Exhibit 10.6


 


IRONWOOD
PHARMACEUTICALS, INC.


 


CHANGE OF CONTROL


SEVERANCE BENEFIT PLAN


 


May 5,
2009


 


This Change of Control
Severance Benefit Plan (the “Plan”)
has been adopted by the Compensation and HR Committee (the “Committee”) of the
Board of Directors of Ironwood Pharmaceuticals, Inc. (the “Company”).


 


PLAN PHILOSOPHY


 


Innovative
ideas and the associated intellectual property those ideas generate are at the
core of all value created in the biopharmaceutical industry.  Ironwood believes that its employees are the
source of these ideas and the subsequent value created.  The Company recognizes that the potential for
a change of control or other event that could substantially change the nature
and structure of the Company could adversely affect the Company’s ability to
motivate its employees.  This Plan is
designed to enable employees to bring forward their best ideas by providing
them with the knowledge that if a change of control occurs they will have an
opportunity to share in the value that they have helped create for shareholders
regardless of their employment status at the company after the change of
control.  The key elements to this plan
are designed to ensure employees have a reasonable period of time within which
to locate suitable employment without undue financial hardship, while also
recognizing the value of their contributions to the Company through limited
accelerated vesting of equity awards.


 


1.             GENERAL


 


1.1           Defined Terms.  Capitalized terms used in this Plan shall
have the meanings set forth in Section 4 below.


 


1.2           No Employment Agreement.  This Plan does not obligate the Company to continue to
employ any employee for any specific period of time, or in any specific role or
geographic location.  Subject to the
terms of any applicable written employment agreement between Company and an Eligible
Participant, the Company may assign an Eligible Participant to other
duties, and either the Company or an Eligible Participant may terminate
such Eligible Participant’s employment by the Company at any time for
any reason.


 


2.             CHANGE OF
CONTROL TERMINATION


 


2.1           Cash Severance Benefit.  In the event of an Eligible
Participant’s Covered Termination, the Eligible Participant shall be entitled
to the cash severance benefit described below.


 


2.1.1        Salary Continuation.  Subject to the terms of this Section 2.1,
such Eligible Participant shall receive a payment in an amount equal to six
months of such Eligible Participant’s base salary at the time of such Eligible
Participant’s Covered Termination.


 


2.1.2        Prorated Bonus Payment.  Subject to the terms of this Section 2.1,
such Eligible Participant shall receive a payment in an amount equal to his or
her target bonus for the year in which the Covered Termination occurs, prorated
through the date of such Eligible Participant’s Covered Termination.


 


All
payments made under this Section 2.1 shall be reduced by applicable
federal and state withholding taxes.  All
payments shall be paid in a lump sum upon the later of (x) the date of the
Change of Control or (y) within ten (10) calendar days following such
Eligible Participant’s Covered Termination. 
An Eligible 


 

















 


Participant
shall not be entitled to contribute any funds paid to such Eligible Participant
pursuant to this Plan to any deferred compensation plan maintained by the
Company and, with the exception of continuation healthcare coverage mandated by
the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) or similar state law, shall
cease to be eligible to actively participate in any other benefit plan maintained
by the Company.  If any of the benefits set forth in this Section 2.1 are deferred
compensation under Section 409A of the Internal Revenue Code and the rules and
regulations thereunder (“Section 409A”), any Covered Termination
triggering payment of such benefits must constitute a “separation from service”
under Section 409A before, subject to Section 2.1.3 of this Plan,
distribution of such benefits can commence. 
For purposes of clarification, this paragraph shall not cause any
forfeiture of benefits on the part of the Participant, but shall only act as a
delay until such time as a “separation from service” occurs.


 


2.1.3 Specified Employee Delay for Certain
Employees of Publicly Traded Companies. Notwithstanding the foregoing, if
any amount to be paid to Participant pursuant to this Plan as a result of Participant’s termination of employment is “deferred
compensation” subject to Section 409A, and if the Participant is a “Specified
Employee” (as defined under Section 409A) as of the date of Participant’s
termination of employment hereunder, then, to the extent necessary to avoid the
imposition of excise taxes or other penalties under Section 409A, the
payment of benefits, if any, scheduled to be paid by the Company to Participant
hereunder during the first six (6) month period following the date of a
termination of employment hereunder shall not be paid until the date which is
the first business day after six months have elapsed since the Participant’s
termination of employment for any reason other than death.  Any deferred compensation payments delayed in
accordance with the terms of this Section 2.1.3 shall be paid in a lump
sum when paid and any remaining payments thereafter shall continue in
accordance with the normal schedule set forth herein.  To the extent the amounts are not treated as
deferred compensation subject to Section 409A this six month delay will
not apply.


 


2.2           Acceleration of Vesting of
Equity Awards. If at the time of a Covered Termination, the
Eligible Participant has outstanding any stock options, restricted stock,
restricted stock units or other equity awards that were issued by the Company
prior to the Change of Control (“Company Equity Awards”) then as of the date of
the Covered Termination all such Company Equity Awards that have vesting
provisions based solely on time and not performance milestones shall have their
vesting fully accelerated so as to be 100% vested and exercisable as of the
date of the Covered Termination. 
To the extent any Company Equity Awards are subject to Section 409A,
vesting will be accelerated only to the extent the acceleration does not cause
additional taxes or penalties under Section 409A.  For the avoidance of doubt, any vesting
provisions of a Company Equity Award that are based solely on milestone
achievement shall not be accelerated hereunder.


 


2.3           Extended Medical and Dental
Benefits.


 


2.3.1        Benefit Continuation.  Upon completion of the appropriate forms as
required under the applicable provisions of COBRA, the Company shall continue
each Eligible Participant’s participation in the Company’s health and dental
insurance plans at the Company’s cost (except for the Eligible Participant’s
co-pay, if any, which shall be deducted from the Eligible Participant’s
severance compensation) for the six months following the date of such Eligible
Participant’s Covered Termination, to the same extent that such insurance is
provided to similarly situated Eligible Participants.


 


2.3.2        Termination of Coverage.  Notwithstanding Section 2.3.1, in the
event an Eligible Participant dies or becomes covered under another employer’s
group health plan during the continuation period (in which case such Eligible
Participant promptly shall inform the Company), the Company shall cease
provision of continued group health insurance for such Eligible Participant and
any dependents to the extent permitted by COBRA.


 


2

















 


3.             FEDERAL TAX UNDER IRC SECTION 4999


 


3.1           Adjustment of Excess
Payments Payable to an Eligible Participant Subject to Section 4999.  In the event it is
determined that an Eligible Participant entitled to payments and/or benefits
provided by this Plan or any other amounts in the “nature of compensation”
(whether pursuant to the terms of this Plan or any other plan, arrangement, or
agreement with the Company or any affiliate, any person whose actions result in
a change of ownership or effective control of the Company covered by Section 280G(b)(2) of
the Code or any person affiliated with the Company or such person) as a result
of such change of ownership or effective control of the Company (“Payments”) would be subject to
the excise tax imposed by Section 4999 of the Code (the “280G Excise Tax”), the Company
shall cause to be determined, before any amounts of the Payments are paid to
the Eligible Participant, which of the following two alternative forms of
payment would maximize the Eligible Participant’s after-tax proceeds: (i) payment
in full of the entire amount of the Payments, or (ii) payment of only a
part of the Payments so that the Eligible Participant receives the largest
payment possible without the imposition of the 280G Excise Tax (“Reduced Payments”).  If it is determined that Reduced Payments
will maximize an Eligible Participant’s after-tax benefit, then (i) cash
compensation subject to Section 409A shall be reduced first, then cash
payments not subject to Section 409A shall be reduced, (ii) the
Payments shall be paid only to the extent permitted under the Reduced Payments
alternative, and (iii) the Eligible Participant shall have no rights to
any additional payments and/or benefits constituting the Payments.  Unless the Company and
Eligible Participant otherwise agree in writing, any determination required
under this Section 3.1 shall be made in writing by independent public
accountants agreed to by the Company and the Eligible Participant (the “Accountants”), whose
determination shall be conclusive and binding upon the Eligible Participant and
the Company for all purposes.  For
purposes of making the calculations required by this Section 3.1, the
Accountants may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code.  The Company and the Eligible Participant
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make the required
determinations.  The Company shall bear
all fees and expenses the Accountants may reasonably charge in connection with
the services contemplated by this Section 3.1.  Notwithstanding the foregoing, the
calculations and adjustments set forth above shall not result in any delay in
payment of benefits under this Plan.


 


4.             DEFINITIONS


 


4.1           Capitalized Terms Defined.  Capitalized terms used in this Plan shall
have the meanings set forth in this Section 4,  unless the context
clearly requires a different meaning.


 


4.2           “Cause” means:


 


(a)            theft; a material act of
dishonesty or fraud; intentional falsification of any employment or Company
records; or the commission of any criminal act;;


 


(b)           improper disclosure or use
of the Company’s confidential, business or proprietary information by the
Eligible Participant;


 


(c)          gross negligence or willful
misconduct in the performance of the Eligible Participant’s assigned duties; or


 


(d)           repeated failure by the
Eligible Participant to perform his or her job responsibilities in accordance
with written instructions from such Eligible Participant’s supervisor (which,
in the case of the Company’s Chief Executive Officer, shall be the Company’s Board
of Directors).


 


4.3           “Change of Control” means:


 


(a)           any “person” (as such term
is used in Sections 13(d) and 14(d) of the Securities 


 


3

















 


Exchange Act of 1934, as
amended), becomes the “Beneficial Owner” (as defined in Rule 13d-3 under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing more than 50% of the total voting power
represented by the Company’s then outstanding voting securities (excluding for
this purpose any such voting securities held by the Company, or any affiliate,
parent or subsidiary of the Company or any employee benefit plan of the
Company) pursuant to a transaction or a series of transactions which the Board
of Directors does not approve;


 


(b)           a merger or consolidation of
the Company, whether or not approved by the Board of Directors, which results
in the holders of voting securities of the Company outstanding immediately
prior thereto failing to continue to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity) at least
50% of the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or consolidation;


 


(c)           the sale or disposition of
all or substantially all of the Company’s assets (or consummation of any
transaction having similar effect) provided that the sale or
disposition is of more than two-thirds (2/3) of the assets of the
Company; or


 


(d)           the date a majority of
members of the Company’s Board of Directors is replaced during any 12-month
period by directors whose appointment or election is not endorsed by a majority
of the members of the Company’s Board of Directors before the date of the appointment
or election.


 


(e)           In any case, a Change of
Control under this Section 4.3 must also meet the requirements of a change
in ownership or effective control, or a sale of a substantial portion of the
Company’s assets in accordance with Section 409A(a)(2)(A)(v) of the
Code and the applicable provisions of Treasury Regulation § 1.409A-3.


 


4.4           “Company” shall mean Ironwood
Pharmaceuticals, Inc. and, following a Change of Control, any Successor
that agrees to assume, or otherwise becomes bound to by operation of law, all
the terms and provisions of this Plan.


 


4.5           “Constructive Termination in connection with a Change
of Control” means the termination of employment by an Eligible
Participant for Good Reason, as defined in this Plan, within twenty-four months
after the occurrence of any Change of Control; provided that “Constructive Termination in connection
with a Change of Control” shall not include any termination of the employment
of an Eligible Participant (i) by the Company for Cause; (ii) by the
Company as a result of the Permanent Disability of the Eligible Participant; (iii) as
a result of the death of the Eligible Participant; or (iv) as a result of
the voluntary termination of employment by the Eligible Participant for reasons
other than Good Reason.


 


4.6           “Covered Termination” shall mean, with
respect to an Eligible Participant for purposes of this Plan, a Termination
Upon Change of Control or a Constructive Termination in connection with a
Change of Control.


 


4.7           “Effective Date” means May 5,
2009.


 


4.8           “Eligible Participant” shall means all
employees of the Corporation employed by the Company as of the Effective Date,
and such other additional employees of the Company as may be designated from
time to time after the Effective Date to participate in this Plan by the
Compensation Committee of the Board of Directors.


 


4.9           “Good Reason” means the occurrence of
any of the following conditions following a Change of Control, in each case
occurring without the Participant’s consent and as to which (x) the Participant
gives the Company notice within ninety (90) days of its first existence or
occurrence of any or 


 


4

















 


any combination of the
eligibility conditions specified below, and (y) the Company fails to cure the
eligibility condition(s) within thirty (30) days of receiving such notice:


 


(a)           a material diminution in the
Eligible Participant’s authority, duties and responsibilities;


 


(b)           a material diminution in the
Eligible Participant’s total target cash compensation unless such
material diminution is in connection with a proportional reduction in
compensation for all or substantially all of the Company’s employees who are
similarly situated;


 


(c)           the relocation of the
Eligible Participant’s work place for the Company to a location more than 60
miles from the location of the work place prior to the Change of Control; or


 


(d)           any other action or inaction
that constitutes a material breach by the Eligible Participant’s employer of
the agreement, if any, under which the Eligible Participant is then providing
services.


 


4.10         “Permanent Disability” means that:


 


(a)           the Eligible Participant has
been incapacitated by bodily injury, illness or disease so as to be prevented
thereby from engaging in the performance of such Eligible Participant’s duties;


 


(b)           such total incapacity shall
have continued for a period of six (6) consecutive months; and


 


(c)           such incapacity will, in the
opinion of a qualified physician, be permanent and continuous during the
remainder of such Eligible Participant’s life.


 


4.11         “Successor” means the Company as
defined above and any successor or assign (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company.


 


4.12         “Termination Upon Change of Control”
means any actual termination of the employment of an Eligible Participant by
the Company without Cause during the period commencing thirty (30) days prior
to the earlier of (i) the date that the Company first publicly announces
it is conducting negotiations leading to a Change of Control, or (ii) the
date that the Company enters into a definitive agreement that would result in a
Change of Control (even though still subject to approval by the Company’s
stockholders and other conditions and contingencies); and ending on the earlier
of (x) the date on which the Company announces that the definitive
agreement described in clause (ii) above has been terminated or that the
Company’s efforts to consummate the Change of Control contemplated by the
previously announced negotiations or by a previously executed definitive
agreement have been abandoned or (y) the date which is twenty-four months
after the Change of Control; provided
that “Termination Upon Change of Control” shall not include any termination of
the employment of an Eligible Participant (i) by the Company for Cause; (ii) by
the Company as a result of the Permanent Disability of the Eligible
Participant; (iii) as a result of the death of the Eligible Participant,
or (iv) as a result of the voluntary termination of employment by the
Eligible Participant for reasons other than Good Reason.


 


5.             EXCLUSIVE REMEDY


 


5.1           Sole Remedy for Covered
Terminations.  The
payments and benefits provided for in Sections 2 and 3 shall constitute an
Eligible Participant’s sole and exclusive remedy for any alleged injury or
other damages arising out of the cessation of the employment relationship
between the Eligible Participant and the Company in the event of the Eligible
Participant’s Covered Termination, except
as expressly set forth in a written agreement or in a duly executed employment
agreement between Company and an Eligible Participant, whether entered into
before or after the Effective Date.


 


5

















 


5.2           Other Agreements Not
Superseded.  No
provision of this Plan shall supersede or limit the terms, including more
restrictive terms, of any other agreement by an Eligible Participant to refrain
from competition with or from soliciting the employees or customers of the
Company.


 


6.             OTHER BENEFIT PLANS


 


This Plan is not intended to
and shall not affect, limit or terminate any plans, programs, or arrangements
of the Company, all of which are subject to Committee approval, that are
regularly made available to a significant number of employees, officers or
executives of the Company, including without limitation the Company’s equity
incentive plans. As of the date hereof, the Company has no other plan, program
or arrangement which would provide superior severance benefits than those
provided herein.


 


7.             SUCCESSORS
AND ASSIGNS


 


7.1           Successors of the Company.  The Company will require any Successor
expressly, absolutely and unconditionally to assume and agree to perform this
Plan in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken
place.  Failure of the Company to obtain
such agreement shall be a material breach of this Plan.


 


7.2           No Assignment of Rights.  Except as set forth in Section 7.3, the
interest of any Eligible Participant in this Plan or in any distribution to be
made under this Plan may not be assigned, pledged, alienated, anticipated, or
otherwise encumbered (either at law or in equity) and shall not be subject to
attachment, bankruptcy, garnishment, levy, execution, or other legal or
equitable process.  Any act in violation
of this Section 7.2 shall be void.


 


7.3           Heirs and Representatives of
Eligible Participant.  An Eligible
Participant’s accrued rights under this Plan shall inure to the benefit of and
be enforceable by an Eligible Participant’s personal and legal representatives,
executors, administrators, successors, heirs, distributees, devises and
legatees.


 


8.             NOTICES


 


For purposes of this Plan,
notices and all other communications permitted or provided for in this Plan
shall be in writing and shall be deemed to have been duly given when delivered
or mailed by United States registered mail, return receipt requested, postage
prepaid, as follows:


 


	
  If to the Company:

  	
  Ironwood
  Pharmaceuticals, Inc.

  
	
   

  	
  Attention: General Counsel

  
	
   

  	
  320 Bent Street

  
	
   

  	
  Cambridge, MA 02141

  



 


and
if to an Eligible Participant at the most recent address recorded in the
records of the Company.  Either party may
provide the other with notices of change of address, which shall be effective
upon receipt.


 


9.             AUTHORITY
OF THE BOARD OF THE COMPANY


 


The Board of the Company, or
a designated subcommittee thereof, shall have the authority to administer the
Plan, interpret the provisions of the Plan and to determine any question
arising under, or in connection with the administration or operation of, the
Plan, including, without limitations, questions of fact.  If applicable, the Plan shall be interpreted and
administered in a manner consistent with Section 409A.


 


10.          SEVERABILITY
OF PROVISIONS


 


If anyone or more of the provisions (or any part
thereof) of this Plan shall be held invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
(or any 


 


6

















 


part thereof) shall not in any way be affected or impaired thereby.


 


11.          AMENDMENT,
SUSPENSION OR TERMINATION


 


At any time after the Effective Date of this Plan
and prior to the date thirty (30) days before the earlier of (i) the date
that the Company first publicly announces it is conducting negotiations leading
to a Change of Control, or (ii) the date that the Company enters into a
definitive agreement that would result in a Change of Control (even though
still subject to approval by the Company’s stockholders and other conditions
and contingencies), the Board of Directors of the Company shall have the right
to amend, suspend or terminate this Plan at any time and for any reason.  Notwithstanding the preceding sentence,
however, no amendment or termination of this Plan shall reduce any Eligible
Participant’s rights or benefits that have accrued and become payable under
this Plan before the date the amendment is adopted or this Plan is terminated,
as appropriate.  Any such amendment shall
comply with the requirements of Section 409A, if applicable.


 


7