Change in Control,


 


(C)                                a director nominated by any Person who is the beneficial
owner, directly or indirectly, of securities of the Company representing 10% or
more of the combined voting power of the Company’s securities; or


 


(c)          the stockholders of the Company approve
any transaction or series of transactions under which the Company is merged or
consolidated with any other company in a Merger.  A “Merger” means any merger or consolidation
except one—


 


(A)                              which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) more than
66-2/3% of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, and


 





















 


(B)                                after which no Person holds 15% or more of the combined
voting power of the then-outstanding securities of the Company (if it is the
surviving parent) or such surviving entity.


 


If consummation of a Merger is
subject, at the time of such approval by stockholders, to the consent of any
government or governmental agency or approval of the stockholders of another
entity or other material contingency, no Change in Control shall occur until
such time as such consent and approval has been obtained and any other material
contingency has been satisfied or waived;


 


(d)         the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company’s assets; provided,
however, that, if consummation of the transaction referred to in this Section
2(d) is subject, at the time of such approval by stockholders, to the consent
of any government or governmental agency or approval of the stockholders of
another entity or other material contingency, no Change in Control shall occur
until such time as such consent and approval has been obtained and any other
material contingency has been satisfied or waived; or


 


(e)          the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Change in Control has occurred, provided that the
Board may impose limitations on the effects of a Change in Control or the
payment of amounts or benefits under this Agreement if the Change in Control
has occurred under this Section 2(e) and not under other subsections of this
Section 2.


 


3.               TERMINATION.


 


(a)          TERMINATION BY THE COMPANY FOR CAUSE, BY YOU WITHOUT
GOOD REASON, OR BY REASON OF DEATH OR DISABILITY.  If during the Protected Period your
employment by the Company is terminated by the Company for Cause, by you
without Good Reason, or because of your death or Disability, the Company shall
be relieved of its obligation to make any payments to you other than
(i) its payment of amounts otherwise accrued and owing but not yet paid
and (ii) any amounts payable under then-existing employee benefit programs
at the time such amounts are due.


 


(b)         TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY YOU FOR
GOOD REASON.  If during the Protected
Period your employment by the Company is terminated by the Company without
cause or by you for Good Reason, you shall be entitled to the compensation and
benefits described in this Section 3(b). 
If your employment by the Company is terminated prior to a Change in
Control at the request of a Person engaging in a transaction or series of
transactions that would result in a Change in Control, the Protected Period
shall commence upon the subsequent occurrence of a Change in Control, your
actual termination shall be deemed a termination occurring during the Protected
Period and covered by this Section 3(b), your Date of Termination shall be
deemed to have occurred immediately following the Change in Control, and Notice
of Termination shall be deemed to have been given by the Company immediately
prior to your actual termination.  Your
continued employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstances 


 





















 


constituting Good Reason hereunder.  The compensation and benefits provided under
this Section 3(b) are as follows:


 


(i)                                     The
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, no later than
the fifth day following the Date of Termination, and you shall receive all
other amounts to which you are entitled under any compensation or benefit plan
of the Company, at the time such payments are due.


 


(ii)                                  At
the time specified in Section 3(d) hereof, the Company shall pay you, in lieu
of any further salary, bonus or severance payments for periods subsequent to
the Date of Termination, a lump sum amount in cash equal to the sum of:


 


(A)                              (i) your
average bonus for the three prior full calendar years of employment with the
Company (or such lesser number of full calendar years during which you were
employed by the Company), times (ii) the number of days in the calendar
year through the Date of Termination, divided by (iii) 365; and


 


(B)                                the greater of 100 percent of (i) your annual base
salary in effect immediately prior to the Change in Control of the Company or
(ii) your annual base salary in effect at the time Notice of Termination
is given.


 


(iii)                               For
purposes of determining the vesting of any awards made to you under the Company’s
2000 Stock Incentive Plan, as well as any unvested shares of Company Stock you
acquired pursuant to any awards made under that plan, you shall be treated as
if you had completed an additional 12 months of service immediately before the
date on which your employment is terminated.


 


(c)          LIMITATION ON BENEFIT. 
The payment of your benefit under this Agreement shall be subject to the
following rules:


 


(i)                                     In
the event that the benefits that you would receive that are unassociated with
this Agreement (“Unrelated Benefits”) would be sufficient in size and nature to
trigger adverse tax consequences under the golden parachute rules of Code
Sections 280G and 4999 (“Section 280G Threshold”), then you will not receive
any benefits under this Agreement (“Related Benefits”);


 


(ii)                                  In
the event that the sum of your Unrelated Benefits and your Related Benefits
would be less than the Section 280G Threshold, then you will receive the total
amount of your Related Benefits; and


 


(iii)                               In
the event that the sum of your Unrelated Benefits and your Related Benefits
would exceed the Section 280G Threshold, then the amount of your Related
Benefit will be reduced to the minimum extent necessary to avoid reaching that
limit.  For this purpose, your benefit
under Section 3(b)(ii) (“Cash Payment”) shall be
reduced first, so that your benefit under Section 3(b)(iii) (“Stock
Acceleration Benefit”) will be reduced only after your Cash Payment benefit has
been completely eliminated.


 





















 


(d)         TIME OF PAYMENT. 
The cash payments provided for in Section 3(b)(ii) shall be made not
later than the 30th day following the Date of Termination; provided,
however, that if the amount of such payments cannot be finally determined on or
before such day, the Company shall pay to you on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined.  In the event
that the amount of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute a loan by the Company
to you, payable on the 15th day after the demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).


 


(e)          NOTICE.  During
the Protected Period, any purported termination of your employment by the
Company or by you shall be communicated by written Notice of Termination to the
other party hereto.


 


(f)            CERTAIN DEFINITIONS. 
Except as otherwise indicated in this Agreement, all definitions in this
Section 3(f) shall be applicable during the Protected Period only.


 


(i)                                     Disability.  “Disability” shall mean your absence from the
full-time performance of your duties with the Company for six consecutive
months as a result of your incapacity due to physical or mental illness or
disability, and within 30 days after written Notice of Termination is
thereafter given you shall not have returned to the full-time performance of
your duties.


 


(ii)                                  Cause.  “Cause” for termination shall be determined
by the Company based on the Board’s reasonable belief that one or more of the
following has occurred: (A) your indictment or conviction of any felony or of
any crime involving dishonesty; (B) your participation in any fraud against the
Company; (C) breach of your duties to the Company, whether arising under this
Agreement or by operation of law, provided that the Company has given advance
written notice to you for at least 30 days and you have not cured such breach
to the satisfaction of the Board within said 30-day period; (D) your
intentional damage to any property of the Company; or (E) conduct by you
or lack of performance which in the good faith and reasonable determination of
the Board demonstrates unfitness to serve.


 


(iii)                               Good
Reason.  “Good Reason” shall mean,
without your express written consent, the occurrence upon or after a Change in
Control of any of the following circumstances unless, in the case of Sections
3(f)(iii)(A), (B), (F) or (G) hereof, such circumstances are fully corrected
prior to the Date of Termination specified in the Notice of Termination given
in respect thereof:


 


(A)                              the assignment to you of any duties inconsistent with the
position in the Company that you held immediately prior to the Change in
Control or an adverse alteration in the nature or status of your
responsibilities or the conditions of your employment from those in effect
immediately prior to such Change in Control;


 


(B)                                your
title is changed to a title that, under customary practice within the
biotechnology industry within the state in which the Company’s principal
offices are located at the date of such reduction, would be considered to be a
lower-level title than your title immediately prior to the Change in Control;


 





















 


(C)                                a
reduction by the Company in your annual base salary, any target bonus or
perquisites as in effect immediately prior to the Change in Control or as the
same may be increased from time to time except for overall reductions in
benefits in which you are treated proportionately given your position, length
of service, income and other relevant factors customary within the
biotechnology industry within the state in which the Company’s principal
offices are located at the date of such reduction;


 


(D)                               the
relocation of the principal place of your employment to a location more than 35
miles from the location of such place of employment on the date of this
Agreement; except for required travel on the Company’s business to an extent
substantially consistent with your business travel obligations prior to the
Change in Control;


 


(E)                                 the
failure by the Company to pay to you any portion of your compensation or to pay
to you any portion of an installment of deferred compensation under any
deferred compensation program of the Company within seven days of the date such
compensation is due;


 


(F)                                 the
failure by the Company to continue in effect any material compensation or
benefit plan in which you participated immediately prior to the Change in
Control, unless an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan, or the failure by
the Company to continue your participation therein (or in such substitute or
alternative plan) on a basis not materially less favorable, both in terms of
the amounts of benefits provided and the level of your participation relative
to other participants, as existed at the time of the Change in Control; or


 


(G)                                the failure of the Company to obtain a satisfactory
agreement from any successor to assume and agree to perform this Agreement, as
contemplated in Section 6 hereof.


 


(iv)                              Notice
of Termination.  “Notice of Termination”
shall mean notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of your employment under the
provision so indicated.


 


(v)                                 Date
of Termination.  “Date of Termination”
shall mean (A) if your employment is terminated for Disability, 30 days after
Notice of Termination is given (provided that you shall not have returned to
the full-time performance of your duties during such 30-day period) or (B) if
your employment is terminated for any other reason, the date specified in the
Notice of Termination (which, in the case of a termination for Cause, shall not
be less than 30 days from the date such Notice of Termination is given — provided,
that in its discretion the Company may relieve you of all your employment
responsibilities for all or any part of the interim period — and, in the case
of a termination for Good Reason, shall not be less than 15 nor more than 60
days from the date such Notice of Termination is given).


 





















 


4.               MITIGATION.  You
shall not be required to mitigate the amount of payment provided for under this
Agreement by seeking other employment or otherwise, nor shall the amount of
payment or benefit provided for under this Agreement be reduced by any
compensation earned by you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be owed by you to
the Company, or otherwise.


 


5.               COSTS OF PROCEEDINGS. 
If any suit or other proceeding is brought for the enforcement or
interpretation of this Agreement, or because of any alleged dispute, breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover,
from the other party, reasonable attorneys’ fees and other costs incurred in
that suit or proceeding, in addition to any other relief to which such party
may be entitled.  The Court shall
determine which party is, under all the circumstances, the “successful or
prevailing party,” all in accordance with the principles and provisions of
California Civil Code Section 1717.  The
Company shall pay prejudgment interest on any money judgment obtained by you as
a result of such proceeding, calculated at the prime rate of Wells Fargo Bank
as in effect from time to time from the date that payment should have been made
to you under this Agreement.


 


6.               SUCCESSORS; BINDING AGREEMENT.


 


(a)          SUCCESSOR TO COMPANY TO ASSUME OBLIGATIONS.  The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise)
to all or substantially all of the business and/or assets of the Company to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.  As used in
this Agreement, “Company” shall mean the Company as hereinbefore defined and
any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.


 


(b)         EMPLOYEE’S SUCCESSORS. 
This Agreement shall inure to the benefit of and be enforceable by you
and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.  In the event of your death, all amounts
otherwise payable to you hereunder shall, unless otherwise provided herein, be
paid in accordance with the terms of this Agreement to your devisee, legatee or
other designee or, if there is no such designee, to your estate.


 


7.               NOTICE.  Notices
and all other communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when (a) personally delivered or
(b) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to the respective addresses set forth on
the first page of this Agreement; provided that all notice to the Company shall
be directed to the attention of the Board with a copy to the General Counsel of
the Company (or, if there is no General Counsel, then to the Company’s primary
outside attorney as identified in the Company’s most recent Annual Report), or
to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall
be effective only upon receipt.


 





















 


8.               MISCELLANEOUS. 
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing and
signed by you and such officer as may be designated by the Board.  No waiver by either party hereto at any time
of any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the time
or at any prior or subsequent time.  The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of California without regard to its conflicts
of law principles.  All references to
sections of the Securities Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections.  Any payments provided for hereunder shall be
paid net of any applicable withholding required under federal, state or local
law.  The obligations of the Company
and/or you under this Agreement shall survive the expiration of this Agreement
to the extent necessary to give effect to this Agreement.


 


9.               VALIDITY.  The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.


 


10.         COUNTERPARTS. 
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original but all of which together will constitute one and the
same instrument.


 


11.         ENTIRE AGREEMENT. 
This Agreement sets forth the entire agreement of the parties hereto in
respect of the subject matter contained herein and during the term of this
Agreement supersedes the provisions of all prior agreements, promises,
covenants, arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any party hereof
with respect to the subject matter contained herein.  The parties hereto agree that (a) the subject
matter of this Agreement is limited to the parties’ rights and obligations in
the event that you are terminated by the Company during the Protected Period following
a Change of Control or otherwise in connection with a Change of Control as
provided for by Section 3(b), (b) this Agreement does not apply to
any termination by the Company of you that does not occur during the Protected
Period following a Change of Control or that is not otherwise in connection
with a Change of Control and provided for by Section 3(b), and (c) with
respect to any termination by the Company of you that does not occur during the
Protected Period following a Change of Control or that is not otherwise in
connection with a Change of Control and provided for by Section 3(b), the
provisions of any prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, between
the parties will apply to the extent applicable and legally enforceable.  No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter hereof have
been made by either party which are not expressly set
forth in this Agreement.  Notwithstanding
anything to the contrary in this Agreement, the procedural provisions of this
Agreement shall apply to all benefits payable as a result of a Change in
Control (or other change in control) under any employee benefit plan,
agreement, program, policy or arrangement of the Company, unless ERISA or the
tax qualifications thereof require otherwise.


 


If this letter sets forth our
agreement on the subject matter hereof, kindly sign and return to the Company
the enclosed copy of this letter, which will then constitute our agreement on
this subject.


 





















 


	
   

  	
  DISCOVERY
  PARTNERS INTERNATIONAL, 

  INC.

  
	
   

  	
   

  
	
   

  	
      By:

  	
  /s/ Riccardo Pigliucci

  
	
   

  	
   

  	
  Riccardo Pigliucci

  
	
   

  	
   

  	
  Chairman and Chief Executive Officer

  



 


 


Agreed to this 31st day of March, 2005.


 


 


EMPLOYEE


 


 


	
  /s/ Michael C. Venuti, PhD

  	
   

  
	
   

  	
   

  
	
  Michael C. Venuti, PhD

  	
   

  
	
  Chief Scientific Officer