Document:

EXHIBIT 10.4

 

IRONWOOD PHARMACEUTICALS, INC.

 

AMENDED AND RESTATED 2010 EMPLOYEE STOCK PURCHASE PLAN

 

The following constitute the provisions of the Amended and Restated 2010 Employee Stock Purchase Plan (the “Plan”) of Ironwood Pharmaceuticals, Inc. (the “Company”).

 

1.             Purpose.  The purpose of the Plan is to provide Employees of the Company and its Designated Subsidiaries with an opportunity to purchase Common Stock of the Company.  It is the intention of the Company to have the Plan qualify as an “Employee Stock Purchase Plan” under Section 423 of the Code.  The provisions of the Plan shall, accordingly, be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code.

 

2.             Definitions.

 

(a)           “Board” shall mean the Board of Directors of the Company, or a committee of the Board of Directors named by the Board to administer the Plan.

 

(b)           “Code” shall mean the Internal Revenue Code of 1986, as amended.

 

(c)           “Common Stock” shall mean the Class A Common Stock, $0.001 par value per share, of the Company.

 

(d)           “Company” shall mean Ironwood Pharmaceuticals, Inc., a Delaware corporation.

 

(e)           “Compensation” shall mean total cash compensation received by the Employee from the Company or a Designated Subsidiary that is taxable income for federal income tax purposes, including, payments for overtime, shift premium, incentive compensation, incentive payments, bonuses, commissions and other compensation received from the Company or a Designated Subsidiary, but excluding relocation, expense reimbursements, tuition or other reimbursements and income realized as a result of participation in any stock option, stock purchase or similar plan of the Company or a Designated Subsidiary.

 

(f)            “Continuous Status as an Employee” shall mean the absence of any interruption or termination of service as an Employee.  Continuous Status as an Employee shall not be considered interrupted in the case of a leave of absence agreed to in writing by the Company, provided that such leave is for a period of not more than 90 days or reemployment upon the expiration of such leave is guaranteed by contract or statute.

 

(g)           “Contributions” shall mean all amounts credited to the account of a participant pursuant to the Plan.

 

 

(h)           “Designated Subsidiaries” shall mean the Subsidiaries which have been designated by the Board from time to time in its sole discretion as eligible to participate in the Plan.

 

(i)            “Employee” shall mean any person who is employed by the Company or one of its Designated Subsidiaries for tax purposes and who is customarily employed for at least 20 hours per week and more than five months in a calendar year by the Company or one of its Designated Subsidiaries.

 

(j)            “Exercise Date” shall mean the last business day of each Offering Period of the Plan.

 

(k)           “Exercise Price” shall mean with respect to an Offering Period, an amount equal to 85% of the fair market value (as defined in paragraph 7(b)) of a share of Common Stock on the Offering Date or on the Exercise Date, whichever is lower.

 

(l)            “Offering Date” shall mean the first business day of each Offering Period of the Plan.

 

(m)          “Offering Period” shall mean a period of six months as set forth in paragraph 4 of the Plan.

 

(n)           “Plan” shall mean this Ironwood Pharmaceuticals, Inc. 2010 Employee Stock Purchase Plan.

 

(o)           “Subsidiary” shall mean a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or a Subsidiary, whether or not such corporation now exists or is hereafter organized or acquired by the Company or a Subsidiary.

 

3.             Eligibility.

 

(a)           Any person who is employed as an Employee as of the Offering Date of a given Offering Period shall be eligible to participate in such Offering Period under the Plan and further, subject to the requirements of paragraph 5(a) and the limitations imposed by Section 423(b) of the Code.  All Employees granted options under the Plan with respect to any Offering Period will have the same rights and privileges.

 

(b)           Any provisions of the Plan to the contrary notwithstanding, no Employee shall be granted an option under the Plan (i) if, immediately after the grant, such Employee (or any other person whose stock would be attributed to such Employee pursuant to Section 424(d) of the Code) would own stock and/or hold outstanding options to purchase stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Subsidiary of the Company, (ii) which permits his or her rights to purchase stock under all employee stock purchase plans (described in Section 423 of the Code) of the Company and its Subsidiaries to accrue at a rate which exceeds $25,000 of fair market value of such stock as defined in paragraph 7(b) (determined at the time such option is granted) for each

 

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calendar year in which such option is outstanding at any time, or (iii) to purchase more than 2,500 shares (subject to any adjustment pursuant to paragraph 18) of Common Stock in any one Offering Period.  Any option granted under the Plan shall be deemed to be modified to the extent necessary to satisfy this paragraph 3(b).

 

4.             Offering Periods.  The Plan shall be implemented by a series of Offering Periods, with a new Offering Period commencing on January 1 and July 1 of each year or the first business day thereafter (or at such other time or times as may be determined by the Board).  The initial Offering Period shall commence July 1, 2010, or on such later date as determined by the Board.

 

5.             Participation.

 

(a)           An eligible Employee may become a participant in the Plan by completing an Enrollment Form provided by the Company and filing it with the Company or its designee prior to the applicable Offering Date, unless a later time for filing the Enrollment Form is set by the Board for all eligible Employees with respect to a given Offering Period.  The Enrollment Form and its submission may be electronic as directed by the Company.  The Enrollment Form shall set forth the percentage of the participant’s Compensation (which shall be not less than 1% and not more than 15%) to be paid as Contributions pursuant to the Plan.

 

(b)           Payroll deductions shall commence with the first payroll following the Offering Date, unless a later time is set by the Board with respect to a given Offering Period, and shall end on the last payroll paid on or prior to the Exercise Date of the Offering Period to which the Enrollment Form is applicable, unless sooner terminated as provided in paragraph 10.

 

6.             Method of Payment of Contributions.

 

(a)           Each participant shall elect to have payroll deductions made on each payroll during the Offering Period in an amount not less than 1% and not more than 15% of such participant’s Compensation on each such payroll; provided that the aggregate of such payroll deductions during the Offering Period shall not exceed 15% of the participant’s aggregate Compensation during said Offering Period (or such other percentage as the Board may establish from time to time before an Offering Date).  All payroll deductions made by a participant shall be credited to his or her account under the Plan.  A participant may not make any additional payments into such account.

 

(b)           A participant may discontinue his or her participation in the Plan as provided in paragraph 10, or, on one occasion only during the Offering Period, may decrease, but may not increase, the rate of his or her Contributions during the Offering Period by completing and filing with the Company a new Enrollment Form authorizing a change in the deduction rate.  The change in rate shall be effective as of the beginning of the next payroll period following the date of filing of the new Enrollment Form, if the Enrollment Form is completed at least ten business days prior to such date, and, if not, as of the beginning of the next succeeding payroll period.

 

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(c)           Notwithstanding the foregoing, to the extent necessary to comply with Section 423(b)(8) of the Code and paragraph 3(b), a participant’s payroll deductions may be decreased to 0% at such time during any Offering Period which is scheduled to end during the current calendar year that the aggregate of all payroll deductions accumulated with respect to such Offering Period and any other Offering Period ending within the same calendar year equals $21,250.  Payroll deductions shall recommence at the rate provided in such participant’s Enrollment Form at the beginning of the first Offering Period which is scheduled to end in the following calendar year, unless terminated by the participant as provided in paragraph 10.

 

7.             Grant of Option.

 

(a)           On the Offering Date of each Offering Period, each eligible Employee participating in such Offering Period shall be granted an option to purchase on the Exercise Date of such Offering Period a number of shares of the Common Stock determined by dividing such Employee’s Contributions accumulated prior to such Exercise Date and retained in the participant’s account as of the Exercise Date by the applicable Exercise Price; provided however, that such purchase shall be subject to the limitations set forth in paragraphs 3(b) and 12.  The fair market value of a share of the Common Stock shall be determined as provided in paragraph 7(b).

 

(b)           The fair market value of the Common Stock on a given date shall be determined by the Board based on (i) if the Common Stock is listed on a national securities exchange or traded in the over-the-counter market and sales prices are regularly reported for the Common Stock, the closing or last sale price of the Common Stock for such date (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), on the composite tape or other comparable reporting system or (ii) if the Common Stock is not listed on a national securities exchange and such price is not regularly reported, the mean between the bid and asked prices per share of the Common Stock at the close of trading in the over-the-counter market.

 

8.             Exercise of Option.  Unless a participant withdraws from the Plan as provided in paragraph 10, his or her option for the purchase of shares will be exercised automatically on the Exercise Date of the Offering Period, and the maximum number of full shares subject to the option will be purchased for him or her at the applicable Exercise Price with the accumulated Contributions in his or her account.  If a fractional number of shares results, then such number shall be rounded down to the next whole number and any unapplied cash shall be carried forward to the next Exercise Date, unless the participant requests a cash payment.  The shares purchased upon exercise of an option hereunder shall be deemed to be transferred to the participant on the Exercise Date.  During a participant’s lifetime, a participant’s option to purchase shares hereunder is exercisable only by him or her.

 

9.             Delivery.  Upon the written request of a participant, certificates representing the shares purchased upon exercise of an option will be issued as promptly as practicable after the Exercise Date of each Offering Period to participants who wish to hold their shares in certificate form.  Any payroll deductions accumulated in a participant’s account which are not sufficient to purchase a full Share shall be retained in the participant’s account for the subsequent Offering Period, subject to earlier withdrawal by the participant as provided in paragraph 10

 

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below.  Any other amounts left over in a participant’s account after an Exercise Date shall be returned to the participant.

 

10.           Withdrawal; Termination of Employment.

 

(a)           A participant may withdraw all but not less than all the Contributions credited to his or her account under the Plan at any time prior to the Exercise Date of the Offering Period by giving written notice to the Company or its designee.  All of the participant’s Contributions credited to his or her account will be paid to him or her promptly after receipt of his or her notice of withdrawal and his or her option for the current period will be automatically terminated, and no further Contributions for the purchase of shares will be made during the Offering Period.

 

(b)           Upon termination of the participant’s Continuous Status as an Employee prior to the Exercise Date of the Offering Period for any reason, including retirement or death, the Contributions credited to his or her account will be returned to him or her or, in the case of his or her death, to the person or persons entitled thereto under paragraph 14, and his or her option will be automatically terminated.

 

(c)           In the event an Employee fails to remain in Continuous Status as an Employee for at least 20 hours per week during the Offering Period in which the Employee is a participant, he or she will be deemed to have elected to withdraw from the Plan and the Contributions credited to his or her account will be returned to him or her and his or her option terminated.

 

(d)           A participant’s withdrawal from an Offering Period will not have any effect upon his or her eligibility to participate in a succeeding offering or in any similar plan which may hereafter be adopted by the Company.

 

11.           Interest.  No interest shall accrue on the Contributions of a participant in the Plan.

 

12.           Stock.

 

(a)           The maximum number of shares of Common Stock which shall be made available for sale under the Plan shall be 400,000 shares, plus an annual increase on the first day of each of the Company’s fiscal years beginning in 2011, equal to the lesser of (i) 1,000,000 shares, (ii) 1 % of the shares of Common Stock outstanding on the last day of the immediately preceding fiscal year, or (iii) such lesser number of shares as is determined by the Board, subject to adjustment upon changes in capitalization of the Company as provided in paragraph 18.  The increase in the number of shares of Common Stock available for sale under this Plan set forth in this paragraph 12(a) shall be subject to the approval of the Board and shall be effective upon the first day of each fiscal year; provided, however, that in the event the Board has not approved an increase on or before the first day of the applicable fiscal year, the number of shares of Common Stock available for sale under this Plan shall remain the same until such time that the Board approves an increase pursuant to this Subparagraph 12(a).

 

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If the total number of shares which would otherwise be subject to options granted pursuant to paragraph 7(a) on the Offering Date of an Offering Period exceeds the number of shares then available under the Plan (after deduction of all shares for which options have been exercised), the Company shall make a pro rata allocation of the shares remaining available for option grants in as uniform a manner as shall be practicable and as it shall determine to be equitable.  Any amounts remaining in an Employee’s account not applied to the purchase of shares pursuant to this paragraph 12 shall be refunded on or promptly after the Exercise Date.  In such event, the Company shall give written notice of such reduction of the number of shares subject to the option to each Employee affected thereby and shall similarly reduce the rate of Contributions, if necessary.

 

(b)           The participant will have no interest or voting right in shares covered by his or her option until such option has been exercised.

 

13.           Administration.  The Board shall supervise and administer the Plan and shall have full power to adopt, amend and rescind any rules deemed desirable and appropriate for the administration of the Plan and not inconsistent with the Plan, to construe and interpret the Plan, and to make all other determinations necessary or advisable for the administration of the Plan.

 

14.           Designation of Beneficiary.

 

(a)           A participant may designate a beneficiary who is to receive any shares and cash, if any, from the participant’s account under the Plan in the event of such participant’s death subsequent to the end of the Offering Period but prior to delivery to him or her of such shares and cash.  In addition, a participant may designate a beneficiary who is to receive any cash from the participant’s account under the Plan in the event of such participant’s death prior to the Exercise Date of the Offering Period.  If a participant is married and the designated beneficiary is not the spouse, spousal consent shall be required for such designation to be effective.  Beneficiary designations shall be made either in writing or by electronic delivery as directed by the Company.

 

(b)           Such designation of beneficiary may be changed by the participant (and his or her spouse, if any) at any time by submission of the required notice, which may be electronic.  In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant’s death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its discretion, may deliver such shares and/or cash to the spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.

 

15.           Transferability.  Neither Contributions credited to a participant’s account nor any rights with regard to the exercise of an option or to receive shares under the Plan may be assigned, transferred, pledged or otherwise disposed of in any way (other than by will, the laws of descent and distribution or as provided in paragraph 14) by the participant.  Any such attempt

 

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at assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw funds in accordance with paragraph 10.

 

16.           Use of Funds.  All Contributions received or held by the Company under the Plan may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such Contributions.

 

17.           Reports.  Individual accounts will be maintained for each participant in the Plan.  Statements of account will be given to participating Employees promptly following the Exercise Date, which statements will set forth the amounts of Contributions, the per share purchase price, the number of shares purchased and the remaining cash balance, if any.

 

18.           Adjustments Upon Changes in Capitalization.  Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by unexercised options under the Plan and the number of shares of Common Stock which have been authorized for issuance under the Plan but are not yet subject to options set forth in paragraph 12(a), the number of shares of Common Stock set forth in paragraph 12(a)(i) (collectively, the “Reserves”), the maximum number of shares of Common Stock that may be purchased by a participant in an Offering Period set forth in paragraph 3(b), as well as the price per share of Common Stock covered by each unexercised option under the Plan, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock. Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive.

 

In the event of the proposed dissolution or liquidation of the Company, an Offering Period then in progress will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board.  In the event of a proposed sale of all or substantially all of the assets of the Company, or the merger, consolidation or other capital reorganization of the Company with or into another corporation, each option outstanding under the Plan shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, to shorten the Offering Period then in progress by setting a new Exercise Date (the “New Exercise Date”).  If the Board shortens the Offering Period then in progress in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify each participant in writing, at least ten days prior to the New Exercise Date, that the Exercise Date for his or her option has been changed to the New Exercise Date and that his or her option will be exercised automatically on the New Exercise Date, unless prior to such date he or she has withdrawn from the Offering Period as provided in paragraph 10.  For purposes of this paragraph, an option granted under the Plan shall be deemed to be assumed if, following the sale of assets, merger or other reorganization, the option confers the right to purchase, for each share of Common Stock subject to the option immediately prior to the sale of assets, merger or other reorganization, the consideration (whether stock, cash or other securities or property) received in the sale of assets, merger or other reorganization by holders of Common Stock for each share of Common Stock held on the effective date of such transaction (and if such holders were offered a choice of

 

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consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if such consideration received in such transaction was not solely common stock of the successor corporation or its parent (as defined in Section 424(e) of the Code), the Board may, with the consent of the successor corporation, provide for the consideration to be received upon exercise of the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the sale of assets, merger or other reorganization.

 

The Board may, if it so determines in the exercise of its sole discretion, also make provision for adjusting the Reserves, as well as the price per share of Common Stock covered by each outstanding option, in the event that the Company effects one or more reorganizations, recapitalizations, rights offerings or other increases or reductions of shares of its outstanding Common Stock, and in the event of the Company being consolidated with or merged into any other corporation.

 

19.           Amendment or Termination.

 

(a)           The Board may at any time terminate or amend the Plan.  Except as provided in paragraph 18, no such termination may affect options previously granted, nor may an amendment make any change in any option theretofore granted which adversely affects the rights of any participant provided that an Offering Period may be terminated by the Board on an Exercise Date or by the Board’s setting a new Exercise Date with respect to an Offering Period then in progress if the Board determines that termination of the Offering Period is in the best interests of the Company and the stockholders or if continuation of the Offering Period would cause the Company to incur adverse accounting charges in the generally-accepted accounting rules applicable to the Plan.  In addition, to the extent necessary to comply with Section 423 of the Code (or any successor rule or provision or any applicable law or regulation), the Company shall obtain stockholder approval in such a manner and to such a degree as so required.

 

(b)           Without stockholder consent and without regard to whether any participant rights may be considered to have been adversely affected, the Board shall be entitled to change the Offering Periods, limit the frequency and/or number of changes in the amount withheld during an Offering Period, establish the exchange ratio applicable to amounts withheld in a currency other than U.S. dollars, permit payroll withholding in excess of the amount designated by a participant in order to adjust for delays or mistakes in the Company’s processing of properly completed withholding elections, establish reasonable waiting and adjustment periods and/or accounting and crediting procedures to ensure that amounts applied toward the purchase of Common Stock for each participant properly correspond with amounts withheld from the participant’s Compensation, and establish such other limitations or procedures as the Board determines in its sole discretion advisable that are consistent with the Plan.

 

20.           Notices.  All notices or other communications by a participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.

 

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21.           Conditions Upon Issuance and Limitations on Dispositions of Shares.

 

(a)           Shares shall not be issued with respect to an option unless the exercise of such option and the issuance and delivery of such shares pursuant thereto shall comply with all applicable provisions of law, domestic or foreign, including, without limitation, the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

 

(b)           As a condition to the exercise of an option, the Company may require the person exercising such option to represent and warrant at the time of any such exercise that the shares are being purchased only for investment and without any present intention to sell or distribute such shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned applicable provisions of law.

 

(c)           Shares of Common Stock purchased under the Plan shall be subject to a six-month holding period from the Exercise Date upon which the shares were purchased.  During this time, the shares may not be sold, transferred, withdrawn, or moved; provided, however, that such prohibition will not apply following the death of a participant.

 

22.           Information Regarding Disqualifying Dispositions.  By electing to participate in the Plan, each participant agrees to provide any information about any transfer of shares of Common Stock acquired under the Plan that occurs within two years after the first business day of the Offering Period in which such shares were acquired as may be requested by the Company or any Subsidiaries in order to assist it in complying with the tax laws.

 

23.           Right to Terminate Employment.  Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any Employee the right to continue in the employment of the Company or any Subsidiary, or affect any right which the Company or any Subsidiary may have to terminate the employment of such Employee.

 

24.           Rights as a Stockholder.  Neither the granting of an option nor a deduction from payroll shall constitute an Employee the owner of shares covered by an option.  No Employee shall have any right as a stockholder unless and until an option has been exercised, and the shares underlying the option have been registered in the Company’s share register.

 

25.           Term of Plan.  The Plan became effective upon its adoption by the Board on December 17, 2009 and shall continue in effect for a term of twenty years unless sooner terminated under paragraph 19.

 

26.           Applicable Law.  This Plan shall be governed in accordance with the laws of the State of Delaware, applied without giving effect to any conflict-of-law principles.

 

9EXHIBIT 10.5

 

IRONWOOD PHARMACEUTICALS, INC.

 

CHANGE OF CONTROL

SEVERANCE BENEFIT PLAN

 

Adopted on May 5, 2009

Amended and Restated on July 30, 2012

 

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 Eligible 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 an Eligible Participant pursuant to this Plan as a result of such Eligible Participant’s termination of employment is “deferred compensation” subject to Section 409A, and if the Eligible Participant is a “Specified Employee” (as defined under Section 409A) as of the date of the Eligible 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 the Eligible 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 Eligible 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 later of (x) the date of the Change of Control or (y) 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.  The acceleration, if any, of any vesting provisions of a Company Equity Award that are based either (a) on time and performance milestones or (b) solely on milestone achievement shall be determined in accordance with the terms of the plan under which the Company Equity Award was issued.

 

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

 

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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.

 

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: (a) payment in full of the entire amount of the Payments, or (b) 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, cash payments not subject to Section 409A shall be reduced second, non-cash compensation subject to Section 409A shall be reduced third, and then non-cash compensation 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 the occurrence of any of the following conditions, in each case, as to which (x) the Company gives the Eligible Participant notice within ninety (90) days of its first existence and (y) to the extent curable, the Eligible Participant fails to cure such condition(s) within thirty (30) days of receiving such notice:

 

(a)           theft; a material act of 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

 

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Participant’s assigned duties that causes demonstrable harm to the Company; 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 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 securities of the Company outstanding immediately prior thereto failing to continue to represent (either by remaining outstanding or by being converted into securities of the surviving entity) at least 50% of either (i) the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation or (ii) the total fair market value of the 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; provided, however, that no individual initially appointed or elected to the Company’s Board of Directors as a result of an actual or threatened election contest with respect to the Company’s Board of Directors or as a result of any other actual or threatened solicitation of proxies by or on behalf of any person other than the Company’s Board of Directors shall be deemed to be endorsed by a majority of the members of the Company’s Board of Directors.

 

(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

 

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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 Eligible Participant’s consent and as to which (x) the Eligible Participant gives the Company notice within ninety (90) days of its first existence or occurrence of any or 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

 

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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.

 

5.2          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
    
	
 
    	
 
    	
301   Binney Street
    
	
 
    	
 
    	
Cambridge,   MA 02142
    

 

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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.  Notwithstanding the foregoing, any determination with respect to the administration or operation of the Plan made by the Board of the Company, or a designated subcommittee thereof, shall be subject to de novo review if such determination is made after the date of a Change of Control.  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 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 (a) the date that the Company first publicly announces it is conducting negotiations leading to a Change of Control, or (b) 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.

 

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