exv10w1






Exhibit 10.1




SOMAXON PHARMACEUTICALS, INC.




EMPLOYMENT AGREEMENT




     Employment Agreement (this “Agreement”) made and entered into as of August 7, 2008,
between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Richard
W. Pascoe, an individual (“Executive”). This Agreement shall be effective as of the date on which
Executive’s employment with the Company commences (the “Effective Date”).



W I T N E S S E T H:




     Whereas, the Company desires to employ Executive as its President and Chief Executive
Officer, and Executive desires to accept employment with the Company in such position, on the terms
and conditions hereinafter set forth.



     Now, Therefore, in consideration of the premises and the mutual covenants hereinafter
set forth, and intending to be legally bound hereby, it is hereby agreed as follows:



          1. Position and Duties. Executive shall diligently and conscientiously devote
Executive’s full business time, attention, energy, skill and diligent efforts to the business of
the Company and the discharge of Executive’s duties hereunder. Executive’s duties under this
Agreement shall be to serve as President and Chief Executive Officer, with the responsibilities,
rights, authority and duties customarily pertaining to such office and as may be established from
time to time by or under the direction of the Board of Directors of the Company (the “Board”) or
its designees. Executive shall report to the Board. Executive shall also act as an officer and/or
director and/or manager of such affiliates of the Company as may be designated by the Board from
time to time, commensurate with Executive’s office, all without further compensation, other than as
provided in this Agreement. As an exempt, salaried employee, Executive will be expected to work
such hours as required by the nature of Executive’s work assignments.




          2. Place and Term of Employment. Executive’s performance of services under this
Agreement shall be rendered in San Diego County, California, subject to necessary travel
requirements of Executive’s position and duties hereunder. Executive’s employment shall not be for
a particular term and may be terminated by either Executive or the Company at any time, for any
reason or no reason, subject to the provisions contained in Paragraph 7.




          3. Compensation.




               (a) Base Salary. The Company shall pay to Executive base salary compensation at an
annual rate of $415,000. The Board shall review Executive’s base salary annually in light of the
performance of Executive and the Company, and may, in its sole discretion, maintain or increase
(but not decrease) such base salary by an amount it determines to be appropriate. Executive’s
annual base salary payable hereunder, as it may be maintained or increased from time to time, is
referred to herein as “Base Salary.” Base Salary shall be paid in equal installments in accordance
with the Company’s payroll practices in effect from time to time for executive officers, but in no
event less frequently than monthly.



               (b) Incentive Plan. The Company shall adopt an incentive program providing for annual
incentive bonus awards to Executive and the Company’s other eligible employees
dependent upon, among other things, the achievement of certain performance levels by the
Company, the nature, magnitude and quality of the services performed by Executive for the Company
and the



 









 







compensation paid for positions of comparable responsibility and authority within the
Company’s industry (the “Company Incentive Plan”). Executive’s target bonus under the Company
Incentive Plan shall be 45% of his Base Salary; provided, however, that Executive shall receive a
guaranteed bonus under the Company Incentive Plan for 2008 of at least $100,000, which bonus shall
be payable on the same terms and conditions as bonuses payable to executive officers of the Company
generally, but in no event later than March 15, 2009.




               (c) Signing Bonus. Executive shall be eligible to receive a one-time cash bonus
payment of $25,000 payable on the first regularly scheduled payroll date following the Effective
Date, which amount shall be grossed-up for all applicable taxes so that the net after-tax payment
to Executive shall be equal to $25,000.



               (d) Option Grant. As additional consideration for the services to be rendered by
Executive under this Agreement, the Company will grant to Executive stock options to purchase
500,000 shares of the Company’s common stock, subject to approval of the Board. The exercise price
per share of such options will be equal to the fair market value per share on the date the options
are granted. The stock options will vest over four years with 1/4 of the total number of shares
subject to the stock options vesting on the first anniversary of the date the stock options are
granted, and the 1/48th of the total number of shares subject to the stock options vesting on the
first day of each calendar month thereafter until all shares are vested. The stock options will be
granted under the Company’s 2005 Equity Incentive Award Plan (the “Option Plan”) and will be
subject to the terms and conditions applicable to stock options granted under that plan, as
described in that plan and the applicable stock option agreement.



          4. Benefits. Executive shall be eligible to participate in all employee benefit
programs of the Company offered from time to time during the term of Executive’s employment by the
Company to employees or executive officers of Executive’s rank, to the extent that Executive
qualifies under the eligibility provisions of the applicable plan or plans, in each case consistent
with the Company’s then-current practice as approved by the Board from time to time. Except to the
extent financially feasible for the Company, the foregoing shall not be construed to require the
Company to establish such plans or to prevent the modification or termination of such plans once
established, and no such action or failure thereof shall affect this Agreement. Executive
recognizes that the Company has the right, in its sole discretion, to amend, modify or terminate
its benefit plans without creating any rights in Executive. Notwithstanding the foregoing, the
Company’s failure to provide Executive with compensation and benefits substantially equivalent (in
terms of benefit levels and/or reward opportunities) in all material respects to those provided for
under each of the Company’s material employee benefit plans, programs and practices as in effect
from time to time shall constitute a material breach of this Agreement.




          5. Vacation. Executive shall be entitled to paid vacation and sick time (“PTO”) of up
to 4 weeks per calendar year, with such number of weeks being pro-rated for the remainder of the
2008 calendar year. Executive may roll-over unused PTO time from one calendar year to another,
subject to a maximum of 6 weeks of accrued PTO, which is to be accrued in accordance with the
Company’s PTO policy.




          6. Reimbursement of Expenses.




               (a) The Company shall promptly reimburse Executive for Executive’s reasonable and necessary
expenditures for travel, entertainment and similar items made in furtherance of Executive’s duties
under this Agreement consistent with the policies of the Company as applied to all
executive officers. Executive shall document and substantiate such expenditures as required
by the policies of the Company as applied to all executive officers, including an itemized list of
all expenses



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incurred, the business purposes for which such expenses were incurred, and such
receipts as Executive reasonably has been able to obtain.




               (b) The Company shall enlist the services of a professional relocation firm to assist
Executive with his relocation to San Diego, California. The Company expects Executive to
permanently relocate to the San Diego, California area as soon as practicable. Prior to completing
his relocation to the San Diego, California area, the Company shall reimburse Executive for (1)
reasonable temporary living expenses in the San Diego, California area, including a monthly housing
allowance until the first to occur of (A) the date that is six (6) months following the Effective
Date or (B) the date on which Executive sells his existing home in Newton, Massachusetts, in an
amount not to exceed Executive’s monthly mortgage obligation on Executive’s existing home in
Newton, Massachusetts and (2) the transportation costs for one round-trip every three weeks for
Executive between Boston, Massachusetts, and San Diego, California. The Company shall also
reimburse Executive for the reasonable selling expenses of his current home in Newton,
Massachusetts (up to 6% of the selling price), the reasonable closing costs (excluding loan
prepayment penalties, points or loan origination fees) associated with the purchase of a his
primary residence in the San Diego, California area, the moving of Executive’s household goods
(including up to two automobiles) and a reasonable number of house hunting trips for Executive’s
spouse. Air travel will be reimbursed at coach level. In addition, the Company shall gross-up any
reimbursed amounts to the extent such amounts are taxable. The Company will make such payments
within 30 days after receipt of Executive’s written request therefore, which request shall be
accompanied by documentation supporting the request for reimbursement. If Executive’s employment
with the Company is terminated by Executive for any reason other than for Good Reason pursuant to
Paragraph 7(c)(i) or if the Company terminates Executive’s employment for Cause pursuant to
Paragraph 7(b)(i) on or prior to the first anniversary of the Effective Date, Executive shall repay
to the Company such portion of all relocation expenses incurred by the Company on his behalf as is
determined by multiplying (i) the total relocation expenses paid by the Company pursuant to this
Paragraph 6(b) as of the date of termination by (ii) a fraction determined by dividing (A) the
total number of days remaining from the date of termination through the first anniversary of the
Effective Date, by (B) three hundred sixty-five (365). The Company shall have the right to offset
such amounts against any compensation otherwise payable to Executive on the date of termination.
Executive has executed an Agreement to Repay Prorata Moving Expenses, a copy of which is attached
hereto as Exhibit A.



               (c) Any amounts payable under this Paragraph 6 shall be made in accordance with Treasury
Regulation Section 1.409A-3(i)(1)(iv) and shall be paid on or before the last day of Executive’s
taxable year following the taxable year in which Executive incurred the expenses. The amounts
provided under this Paragraph 6 during any taxable year of Executive’s will not affect such amounts
provided in any other taxable year of Executive’s, and Executive’s right to reimbursement for such
amounts shall not be subject to liquidation or exchange for any other benefit.



          7. Termination of Employment.




               (a) Death or Disability.



                    (i) In the event of Executive’s death, Executive’s employment with the Company shall
automatically terminate.



                    (ii) Each of the Company and Executive shall have the right to terminate Executive’s
employment in the event of Executive’s Disability. “Disability” as used in this Agreement shall
have meaning set forth in Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the “Code”), which as of the Effective Date is as follows: “An individual is
permanently and totally disabled if he is unable to engage in any substantial gainful activity by
reason of any medically



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determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous period of not less than 12
months.” A termination of Executive’s employment by either party for Disability shall be
communicated to the other party by written notice, and shall be effective on the 10th day after
receipt of such notice by the other party (the “Disability Effective Date”), unless Executive
returns to full-time performance of Executive’s duties before the Disability Effective Date.




               (b) By the Company.



                    (i) The Company shall have the right to terminate Executive’s employment for Cause. “Cause”
as used in this Agreement shall mean:




                         (A) Executive’s breach of any of the covenants contained in Paragraphs 8, 9, and 10 of
this Agreement;




                         (B) Executive’s conviction by, or entry of a plea of guilty or nolo contendere in, a
court of competent and final jurisdiction for any crime involving moral turpitude or
punishable by imprisonment in the jurisdiction involved;




                         (C) Executive’s commission of an act of fraud, whether prior to or subsequent to the
Effective Date upon the Company;




                         (D) Executive’s continuing repeated willful failure or refusal to perform Executive’s
duties as required by this Agreement (including, without limitation, Executive’s inability
to perform Executive’s duties hereunder as a result of chronic alcoholism or drug addiction
and/or as a result of any failure to comply with any laws, rules or regulations of any
governmental entity with respect to Executive’s employment by the Company);




                         (E) Executive’s gross negligence, insubordination or material violation of any duty of
loyalty to the Company or any other material misconduct on the part of Executive;




                         (F) Executive’s intentional commission of any act which Executive knows (or reasonably
should know) is likely to be materially detrimental to the Company’s business or goodwill;
or




                         (G) Executive’s material breach of any other provision of this Agreement, provided
that termination of Executive’s employment pursuant to this subsection (G) shall not
constitute valid termination for good cause unless Executive shall have first received
written notice from the Board stating with specificity the nature of such breach and
affording Executive at least twenty days to correct the breach alleged.


Nothing in this Paragraph 7(b)(i) shall prevent Executive from challenging the Board’s
determination that Cause exists or that Executive has failed to cure any act (or failure to act)
that purportedly formed the basis for the Board’s determination, under the arbitration procedures
set forth in Paragraph 19 below.




                    (ii) The Company shall have the right to terminate Executive’s employment hereunder without
Cause at any time.



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               (c) By Executive.



                    (i) Executive shall have the right to terminate his employment with the Company for Good
Reason (as defined below). Executive’s continued employment shall not constitute Executive’s
consent to, or a waiver of rights with respect to, any act or failure to act constituting Good
Reason hereunder.



                    (ii) For purposes of this Agreement “Good Reason” shall mean:



                         (A) a material diminution in Executive’s base compensation;



                         (B) a material diminution in Executive’s authority, duties or responsibilities;



                         (C) a requirement that Executive report to a corporate officer or employee instead of
reporting directly to the Board;



                         (D) a material change in the geographic location at which Executive must perform his duties;
or



                         (E) any other action or inaction that constitutes a material breach by the Company of its
obligations to Executive under this Agreement.



          Notwithstanding the foregoing, Good Reason shall only exist if Executive shall have provided
the Company with written notice within ninety (90) days of the initial occurrence of any of the
foregoing events or conditions, and the Company fails to eliminate the conditions constituting Good
Reason within thirty (30) days after receipt of written notice of such event or condition from
Executive. Executive’s termination by reason of resignation from employment with the Company for
Good Reason shall be treated as involuntary. Executive’s resignation from employment with the
Company for Good Reason must occur within two (2) years following the initial existence of the act
or failure to act constituting Good Reason. 




                    (iii) Executive shall have the right to terminate his employment hereunder without Good Reason
upon 30 days’ written notice to the Company, and such termination shall not in and of itself be a
breach of this Agreement.



               (d) Termination Payments.



                    (i) If Executive’s employment with the Company is terminated pursuant to Paragraph 7(a)(i)
(i.e., death), the Company shall pay to Executive’s estate (a) his accrued but unpaid Base Salary
through the date of termination (plus all accrued and unpaid expenses reimbursable in accordance
with Paragraph 6), (b) any accrued but unused PTO, and (c) at the discretion of the Board, an
annual bonus for the year in which Executive’s death occurs, prorated through the date of death,
based on the Board’s good-faith estimate of the actual amount, if any, that would have been payable
for such year under the Company Incentive Plan (assuming Executive had remained employed by the
Company through the end of such year) in accordance with Paragraph 3(b), in each case payable in a
lump sum within ten (10) days following Executive’s death.



                    (ii) If Executive’s employment with the Company is terminated pursuant to Paragraph 7(a)(ii)
(i.e., Disability), the Company shall pay to Executive (A) his accrued but unpaid Base Salary
through the date of termination (plus all accrued and unpaid expenses reimbursable in
accordance with Paragraph 6), (B) any accrued but unused PTO, (C) an amount equal to
Executive’s actual Base Salary (not including any bonus payable) for the 12 month period
immediately prior to such



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termination, and (D) at the discretion of the Board, an annual bonus for
the year in which Executive’s Disability occurs, prorated through the date of termination, based on
the Board’s good-faith estimate of the actual amount, if any, that would have been payable for such
year under the Company Incentive Plan (assuming Executive had remained employed by the Company
through the end of such year) in accordance with Paragraph 3(b), in each case payable in a lump sum
within ten (10) days following Executive’s Release Effective Date (as defined below).




                    (iii) If Executive’s employment with the Company is voluntarily terminated by Executive
pursuant to Paragraph 7(c)(i) (i.e., Good Reason), or if the Company terminates Executive’s
employment with the Company other than pursuant to Paragraphs 7(a)(ii) or 7(b)(i), then the Company
shall pay to Executive the following, which Executive acknowledges to be fair and reasonable, as
consideration for the Release described in Paragraph 7(f):




                         (A) Executive’s accrued but unpaid Base Salary through the date of termination (plus
all accrued and unpaid expenses reimbursable in accordance with Paragraph 6), payable in a
lump sum on the date of termination;




                         (B) any accrued but unused PTO, payable in a lump sum on the date of termination;




                         (C) subject to Paragraph 23 below, at the discretion of the Board, an annual bonus for
the year in which Executive’s employment is terminated, prorated through the date of
termination, based on the Board’s good-faith estimate of the actual amount, if any, that
would have been payable for such year under the Company Incentive Plan (assuming Executive
had remained employed by the Company through the end of such year) in accordance with
Paragraph 3(b), payable in a lump sum within ten (10) days following Executive’s Release
Effective Date (as defined below);




                         (D) subject to Paragraph 23 below, an amount equal to Executive’s actual Base Salary
(not including any bonus payable) for the 12 month period immediately prior to such
termination, payable in a lump sum within 10 days following Executive’s Release Effective
Date;




                         (E) subject to Paragraph 23 below, the Company shall pay all costs which the Company
would otherwise have incurred to maintain all of Executive’s health insurance benefits
(either on the same or substantially equivalent terms and conditions) if Executive had
continued to render services to the Company for 12 continuous months after the date of his
termination of employment. If any of the Company’s health insurance benefits are
self-funded as of the date of Executive’s termination of employment, instead of providing
continued health and welfare insurance benefits as set forth above, the Company shall
instead pay to Executive an amount equal to 12 multiplied by the monthly premium Executive
would be required to pay for continuation coverage pursuant to COBRA for Executive and his
dependents who were covered under the Company’s health plans as of the date of Executive’s
termination of employment (calculated by reference to the premium as of the date of
termination), payable in a lump sum within 10 days following Executive’s Release Effective
Date; and




                         (F) subject to Paragraph 23 below, the Company shall pay to Executive an amount equal
to (1) 12 multiplied by the portion of the monthly
premium for Executive’s life insurance coverage under the Company sponsored life
insurance plan that exceeds the contributions required by Executive immediately prior to
Executive’s date



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of termination (calculated by reference to the premium as of the date of
termination), plus (2) 12 multiplied by the portion of the monthly premium for Executive’s
disability insurance coverage under the Company sponsored disability insurance plan that
exceeds the contributions required by Executive immediately prior to Executive’s date of
termination (calculated by reference to the premium as of the date of termination), payable
in a lump sum within 10 days following Executive’s Release Effective Date;




                         (G) notwithstanding any provision to the contrary in Executive’s options under the
Option Plan or other plan (including, without limitation, the expiration dates or vesting
provisions thereof) or any restricted stock agreement, (1) the unvested portion, if any, of
Executive’s outstanding options shall be deemed to have vested on the date of termination
with respect to the number of shares that would have vested had Executive remained employed
by the Company for 12 months following such termination, and Executive shall have 180 days
from the date of termination to exercise such options (but not longer than the original
term of such options), and (2) any restrictions with respect to any restricted shares of
the Company’s capital stock that Executive then holds shall immediately lapse with respect
to the number of restricted shares that would have vested had Executive remained employed
by the Company for 12 months following such termination.



                    (iv) If Executive’s employment with the Company is terminated by the Company pursuant to
Paragraph 7(b)(i) (i.e., for Cause), or Executive voluntarily terminates his employment with the
Company other than pursuant to Paragraphs 7(a) or 7(c)(i), without limiting or prejudicing any
other legal or equitable rights or remedies which the Company may have upon such breach by
Executive, the Company shall pay Executive his accrued but unpaid Base Salary and any accrued but
unused PTO (plus all accrued and unpaid expenses reimbursable in accordance with Paragraph 6)
through the date of termination, payable in a lump sum on the date of termination.



                    (v) In addition to the foregoing, upon the termination of Executive’s employment, Executive
shall be entitled to any other rights, compensation and/or benefits as may be due to Executive in
accordance with the terms and provisions of any other benefit, compensation, incentive, medical,
disability or life insurance plans, programs or agreements of the Company in effect upon such
termination.



                    (vi) The termination payments described above shall supersede any severance program, plan or
policy that may be adopted by the Company with respect to its employees generally, and the terms of
this Paragraph 7(d) shall control in the event of any discrepancy with such severance program, plan
or policy.



               (e) Change in Control.



                    (i) In the event of any Change in Control (defined below) during the term of Executive’s
employment with the Company, notwithstanding any provision to the contrary in Executive’s options
under the Option Plan or other plan (including, without limitation, the expiration dates or vesting
provisions thereof) or any restricted stock agreement (A) (1) 50% of any unvested portion of such
options shall be deemed to have vested on the date of the Change in Control and (2) the remaining
unvested portion of such options shall vest on the date that is 12 months from the closing of such
Change in Control, subject to Executive’s continuing service with the Company or any parent or
subsidiary or successor on such date, and (B) (1) the restrictions with respect to 50% of the
restricted shares of the Company’s capital stock that Executive then holds shall immediately lapse
on the date of the Change in
Control and (2) the restrictions with respect to any remaining restricted shares shall lapse
on the date that



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is 12 months from the closing of such Change in Control, subject to Executive’s
continuing service with the Company or any parent or subsidiary or successor on such date.



                    (ii) Following a Change in Control, if Executive’s employment with the Company is voluntarily
terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason), or if the Company
terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or
7(b)(i), then, in addition to the application of Paragraph 7(d)(iii) to such situation,
notwithstanding any provision to the contrary in Executive’s options under the Option Plan or other
plan (including, without limitation, the expiration dates or vesting provisions thereof) or any
restricted stock agreement, (A) any unvested portion of such options shall be deemed to have vested
on the date of termination and Executive shall have 180 days from the date of termination to
exercise such options (but not longer than the original term of such options), and (B) any
restrictions with respect to restricted shares of the Company’s capital stock that Executive then
holds shall immediately lapse on the date of termination.



                    (iii) “Change in Control” means and includes each of the following:



                         (A) the acquisition, directly or indirectly, by any “person” or “group” (as those terms are
defined in Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the rules thereunder) of
“beneficial ownership” (as determined pursuant to Rule 13d-3 under the Exchange Act) of securities
entitled to vote generally in the election of directors (“voting securities”) of the Company that
represent 50% or more of the combined voting power of the Company’s then outstanding voting
securities, other than:




                              (1) an acquisition by a trustee or other fiduciary holding securities under any
employee benefit plan (or related trust) sponsored or maintained by the Company or any
person controlled by the Company or by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any person controlled by the Company, or




                              (2) an acquisition of voting securities by the Company or a corporation owned, directly
or indirectly by the stockholders of the Company in substantially the same proportions as
their ownership of the stock of the Company, or




                              (3) an acquisition of voting securities pursuant to a transaction described in
subsection (C) below that would not be a Change in Control under subsection (C);



          Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by
any person or group for purposes of this Paragraph 7(e)(iii)(A): an acquisition of the Company’s
securities by the Company which causes the Company’s voting securities beneficially owned by a
person or group to represent 50% or more of the combined voting power of the Company’s then
outstanding voting securities; provided, however, that if a person or group shall become the
beneficial owner of 50% or more of the combined voting power of the Company’s then outstanding
voting securities by reason of share acquisitions by the Company as described above and shall,
after such share acquisitions by the Company, become the beneficial owner of any additional voting
securities of the Company, then such acquisition shall constitute a Change in Control; or




                         (B) during any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a director designated by
a person who shall have entered into an agreement with the Company to effect a
transaction described in Subparagraphs (A) or (C) of this Paragraph 7(e)(iii)) whose election by
the Board



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or nomination for election by the Company’s stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were directors at the beginning
of the two year period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof; or



                         (C) the consummation by the Company (whether directly involving the Company or indirectly
involving the Company through one or more intermediaries) of (1) a merger, consolidation,
reorganization, or business combination or (2) a sale or other disposition of all or substantially
all of the Company’s assets or (3) the acquisition of assets or stock of another entity, in each
case other than a transaction:




                              (I) which results in the Company’s voting securities outstanding immediately before the
transaction continuing to represent (either by remaining outstanding or by being converted
into voting securities of the Company or the person that, as a result of the transaction,
controls, directly or indirectly, the Company or owns, directly or indirectly, all or
substantially all of the Company’s assets or otherwise succeeds to the business of the
Company (the Company or such person, the “Successor Entity”)), directly or indirectly, at
least a majority of the combined voting power of the Successor Entity’s outstanding voting
securities immediately after the transaction, and




                              (II) after which no person or group beneficially owns voting securities representing
50% or more of the combined voting power of the Successor Entity; provided, however, that no
person or group shall be treated for purposes of this Subparagraph (II) as beneficially
owning 50% or more of combined voting power of the Successor Entity solely as a result of
the voting power held in the Company prior to the consummation of the transaction; or



                         (D) the Company’s stockholders approve a liquidation or dissolution of the Company.



          For purposes of Subparagraph 7(e)(iii)(A) above, the calculation of voting power shall be made
as if the date of the acquisition were a record date for a vote of the Company’s stockholders, and
for purposes of Subparagraph 7(e)(iii)(C) above, the calculation of voting power shall be made as
if the date of the consummation of the transaction were a record date for a vote of the Company’s
stockholders.




               (f) Condition Precedent. If Executive’s employment with the Company is voluntarily
terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason) or if the Company
terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or
7(b)(i), prior to the receipt of any payments or benefits provided by Paragraphs 7(d)(ii),
7(d)(iii) and 7(e)(ii) on account of the occurrence of such termination of Executive’s employment
with the Company, Executive shall execute a “Release” in the form attached hereto as Exhibit
B or Exhibit C, as appropriate. Such Release shall specifically relate to all of
Executive’s rights and claims in existence at the time of such execution and shall confirm
Executive’s obligations under the Proprietary Information and Inventions Agreement (as defined
below). It is understood that, in the event that Executive is at least 40 years old on the date of
the termination of his employment with the Company, Executive has a certain period to consider
whether to execute such Release, and Executive may revoke such Release within 7 business days after
execution. In the event Executive does not execute such Release within 50 days following the date
of termination, or if Executive revokes such Release, Executive shall not be entitled to the
aforesaid payments and benefits. The date on which Executive’s Release becomes effective and the
applicable revocation period lapses shall be the “Release Effective Date.”



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          8. Proprietary Information and Inventions Agreement. As a condition of employment,
Executive has signed and agrees to comply with the Proprietary Information and Inventions Agreement
attached hereto as Exhibit D which prohibits unauthorized use or disclosure of the
Company’s proprietary information. In Executive’s work for the Company, Executive will be expected
not to use or disclose any confidential information, including trade secrets, of any former
employer or other person to whom Executive has an obligation of confidentiality. Rather, Executive
will be expected to use only that information which is generally known and used by persons with
training and experience comparable to Executive’s, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or developed by the Company.
Executive agrees that he will not bring onto Company premises any unpublished documents or
property belonging to any former employer or other person to whom Executive has an obligation of
confidentiality.




          9. Non-Solicitation.




               (a) Nonsolicitation of Employees or Consultants. Executive agrees that for a period
of one year after termination of Executive’s employment with the Company (the “Nonsolicitation
Period”), Executive will not directly or indirectly induce or solicit any of the Company’s
employees or consultants to leave their employment.



               (b) Nonsolicitation of Customers. Executive agrees that all customers of the Company
or any of its subsidiaries for which Executive has or will provide services during the term of
Executive’s employment with the Company, and all prospective customers from whom Executive has
solicited business while in the employ of the Company, shall be solely the customers of the Company
or such subsidiary. Executive agrees that, for the Nonsolicitation Period, Executive shall neither
directly nor indirectly solicit business as to products or services competitive with those of the
Company or any of its subsidiaries, from any of the Company’s or any of its subsidiaries’ customers
with whom Executive had contact within one year prior to Executive’s termination.



               (c) Scope of Covenants. Executive agrees that the covenants contained in this
Paragraph 9 are reasonable with respect to their duration, geographic area and scope. If, at the
time of enforcement of this Paragraph 9, a court holds that the restrictions stated herein are
unreasonable under the circumstances then existing, the parties hereto agree that the maximum
period, scope or geographic area legally permissible under such circumstances will be substituted
for the period, scope or area stated herein.



               (d) Equitable Relief. In the event of a breach of this Paragraph 9 by Executive, the
Company shall, in addition to all other remedies available to it, be entitled to equitable relief
by way of an injunction and any other legal or equitable remedies.



          10. Nondisparagement. Executive will not at any time during or after the term of
Executive’s employment with the Company directly (or through any other person or entity) make any
public statements (whether orally or in writing) which are intended to be derogatory or damaging to
the Company or any of its subsidiaries, their respective businesses, activities, operations,
affairs, reputations or prospects or any of their respective officers, employees, directors,
partners, agents or shareholders; provided that Executive may comment generally on industry matters
in response to inquiries from the press and in other public speaking engagements. The Company
shall not at any time during or after the term of Executive’s employment with the Company, directly
(or through any other person or entity) make any public statements (whether oral or in writing)
which are intended to be derogatory or damaging concerning Executive.




10









 








          11. Indemnification; Directors & Officers Insurance.




               (a) The Company shall indemnify Executive to the maximum extent permitted by law and by the
charter and bylaws of Company if Executive is made a party, or threatened to be made a party, to
any threatened or pending legal action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that Executive is or was an officer, director, manager,
member, partner or employee of the Company, in which capacity Executive is or was serving at the
Company’s request, against reasonable expenses (including reasonable attorneys’ fees), judgments,
fines and settlement payments incurred by him in connection with such action, suit or proceeding.



               (b) The Company shall use reasonable commercial efforts to maintain directors & officers
insurance for the benefit of Executive and other executive officers and directors with a level of
coverage comparable to other companies in the Company’s industry at a similar stage of development.



               (c) Concurrently with entering into this Agreement, the Company and Executive have entered
into the Indemnification Agreement attached hereto as Exhibit E.



          12. Representation of the Parties. Executive represents and warrants to the Company
that Executive has the capacity to enter into this Agreement and the other agreements referred to
herein, and that the execution, delivery and performance of this Agreement and such other
agreements by Executive will not violate any agreement, undertaking or covenant to which Executive
is party or is otherwise bound. The Company represents to Executive that it is duly formed and is
validly existing under the laws of the State of Delaware, that it is fully authorized and empowered
by action of its Board to enter into this Agreement and the other agreements referred to herein,
and that performance of its obligations under this Agreement and such other agreements will not
violate any agreement between it and any other person, firm or other entity.




          13. Key Man Insurance. The Company will have the right throughout the term of
Executive’s employment with the Company to obtain or increase insurance on Executive’s life in such
amount as the Board determines, in the name of the Company or and for its sole benefit or
otherwise, in the discretion of the Board. Upon reasonable advance notice, Executive will
cooperate in any and all necessary physical examinations without expense to Executive, supply
information, and sign documents, and otherwise cooperate fully with the Company as the Company may
request in connection with any such insurance. Executive warrants and represents that, to
Executive’s best knowledge, Executive is in good health and does not suffer from any medical
condition which might interfere with the timely performance of Executive’s obligations under this
Agreement. To the extent the Company elects to obtain a policy of insurance on the life of
Executive, unless an alternative life insurance benefit has been established for the Company’s
executive officers, including Executive, the Company shall also obtain and pay for a whole life
insurance policy providing for payment of not less than the equivalent of one year’s Base Salary in
benefits to Executive’s designated beneficiaries (this policy shall be in addition to any coverage
provided by the Company’s group life insurance plan provided to employees generally).




          14. Notices. All notices given under this Agreement shall be in writing and shall be
deemed to have been duly given (a) when delivered personally, (b) three business days after being
mailed by first class certified mail, return receipt requested, postage prepaid, (c) one business
day after being sent by a reputable overnight delivery service, postage or delivery charges
prepaid, or (d) on the date on which a facsimile is transmitted to the parties at their respective
addresses stated below. Any party may change its address for notice and the address to which
copies must be sent by giving notice of the new addresses to the other parties in accordance with
this Paragraph 14, except that any such change of address notice shall not be effective unless and
until received.




11









 







If to the Company:



Somaxon Pharmaceuticals, Inc.

Attn: Executive Chairman

3721 Valley Centre Drive, Suite 500

San Diego, CA 92130



If to Executive:



Richard W. Pascoe

                                    

                                    




          15. Entire Agreement, Amendments, Waivers, Etc.




               (a) No amendment or modification of this Agreement shall be effective unless set forth in a
writing signed by the Company and Executive. No waiver by either party of any breach by the other
party of any provision or condition of this Agreement shall be deemed a waiver of any similar or
dissimilar provision or condition at the same or any prior or subsequent time. Any waiver must be
in writing and signed by the waiving party.



               (b) This Agreement, together with the Exhibits hereto and the documents referred to herein and
therein, and the background check consent forms executed by Executive and delivered to the Company
prior to his commencement of employment, sets forth the entire understanding and agreement of the
parties with respect to the subject matter hereof and supersedes all prior oral and written
understandings and agreements, including, without limitation, the offer letter between the Company
and Executive dated as of June 30, 2008. There are no representations, agreements, arrangements or
understandings, oral or written, among the parties relating to the subject matter hereof which are
not expressly set forth herein, and no party hereto has been induced to enter into this Agreement,
except by the agreements expressly contained herein.



               (c) Nothing herein contained shall be construed so as to require the commission of any act
contrary to law, and wherever there is a conflict between any provision of this Agreement and any
present or future statute, law, ordinance or regulation, the latter shall prevail, but in such
event the provision of this Agreement affected shall be curtailed and limited only to the extent
necessary to bring it within legal requirements.



               (d) This Agreement shall inure to the benefit of and be enforceable by Executive and
Executive’s heirs, executors, administrators and legal representatives, and by the Company and its
successors and assigns. This Agreement and all rights hereunder are personal to Executive and
shall not be assignable. The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company, by operation of law or by agreement in form and substance reasonably
satisfactory to Executive, to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such succession had taken
place.



               (e) If any provision of this Agreement or the application thereof is held invalid, the
invalidity shall not affect the other provisions or application of this Agreement that can be given
effect without the invalid provisions or application, and to this end the provisions of this
Agreement are declared to be severable.



          16. Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of California without reference to principles of conflict of laws.




12









 








          17. Taxes. All payments required to be made to Executive hereunder, whether during
the term of Executive’s employment hereunder or otherwise, shall be subject to all applicable
federal, state and local tax withholding laws.




          18. Headings, Etc. The headings set forth herein are included solely for the purpose
of identification and shall not be used for the purpose of construing the meaning of the provisions
of this Agreement. Unless otherwise provided, references herein to Exhibits and Paragraphs refer
to Exhibits to and Paragraphs of this Agreement.




          19. Arbitration. Any dispute or controversy between Company and Executive, arising
out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled
by arbitration in San Diego, California administered by the American Arbitration Association in
accordance with its National Rules for the Resolution of Employment Disputes then in effect and
judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall have the authority to award any remedy or relief that a court of
competent jurisdiction could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this arbitration provision,
apply to any court having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award is rendered or the
controversy is otherwise resolved. Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party
nor an arbitrator may disclose the existence, content or results of any arbitration hereunder
without the prior written consent of Company and Executive. The Company shall pay all of the
direct costs and expenses in any arbitration hereunder and the arbitrator’s fees and costs;
provided, however, that the arbitrator shall have the discretion to award the prevailing party
reimbursement of its, his or its reasonable attorney’s fees and costs; provided, however, that the
prevailing party shall be reimbursed for such fees, costs and expenses within forty-five (45) days
following any such award, but in no event later than the last day of the Executive’s taxable year
following the taxable year in which the fees, costs and expenses were incurred; provided, further,
that the parties’ obligations pursuant to this sentence shall terminate on the tenth (10th)
anniversary of the date of Executive’s termination of employment. The Company and Executive hereby
expressly waive their right to a jury trial.




          20. Survival. Executive’s obligations under the provisions of Paragraphs 8, 9 and 10,
as well as the provisions of Paragraphs 6, 7(d), 7(e)(ii), 11 and 15 through and including 23,
shall survive the termination or expiration of this Agreement.




          21. Confidentiality. The parties agree that the existence and terms of this Agreement
are and shall remain confidential. The parties shall not disclose the fact of this Agreement or any
of its terms or provisions to any person without the prior written consent of the other party
hereto; provided, however, that nothing in this Paragraph 21 shall prohibit disclosure of such
information to the extent required by law, nor prohibit disclosure of such information by Executive
to any legal or financial consultant, all of whom shall first agree to be bound by the
confidentiality provisions of this Paragraph 21, nor prohibit disclosure of such information within
the Company in the ordinary course of its business to those persons with a need to know, as
reasonably determined by the Company, or by the Company to any legal or financial consultant.




          22. Construction. Each party has cooperated in the drafting and preparation of this
Agreement. Therefore, in any construction to be made of this Agreement, the same shall not be
construed against any party on the basis that the party was the drafter.




13









 








          23. Section 409A of the Code.




               (a) This Agreement is not intended to provide for any deferral of compensation subject to
Section 409A of the Code, and, accordingly, the severance payments payable under Section 7(d) shall
be paid no later than the later of: (i) the fifteenth (15th) day of the third month
following Executive’s first taxable year in which such severance benefit is no longer subject to a
substantial risk of forfeiture, and (ii) the fifteenth (15th) day of the third month
following first taxable year of the Company in which such severance benefit is no longer subject to
substantial risk of forfeiture, as determined in accordance with Code Section 409A and any Treasury
Regulations and other guidance issued thereunder. To the extent applicable, this Agreement shall
be interpreted in accordance with Code Section 409A and Department of Treasury regulations and
other interpretive guidance issued thereunder.



               (b) Notwithstanding anything to the contrary in this Agreement, if at the time of Executive’s
termination of employment with the Company Executive is a “specified employee” as defined in Code
Section 409A, as determined by the Company in accordance with Code Section 409A, to the extent that
the payments or benefits under this Agreement are subject to Code Section 409A and the delayed
payment or distribution of all or any portion of such amounts to which Executive is entitled under
this Agreement is required in order to avoid a prohibited distribution under Code Section
409A(a)(2)(B)(i), then such portion shall be paid or distributed to Executive during the thirty
(30) day period commencing on the earlier of (x) the date that is six (6) months following
Executive’s termination of employment with the Company, (y) the date of Executive’s death, or (z)
the earliest date as is permitted under Code Section 409A.



(Signature Page Follows)




14









 








     In Witness Whereof, the parties have executed this Agreement as of the date first
above written.



	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	Somaxon Pharmaceuticals, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David F. Hale	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Name: David F. Hale

Title: Executive Chairman of the Board
	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Richard W. Pascoe	 	 
	 	 	 	 	 
	 	 	Richard W. Pascoe	 	 







15









 








Exhibit A




Agreement to Repay Prorata Moving Expenses




[Attached]





 









 









Exhibit B




RELEASE

(Individual Termination)




[Attached]


 









 






Exhibit C




RELEASE

(Group Termination)



[Attached]

1









 








Exhibit D




Proprietary Information and Inventions Agreement




[Attached]




 









 








Exhibit E




Indemnification agreement




[Attached]