EX-10.18



 





Exhibit 10.18




EXECUTION COPY




EMPLOYMENT AGREEMENT




     THIS EMPLOYMENT AGREEMENT (this “Agreement”)
is made as of December 3, 2007, by
and between Xanodyne Pharmaceuticals, Inc., a Delaware corporation with a principal place of
business at One Riverfront Place, Newport, Kentucky (the “Company”), and Daniel Docherty, an
individual (the “Employee”).



     The Company and the Employee have entered into an Employment Agreement dated as of August 10,
2005 (the “Existing Employment Agreement”). The Company desires to employ the Employee as Vice
President, Marketing, and the Employee desires to be employed by the Company as Vice President,
Marketing, on the terms and conditions set forth herein. The Company and the Employee desire to
amend and restate the Existing Employment Agreement in its entirety.



     In consideration of the mutual covenants and promises contained in this Agreement, and other
good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties to this Agreement, the parties agree as follows:



     1) EMPLOYMENT AND SUPERSESSION OF ALL PRIOR AGREEMENTS. The Company hereby employs the
Employee and the Employee accepts employment upon the terms and conditions of this Agreement. This
Agreement, together with all attachments, annexes and exhibits hereto, shall supersede and replace
any and all agreements, written or oral, express or implied, between the Employee and the Company
or any related or predecessor organization, relating to the subject matter hereof, including
without limitation the Existing Employment Agreement. This Agreement, together with all
attachments, annexes and exhibits hereto, constitutes the complete understanding between the
parties relating to the subject matter hereof and thereof.



     2) DUTIES. The employee will continue to be employed as Vice President, Marketing, reporting to
the President and CEO of the Company. During the Employee’s employment, the Employee agrees to
serve and perform such duties consistent with being a Vice President, Marketing at such times and
in such manner as the Company or the Board of Directors of the Company (the “Board”) may reasonably
from time to time direct. At the Company’s discretion, the Employee may be given additional duties
or different duties, and this Agreement shall apply as well to any such duties assumed by Employee.
During the term of this Agreement, the Employee agrees to faithfully perform the duties assigned
to him or her to the best of his or her ability and to devote full and undivided time to the
transaction of the Company’s business. The Employee agrees to abide by the rules, regulations,
instructions, personnel practices and policies of the Company and any changes therein which may be
adopted from time to time by the Company.



 









 





     3) COMPENSATION.



          a) Base Salary. The Company shall pay the Employee, in periodic installments in
accordance with the Company’s customary payroll practices, an annual base salary of $235,000, as
may be adjusted from time to time by the Board or the Compensation Committee of the Board (the
“Committee”), based upon a review of Company and Employee performance, which review shall occur at
least annually.




          b) Annual Bonus. The Employee will be eligible for an annual bonus based on
achievement of objectives set by the Board or the Committee on an annual basis. The Employee’s
target bonus will be 40% of the Employee’s base salary. Depending on results, the Employee’s
actual bonus, if any, may be higher or lower. The Board or the Committee has the right to modify
the bonus program at any time. The bonus award amount will be determined by the Board or Committee
in its sole discretion.




          c) Benefits. The Employee shall be entitled to receive those benefits generally
provided to other full-time employees of the Company at substantially the same employment level.
Such benefits are subject to change from time to time in the Company’s sole discretion.




          d) Vacation. The Employee shall be entitled to 21 days paid vacation per year, to be
taken at such times as may be approved by the Board, the Committee or an officer designated by the
Board or the Committee.




          e) Expense Reimbursement. The Company shall reimburse the Employee for all reasonable
travel, entertainment and other expenses incurred or paid by the Employee in connection with, or
related to, the performance of his or her duties, responsibilities or services under this
Agreement, in accordance with policies and procedures, and subject to limitations, adopted by the
Company from time to time.




          f) Withholding. All salary, bonus and other compensation payable to the Employee
shall be subject to applicable withholding taxes.




     4) EMPLOYMENT PERIOD.



          a) Employment Period. The period commencing on the date first written above and
ending on the date on which this Agreement is terminated is referred to herein as the “Employment
Period.” During the Employment Period, the Employee will be an at-will employee of the Company.
The Employment Period shall be freely terminable for any reason by either party at any time;
provided, however, that if the Employee terminates his or her employment with the Company for any
reason other than for Good Reason (as defined below), the Employee shall provide written notice of
such termination to the Company at least three months prior to the effective date of such
termination (the “Employee Notice Period”). The Company may reduce the Employee Notice Period in
its sole and absolute discretion. During the Employee Notice Period, it is understood that the
Employee shall continue to perform relevant duties for the Company and will assist the Company with
transferring the Employee’s responsibilities in an appropriate manner and take such actions as
deemed necessary by the Company to assure a smooth transition.




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          b) Cooperation. After notice of termination, the Employee shall cooperate with the
Company, as reasonably requested by the Company, to effect a transition of the Employee’s
responsibilities and to ensure that the Company is aware of all matters being handled by the
Employee. The Company agrees to pay for reasonable travel and lodging expenses incurred by the
Employee relating to this cooperation clause.




          c) Termination Date. For all purposes in this Agreement, “Termination Date” means the
effective date of the Employee’s termination of employment with the Company.




     5) TERMINATION PAYMENTS.



          a) Termination for Any Reason. Upon termination of the Employee’s employment for any
reason, the Employee will be entitled to: (i) all unpaid salary and vacation days accrued through
the Termination Date and (ii) any unreimbursed business expenses. The Employee may also be
eligible for other post-employment payments and benefits as provided in this Agreement or pursuant
to other agreements or plans with the Company.




          b) Termination Not Related to a Change in Control.




               i) Except in a termination related to a Change in Control (as defined in Section 5(d)), which
is covered in Section 5(c), if:




     (1) the Employee’s employment is involuntarily terminated by the Company other
than for (x) Cause (as defined in Section 5(d) and subject to the notice and cure
provisions described therein), (y) death or (z) Disability (as defined in Section
5(d)), or




     (2) the Employee voluntarily terminates his or her employment for Good Reason
(as defined in Section 5(d) and subject to the notice and cure provisions described
therein),


then, subject to the Employee delivering an executed release in the form attached hereto as
Exhibit A or, at the Company’s election, such other form that the Company is then using for
employees similarly situated to the Employee, the Company will provide the Employee the following:





     (A) a lump sum equivalent of six months of the Employee’s base salary as in
effect on the Termination Date; and




     (B) for six months following the Termination Date, the Employee also shall be
entitled to continuation, at the Company’s expense, of group medical, dental,
long-term disability, accidental death and disability, and life insurance benefits
from the Company to the extent permitted under such plans or as otherwise approved
by the Board, as in



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effect immediately prior to the Termination Date; provided, however, that in
the event continuation of such benefits is not permitted under such plans, the
Company shall pay to Employee the cash equivalent of such benefits not permitted to
be covered under such plans.



               ii) The continuation of benefits at the Company’s expense pursuant to Section 5(b)(i)(B)
shall
be concurrent with any obligation of the Company to provide continuation of coverage under Section
4980B of the Internal Revenue Code of 1986 or Sections 601 et. seq. of the Employee Retirement
Income Security Act of 1974 (collectively, “COBRA”), and shall not replace or extend the Employee’s
right to continued coverage under COBRA.



          c) Termination Related to a Change in Control.




               i) In the event that one of the following occurs:




     (1) the Employee’s employment is involuntarily terminated by the Company other
than for (x) Cause (as defined in Section 5(d) and subject to the notice and cure
provisions described therein), (y) death or (z) Disability (as defined in Section
5(d)), either within 90 days prior to, on the date of or within one year after a
Change in Control; or




     (2) the Employee terminates his or her employment for Good Reason (as defined
in Section 5(d) and subject to the notice and cure provisions described therein)
within one year after such Change in Control,


then, subject to the Employee delivering an executed release in the form attached hereto as
Exhibit A or, at the Company’s election, such other form that the Company is then using for
employees similarly situated to the Employee, the Company will provide the Employee the following:





     (A) a lump sum equivalent of 12 months of the Employee’s base salary as in
effect on the Termination Date; and




     (B) full vesting of all stock options or other equity incentive awards that
are outstanding and not vested as of the Termination Date; and




     (C) for 12 months following the Termination Date, the Employee also shall be
entitled to continuation, at the Company’s expense, of group medical, dental,
long-term disability, accidental death and disability, and life insurance benefits
from the Company to the extent permitted under such plans or as otherwise approved
by the Board, as in effect immediately prior to the Termination Date; provided,
however, that in the event continuation of such benefits is not permitted under
such plans, the Company shall pay to Employee the cash equivalent of such benefits
not permitted to be covered under such plans.



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               ii) The continuation of benefits at the Company’s expense pursuant to Section 5(c)(i)(C)
shall
be concurrent with any obligation of the Company to provide continuation of coverage under COBRA,
and shall not replace or extend the Employee’s right to continued coverage under COBRA.



          d) Definitions. For purposes of this Section 5, the following words and phrases shall
have the meanings indicated:




               i) “Change in Control” means an event or occurrence set forth in any one or more of
subsections (1) through (4) below (including without limitation an event or occurrence that
constitutes a Change in Control under one of such subsections but is specifically exempted from
another such subsection):




     (1) the acquisition by an individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”)) (a “Person”) of beneficial ownership of any capital stock of
the Company if, after such acquisition, such Person beneficially owns (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) 50% or more of either (x)
the then-outstanding As-Converted Common Stock (as defined below) of the Company
(such outstanding shares, the “Outstanding As-Converted Company Common Stock”) or
(y) the combined voting power of the then-outstanding securities of the Company
entitled to vote generally in the election of directors (the “Outstanding Company
Voting Securities”); provided, however, that for purposes of this subsection (1),
the following acquisitions shall not constitute a Change in Control: (i) any
acquisition directly from the Company (excluding an acquisition pursuant to the
exercise, conversion or exchange of any security exercisable for, convertible into
or exchangeable for common stock or voting securities of the Company, unless the
Person exercising, converting or exchanging such security acquired such security
directly from the Company or an underwriter or agent of the Company), (ii) any
acquisition by the Company, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any corporation controlled
by the Company, or (iv) any acquisition by any corporation pursuant to a
transaction which complies with clauses (i) and (ii) of subsection (3) of this
Section 5(d)(i); or




     (2) such time as the Continuing Directors (as defined below) do not constitute
a majority of the Board (or, if applicable, the Board of Directors of a successor
corporation to the Company), where the term “Continuing Director” means at any date
a member of the Board (i) who was a member of the Board on the date of the
execution of this Agreement or (ii) who was nominated or elected subsequent to such
date by at least a majority of the directors who were Continuing Directors at the
time of such nomination or election or whose election to the Board was recommended
or endorsed by at least a majority of the directors who were



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Continuing Directors at the time of such nomination or election; provided,
however, that there shall be excluded from this clause (ii) any individual whose
initial assumption of office occurred as a result of an actual or threatened
election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents, by or on behalf of a
person other than the Board; or




     (3) the consummation of a merger, consolidation, reorganization,
recapitalization or statutory share exchange involving the Company or a sale or
other disposition of all or substantially all of the assets of the Company in one
or a series of related transactions (a “Business Combination”), unless, immediately
following such Business Combination, each of the following two conditions is
satisfied: (i) all or substantially all of the individuals and entities who were
the beneficial owners of the Outstanding As-Converted Company Common Stock and
Outstanding Company Voting Securities immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50% of the
then-outstanding As-Converted Common Stock and the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors, respectively, of the resulting or acquiring corporation in such Business
Combination (which shall include, without limitation, a corporation which as a
result of such transaction owns the Company or substantially all of the Company’s
assets either directly or through one or more subsidiaries) (such resulting or
acquiring corporation is referred to herein as the “Acquiring Corporation”) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination, of the Outstanding As-Converted Company Common Stock and
Outstanding Company Voting Securities, respectively; and (ii) no Person (excluding
any employee benefit plan (or related trust) maintained or sponsored by the Company
or by the Acquiring Corporation) beneficially owns, directly or indirectly, 50% or
more of the then outstanding As-Converted Common Stock of the Acquiring
Corporation, or of the combined voting power of the then-outstanding securities of
such corporation entitled to vote generally in the election of directors (except to
the extent that such ownership existed prior to the Business Combination); or




     (4) approval by the stockholders of the Company of a complete liquidation or
dissolution of the Company.



               ii) “As-Converted Common Stock” means the outstanding shares of common stock of an entity
together with all shares of common stock then issuable upon the conversion or exchange of any
outstanding securities convertible into or exchangeable for common stock of such entity, but
excluding any common stock issuable upon the exercise of any outstanding securities (such as
options and warrants) exercisable for common stock of such entity.



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               iii) “Cause” shall mean: (a) the Employee’s willful misconduct with respect to
the business
and affairs of the Company or any subsidiary thereof, (b) the Employee’s gross neglect of duties or
failure to act which can reasonably be expected to affect materially and adversely the business or
affairs of the Company or any subsidiary thereof, (c) the Employee’s material breach of any of the
agreements contained herein, any other written agreement between the Company and the Employee, or
any written policy of the Company governing the Employee’s conduct or employment whether now
existing or hereafter created, or the Employee’s breach of the Non-Compete Agreement (as defined in
Section 6), (d) the commission by the Employee of an act involving moral turpitude relating to the
Company, dishonesty in performance of employment duties or fraud, (e) the Employee’s conviction of
any felony, or of any misdemeanor involving fraud, theft, embezzlement, forgery or moral turpitude,
(f) possession or use of or impairment on account of illegal drugs, (g) abandonment of employment
duties or (h) conduct on the part of Employee relating to the Company’s business or his or her
employment duties (which is not authorized, directed or approved by the Company) which results in
governmental sanctions being imposed on the Company or the Employee. Before “Cause” under clause
(b) or (c) has been deemed to have occurred, the Company, the Board or the Committee must give the
Employee written notice detailing why the Company, the Board or the Committee, as the case may be,
has determined that Cause has occurred. The Employee shall then have 30 days after his or her
receipt of written notice to cure the item cited in the written notice so that “Cause” will have
not formally occurred with respect to the event in question.



               iv) “Disability” shall mean the Employee’s failure or inability to perform his or her
duties
under this Agreement due to a mental or physical infirmity for a period of more than 120 days
during any 12 consecutive month period.



               v) “Good Reason” shall mean, and is limited to (A) a material diminution in the
Employee’s
base salary, duties or responsibility without the prior written consent of the Employee or (B) the
transfer, without the prior written consent of the Employee, of the Employee’s permanent primary
place of employment to a location that is (x) more than 50 miles from the location of Employee’s
permanent primary place of employment and (y) more than 40 miles from the location of the
Employee’s residence. Before “Good Reason” has been deemed to have occurred, the Employee must
give the Company written notice detailing why the Employee believes a Good Reason event has
occurred and such notice must be provided to the Company within 30 days of the Employee’s actual
knowledge of the initial occurrence of such alleged Good Reason event. The Company shall then have
30 days after its receipt of written notice to cure the item cited in the written notice so that
“Good Reason” will have not formally occurred with respect to the event in question. A termination
of employment due to Good Reason shall occur no later than 75 days after the Employee’s actual
knowledge of the condition giving rise to Good Reason.



     6) PROPRIETARY INFORMATION AND NON-COMPETE AGREEMENT.



          a) The Employee has executed the Proprietary Information and




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Invention and Non-Compete Agreement, a copy of which is attached hereto and the text of which
is incorporated herein as Annex A (the “Non-Compete Agreement”) and covenants that the Employee
will comply with the terms of the Non-Compete Agreement.




          b) For purposes of the Non-Compete Agreement, the “Severance Period” means a period of six
months following the Termination Date, except that in the event of a termination of the Employee’s
employment with the Company as described in Section 5(c)(i), the period shall be 12 months
following the Termination Date.




     7) INTERNAL REVENUE CODE SECTION 409A. The following rules shall apply with respect to
distribution of the payments and benefits, if any, to be provided to the Employee under Section 5:



          a) It is intended that each installment of the payments and benefits provided under Section 5
shall be treated as a separate “payment” for purposes of Section 409A of the U.S. Internal Revenue
Code of 1986, as amended (the “Code”), and the guidance issued thereunder (“Section 409A”).
Neither the Company nor the Employee shall have the right to accelerate or defer the delivery of
any such payments or benefits except to the extent specifically permitted or required by Section
409A;




          b) If, as of the date of the “separation from service” of the Employee from the Company, the
Employee is not a “specified employee” (each, for purposes of this Agreement, within the meaning of
Section 409A), then each installment of the payments and benefits shall be made on the dates and
terms set forth in Section 5; and




          c) If, as of the date of the separation from service of the Employee from the Company, the
Employee is a specified employee, then:




               i) Each installment of the payments and benefits due under Section 5 that, in accordance with
the dates and terms set forth herein, will in all circumstances, regardless of when the separation
from service occurs, be paid within the Short-Term Deferral Period (as defined below) shall be
treated as a short-term deferral within the meaning of Treasury Regulation Section 1.409A-1(b)(4)
to the maximum extent permissible under Section 409A. For purposes of this Agreement, the
“Short-Term Deferral Period” means the period ending on the later of (A) the 15th day of the third
month following the end of the Employee’s tax year in which the Employee’s separation from service
occurs and (B) the 15th day of the third month following the end of the Company’s tax year in which
the Employee’s separation from service occurs; and



               ii) Each installment of the payments and benefits due under Section 5 that is not paid within
the Short-Term Deferral Period and that would, absent this subsection, be paid within the six-month
period following the separation from service of the Employee shall not be paid until the date that
is six months and one day after such separation from service (or, if earlier, the death of the
Employee), with any such installments that are required to be delayed being accumulated during the
six-month period and paid in a lump sum on the date that is six months and one day following the
Employee’s separation from service and any subsequent installments, if any, being paid



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in accordance with the dates and terms set forth herein; provided, however, that the preceding
provisions of this sentence shall not apply to any installment of payments and benefits if and to
the maximum extent that that such installment is deemed to be paid under a separation pay plan that
does not provide for a deferral of compensation by reason of the application of Treasury Regulation
1.409A-1(b)(9)(iii) (relating to separation pay upon an involuntary separation from service) or
Treasury Regulation 1.409A-1(b)(9)(iv) (relating to reimbursements and certain other separation
payments). Such payments due under Section 5 shall bear interest at an annual rate equal to the
prime rate as set forth in the Eastern edition of the Wall Street Journal on the Termination Date,
from the Termination Date to the date of payment. Any installments that qualify for the exception
under Treasury Regulation Section 1.409A-1(b)(9)(iii) must be paid no later than the last day of
the second taxable year of the Employee following the taxable year of the Employee in which the
separation from service occurs.



     8) INTERNAL REVENUE CODE SECTION 280G. In the event that it is determined that any payment
or distribution of any type to the Employee or for the Employee’s benefit made by the Company, by
any of its affiliates, by any Person who acquires ownership or effective control or ownership of a
substantial portion of the Company’s assets (within the meaning of Section 280G of the Code and the
regulations thereunder) or by any affiliate of such Person, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement or otherwise, would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest or penalties, are collectively
referred to as the “Excise Tax”), then such payments or distributions or benefits shall be payable
either: (a) in full or (b) in a lesser amount reflecting a reduction in payments to the extent
necessary to result in no portion of such payments or distributions or benefits being subject to
the Excise Tax. Method (b) shall be used unless method (a) provides a higher after-tax benefit to
the Employee. If method (b) is used, then the Employee shall have the right to determine which
payments or benefits will be reduced and in what magnitude. The Employee and the Company shall
furnish such documentation and documents as may be necessary for the Company’s independent external
accountants to perform the requisite computations and analysis contemplated by this Section 8.



     9) REMEDIES UPON BREACH. The Employee acknowledges that the restrictions contained in this
Agreement are necessary for the protection of the business and goodwill of the Company and are
reasonable for such purpose. The Employee agrees that any breach of this Agreement by the Employee
will cause irreparable damage to the Company and that in the event of such breach, the Company
shall be entitled, in addition to monetary damages and to any other remedies available to the
Company under this Agreement and at law, to equitable relief, including without limitation
injunctive relief, and to payment by the Employee of all costs incurred by the Company in enforcing
the provisions of this Agreement.



     10) ATTORNEYS’ FEES. If either party to this Agreement breaches any of the terms hereof, that
party shall pay to the non-defaulting party all of the non-defaulting party’s costs and expenses,
including without limitation attorneys’ fees, incurred by that party in enforcing the terms of this Agreement.



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     11) WAIVER OF TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT DESIRE TO AVOID THE ADDITIONAL
TIME AND EXPENSE RELATED TO JURY TRIAL OF ANY DISPUTES ARISING HEREUNDER. THEREFORE, IT IS
MUTUALLY AGREED BY AND BETWEEN THE PARTIES TO THIS AGREEMENT THAT THEY SHALL AND HEREBY DO WAIVE
TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, OR THIRD-PARTY CLAIM, INCLUDING WITHOUT LIMITATION ANY
AND ALL CLAIMS OR INJURY OR DAMAGES, BROUGHT BY EITHER PARTY AGAINST THE OTHER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS AGREEMENT. THE PARTIES ACKNOWLEDGE AND AGREE THAT THIS WAIVER IS
KNOWINGLY, FREELY, AND VOLUNTARILY GIVEN, IS DESIRED BY BOTH PARTIES, AND IS IN THE BEST INTERESTS
OF BOTH PARTIES.



     12) ASSIGNMENT. The Employee acknowledges that services are unique and personal.
Accordingly, the Employee may not assign rights or obligations under this Agreement.



     13) SUCCESSORS. This Agreement shall be binding upon, and inure to the benefit of, any
successor to all or substantially all of the Company’s business and/or assets, and the Company will
require any such successor to expressly assume and agree in writing 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. For all purposes under this Agreement, the term “Company” shall include
any successor to the Company’s business and/or assets which becomes bound by this Agreement by
contract, operation of law or otherwise. This Agreement will inure to the benefit of and be
enforceable by the Employee and the Employee’s personal or legal representatives, executors,
estate, trustee, administrators, successors, heirs, distributees, devisees and legatees, as
applicable. If the Employee dies and any amounts become payable under this Agreement, the Company
will pay those amounts to the Employee’s estate or named beneficiary, as applicable, except as
otherwise may be required by applicable law.



     14) WAIVER AND AMENDMENT. No waiver of any term or condition of this Agreement shall be
effective unless in writing and signed by the party so waiving. No amendment to this Agreement
shall be valid unless in writing and signed by the Company and Employee.



     15) SEVERABILITY. If any provision of this Agreement or any attachment, annex or exhibit
hereto, is invalid under any applicable statute or rule of law, it is to that extent to be deemed
omitted. The remainder of the Agreement, and such attachments, annexes and exhibits, shall be
valid and enforceable to the maximum extent possible.



     16) GOVERNING LAW AND JURISDICTION. The parties agree that this Agreement, and all
attachments, annexes and exhibits hereto, shall be construed and enforced in accordance with the
laws of the Commonwealth of Kentucky, and that the courts of the Commonwealth of Kentucky have
exclusive jurisdiction over actions to



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enforce any term of this Agreement or any attachment, annex or exhibit hereto or any action
alleging a breach of this Agreement.



     17) HEADINGS. Headings in this Agreement are for convenience only and shall not be used to
interpret or construe its provisions.



     18) NOTICE. Any notice or communications that are required or that may be given pursuant to
this Agreement shall be in writing and shall be deemed to be duly given if (a) delivered personally
or (b) sent by first class mail, postage prepaid, return receipt requested or prepaid via a
reputable nationwide overnight courier, in each case in this clause (b), at the addresses specified
in the preamble to this Agreement or such other place as may be specified in writing by a party
from time to time. Any notice or communications shall be deemed to be effective (i) if personally
delivered, when delivered in hand to the party to which it is directed, (ii) if sent by first class
mail, postage prepaid, on the third business day following the day of the dispatch thereof or (iii)
if sent via a reputable overnight courier service, one business day following the day it is sent.



     19) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original but all of which taken together shall constitute one and the same
instrument.



[Remainder of page intentionally left blank]




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     IN WITNESS WHEREOF, Employee and the Company have executed this Agreement as of the date first
above written.



COMPANY:




	 	 	 	 	 
	 	XANODYNE PHARMACEUTICALS, INC.

 	 
	 	By:  	/s/
Greg Flexter 	 
	 	 	Name:  	Greg Flexter 	 
	 	 	Title:  	President & CEO 	 
	 



EMPLOYEE:



/s/ Daniel Docherty                          
           
                
                
                

Name:  Daniel Docherty





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ANNEX “A”

to the Employment Agreement




XANODYNE PHARMACEUTICALS, INC.




EMPLOYEE PROPRIETARY INFORMATION

AND INVENTION AND NON-COMPETE AGREEMENT




     I have entered into an employment agreement dated as of
                     (the “Employment Agreement”)
with Xanodyne Pharmaceuticals, Inc., a Delaware company (together with its subsidiaries, the
“Company”). Capitalized terms used herein and not otherwise defined shall have the meanings set
forth in the Employment Agreement. In consideration of my [continued] employment by the Company
pursuant to the Employment Agreement and the compensation paid or to be paid to me by the Company,
I hereby covenant and agree that:



     1. My interest in (a) any and all inventions, improvements, and ideas (whether or not
patentable) which I have made or conceived, or may make or conceive, either solely or jointly with
others, at any time during the course of and in connection with my employment with the Company,
whether or not during normal working hours or on the premises of the Company, and (b) any
suggestions, proposals, writing and the like, of any sort whatsoever, including without limitation
any interest in any copyright and copyrightable material which relate or are applicable directly or
indirectly to any phase of the Company’s business, and which I develop during the course of and in
connection with my employment, whether or not during normal working hours or on the premises of the
Company, shall be the exclusive property of the Company, its successors, assignees, or nominees.
(The items defined in (a) and (b) above will hereinafter be referred to collectively as
“Proprietary Subject Matter.”)



     2. I shall make full and prompt disclosure in writing to an official of the Company, or to
anyone designated for that purpose by the Company, of all Proprietary Subject Matter made or
conceived during the course of and in connection with my employment.



     3. I hereby assign to the Company all of my right, title and interest in and to the
Proprietary Subject Matter and any and all related patent rights, copyrights and applications and
registrations therefor. At the request and expense of the Company, but without further
compensation to me, I shall do such acts, and execute, acknowledge and deliver all such papers,
including without limitation patent and copyright applications or assignments, as may be necessary
or desirable in the sole discretion of the Company to obtain, maintain, protect or vest in the
Company the entire right, title and interest in and to Proprietary Subject Matter and any patent
applications, patents, copyright or other proprietary rights of any kind relating thereto, in all
countries of the world; including without limitation rendering such assistance as the Company may
request in any contemplated or pending litigation, patent office proceeding, or other proceeding.
I hereby appoint the Company my attorney-in-fact to execute and deliver any such documents on my
behalf in the event I should fail or refuse to do so within a reasonable



Annex A-1









 




period following the Company’s request. I understand that, to the extent this Non-Compete
Agreement shall be construed in accordance with the laws of any state which limits assignability to
the Company of certain employee inventions, this Non-Compete Agreement shall be interpreted not to
apply to any such invention which a court rules or the Company agrees is subject to such state
limitation.




     4. I shall not disclose or cause others to disclose to the Company, or induce the Company to
use, any information or material, which is the property of any former or concurrent employer, or
any other person or entity with whom I have an agreement or to whom I owe a duty to keep such
information in confidence. Those persons or entities with whom I have such agreements or to whom I
owe such a duty are identified on Exhibit I attached hereto. I hereby represent to the
Company that, except as identified on Exhibit I attached hereto, I am not bound by any
agreement or any other previous or existing business relationship which conflicts with or prevents
the full performance of my duties and obligations to the Company (including without limitation my
duties and obligations under this Non-Compete Agreement or any other agreement with the Company)
during my employment.



     5. Since the work for which I am employed and upon which I shall be engaged will include
Company knowledge and information of a private, confidential, or secret or proprietary nature, I
shall not, except as required in the conduct of the Company’s business or as authorized in writing
by the Company, publish, disclose, or make use of, or authorize anyone else to publish, disclose or
make use of any such knowledge or information, of a confidential, secret or proprietary nature or
other information which in any way relates to the business, business relationships and financial
affairs of the Company or the design, construction, manufacture or sale of the Company’s products
or services.



     6. I will keep and maintain adequate and current written records of my work and inventions at
all times and stages, in the form of notes, sketches, drawings, memoranda, and reports, which
records shall be and remain the property of and be available to the Company at all time. All
documents, written information and other items including without limitation notes, sketches,
manuals, blueprints, notebooks, products, tools, fixtures, records and information relating to the
business of the Company and all copies thereof, made or obtained by me while employed by the
Company shall be the exclusive property of the Company and shall be delivered by me to the Company
on termination of my employment (whether such termination is caused by act of the Company or by my
own resignation or other act) or at any time as reasonably requested by the Company.



     7. During the term of my Employment Agreement and for a period of time equal to the Severance
Period, as defined in my Employment Agreement, and whether as owner, partner, officer, director,
employee, consultant, investor, lender or otherwise, except as the holder of not more than 1% of
the outstanding stock of a publicly-held company, I agree not to: (i) engage in any business or
enterprise that is competitive with the Company’s business, including without limitation to any
business or enterprise that develops, manufactures, markets, licenses, sells or provides any
product or service that



Annex A-2









 







competes with any product or service developed, manufactured, marketed, licensed, sold or
provided, or planned to be developed, manufactured, marketed, licensed, sold or provided, by the
Company or any of its subsidiaries while I am or was employed by the Company; (ii) solicit or
accept orders with or for any of the products or business activities that are competitive with the
Company’s products or business activities; (iii) solicit or entice away any employee from the
Company, or hire any such employee; (iv) solicit or request investments or funds from any other
person or entities that are affiliated with the Company or for any entity which competes with the
Company; and/or (v) solicit, divert or take away or attempt to divert or take away, the business or
patronage of any of the clients, customers or accounts, or prospective clients, customers or
accounts of the Company with respect to products or business activities that are competitive with
the Company’s products or business activities. I acknowledge that even at such times as I may be
entitled to compete with the Company after the periods of restriction in this Non-Compete Agreement
or my Employment Agreement, the provisions of this Non-Compete Agreement relating to the
confidential nature and ownership of Proprietary Subject Matter in favor of the Company will
survive and continue to be binding upon me.



     8. Upon termination of my employment with the Company, I shall, if requested by the Company,
reaffirm in writing all of the obligations set forth in paragraph 1 through 7 of this Non-Compete
Agreement. All such obligations expressly survive the termination of my employment with the
Company.



     9. Excepted from this Non-Compete Agreement are only such inventions, improvements, ideas,
suggestions, proposals, writings and the like relating to any phase of the Company’s business made
or conceived by me prior to my employment with the Company which are (a) embodied in a United
States Letters Patent, Copyright Registration or an application for United States Letters Patent or
Copyright Registration filed prior to the commencement of my employment; (b) in the physical
possession of a former employer who owns them; or (c) disclosed in detail in Exhibit I
attached hereto.



     10. I agree that should I violate any obligation imposed on me in this Non-Compete Agreement,
I shall continue to be bound by the obligation until a period equal to the term of such obligation
has expired without violation of such obligation.



     11. In the event that any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Non-Compete Agreement, and all
other provisions shall remain in full force and effect. If any of the provisions of this
Non-Compete Agreement is held to be excessively broad, it shall be reformed and construed by
limiting and reducing it so as to be enforceable to the maximum extent permitted by law.



     12. This Non-Compete Agreement is attached to and forms a part of my Employment Agreement with
the Company and is subject to following provisions therein: Section 9 (Remedies Upon Breach),
Section 10 (Attorney’s Fees), Section 11 (WAIVER OF TRIAL BY JURY), Section 12 (Assignment),
Section 13 (Successors), Section 14 (Waiver and Amendment), Section 16 (Governing Law and
Jurisdiction) and Section 18 (Notice).



Annex A-3









 





     IN WITNESS WHEREOF, I have hereunto set my hand this
3rd day of
December, 2007.




                /s/ Daniel W.
Docherty

Print Name: Daniel W. Docherty




Annex A-4









 





EXHIBIT I

to the Non-Compete Agreement



This Exhibit I is attached to the Xanodyne Pharmaceuticals, Inc. (the “Company”) Employee
Proprietary Information and Invention and Non-Compete Agreement (the “Non-Compete Agreement”) of
the employee signatory thereto (the “Employee”).



1. In accordance with paragraph 4 of the Non-Compete Agreement, the following are all former or
concurrent employers and all other persons and entities with whom the Employee has an agreement or
to whom the Employee owes a duty to keep information in confidence:



[None.]



2. In accordance with paragraph 4 of the Non-Compete Agreement, the following are all agreements
to which the Employee is bound and all other previous and existing business relationships which
conflict with or prevent the full performance of the Employee’s duties and obligations to the
Company (including without limitation the Employee’s duties and obligations under the Non-Compete
Agreement or any other agreement with the Company) during the Employee’s employment with the
Company:



[None.]



3. The following are all inventions, improvements, ideas, suggestions, proposals, writings and the
like relating to any phase of the Company’s business made or conceived by the Employee prior to the
Employee’s employment with the Company that shall be excepted from the Non-Compete Agreement
pursuant to paragraph 9 therein:



[None.]




 









 





EXHIBIT A

to the Employment Agreement




FORM OF RELEASE




[Company Letterhead]




[Date]




[Employee Name]

[Employee Address]

[Employee Address]




Dear [Employee Name]:




          In connection with the termination of your employment with Xanodyne Pharmaceuticals, Inc. (the
“Company”) on [Termination Date], you are eligible to receive the Severance Benefits (as defined
below), if you sign and return this letter agreement to [the General Counsel of the Company] in the
enclosed self-addressed stamped envelope postmarked by [Return Date –21 days from date of receipt
of this letter agreement] and it becomes binding between you and the Company. “Severance Benefits”
means the severance benefits set forth in Section 5[(a)/(b)/(c)] of the Employment Agreement dated
as of [Date], between you and the Company (your “Employment Agreement”) and, if and only if you are
a “Participant” as defined in the Company’s Enhanced Severance Plan, any enhanced severance
benefits available to you pursuant to such Enhanced Severance Plan.




     By signing and returning this letter agreement and not revoking your acceptance, you will be
agreeing to the terms and conditions set forth in the numbered paragraphs below, including the
release of claims set forth in paragraph 2. Therefore, you are advised to consult with an attorney
before signing this letter agreement and you may take up to twenty-one (21) days to do so. If you
sign this letter agreement, you may change your mind and revoke your agreement during the seven (7)
day period after you have signed it by notifying [the General Counsel of the Company] in writing.
If you do not so revoke, this letter agreement will become a binding agreement between you and the
Company upon the expiration of the seven (7) day period.



          If you choose not to sign and return this letter agreement by [Return Date-Same as Above], or
if you timely revoke your acceptance in writing, you shall not receive any Severance Benefits from
the Company. You will, however, receive payment on your Termination Date, as defined below, for
your final wages and any unused vacation time accrued through the Termination Date. Also,
regardless of signing this letter agreement, you may elect to continue receiving group medical
insurance pursuant to the federal “COBRA” law, 29 U.S.C. § 1161 et seq. If you so
elect, you shall pay all premium costs on a monthly basis for as long as, and to the extent that,
you remain eligible for COBRA continuation. You should consult the COBRA materials to be provided
by the Company for details regarding these benefits.




Exhibit A-1









 








          The following numbered paragraphs set forth the terms and conditions that will apply if you
timely sign and return this letter agreement and do not revoke it in writing within the seven (7)
day period.





	 	1.	 	Termination Date – Your effective date of termination from the Company
is [Date] (the “Termination Date”).
	 
	 	2.	 	Release – In consideration of the payment of the Severance Benefits, which
you acknowledge you would not otherwise be entitled to receive, you hereby fully, forever,
irrevocably and unconditionally release, remise and discharge the Company, its officers,
directors, stockholders, corporate affiliates, subsidiaries, parent companies, agents and
employees (each in their individual and corporate capacities) (hereinafter, the “Released
Parties”) from any and all claims, charges, complaints, demands, actions, causes of
action, suits, rights, debts, sums of money, costs, accounts, reckonings, covenants,
contracts, agreements, promises, doings, omissions, damages, executions, obligations,
liabilities, and expenses (including attorneys’ fees and costs), of every kind and nature
that you ever had or now have against the Released Parties, including, but not limited to,
any and all claims arising out of or relating to your employment with and/or separation
from the Company, including, but not limited to, all claims under Title VII of the Civil
Rights Act of 1964, 42 U.S.C. § 2000e et seq., the Americans With Disabilities Act
of 1990, 42 U.S.C. § 12101 et seq., the Age Discrimination in Employment
Act, 29 U.S.C. § 621 et seq., the Family and Medical Leave Act, 29 U.S.C.
§ 2601 et seq., the Worker Adjustment and Retraining Notification Act
(“WARN”), 29 U.S.C. § 2101 et seq., Section 806 of the Corporate and
Criminal Fraud Accountability Act of 2002, 18 U.S.C. 1514(A), the Rehabilitation Act of
1973, 29 U.S.C. § 701 et seq., the Fair Credit Reporting Act, 15 U.S.C.
§ 1681 et seq., the Employee Retirement Income Security Act of 1974 (“ERISA”), 29
U.S.C. § 1001 et seq., Executive Order 11246, and Executive Order 11141, all as
amended; all claims arising out of the Kentucky Civil Rights Act, Ky. Rev. Stat. Ann.
§ 344.010 et seq., the 1976 Kentucky Equal Opportunities Act, Ky. Rev. Stat. Ann.
§ 207.130 et seq., Ky. Rev. Stat. Ann. § 337.420 et seq. (Kentucky equal
pay law), Ky. Rev. Stat. Ann. § 337.015 (Kentucky adoption leave law), and Ky. Rev. Stat.
Ann. §§ 207.170, 337.990, 338.121 (Kentucky whistleblower protection law), all as amended;
all common law claims including, but not limited to, actions in defamation, intentional
infliction of emotional distress, misrepresentation, fraud, wrongful discharge, and breach
of contract (including, without limitation, all claims with respect to severance benefits
or otherwise arising out of the Employment Agreement and any amendments thereto); all
claims to any non-vested ownership interest in the Company, contractual or otherwise, and
any claim or damage arising out of your employment with and/or separation from the Company
(including a claim for retaliation) under any common law theory or any federal, state or
local statute or ordinance not expressly referenced above; provided, however, that nothing
in this letter agreement:





Exhibit A-2









 






	 	a.	 	prevents you from filing a charge with, cooperating with, or
participating in any proceeding before the Equal Employment Opportunity Commission
or a state fair employment practices agency (except that you acknowledge that you
may not be able to recover any monetary benefits in connection with any such
claim, charge or proceeding);
	 
	 	b.	 	releases the Company from its obligations to you following
termination of your employment with respect to any stock options, restricted
stock, restricted stock units, or other equity awards granted to you and vested as
of the Termination Date pursuant to any applicable Company equity incentive plans;
or
	 
	 	c.	 	releases the Company from its obligations to you following
termination of your employment to pay, if and only if you are a “Participant” in
the Company’s Company Sale Bonus Plan and not a “Terminated Participant” as
provided therein, the bonus amount payable to you, if any, in accordance with the
terms and conditions of such Company Sale Bonus Plan.






	 	3.	 	Non-Disclosure, Non-Competition and Non-Solicitation – You acknowledge and
reaffirm your obligations to keep confidential and not disclose all non-public information
concerning the Company and its clients that you acquired during the course of your
employment with the Company, as stated more fully in the Employee Proprietary and
Non-Compete Agreement dated as of [Date] (the “Non-Compete Agreement”) you executed for
the benefit of the Company, which remains in full force and effect. You further
acknowledge and reaffirm your non-competition and non-solicitation obligations and other
obligations under paragraphs 1 through 7 of the Non-Compete Agreement, which also remain
in full force and effect.
	 
	 	4.	 	Return of Company Property – You confirm that you have returned to the
Company all keys, files, records (and copies thereof), equipment (including, but not
limited to, computer hardware, software and printers, wireless handheld devices, cellular
phones, pagers, etc.), Company identification, and any other Company-owned property in
your possession or control and have left intact all electronic Company documents,
including but not limited to those which you developed or helped to develop during your
employment. You further confirm that you have cancelled all accounts for your benefit, if
any, in the Company’s name, including but not limited to, credit cards, telephone charge
cards, cellular phone and/or pager accounts and computer accounts.
	 
	 	5.	 	Business Expenses and Final Compensation – You acknowledge that you have been
reimbursed by the Company for all relocation costs and business expenses incurred in
conjunction with the performance of your employment and that no other reimbursements are
owed to you. You further acknowledge that you have received payment in full for all
services rendered in conjunction with your employment by the Company, including payment
for all wages, bonuses and




Exhibit A-3









 






	 	 	 	accrued, unused vacation time, and that no other compensation is owed to you except as
provided herein.
	 
	 	6.	 	Non-Disparagement – To the extent permitted by law, you understand and agree that as
a condition for payment to you of the Severance Benefits, you shall not make any false,
disparaging or derogatory statements to any person or entity, including any media outlet,
regarding the Company or any of its directors, officers, employees, agents or
representatives or about the Company’s business affairs and financial condition.
	 
	 	7.	 	Continued Assistance – You agree that after the Termination Date you will
provide all reasonable cooperation to the Company, including but not limited to, assisting
the Company transition your job duties, assisting the Company in defending against and/or
prosecuting any litigation or threatened litigation, and performing any other tasks as
reasonably requested by the Company.
	 
	 	8.	 	Amendment and Waiver – This letter agreement shall be binding upon the
parties and may not be modified in any manner, except by an instrument in writing of
concurrent or subsequent date signed by duly authorized representatives of the parties
hereto. This letter agreement is binding upon and shall inure to the benefit of the
parties and their respective agents, assigns, heirs, executors, successors and
administrators. No delay or omission by the Company in exercising any right under this
letter agreement shall operate as a waiver of that or any other right. A waiver or
consent given by the Company on any one occasion shall be effective only in that instance
and shall not be construed as a bar to or waiver of any right on any other occasion.
	 
	 	9.	 	Validity – Should any provision of this letter agreement be declared or be determined
by any court of competent jurisdiction to be illegal or invalid, the validity of the
remaining parts, terms or provisions shall not be affected thereby and said illegal or
invalid part, term or provision shall be deemed not to be a part of this letter agreement.
	 
	 	10.	 	Confidentiality – To the extent permitted by law, you understand and agree that as a
condition for payment to you of the Severance Benefits herein described, the terms and
contents of this letter agreement, and the contents of the negotiations and discussions
resulting in this letter agreement, shall be maintained as confidential by you and your
agents and representatives and shall not be disclosed except to the extent required by
federal or state law or as otherwise agreed to in writing by the Company.
	 
	 	11.	 	Nature of Agreement – You understand and agree that this letter agreement
does not constitute an admission of liability or wrongdoing on the part of the Company.
	 
	 	12.	 	Acknowledgments – You acknowledge that you have been given at least
twenty-one (21) days to consider this letter agreement, and that the Company advised you
to consult with an attorney of your own choosing prior to signing this letter





Exhibit A-4









 






	 	 	 	agreement. You understand that you may revoke this letter agreement for a period of seven
(7) days after you sign this letter agreement by notifying [the General Counsel of the
Company] in writing, and the letter agreement shall not be effective or enforceable until
the expiration of this seven (7) day revocation period. You understand and agree that by
entering into this letter agreement, you are waiving any and all rights or claims you might
have under the Age Discrimination in Employment Act, as amended by the Older Workers
Benefits Protection Act, and that you have received consideration beyond that to which you
were previously entitled.
	 
	 	13.	 	Voluntary Assent – You affirm that no other promises or agreements of any
kind have been made to or with you by any person or entity whatsoever to cause you to sign
this letter agreement, and that you fully understand the meaning and intent of this letter
agreement. You state and represent that you have had an opportunity to fully discuss and
review the terms of this letter agreement with an attorney. You further state and
represent that you have carefully read this letter agreement, understand the contents
herein, freely and voluntarily assent to all of the terms and conditions hereof and sign
your name of your own free act.
	 
	 	14.	 	Applicable Law – This letter agreement shall be interpreted and construed by
the laws of the Commonwealth of Kentucky, without regard to conflict of laws provisions.
You hereby irrevocably submit to and acknowledge and recognize the jurisdiction of the
courts of the Commonwealth of Kentucky, or if appropriate, a federal court located in the
Commonwealth of Kentucky (which courts, for purposes of this letter agreement, are the
only courts of competent jurisdiction), over any suit, action or other proceeding arising
out of, under or in connection with this letter agreement or the subject matter hereof.
	 
	 	15.	 	WAIVER OF JURY TRIAL — YOU AND THE COMPANY DESIRE TO AVOID THE ADDITIONAL
TIME AND EXPENSE RELATED TO JURY TRIAL OF ANY DISPUTES ARISING HEREUNDER. THEREFORE, IT
IS MUTUALLY AGREED BY AND BETWEEN YOU AND THE COMPANY THAT YOU AND THE COMPANY SHALL AND
HEREBY DO WAIVE TRIAL BY JURY OF ANY CLAIM, COUNTERCLAIM, OR THIRD-PARTY CLAIM, INCLUDING
WITHOUT LIMITATION ANY AND ALL CLAIMS OR INJURY OR DAMAGES, BROUGHT BY EITHER PARTY
AGAINST THE OTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LETTER AGREEMENT. YOU
AND THE COMPANY ACKNOWLEDGE AND AGREE THAT THIS WAIVER IS KNOWINGLY, FREELY, AND
VOLUNTARILY GIVEN, IS DESIRED BY BOTH PARTIES, AND IS IN THE BEST INTERESTS OF BOTH
PARTIES.
	 
	 	16.	 	Entire Agreement – This letter agreement contains and constitutes the entire
understanding and agreement between the parties hereto with respect to the Severance
Benefits and the settlement of claims against the Company and cancels all previous oral
and written negotiations, agreements or commitments in




Exhibit A-5









 






	 	 	 	connection therewith, including without limitation your Employment Agreement and any
amendments thereto. Nothing in this paragraph or otherwise in this letter agreement,
however, shall modify, cancel or supersede your obligations as set forth in paragraph 3.
	 
	 	17.	 	Tax Acknowledgement – In connection with the Severance Benefits provided to
you pursuant to this letter agreement, the Company shall withhold and remit to the tax
authorities the amounts required under applicable law, and you shall be responsible for
all applicable taxes with respect to such payments and consideration under applicable law.
You acknowledge that you are not relying upon the advice or representation of the Company
with respect to the tax treatment of any of the Severance Benefits.
	 
	 	18.	 	Section 409A – The Severance Benefits under this letter agreement are
intended to comply with, or be exempt from, the provisions of Section 409A of the Internal
Revenue Code of 1986 and this letter agreement shall be administered and construed
accordingly.





Exhibit A-6









 





     If you have any questions about the matters covered in this letter agreement, please call
[Name] at [Phone Number].



	 	 	 	 	 
	 	          Very truly yours,



Xanodyne Pharmaceuticals, Inc.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Title:  	 	 
	 




     I hereby agree to the terms and conditions set forth above. I have been given at least
twenty-one (21) days to consider this letter agreement and I have chosen to execute this on the
date below. I intend that this letter agreement will become a binding agreement between me and the
Company if I do not revoke my acceptance in seven (7) days.



	 	 	 	 	 
	 

	 	 
	 	 
	[Employee Name]	 	Date





To be returned in the enclosed self-addressed stamped envelope by [Return Date – 21 days from date
of receipt of this letter agreement].





Exhibit A-7