Document:

exv10w45

 

EXHIBIT
10.45

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

     This Severance and Change in Control Agreement (the “Agreement") is made and entered
into effective as of November 20, 2006 (the “Effective Date"), by and between Anadys
Pharmaceuticals, Inc., a Delaware corporation (the “Company"), and Lawrence C. Fritz,
Ph.D. (the “Executive"). The Company and the Executive are hereinafter collectively referred
to as the “Parties", and individually referred to as a “Party".

AGREEMENT

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

     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, except that Executive’s service on outside boards of directors or other similar
activities may be permitted by the Company’s Board of Directors provided such activities are
consistent with the proper and efficient performance of Executive’s duties as an officer of the
Company. . 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 Section 2.2 below.

     2.
Term; Compensation Upon Termination.

          2.1 Term. The term of this Agreement (the “Term”) shall begin on the Effective Date and shall
continue until Executive’s employment with the Company is terminated for any reason.

          2.2 Compensation Upon Termination.

               2.2.1 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.

               2.2.2 With Cause or Without Good Reason. If the Executive’s employment with the Company is
terminated by the Company for Cause (as defined below) or if the Executive terminates his
employment with the Company without Good Reason (as defined below), 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.

1.

 

               2.2.3 Without Cause or With Good Reason. If the Company terminates the Executive’s employment
without Cause or the Executive resigns with Good Reason, the Company shall pay the Executive’s base
salary and accrued and unused vacation earned through the date of termination, at the rate in
effect at the time of termination subject to standard deductions and withholdings. In addition,
contingent upon the Executive’s furnishing to the Company an effective waiver and release of claims
(“Release and Waiver”) (a form of which is attached hereto as Exhibit A), the Executive shall be
entitled to:

                    (i) The equivalent of twelve (12) months of the Executive’s annual base salary, less standard
deductions and withholdings, which shall be paid as soon as administratively practicable but no
later than sixty (60) days after termination unless Section 3.2 applies;

                    (ii) Reimbursement for continued health insurance coverage under COBRA, provided that
Executive elects such coverage, for the same portion of Executive’s COBRA health insurance premium
that it paid during the Executive’s employment up until the earlier of either (i) twelve (12)
months after the date of termination or, (ii) the date on which the Executive begins full-time
employment with another company or business entity, which provides Executive with similar benefits;
and

                    (iii) Outplacement services for a period of six (6) months to be provided by an outplacement
firm mutually acceptable to the Company and Executive.

                    (iv) In addition, in the event that Executive would otherwise owe to the Company the
reimbursement of his sign-on bonus, such reimbursement shall not be required if the provisions of
this Section 2.2.3 apply.

               2.2.4 Without Cause within First 12 Months. If the Company terminates the Executive’s
employment without Cause prior to the one-year anniversary of Executive’s employment with the
Company, then, in addition to the benefits set forth in Section 2.2.3, and contingent upon the
Executive’s furnishing to the Company an effective Release and Waiver, the vesting and
exercisability of the Executive’s Initial Stock Option Grant (as defined in the Offer Letter
referenced below in Section 2.3.2 (i)) shall be accelerated such that the number of shares
determined by multiplying 1/48th of the Initial Stock Option Grant by the number of
months that Executive was employed by the Company (rounded up to the next whole month) shall be
vested and fully exercisable as of the date of Executive’s termination.

               2.2.5 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 provided in this Section 2 or for benefits due
to the Executive (and/or the Executive’s dependents) under the terms of the Company’s benefit
plans. The Company may offset any amounts Executive owes it or its subsidiaries against any amount
it owes Executive pursuant to this Section 2.2.

2.

 

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

               2.3.1 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.

               2.3.2 Good Reason. “Good Reason” for the Executive to terminate the Executive’s employment
hereunder shall mean the occurrence of any of the following events without the Executive’s consent:

               (i) A material breach of any material provision of the offer letter entered into on November
6, 2006 between Executive and the Company (the “Offer Letter”), not cured within thirty (30) days
of the breach. The Offer Letter is incorporated by reference and made a part of this Agreement as
if fully set forth herein;

               (ii) a material adverse change in the nature or scope of Executive’s job responsibilities, or
in the case of a Change in Control, the failure to be offered a substantially equivalent position
with the successor entity;

               (iii) 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; and

               (iv) a reduction in the annual base compensation paid to Executive, without Executive’s
consent; provided, however, that a reduction in Executive’s compensation of less than 15% occurring
as part of a Company-wide similar reduction of salary for similarly-situated executives shall not
constitute Good Reason.

          2.4 For 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 to substantially perform his duties hereunder
(other than any such failure resulting from a Complete Disability), which failure continues for a
period of thirty (30) days after written demand for substantial performance is delivered by the Company to Executive specifically identifying the manner in

3.

 

which the Company believes the Executive has not substantially performed his duties. For purposes
of this subparagraph, no act or failure to act on Executive’s part shall be considered “willful”
unless done, or omitted to be done, by the Executive without reasonable belief that his action or
omission was in the best interest of the Company;

               (ii) the Executive’s breach of a material provision of this Agreement or a breach of a
material provision of the Agreement for Employees dated November 20, 2006 (proprietary information
and inventions agreement) between Executive and the Company, which breach has not been cured (if it
is of a nature that can be cured) by Executive within 10 days after written notice thereof from the
Company to Executive specifying the nature of such breach;

               (iii) the Executive’s conviction of a felony involving moral turpitude; and

               (iv) the Executive’s engaging in fraud, embezzlement or any other illegal conduct detrimental
to the Company.

          2.5 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, 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

4.

 

               (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.

          2.6 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. Accordingly, 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.

     3.
Change in Control.

          3.1 Benefits.

               3.1.1 In the event that Executive’s employment with the Company is terminated without Cause or
for Good Reason within the sixty (60) day period immediately preceding or the thirteen (13) month
period immediately following a Change in Control of the Company, then contingent upon the
Executive’s delivery to the Company of an effective Release and Waiver, the Executive shall be
entitled to:

               (i) the benefits set forth in Section 2.2.3 (i), (ii), (iii) and (iv), except that in Sections
2.2.3 (i) and (ii), “twelve (12) months” will be changed to “ eighteen (18) months” ; and

               (ii) accelerated vesting of all unvested shares subject to any outstanding stock options, such
that all shares shall be vested and fully exercisable as of the date of Executive’s termination.

          3.2 Application of Internal Revenue Code Section 409A. If the Company determines that the
benefits payable under Sections 2.2.3 or 3.1 of this Agreement fail to satisfy the distribution
requirement of Section 409A(a)(2)(A) of the Internal Revenue Code as a result of Section
409A(a)(2)(B)(i) of the Internal Revenue Code, the payment of such benefits shall be delayed to the
minimum extent necessary so that such benefits are not subject to the provisions of Section
409A(a)(1) of the Internal Revenue Code.

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

5.

 

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.

     4.
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 supercedes and replaces any other agreement between Executive and the Company
regarding severance benefits 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.

6.

 

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

	 	 	 	 	 
	Anadys
Pharmaceuticals, Inc.	 	 
	 
	 	 	 	 
	By: 

Name:

	 	/s/ George A. Scangos, Ph.D. 

George A. Scangos, Ph.D.
	 	 
	Its:

	 	Chairman
of the Board	 	 
	 
	 	 	 	 
	Dated:

	 	11/17/2006	 	 
	 
	 	 	 	 
	Executive:	 	 
	 
	 	 	 	 
	/s/ Lawrence C. Fritz, Ph.D.	 	 
	 	 	 
	 
	 	 	 	 
	Dated:

	 	11/20/2006	 	 

7.

 

EXHIBIT A

RELEASE AND WAIVER OF CLAIMS

     In consideration of the payments and other benefits set forth in Sections 2.2.3 and 3.1 of the
Severance and Change in Control Agreement dated November 20, 2006, to which this form is attached,
I, Lawrence C. Fritz, Ph.D., 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 Severance and 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; and (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.

     I acknowledge that, among other rights, I am waiving and releasing any rights I may have under
ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for
this Release and Waiver is in addition to anything of value to which I was already entitled as an
executive 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, as required by the Older Workers Benefit
Protection Act, that: (a) the release and waiver granted herein does not relate to claims under the
ADEA which may arise after this Release and Waiver is executed; (b) 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 (c) I have twenty-one (21) days from the date of termination of my employment with the Company in which to consider this Release and Waiver

1.

 

(although I may choose voluntarily to execute this Release and Waiver earlier); (d) I have seven (7) days following
the execution of this Release and Waiver to revoke my consent to this Release and Waiver; and (e)
this Release and Waiver shall not be effective until the seven (7) day revocation period has
expired.

     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 (c) 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 November 20,
2006 (proprietary information and inventions agreement), attached hereto as Exhibit B. Pursuant to
the Agreement for Employees 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 change in control
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 Agreement for Employees.

     This Release and Waiver, including Exhibit B 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:	 	 
	 

	 	 
	 	 	 	 	 	 

2.exv10w46

 

EXHIBIT
10.46

SEVERANCE AND CHANGE IN CONTROL AGREEMENT

     This Severance and Change in Control Agreement (the “Agreement”) is made and entered
into effective as of November 13, 2006, (the “Effective Date”), by and between Anadys
Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and James T. Glover
(the “Executive”). The Company and the Executive are hereinafter collectively referred to as
the “Parties”, and individually referred to as a “Party”.

AGREEMENT

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

     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. 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 Sections 3 and 4 or for benefits due to the Executive (and/or
the Executive’s dependents) under the terms of the Company’s benefit plans. The Company may
offset any amounts Executive owes it or its subsidiaries against any amount it owes Executive
pursuant to Sections 3 or 4.

     1.3 The term of this Agreement (the “Term”) 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 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

1.

 

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.

     2.2 Good Reason. “Good Reason” for the Executive to terminate the Executive’s employment
hereunder shall mean the occurrence of any of the following events without the Executive’s
consent:

               (i) a material adverse change in the nature or scope of Executive’s job responsibilities, or
in the case of a Change of Control, the failure to be offered a substantially equivalent position
with the successor entity;

               (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; and

               (iii) a reduction in the annual base compensation paid to Executive, without Executive’s
consent; provided, however, that a reduction in Executive’s compensation occurring as part of a
Company-wide similar reduction of salary for similarly-situated executives shall not constitute
Good Reason.

     2.3 For 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 grossly negligent failure, as determined in good faith by the
Board of Directors, to satisfactorily perform the Executive’s assigned duties with the Company, or
any successor thereof, in the best interest 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, for the purposes of Section 4.1.1 only, any such actual
or anticipated failure resulting from a Good Reason termination) which is not corrected within
thirty (30) days of receiving notice of such failure from the Company specifying in reasonable
detail the nature of such failure;

               (ii) the Executive’s commission of a negligent or 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 which is directly
competitive with or injurious to the Company or any of its affiliates or

2.

 

which violates any material provisions of the Executive’s Agreement for Employees dated
September 25, 2006 (proprietary information and inventions agreement) with the Company.

     2.4 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, 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.

     2.4 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. Accordingly, the Parties agree that unless it

3.

 

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.

     3.
Severance.

     3.1 Benefits.

               3.1.1 Except as provided in Section 4.1.1, in the event that Executive’s employment with the
Company is terminated by the Company without Cause within the twelve (12) month period immediately
following Executive’s first day of employment with the Company, then upon the Executive’s delivery
to the Company of an effective Release and Waiver of Claims, attached hereto as Exhibit A, the
Executive shall be entitled to the equivalent of nine (9) months of the Executive’s annual base
salary in effect at the time of termination, less standard deductions and withholdings, which shall
be paid as soon as administratively practicable but no later than sixty (60) days after
termination.

               (i) In addition, in the event that Executive would otherwise owe to the Company the
reimbursement of a pro rata portion of his sign-on bonus/relocation assistance, such reimbursement
shall not be required if the provisions of this Section 3.1.1 apply.

     4.
Change in Control.

     4.1 Benefits.

               4.1.1 In the event that Executive’s employment with the Company is terminated without Cause or
for Good Reason within the sixty (60) day period immediately preceding or the twelve (12) month
period immediately following a Change in Control of the Company, then upon the Executive’s delivery
to the Company of an effective Release and

               Waiver of Claims, attached hereto as Exhibit A, the Executive shall be entitled to:

               (i) The equivalent of nine (9) months of the Executive’s annual base salary in effect at the
time of termination, less standard deductions and withholdings, which shall be paid as soon as
administratively practicable, but no later than sixty (60) days after termination, unless Section
4.2 below applies; and

               (ii) Accelerated vesting of all unvested shares subject to any outstanding stock options then
held by Executive, such that all shares shall be vested and fully exercisable as of the date of
Executive’s termination.

               (iii) In addition, in the event that Executive would otherwise owe to the Company the
reimbursement of a pro rata portion of his sign-on bonus/relocation assistance, such reimbursement
shall not be required if the provisions of this Section 4.1 apply.

     4.2 Application of Internal Revenue Code Section 409A. If the Company determines that
the benefits payable under Section 4.1.1(i) of this Agreement fail to satisfy the distribution
requirement of Section 409A(a)(2)(A) of the Internal Revenue

4.

 

Code as a result of Section 409A(a)(2)(B)(i) of the Internal Revenue Code, the payment of
such benefits shall be delayed to the minimum extent necessary so that such benefits are not
subject to the provisions of Section 409A(a)(1) of the Internal Revenue Code.

     4.3 Parachute Payment. If any payment or benefit Executive would receive pursuant a
Change in Control or otherwise (“Payment”) would (i) constitute a “parachute 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.
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 supercedes and replaces any other agreement between Executive and the

5.

 

Company regarding change in control benefits 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: 

Name:

	 	/s/ Kleanthis G. Xanthopoulos, Ph.D.
 

Kleanthis G. Xanthopoulos, Ph.D.
	 	 
	Its:

	 	President and Chief Executive Officer	 	 
	 
	 	 	 	 
	Dated:

	 	11/13/2006	 	 
	 
	 	 	 	 
	Executive:	 	 
	 
	 	 	 	 
	/s/ James T. Glover	 	 
	 	 	 
	 
	 	 	 	 
	Dated:

	 	11/13/2006	 	 

6.

 

EXHIBIT A

RELEASE AND WAIVER OF CLAIMS

     In consideration of the payments and other benefits set forth in Sections 3 and 4 of the
Severance and Change in Control Agreement dated November 13, 2006, to which this form is attached,
I, James T. Glover, 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 Severance and 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, 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; and (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.

     I acknowledge that, among other rights, I am waiving and releasing any rights I may have under
ADEA, that this Release and Waiver is knowing and voluntary, and that the consideration given for
this Release and Waiver is in addition to anything of value to which I was already entitled as an
executive 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, as required by the Older Workers Benefit
Protection Act, that: (a) the release and waiver granted herein does not relate to claims under
the ADEA which may arise after this Release and Waiver is executed; (b) 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 (c) I have twenty-one (21) 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); (d) I have seven

1.

 

(7) days following the execution of this Release and Waiver to revoke my consent to this Release and Waiver;
and (e) this Release and Waiver shall not be effective until the seven (7) day revocation period
has expired.

     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 (c) 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 September 25,
2006 (proprietary information and inventions agreement), attached hereto as Exhibit B. Pursuant to
the Agreement for Employees 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 change in control
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 Agreement for Employees.

     This Release and Waiver, including Exhibit B 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:	 	 
	 

	 	 
	 	 	 	 	 	 

2.

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