exv10w18



 




Exhibit 10.18




AMENDED AND RESTATED

SEVERANCE AND CHANGE IN CONTROL AGREEMENT




     This Amended and Restated Severance and Change in Control Agreement (the “Agreement”)
is made and entered into effective as of March 3, 2008, (the “Effective Date”), by and between
Anadys Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and James L.
Freddo, MD (the “Executive”). The Company and the Executive are hereinafter collectively
referred to as the “Parties”, and individually referred to as a “Party”. This Agreement shall
replace and supersede that certain Change in Control Agreement between Executive and the Company
entered into as of November 1, 2006 (the “Original Agreement”).



Recitals




     Whereas, Executive and the Company are currently parties to the Original Agreement
that is superseded and replaced in its entirety by this Agreement; and



     Whereas, the Company desires to continue to employ Executive to provide personal
services to the Company in that capacity, and wishes to provide Executive with certain severance
benefits in return for his services, and Executive wishes to be so employed and to receive such
benefits; and



     Whereas, the Company and Executive wish to enter into this Agreement to define their
mutual rights and duties with respect to Executive’s severance benefits;



     Now, Therefore, in consideration of the mutual promises and covenants contained
herein, and for other good and valuable consideration, the Parties, intending to be legally bound,
agree as follows:



Agreement




     1. Employment.



          1.1 Loyalty; At Will Employment. During the Executive’s employment by the Company, the
Executive shall devote Executive’s full business energies, interest, abilities and productive time
to the proper and efficient performance of Executive’s duties as an officer of the Company unless
otherwise approved in writing by the Board of Directors or a committee of the Board of Directors.
Executive’s employment with the Company is at will and not for any specified period and may be
terminated at any time, with or without cause, by either Executive or Company, subject to the
provisions of Sections 3 and 4 below.



          1.2 Termination of Obligations. In the event of the termination of the Executive’s employment
with the Company, the Company shall have no obligation to pay Executive any base salary, bonus or
other compensation or benefits, except as earned prior to the date of termination or as provided in
Section 3 or for benefits due to the Executive (and/or the Executive’s dependents) under the terms
of the Company’s benefit plans. To the extent permitted by applicable laws, the Company may offset
any amounts Executive owes it or its subsidiaries against any amount it owes Executive pursuant to
Section 3.



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          1.3 The term of this Agreement shall begin on the Effective Date and shall continue until
Executive’s employment with the Company is terminated for any reason.



     2. Definitions.



     For purposes of this Agreement, the following terms shall have the following meanings:



          2.1 Cause. “Cause” for the Company to terminate Executive’s employment hereunder shall mean
the occurrence of any of the following events:



               (i) the Executive’s willful or negligent failure, as determined in good faith by the
Company’s Board of Directors, to satisfactorily perform the Executive’s assigned duties with the
Company, or any successor thereof, in the best interests of the Company and as directed by the
Company’s Board of Directors or the Chief Executive Officer (except for the failure resulting from
Executive’s incapacity due to Complete Disability, or any such actual or anticipated failure
resulting from a Good Reason termination), which is not corrected within thirty (30) days of
Executive receiving notice of such failure from the Company specifying in reasonable detail the
nature of such failure;



               (ii) the Executive’s commission of a willful 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 that is directly
competitive with or injurious to the Company or any of its affiliates or which violates any
material provisions of the Executive’s Agreement for Employees dated June 21, 2006 (“Proprietary
Information and Inventions Agreement”) with the Company.



          2.2 Change in Control. For purposes of this Agreement, “Change in Control” means:



               (i) an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d)
of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan,
or related trust, sponsored or maintained by the Company or subsidiary of the Company or other
entity controlled by the Company) of the beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor rule) of securities of the Company
representing more than fifty percent (50%) of the combined voting power of the Company’s then
outstanding securities other than by virtue of a merger, consolidation or similar transaction.
Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because the
level of ownership held by a person, entity or group exceeds the designated percentage threshold of
the outstanding voting securities as a result of a repurchase or other acquisition of voting
securities by the Company reducing the number of shares outstanding, provided that if a Change in
Control would occur (but for the operation of this sentence) as a result of the acquisition of
voting securities by the Company, and after such share acquisition, a person, entity or group
becomes the owner of any additional voting securities that, assuming the repurchase or other
acquisition had not occurred,



2.









 







increases the percentage of the then outstanding voting securities owned by such person,
entity or group over the designated percentage threshold, then a Change in Control shall be deemed
to occur;



               (ii) there is consummated a merger, consolidation or similar transaction involving (directly
or indirectly) the Company and, immediately after the consummation of such merger, consolidation or
similar transaction, the stockholders of the Company immediately prior thereto do not own, directly
or indirectly, outstanding voting securities representing more than fifty percent (50%) of the
combined outstanding voting power of the surviving entity in such merger, consolidation or similar
transaction or more than fifty percent (50%) of the combined outstanding voting power of the parent
of the surviving entity in such merger, consolidation or similar transaction; or



               (iii) there is consummated a sale or other disposition of all or substantially all of the
consolidated assets of the Company and its subsidiaries, other than a sale, lease, license or other
disposition of all or substantially all of the consolidated assets of the Company and its
subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting
securities of which are owned by stockholders of the Company in substantially the same proportions
as their ownership of the Company immediately prior to such sale, lease, license or other
disposition.



          2.3 Complete Disability. “Complete Disability” shall mean the inability of the Executive to
perform the Executive’s duties under this Agreement because the Executive has become permanently
disabled within the meaning of any policy of disability income insurance covering employees of the
Company then in force. In the event the Company has no policy of disability income insurance
covering employees of the Company in force when the Executive becomes disabled, the term "Complete
Disability” shall mean the inability of the Executive to perform the Executive’s duties under this
Agreement by reason of any incapacity, physical or mental, which the Board, based upon medical
advice or an opinion provided by a licensed physician acceptable to the Board, determines to have
incapacitated the Executive from satisfactorily performing all of the Executive’s usual services
for the Company for a period of at least one hundred twenty (120) days during any twelve (12) month
period (whether or not consecutive). Based upon such medical advice or opinion, the determination
of the Board shall be final and binding and the date such determination is made shall be the date
of such Complete Disability for purposes of this Agreement.



          2.4 Good Reason. “Good Reason” means that Executive voluntarily terminates employment with
the Company (A) after (1) any of the following are undertaken without Cause and without Executive’s
express written consent; (2) Executive notifies the Company in writing, within thirty (30) days
after the occurrence of one of the following events, which notice specifies the condition giving
rise to a right to resign for Good Reason and that Executive intends to terminate his employment no
earlier than thirty (30) days after the Company’s receipt of such notice; and (3) the Company does
not cure such condition within thirty (30) days following its receipt of such notice or states
unequivocally in writing that it does not intend to attempt to cure such condition; and (B) such
voluntary termination occurs within ten (10) days following the end of the period within which the
Company was entitled to remedy the condition giving rise to a right to resign for Good Reason but
failed to do so:



3.









 





               (i) a material adverse change in the nature or scope of Executive’s job responsibilities;



               (ii) the relocation (or demand for relocation) of Executive’s place of employment to a point
more than thirty (30) miles from Executive’s then current place of employment;



               (iii) a material reduction in the annual base compensation paid to Executive; or



               (iv) in the case of a Change of Control, the failure to be offered comparable employment with
the successor entity, provided that “comparable employment” shall mean employment with job
responsibilities not violative of Section 2.4(i), base salary in an amount not violative of Section
2.4(iii), and at a business office the location of which is not violative of Section 2.4(ii).



          2.5 Integration. The parties acknowledge that the definition of “for Cause” contained within
this Agreement may differ from the definitions of “for Cause” contained within Executive’s stock
option agreement or agreements. The Parties agree that unless it is determined that Executive
shall be terminated for “Cause” as defined in this Agreement, there shall be no termination for
“Cause” under any of Executive’s stock option agreements or other equity award agreements.
Therefore, unless otherwise expressly provided such equity award agreement, the definition of
“Cause” in this Agreement shall supersede and replace in its entirety any definition of “Cause”
that may be included in Executive’s equity award agreements.



     3.
Compensation Upon Termination.



          3.1 Death Or Complete Disability. If the Executive’s employment with the Company is
terminated as a result of death or Complete Disability, the Company shall pay to Executive, and/or
Executive’s heirs, the Executive’s base salary and accrued and unused vacation benefits earned
through the date of termination at the rate in effect at the time of termination, less standard
deductions and withholdings, and the Company shall thereafter have no further obligations to the
Executive and/or Executive’s heirs under this Agreement.



          3.2 With Cause or Without Good Reason. If the Executive’s employment with the Company is
terminated by the Company for Cause or if the Executive terminates employment with the Company
without Good Reason, the Company shall pay the Executive’s base salary and accrued and unused
vacation benefits earned through the date of termination at the rate in effect at the time of
termination, less standard deductions and withholdings, and the Company shall thereafter have no
further obligations to the Executive under this Agreement.



          3.3 Without Cause or for Good Reason. In the event Executive’s employment with the Company
is terminated by the Company without Cause, or Executive resigns for Good Reason, and Executive
signs the Release and Waiver of Claims as set forth as Exhibit A or such other form of release as
the Company may require in order to comply with applicable laws (the “Release”) on or within the
time period set forth therein, but in no event later than forty-five (45) days after Executive’s
termination date, and allows such Release to



4.









 







become effective in accordance with its terms, then Executive will receive the following
benefits:



               (i) the equivalent of twelve (12) months of the Executive’s annual Base Salary (as defined
herein), less standard deductions and withholdings, which shall be paid in a single lump sum within
five (5) days after the effective date of the Release. “Base Salary” shall mean Executive’s base
pay (excluding incentive pay, premium pay, commissions, overtime, bonuses and other forms of
variable compensation), at the rate in effect during the last regularly scheduled payroll period
immediately preceding the date of the termination, and prior to any reduction in base salary that
would permit the Executive to voluntarily terminate employment pursuant to Section 2.4(iii).



               (ii) If Executive is eligible for and timely elects continued group health plan coverage under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) following Executive’s
termination, the Company will pay the Executive’s COBRA group health insurance premiums for the
Executive and his eligible dependents for a period of twelve (12) months following the effective
date of the Release; provided, however, that any such payments will cease if Executive voluntarily
enrolls in a health insurance plan offered by another employer or entity during the period in which
the Company is paying such premiums. Executive is required to immediately notify the Company in
writing of any such enrollment. For purposes of this Section 3.3(ii), references to COBRA premiums
shall not include any amounts payable by Executive under an Internal Revenue Code Section 125
health care reimbursement plan.



               (iii) The Company will make available to Executive, upon Executive’s request, executive
outplacement services provided by a reputable outplacement firm for a period of six (6) months
following the effective date of the Release. The Company will assume the cost of all such
outplacement services.



               (iv) As of the effective date of the Release, all of the outstanding equity awards that
Executive holds and which were granted to Executive within one year prior to Executive’s
termination date shall accelerate and vest in accordance with the vesting schedule applicable to
such equity award as if Executive had provided 12 months of vesting service as of Executive
termination date and, together with all other vested equity awards which Executive holds, if
applicable, will remain exercisable until the earlier of: (i) fifteen (15) months following
Executive’s termination date, (ii) ten (10) years from the original grant date, (iii) the original
maximum term of such equity award, or (iv) the effective date of a Change in Control in which such
awards will terminate and not be assumed by the successor or acquiring entity. In addition, all of
Executive’s outstanding restricted stock and other equity awards which Executive holds as of the
termination date and which were granted to Executive within one year prior to Executive’s
termination date shall accelerate and vest as of the effective date of the Release, in accordance
with the vesting schedule applicable to such equity awards as if Executive had provided 12 months
of vesting service as of Executive’s termination date.



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          3.4 Additional Change in Control Related Severance Benefits. In the event that Executive’s
employment with the Company is terminated without Cause or Executive resigns for Good Reason within
the six (6) month period immediately preceding or the twenty-four (24) month period immediately
following a Change in Control of the Company, then subject to the Executive’s delivery to the
Company of an effective Release as required pursuant to Section 3.3, in addition to the severance
benefits provided to Executive under Section 3.3(i), 3.3(ii) and 3.3(iii) above, the Executive
shall also be entitled to the following benefits:



               (i) A payment equal to the “Unpaid Portion of the Aggregate Anniversary Bonus” (defined below)
less standard deductions and withholdings, which shall be paid in a single lump sum within five (5)
days after the effective date of the Release. The Unpaid Portion of the Aggregate Anniversary Bonus
is defined as Two Hundred Thousand Dollars ($200,000) less the amount paid after the date hereof
under the offer letter dated June 21, 2006 between the Executive and the Company (the “Offer
Letter”) in accordance with the schedule set forth in the Offer Letter;



               (ii) A pro-rata portion of Executive’s 100% Bonus Opportunity Amount (as defined herein),
which pro-rata portion shall be calculated by multiplying Executive’s 100% Bonus Opportunity Amount
by the quotient of the number of days in the calendar year that have elapsed as of the date of
Executive’s termination divided by 365 (the “Bonus Payment”). Executive’s “100% Bonus Opportunity
Amount” shall be determined by reference to the then-current provisions of the Anadys
Pharmaceuticals, Inc. Executive Officer Bonus Plan as applicable to the calendar year in which the
Executive’s employment has terminated. The Bonus Payment shall be subject to all standard
deductions and withholdings and shall be paid in a single lump sum within five (5) days after the
later of (A) the effective date of the Release, or (B) the effective date of the Change in Control
(if Executive’s termination occurs prior to the Change in Control); and



               (iii) Full accelerated vesting of all unvested shares subject to any outstanding stock
options, restricted stock or other equity awards then held by Executive, such that all shares shall
be vested and fully exercisable as of the effective date of the Release, or if later, the effective
date of the Change in Control (if Executive’s termination occurs prior to the Change in Control).
In order to give effect to the foregoing provision, notwithstanding anything to the contrary set
forth in Executive’s equity award agreements, following any termination of Executive’s employment
that is without Cause or for Good Reason, none of Executive’s equity awards shall terminate with
respect to any vested or unvested portion subject to such award before the later of (A) six (6)
months following such termination, or (B) the effective date of the Release.



     4. Tax Compliance



          4.1 Application of Internal Revenue Code Section 409A. The severance benefits payable under
this Agreement are intended to be payable pursuant to the “short-term deferral” rule set forth in
Section 1.409A-1(b)(4) of the Treasury Regulations.



          4.2 Parachute Payment. If any payment or benefit Executive would receive pursuant a Change in
Control or otherwise (“Payment”) would (i) constitute a “parachute



6.









 







payment” within the meaning of Section 280G of the Code, and (ii) but for this sentence, be
subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then such Payment
shall be reduced to the Reduced Amount. The “Reduced Amount” shall be either (x) the largest
portion of the Payment that would result in no portion of the Payment being subject to the Excise
Tax or (y) the largest portion, up to and including the total, of the Payment, whichever amount,
after taking into account all applicable federal, state and local employment taxes, income taxes,
and the Excise Tax (all computed at the highest applicable marginal rate), results in Executive’s
receipt, on an after-tax basis, of the greater amount of the Payment notwithstanding that all or
some portion of the Payment may be subject to the Excise Tax. If a reduction in payments or
benefits constituting “parachute payments” is necessary so that the Payment equals the Reduced
Amount, reduction shall occur in the following order unless Executive elects in writing a different
order (provided, however, that such election shall be subject to Company approval if made on or
after the effective date of the event that triggers the Payment): reduction of cash payments;
cancellation of accelerated vesting of stock awards; reduction of employee benefits. In the event
that acceleration of vesting of stock award compensation is to be reduced, such acceleration of
vesting shall be cancelled in the reverse order of the date of grant of Executive’s stock awards
unless Executive elects in writing a different order for cancellation.



     The Company shall engage a nationally recognized accounting or consulting firm to perform the
foregoing calculations. If the firm so engaged by the Company is serving as accountant or auditor
for the individual, entity or group effecting the Change in Control, then the Company shall appoint
another nationally recognized accounting or consulting firm to make the determinations required
hereunder. The Company shall bear all expenses with respect to the determinations by such firm
required to be made hereunder.



     The firm engaged to make the determinations hereunder shall provide its calculations, together
with detailed supporting documentation, to Executive and the Company within fifteen (15) calendar
days after the date on which Executive’s right to a Payment is triggered (if requested at that time
by Executive or the Company) or such other time as requested by Executive or the Company. If the
firm determines that no Excise Tax is payable with respect to a Payment, either before or after the
application of the Reduced Amount, it shall furnish Executive and the Company with an opinion
reasonably acceptable to Executive that no Excise Tax will be imposed with respect to such Payment.
Any good faith determinations of the firm made hereunder shall be final, binding and conclusive
upon Executive and the Company.



     5. Company Property. All documents, records, apparatus, equipment and other
physical property that is furnished to or obtained by Executive in the course of his employment
with the Company shall be and remain the sole property of the Company. Executive agrees that, upon
the termination of his employment, as a condition of receiving benefits under this Agreement, he
shall return all such property (whether or not it pertains to “Proprietary Information” as defined
in the Proprietary Information and Inventions Agreement), and agrees not to make or retain copies,
reproductions or summaries of any such property.



     6. Other Terminations. Notwithstanding anything to the contrary set forth
herein, the Executive is not eligible for severance benefits under this Agreement if (i) the
Executive is terminated within thirty (30) days following the Executive’s refusal to accept an



7.









 







offer of comparable employment by any successor to the Company or an affiliate thereof
(provided that “comparable employment” shall mean employment with job responsibilities not
violative of Section 2.4(i), base salary in an amount not violative of Section 2.4(iii), and at a
business office the location of which is not violative of Section 2.4(ii)); (ii) the Executive
terminates employment in order to accept employment with another entity that is wholly or partly
owned (directly or indirectly) by the Company or an affiliate, (iii) the Executive does not satisfy
the conditions for receipt of benefits as set forth in Sections 3.3 and 5 of this Agreement; or
(iv) the Executive’s employment terminates due to death, Complete Disability or any other reason
other than a termination without Cause or for Good Reason.



     7. Acknowledgement. Executive hereby acknowledges that Executive has
consulted with or has had the opportunity to consult with independent counsel of Executive’s own
choice concerning this Agreement, and has been advised to do so by the Company, and Executive has
read and understands this Agreement, is fully aware of its legal effect, and has entered into it
freely based on Executive’s own judgment.



     8. General. This Agreement is made in San Diego, California. This Agreement
shall be construed and interpreted in accordance with the internal laws of the State of California.
This Agreement supersedes and replaces any other agreement between Executive and the Company
regarding severance benefits and/or compensation upon termination of employment, including but not
limited to the Original Agreement, and cannot be amended or modified except by written agreement
between Executive and the Company. This Agreement may be executed in two counterparts, each of
which shall be 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 first
above written.



	 	 	 	 	 
	Anadys Pharmaceuticals, Inc.

 	 
	By:  	 	        /s/ Stephen Worland
 	 
	 	Its:  President and Chief Executive Officer 	 	 
	 
	 Dated:           March 3, 2008	 	 	 	 
	 
	Executive:



	 
	/s/ James L. Freddo


	James L. Freddo 	 
	 
	 
	Dated:  March 3, 2008 	 	 	 



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EXHIBIT A

RELEASE AND WAIVER OF CLAIMS





     In consideration of the payments and other benefits set forth in the Change in Control
Agreement dated March 3, 2008 to which this form is attached, I, James L. Freddo, MD, hereby
furnish Anadys
Pharmaceuticals, Inc. (the “Company”), with the following release and
waiver (“Release and Waiver”).



     In exchange for the consideration provided to me by the Change in Control Agreement that I am
not otherwise entitled to receive, I hereby generally and completely release the Company and its
directors, officers, employees, shareholders, partners, agents, attorneys, predecessors,
successors, parent and subsidiary entities, insurers, Affiliates, and assigns from any and all
claims, liabilities and obligations (excluding indemnification obligations and rights under the
Company’s directors and officers insurance policies) both known and unknown, that arise out of or
are in any way related to events, acts, conduct, or omissions occurring prior to my signing this
Release and Waiver. This general release includes, but is not limited to: (1) all claims arising
out of or in any way related to my employment with the Company or the termination of that
employment; (2) all claims related to my compensation or benefits from the Company, including, but
not limited to, salary, bonuses, commissions, vacation pay, expense reimbursements, severance pay,
fringe benefits, stock, stock options, or any other ownership interests in the Company; (3) all
claims for breach of contract, wrongful termination, and breach of the implied covenant of good
faith and fair dealing; (4) all tort claims, including, but not limited to, claims for fraud,
defamation, emotional distress, and discharge in violation of public policy; (5) all federal,
state, and local statutory claims, including, but not limited to, claims for discrimination,
harassment, retaliation, attorneys’ fees, or other claims arising under the federal Civil Rights
Act of 1964 (as amended), the federal Americans with Disabilities Act of 1990, the federal Age
Discrimination in Employment Act of 1967 (as amended) (“ADEA”), and the California Fair Employment
and Housing Act (as amended).



     I also acknowledge that I have read and understand Section 1542 of the California Civil Code
which reads as follows: “A general release does not extend to claims which the creditor does not
know or suspect to exist in his or her favor at the time of executing the release, which if known
by him or her must have materially affected his or her settlement with the debtor.” I hereby
expressly waive and relinquish all rights and benefits under that section and any law of any
jurisdiction of similar effect with respect to any claims I may have against the Company.



9.









 





     I acknowledge that, among other rights, I am knowingly and voluntarily waiving and releasing
any rights I may have under ADEA. I also acknowledge that the consideration given for this Release
and Waiver is in addition to anything of value to which I was already entitled as an Employee of
the Company. If I am 40 years of age or older upon execution of this Release and Waiver, I further
acknowledge that I have been advised by this writing, as required by the Older Workers Benefit
Protection Act, that: (A) my release and waiver granted herein does not relate to claims under the
ADEA that may arise after the date I execute this Release and Waiver; (B) I should consult with an
attorney prior to executing this Release and Waiver (although I may choose voluntarily not to do
so), (C) I have twenty-one (21) days to consider this Release and Waiver (although I may choose to
voluntarily execute this Release and Waiver earlier); (D) I have seven (7) days following the
execution of this Release and Waiver to revoke the Release and Waiver; and (E) this Release and
Waiver shall not be effective until the seven (7) day revocation period has expired unexercised.



     If I am less than 40 years of age upon execution of this Release and Waiver, I acknowledge
that 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 I have five (5) days from the date of
termination 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 June 21, 2006
(“Proprietary Information and Inventions Agreement”), which is attached hereto. Pursuant to my
Proprietary Information and Inventions Agreement I understand that among other things, I must not
use or disclose any confidential or proprietary information of the Company and I must immediately
return all Company property and documents (including all embodiments of proprietary information)
and all copies thereof in my possession or control. I understand and agree that my right to the
severance benefits I am receiving in exchange for my agreement to the terms of this Release and
Waiver is contingent upon my continued compliance with my Proprietary Information and Inventions
Agreement.



     This Release and Waiver, including the Proprietary Information and Inventions Agreement
attached hereto, constitutes the complete, final and exclusive embodiment of the entire agreement
between the Company and me with regard to the subject matter hereof. I am not relying on any
promise or representation by the Company that is not expressly stated herein. This Release and
Waiver may only be modified by a writing signed by both me and a duly authorized officer of the
Company.



	 	 	 	 	 
	 	 	 
	Date:                                          	By:  	 	 
	 	 	 	 
	 	 	 	 
	 




10.