Document:

exv10w1

 

EXHIBIT 10.1

SOMAXON PHARMACEUTICALS, INC.

EMPLOYMENT AGREEMENT

     Employment Agreement (this “Agreement”) made and entered into as of May 15, 2006,
between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Matthew
Onaitis, an individual (“Executive”).

W I T N E S S E T H:

     Whereas, the Company desires to employ Executive and Executive desires to accept
employment with Company upon the terms and conditions hereinafter set forth;

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

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

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

          3. Compensation.

               (a) Base Salary. The Company shall pay to Executive base salary compensation at an
annual rate of $210,000. Following the end of the Company’s fiscal year 2006, and annually
thereafter, the Board shall review Executive’s base salary in light of the performance of Executive
and the Company, and may, in its sole discretion, maintain or increase (but not decrease) such base
salary by an amount it determines to be appropriate. Executive’s annual base salary payable
hereunder, as it may be maintained or increased from time to time, is referred to herein as “Base
Salary.” Base Salary shall be paid in equal installments in accordance with the Company’s payroll
practices in effect from time to time for executive officers, but in no event less frequently than
monthly.

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

 

 

of comparable responsibility and authority within the Company’s industry (the
“Company Employee Bonus Plan”).

               (c) Signing Bonus. Executive shall be eligible to receive a one-time cash bonus
payment of $40,000 payable on the first regularly scheduled payroll date following the execution of
this Agreement. In addition, the Company shall gross-up Executive for all taxes payable with
respect to such sign-on bonus (the bonus plus any gross-up payment, the “Total Sign-on Payments”).
If Executive’s employment with the Company is terminated by Executive for any reason other than for
Good Reason pursuant to Paragraph 7(c)(i) or if the Company terminates Executive’s employment for
Cause pursuant to Paragraph 7(b)(i) during the period commencing on the date of execution of this
Agreement and ending on the first anniversary of the execution of this Agreement, Executive shall
repay to the Company such portion of the Total Sign-on Payment as is determined by multiplying (i)
the Total Sign-on Payment paid by the Company pursuant to this Section 4(c) as of the date of
termination by (ii) a fraction determined by dividing (A) the total number of days remaining from
the date of termination through the first anniversary of the execution of this Agreement, by (B)
three hundred sixty-five (365). The Company shall have the right to offset such amounts against
any compensation otherwise payable to Executive on the date of termination.

               (d) Option Grant. As additional consideration for the services to be rendered by
Executive under this Agreement, the Company will grant to Executive stock options to purchase
75,000 shares of the Company’s common stock, subject to approval of the Board. The exercise price
per share of such options will be equal to the fair market value per share on the date the options
are granted. The stock options will vest over four years with 1/4 of the shares subject to the
stock options vesting on the first anniversary of the date the stock options are granted, and the
remainder vesting monthly at a rate of 1/48th on the first day of each calendar month thereafter
until all shares are vested. The stock options will be granted under the Company’s 2005 Equity
Incentive Award Plan (the “Option Plan”) and will be subject to the terms and conditions applicable
to stock options granted under that plan, as described in that plan and the applicable stock option
agreement.

               (e) Legal Education and State Bar Dues. The Company shall pay the costs of
Executive’s State Bar dues, his required Continuing Legal Education courses and those professional
education programs reasonably necessary for the performance of Executive’s duties as the Company’s
chief legal officer.

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

          5. Vacation. Executive shall be entitled to paid vacation and sick time (“PTO”) of up
to four weeks per calendar year, with such number of weeks being pro-rated for the remainder of the
2006 calendar year. Executive may roll-over unused PTO time from one calendar year to another,
subject to a maximum of six weeks of accrued PTO.

 

 

          6. Business Expenses. The Company shall promptly reimburse Executive for Executive’s
reasonable and necessary expenditures for travel, entertainment and similar items made in
furtherance of Executive’s duties under this Agreement consistent with the policies of the Company
as applied to all executive officers. Executive shall document and substantiate such expenditures
as required by the policies of the Company as applied to all executive officers, including an
itemized list of all expenses incurred, the business purposes for which such expenses were
incurred, and such receipts as Executive reasonably has been able to obtain.

          7. Termination of Employment.

               (a) Death or Disability.

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

                    (ii) Each of the Company and Executive shall have the right to terminate Executive’s
employment in the event of Executive’s Disability. “Disability” as used in this Agreement shall
have meaning set forth in Section 22(e)(3) of the Internal Revenue Code, which as of the date of
this Agreement is as follows: “An individual is permanently and totally disabled if he is unable
to engage in any substantial gainful activity by reason of any medically determinable physical or
mental impairment which can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than 12 months.” A termination of Executive’s
employment by either party for Disability shall be communicated to the other party by written
notice, and shall be effective on the 10th day after receipt of such notice by the other party (the
“Disability Effective Date”), unless Executive returns to full-time performance of Executive’s
duties before the Disability Effective Date.

               (b) By the Company.

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

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

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

                         (c) Executive’s commission of an act of fraud, whether prior to or subsequent to the
date hereof upon the Company;

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

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

 

 

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

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

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

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

               (c) By Executive.

                    (i) Executive shall have the right to terminate his employment with the Company for Good
Reason (as defined below), upon 30 days’ written notice to the Board given within 60 days following
the occurrence of an event constituting Good Reason; provided that the Company shall have 20 days
after the date such notice has been given to the Board in which to cure the conduct specified in
such notice. Executive’s continued employment during such 20-day period shall not constitute
Executive’s consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.

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

                         (a) a change in Executive’s position or responsibilities (including reporting
responsibilities) that represents a substantial reduction in the position or responsibilities as in
effect immediately prior thereto; the assignment to Executive of any duties or responsibilities
that are materially inconsistent with such position or responsibilities; or any removal of
Executive from or failure to reappoint or reelect Executive to any of such positions, except in
connection with the termination of Executive’s employment for Cause, as a result of his or her
Disability or death, or by Executive other than for Good Reason;

                         (b) a reduction in Executive’s Base Salary other than in connection with a general reduction
in wages for all employees of the Company and its parent and subsidiaries, if any;

                         (c) the Company requiring Executive (without Executive’s consent) to be based at any place
outside a 50-mile radius of his or her initial place of employment with the Company, except for
reasonably required travel on the Company’s business;

                         (d) the Company’s failure to provide Executive with compensation and benefits substantially
equivalent (in terms of benefit levels and/or reward opportunities) to those provided for under
each of the Company’s material employee benefit plans, programs and practices as in effect from
time to time; or

 

 

                         (e) any material breach by the Company of its obligations to Executive under this Agreement.

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

               (d) Termination Payments.

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

                    (ii) If Executive’s employment with the Company is terminated pursuant to Paragraph 7(a)(ii)
(i.e., Disability), the Company shall pay to Executive (a) his or her accrued but unpaid Base
Salary through the date of termination (plus all accrued and unpaid expenses reimbursable in
accordance with Paragraph 6), (b) any accrued but unused PTO, (c) an amount equal to Executive’s
actual Base Salary (not including any bonus payable) for the 6 month period immediately prior to
such termination, payable in 6 equal installments during the 6 month period following such
termination, and (d) at the discretion of the Board, an annual bonus for the year in which
Executive’s Disability occurs, prorated through the date of termination, based on the Board’s
good-faith estimate of the actual amount, if any, that would have been payable for such year under
the Company Employee Bonus Plan (assuming Executive had remained employed by the Company through
the end of such year) in accordance with Paragraph 3(b).

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

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

                         (b) any accrued but unused PTO;

                         (c) at the discretion of the Board, an annual bonus for the year in which
Executive’s employment is terminated, prorated through the date of termination, based on the
Board’s good-faith estimate of the actual amount, if any, that would have been payable for such
year under the Company Employee Bonus Plan (assuming Executive had remained employed by the Company
through the end of such year) in accordance with Paragraph 3(b);

                         (d) subject to Paragraphs 7(d)(vi) and 7(g) below, an amount equal to Executive’s
actual Base Salary (not including any bonus payable) for the 6 month period immediately prior to
such termination, payable in 6 equal installments during the 6 month period following such
termination;

 

 

                         (e) the Company shall pay all costs which the Company would otherwise have incurred
to maintain all of Executive’s health, welfare and retirement benefits (either on the same or
substantially equivalent terms and conditions) if Executive had continued to render services to the
Company for 6 continuous months after the date of his or her termination of employment; and

                         (f) notwithstanding any provision to the contrary in Executive’s options under the
Option Plan or other plan (including, without limitation, the expiration dates or vesting
provisions thereof) or any restricted stock agreement, (i) the unvested portion, if any, of
Executive’s outstanding options shall be deemed to have vested on the date of termination with
respect to the number of shares that would have vested had Executive remained employed by the
Company for 12 months following such termination, and Executive shall have 180 days from the date
of termination to exercise such options, and (ii) any restrictions with respect to any restricted
shares of the Company’s capital stock that Executive then holds shall immediately lapse with
respect to the number of restricted shares that would have vested had Executive remained employed
by the Company for 12 months following such termination.

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

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

                    (vi) Executive shall not be required to mitigate amounts payable under this Agreement by
seeking other employment or otherwise; provided, however, if the termination giving rise to the
payments described in Paragraph 7(d)(iii)(d) above results from the Executive’s voluntary
termination of his employment with the Company pursuant to Paragraph 7(c)(i) (i.e., Good Reason),
then during the 6 month period specified in Paragraph 7(d)(iii)(d) above, any compensation, income,
or benefits earned by or paid to Executive (in cash or otherwise) by any company, business,
enterprise, or other employer other than the Company (whether as an employee of, or consultant or
independent contractor to, such employer, or otherwise) shall reduce the amount of severance
payments payable pursuant to Paragraph 7(d)(iii)(d) on a dollar-for-dollar basis. If any payment
to be made to Executive pursuant to Paragraph 7(d)(iii)(d) is delayed pursuant to Paragraph 7(g)
below, and such payment is reduced pursuant to this Paragraph 7(d)(iv), the net payment that would
be due to Executive absent the operation of Paragraph 7(g) shall be paid to Executive in a lump sum
as soon as permitted under Paragraph 7(g) below.

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

 

 

               (e) Change in Control.

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

                    (ii) Following a Change in Control, if Executive’s employment with the Company is voluntarily
terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason), or if the Company
terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or
7(b)(i), then, in addition to the application of Paragraph 7(d)(iii) to such situation,
notwithstanding any provision to the contrary in Executive’s options under the Option Plan or other
plan (including, without limitation, the expiration dates or vesting provisions thereof) or any
restricted stock agreement, (1) any unvested portion of such options shall be deemed to have vested
on the date of termination and Executive shall have 180 days from the date of termination to
exercise such options and (2) any restrictions with respect to restricted shares of the Company’s
capital stock that Executive then holds shall immediately lapse on the date of termination.

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

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

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

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

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

          Notwithstanding the foregoing, the following event shall not constitute an “acquisition” by
any person or group for purposes of this Paragraph 7(e)(iii)(a): an acquisition of the Company’s

 

 

securities by the Company which causes the Company’s voting securities beneficially owned by a
person or group to represent 50% or more of the combined voting power of the Company’s then
outstanding voting securities; provided, however, that if a person or group shall become the
beneficial owner of 50% or more of the combined voting power of the Company’s then outstanding
voting securities by reason of share acquisitions by the Company as described above and shall,
after such share acquisitions by the Company, become the beneficial owner of any additional voting
securities of the Company, then such acquisition shall constitute a Change in Control; or

                         (b) during any period of two consecutive years, individuals who, at the beginning of such
period, constitute the Board together with any new director(s) (other than a director designated by
a person who shall have entered into an agreement with the Company to effect a transaction
described in Subparagraphs (a) or (c) of this Paragraph 7(e)(iii)) whose election by the Board or
nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds
of the directors then still in office who either were directors at the beginning of the two year
period or whose election or nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or

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

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

                         (2) after which no person or group beneficially owns voting securities representing 50%
or more of the combined voting power of the Successor Entity; provided, however, that no
person or group shall be treated for purposes of this paragraph (2) as beneficially owning
50% or more of combined voting power of the Successor Entity solely as a result of the
voting power held in the Company prior to the consummation of the transaction; or

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

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

               (f) Condition Precedent. If Executive’s employment with the Company is voluntarily
terminated by Executive pursuant to Paragraph 7(c)(i) (i.e., Good Reason) or if the Company
terminates Executive’s employment with the Company other than pursuant to Paragraphs 7(a) or
7(b)(i), prior to the receipt of any payments or benefits provided by Paragraphs 7(d)(iii) and
7(e)(ii) on account of

 

 

the occurrence of such termination of Executive’s employment with the Company, Executive shall
execute a “Release” in the form attached hereto as Exhibit A or Exhibit B, as
appropriate. Such Release shall specifically relate to all of Executive’s rights and claims in
existence at the time of such execution and shall confirm Executive’s obligations under the
Proprietary Information and Inventions Agreement (as defined below). It is understood that, in the
event that Executive is at least 40 years old on the date of the termination of his or her
employment with the Company, Executive has a certain period to consider whether to execute such
Release, and Executive may revoke such Release within 7 business days after execution. In the
event Executive does not execute such Release within the applicable period, or if Executive revokes
such Release within the subsequent 7 business day period, Executive shall not be entitled to the
aforesaid payments and benefits.

               (g) Delay of Payments. Notwithstanding anything to the contrary in this Paragraph 7,
the parties acknowledge and agree that any payment to be made, or benefit provided, to Executive
pursuant to this Paragraph 7 shall be delayed to the extent necessary for this Agreement and such
payment or benefit to comply with Section 409A of the Code; provided that if any payment to be made
to Executive is delayed pursuant to this Subparagraph 7(g), such payment or benefit shall be paid
to Executive in a lump sum as soon as permitted under Section 409A of the Code. In the event the
Company and Executive mutually determine that a change in applicable law following the Effective
Date causes the payments to be made, or benefits to be provided, to Executive pursuant to this
Paragraph 7 not to be subject to Section 409A of the Code, such payments and benefits payable
thereafter to Executive shall be paid in accordance with this Paragraph 7 without reference to this
Paragraph 7(g). In addition, in the event the Company and Executive mutually determine that a
change in applicable law following the Effective Date causes the payments to be made, or benefits
to be provided, to be payable to Executive without a delay but in another manner that complies with
Section 409A of the Code, the Company and Executive agree to amend this Agreement at such time to
reform the payment provisions of this Paragraph 7 to provide economic benefits to Executive that
are as close as possible to those contemplated by this Paragraph 7 without reference to this
Paragraph 7(g) but that still comply with Section 409A of the Code.

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

          9. Minimum Business Hours; Non-Solicitation; etc.

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

               (b) Nonsolicitation of Customers. Executive agrees that all customers of the Company
or any of its subsidiaries for which Executive has or will provide services during the term of
Executive’s employment with the Company, and all prospective customers from whom Executive has
solicited business while in the employ of the Company, shall be solely the customers of the Company
or

 

 

such subsidiary. Executive agrees that, for the Nonsolicitation Period, Executive shall
neither directly nor indirectly solicit business as to products or services competitive with those
of the Company or any of its subsidiaries, from any of the Company’s or any of its subsidiaries’
customers with whom Executive had contact within one year prior to Executive’s termination.

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

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

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

          11. Indemnification; Directors & Officers Insurance.

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

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

               (c) Concurrently with entering into this Agreement, the Company and Executive will enter into
an Indemnification Agreement in the form attached hereto as Exhibit D.

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

 

 

obligations under this Agreement and such other agreements will not violate any agreement
between it and any other person, firm or other entity.

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

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

If to the Company:

Somaxon Pharmaceuticals, Inc.

Attn: Kenneth Cohen

12750 High Bluff Drive, Suite 310

San Diego, CA 92130

If to Executive:

Matthew Onaitis

12343 Caminito Granate

San Diego, CA 92130

          15. Entire Agreement, Amendments, Waivers, Etc.

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

               (b) This Agreement, together with the Exhibits hereto and the documents referred to herein
and therein, sets forth the entire understanding and agreement of the parties with respect to the
subject matter hereof and supersedes all prior oral and written understandings and

 

 

agreements. There are no representations, agreements, arrangements or understandings, oral
or written, among the parties relating to the subject matter hereof which are not expressly set
forth herein, and no party hereto has been induced to enter into this Agreement, except by the
agreements expressly contained herein.

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

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

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

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

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

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

          19. Arbitration. Any dispute or controversy between Company and Executive, arising
out of or relating to this Agreement, the breach of this Agreement, or otherwise, shall be settled
by arbitration in San Diego, California administered by the American Arbitration Association in
accordance with its National Rules for the Resolution of Employment Disputes then in effect and
judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The arbitrator shall have the authority to award any remedy or relief that a court of
competent jurisdiction could order or grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency with this arbitration provision,
apply to any court having jurisdiction over such dispute or controversy and seek interim
provisional, injunctive or other equitable relief until the arbitration award is rendered or the
controversy is otherwise resolved. Except as necessary in court proceedings to enforce this
arbitration provision or an award rendered hereunder, or to obtain interim relief, neither a party
nor an arbitrator may disclose the existence, content or results of any arbitration hereunder
without the prior written consent of Company and Executive. The Company shall pay all of the
direct costs and expenses

 

 

in any arbitration hereunder and the arbitrator’s fees and costs; provided, however, that the
arbitrator shall have the discretion to award the prevailing party reimbursement of its, his or her
reasonable attorney’s fees and costs.

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

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

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

          23. Section 409A of the Code. Subject to Subparagraph 7(g), this Agreement shall be
interpreted, construed and administered in a manner that satisfies the requirements of Section 409A
of the Code. Notwithstanding any provision of this Agreement to the contrary, the Company may
adopt such amendments to this Agreement or adopt other policies and procedures (including
amendments, policies and procedures with retroactive effect), or take any other actions, that the
Company determines are necessary to comply with the requirements of Section 409A of the Code;
provided that prior to taking any such action Company shall confer with Executive and take
Executive’s input into account in good faith.

(Signature Page Follows)

 

 

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

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	Somaxon Pharmaceuticals, Inc.	 	 
	 
	 

	 	By
	 	/s/ Kenneth Cohen	 	 
	 

	 	 	 	 

Name: Kenneth Cohen
	 	 
	 

	 	 	 	Title: President and CEO	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Mathew Onaitis	 	 
	 	 	   	 	 
	 	 	Matthew Onaitis	 	 

 

 

Exhibit A

RELEASE

(Individual Termination)

     Certain capitalized terms used in this Release are defined in the Employment Agreement by and
between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Matthew
Onaitis (“Executive”) dated as of the 15th day of May, 2006 (the “Agreement”) which Executive has
previously executed and of which this Release is a part.

     Pursuant to the Agreement, and in consideration of and as a condition precedent to the
payments and benefits provided under Paragraphs 7(d)(iii) and 7(e)(ii) of the Agreement, Executive
hereby furnishes the Company with this Release.

     Executive hereby confirms his/her obligations under the Company’s proprietary information and
inventions agreement.

     On Executive’s own behalf and on behalf of Executive’s heirs, estate and beneficiaries,
Executive hereby waives, releases, acquits and forever discharges the Company, and each of its
Subsidiaries and affiliates, and each of their respective past or present officers, directors,
agents, servants, employees, shareholders, predecessors, successors and assigns, and all persons
acting by, through, under, or in concert with them, or any of them, of and from any and all suits,
debts, liens, contracts, agreements, promises, claims, liabilities, demands, causes of action,
costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in
law, equity, or otherwise, known and unknown, fixed or contingent, suspected and unsuspected,
disclosed and undisclosed (“Claims”), from the beginning of time to the date hereof, including
without limitation, Claims that arose as a consequence of Executive’s employment with the Company,
or arising out of the termination of such employment relationship, or arising out of any act
committed or omitted during or after the existence of such employment relationship, all up through
and including the date on which this Release is executed, including, but not limited to, Claims
which were, could have been, or could be the subject of an administrative or judicial proceeding
filed by Executive or on Executive’s behalf under federal, state or local law, whether by statute,
regulation, in contract or tort. This Release includes, but is not limited to: (1) Claims for
intentional and negligent infliction of emotional distress; (2) tort Claims for personal injury;
(3) Claims or demands related to salary, bonuses, commissions, stock, stock options, or any other
ownership interest in the Company, vacation pay, fringe benefits, expense reimbursements, severance
pay, front pay, back pay or any other form of compensation; (4) Claims for breach of contract; (5)
Claims for any form of retaliation, harassment, or discrimination; (6) Claims pursuant to any
federal, state or local law or cause of action including, but not limited to, the federal Civil
Rights Act of 1964, as amended, the federal Age Discrimination in Employment Act of 1967, as
amended (“ADEA”), the federal Employee Retirement Income Security Act of 1974, as amended, the
federal Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, as
amended, and the California Labor Code; and (7) all other Claims based on tort law, contract law,
statutory law, common law, wrongful discharge, constructive discharge, fraud, defamation, emotional
distress, pain and suffering, breach of the implied covenant of good faith and fair dealing,
compensatory or punitive damages, interest, attorneys’ fees, and reinstatement or re-employment.
If any court rules that Executive’s waiver of the right to file any administrative or judicial
charges or complaints is ineffective, Executive agrees not to seek or accept any money damages or
any other relief upon the filing of any such administrative or judicial charges or complaints.

     Executive acknowledge that he/she has 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

1

 

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.”
Executive hereby expressly waives and relinquishes all rights and benefits under that section and
any law of any jurisdiction of similar effect with respect to his/her release of any unknown Claims
Executive may have against the Company.

     Notwithstanding the foregoing, nothing in this Release shall constitute a release by Executive
of any claims or damages based on any right Executive may have to enforce the Company’s executory
obligations under the Agreement, any right Executive may have to vested or earned compensation and
benefits, or Executive’s eligibility for indemnification under applicable law, Company governance
documents, Executive’s indemnification agreement with the Company or under any applicable insurance
policy with respect to Executive’s liability as an employee or officer of the Company.

     If Executive is 40 years of age or older at the time of the termination, Executive
acknowledges that he/she is knowingly and voluntarily waiving and releasing any rights he/she may
have under ADEA. Executive also acknowledges that the consideration given under the Agreement for
the Release is in addition to anything of value to which he/she was already entitled. Executive
further acknowledges that he/she has been advised by this writing, as required by the ADEA, that:
(A) his/her waiver and release do not apply to any rights or claims that may arise on or after the
date he/she executes this Release; (B) Executive has the right to consult with an attorney prior to
executing this Release; (C) Executive has 21 days to consider this Release (although he/she may
choose to voluntarily execute this Release earlier); (D) Executive has 7 days following the
execution of this Release to revoke the Release; and (E) this Release shall not be effective until
the date upon which the revocation period has expired, which shall be the 8th day after this
Release is executed by Executive, without Executive’s having given notice of revocation.

     Executive further acknowledges that Executive has carefully read this Release, and knows and
understands its contents and its binding legal effect. Executive acknowledges that by signing this
Release, Executive does so of Executive’s own free will, and that it is Executive’s intention that
Executive be legally bound by its terms.

	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Matthew Onaitis	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

2

 

Exhibit B

RELEASE

(Group Termination)

     Certain capitalized terms used in this Release are defined in the Employment Agreement by and
between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and Matthew
Onaitis (“Executive”) dated as of the 15th day of May, 2006 (the “Agreement”) which Executive has
previously executed and of which this Release is a part.

     Pursuant to the Agreement, and in consideration of and as a condition precedent to the
payments and benefits provided under Paragraphs 7(d)(iii) and 7(e)(ii) of the Agreement, Executive
hereby furnishes the Company with this Release.

     Executive hereby confirms his/her obligations under the Company’s proprietary information and
inventions agreement.

     On Executive’s own behalf and on behalf of Executive’s heirs, estate and beneficiaries,
Executive hereby waives, releases, acquits and forever discharges the Company, and each of its
Subsidiaries and affiliates, and each of their respective past or present officers, directors,
agents, servants, employees, shareholders, predecessors, successors and assigns, and all persons
acting by, through, under, or in concert with them, or any of them, of and from any and all suits,
debts, liens, contracts, agreements, promises, claims, liabilities, demands, causes of action,
costs, expenses, attorneys’ fees, damages, indemnities and obligations of every kind and nature, in
law, equity, or otherwise, known and unknown, fixed or contingent, suspected and unsuspected,
disclosed and undisclosed (“Claims”), from the beginning of time to the date hereof, including
without limitation, Claims that arose as a consequence of Executive’s employment with the Company,
or arising out of the termination of such employment relationship, or arising out of any act
committed or omitted during or after the existence of such employment relationship, all up through
and including the date on which this Release is executed, including, but not limited to, Claims
which were, could have been, or could be the subject of an administrative or judicial proceeding
filed by Executive or on Executive’s behalf under federal, state or local law, whether by statute,
regulation, in contract or tort. This Release includes, but is not limited to: (1) Claims for
intentional and negligent infliction of emotional distress; (2) tort Claims for personal injury;
(3) Claims or demands related to salary, bonuses, commissions, stock, stock options, or any other
ownership interest in the Company, vacation pay, fringe benefits, expense reimbursements, severance
pay, front pay, back pay or any other form of compensation; (4) Claims for breach of contract; (5)
Claims for any form of retaliation, harassment, or discrimination; (6) Claims pursuant to any
federal, state or local law or cause of action including, but not limited to, the federal Civil
Rights Act of 1964, as amended, the federal Age Discrimination in Employment Act of 1967, as
amended (“ADEA”), the federal Employee Retirement Income Security Act of 1974, as amended, the
federal Americans with Disabilities Act of 1990, the California Fair Employment and Housing Act, as
amended, and the California Labor Code; and (7) all other Claims based on tort law, contract law,
statutory law, common law, wrongful discharge, constructive discharge, fraud, defamation, emotional
distress, pain and suffering, breach of the implied covenant of good faith and fair dealing,
compensatory or punitive damages, interest, attorneys’ fees, and reinstatement or re-employment.
If any court rules that Executive’s waiver of the right to file any administrative or judicial
charges or complaints is ineffective, Executive agrees not to seek or accept any money damages or
any other relief upon the filing of any such administrative or judicial charges or complaints.

     Executive acknowledge that he/she has 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

1

 

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.”
Executive hereby expressly waives and relinquishes all rights and benefits under that section and
any law of any jurisdiction of similar effect with respect to his/her release of any unknown Claims
Executive may have against the Company.

     Notwithstanding the foregoing, nothing in this Release shall constitute a release by Executive
of any claims or damages based on any right Executive may have to enforce the Company’s executory
obligations under the Agreement, any right Executive may have to vested or earned compensation and
benefits, or Executive’s eligibility for indemnification under applicable law, Company governance
documents, Executive’s indemnification agreement with the Company or under any applicable insurance
policy with respect to Executive’s liability as an employee or officer of the Company.

     If Executive is 40 years of age or older at the time of the termination, Executive
acknowledges that he/she is knowingly and voluntarily waiving and releasing any rights he/she may
have under ADEA. Executive also acknowledges that the consideration given under the Agreement for
the Release is in addition to anything of value to which he/she was already entitled. Executive
further acknowledges that he/she has been advised by this writing, as required by the ADEA, that:
(A) his/her waiver and release do not apply to any rights or claims that may arise on or after the
date he/she executes this Release; (B) Executive has the right to consult with an attorney prior to
executing this Release; (C) Executive has 45 days to consider this Release (although he/she may
choose to voluntarily execute this Release earlier); (D) Executive has 7 days following the
execution of this Release to revoke the Release; (E) this Release shall not be effective until the
date upon which the revocation period has expired, which shall be the 8th day after this Release is
executed by Executive, without Executive’s having given notice of revocation; and (F) Executive has
received with this Release a detailed list of job titles and ages of all employees who were
terminated in this group termination and the ages of all employees of the Company in the same job
classification or organizational unit who were not terminated.

     Executive further acknowledges that Executive has carefully read this Release, and knows and
understands its contents and its binding legal effect. Executive acknowledges that by signing this
Release, Executive does so of Executive’s own free will, and that it is Executive’s intention that
Executive be legally bound by its terms.

	 	 	 	 	 	 	 
	 	 	 	 	 
	 	 	Matthew Onaitis	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:	 	 	 	 
	 

	 	 	 	 

	 	 

2

 

EXHIBIT C

SOMAXON PHARMACEUTICALS, INC.

PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT

     The following confirms an agreement between me and Somaxon Pharmaceuticals, Inc., a
Delaware corporation (the “Company,” which term includes the Company’s subsidiaries, successors and
assigns), which is a material part of the consideration for my employment and continued employment
by the Company:

     1. Proprietary Information. “Proprietary Information” is information that
was or is developed by, became or becomes known by, or was or is assigned or otherwise conveyed to
the Company, and which has commercial value in the Company’s business. “Proprietary Information”
includes, without limitation, trade secrets, copyrights, ideas, techniques, know-how, inventions
(whether patentable or not), and/or any other information of any type relating to clinical trials,
regulatory approvals, designs, configurations, toolings, documentation, recorded data, schematics,
source code, object code, master works, master databases, algorithms, flow charts, formulae,
circuits, works of authorship, mechanisms, research, manufacture, improvements, assembly,
installation, intellectual property including patents and patent applications, business plans, past
or future financing, marketing, forecasts, pricing, customers, the salaries, duties,
qualifications, performance levels, and terms of compensation of other employees, and/or cost or
other financial data concerning any of the foregoing or the Company and its operations generally.
I understand that my employment creates a relationship of confidence and trust between me and the
Company with respect to Proprietary Information of the Company or its customers which may be
learned by me during the period of my employment.

     2. Covenants and Agreements. In consideration of my employment by the
Company and the compensation received by me from the Company from time to time, I hereby agree as
follows:

          (a) Assignment; Confidentiality. All Proprietary Information and all patents, copyrights,
trade secret rights, rights with respect to mask works and other rights (including throughout,
without limitation, any extensions, renewals, continuations or divisions of any of the foregoing)
in connection therewith shall be the sole property of the Company. I hereby assign to the Company
any rights I may have or acquire in such Proprietary Information. At all times, both during my
employment by the Company and after its termination, I will keep in confidence and trust and will
not use or disclose any Proprietary Information or anything relating to it without the written
consent of the Company, except as may be necessary in the ordinary course of performing my duties
to the Company.

          (b) Return of Company Documents. In the event of the termination of my employment by me or by
the Company for any reason, I shall return all documents, records, apparatus, equipment and other
physical property, or any reproduction of such property, whether or not pertaining to Proprietary
Information, furnished to me by the Company or produced by myself or others in connection with my
employment, to the Company immediately as and when requested by the Company.

          (c) Disclosure of Inventions. I will promptly disclose to the Company, or any persons
designated by it, all “Inventions,” which include all improvements, inventions, formulas, ideas,
circuits, mask works, works of authorship, processes, computer programs, algorithms, techniques,
schematics, know-how and data, whether or not patentable, made or conceived or reduced to practice
or developed by me, either alone or jointly with others, during the term of my employment. I will
also disclose to the President of the Company all things that would be Inventions if made during
the term of my employment, conceived, reduced to practice, or developed by me within six (6) months
of the termination of my employment with the Company. Such disclosure shall be received by the
Company in confidence and does not extend the assignment made in Section 2(d) below.

          (d) Assignment of Inventions. I agree that all Inventions which I make, conceive, reduce to
practice or develop (in whole or in part, either alone or jointly with others) during my employment
shall be the sole property of the Company to the maximum extent permitted by Section 2870 of the
California Labor Code, a copy of which is attached hereto as Exhibit A, and to the extent
permitted by law shall be “works made for hire.” This assignment shall not extend to Inventions,
the assignment of which is prohibited by Labor Code Section 2870. The Company shall be the sole
owner of all patents, copyrights, trade secret rights, rights with respect to mask works and

 

 

other intellectual property or other rights in connection therewith. I hereby assign to the
Company any rights I may have or acquire in such Inventions.

          (e) Prior Inventions. I have attached as Exhibit B a complete list of all Inventions
or improvements to which I claim ownership and that I desire to remove from the operation of this
Agreement, and I covenant that such list is complete. If no such list is attached to this
Agreement, I represent that I have no such Inventions and improvements at the time of signing this
Agreement.

          (f) Enforcement of Proprietary Rights. I agree to perform, during and after my employment,
all acts deemed necessary or desirable by the Company to permit and assist it, at the Company’s
expense, in obtaining and enforcing patents, copyrights, trade secret rights, rights with respect
to mask works or other rights on such Inventions and/or any other Inventions I have or may at any
time assign to the Company in any and all countries. Such acts may include, but are not limited
to, execution of documents and assistance or cooperation in legal proceedings. I hereby
irrevocably designate and appoint the Company and its duly authorized officers and agents, as my
agents and attorneys-in-fact to act for and in my behalf and instead of me, to execute and file any
applications or related filings and to do all other lawfully permitted acts to further the
prosecution and issuance of patents, copyrights, trade secret rights, rights with respect to mask
works or other rights thereon with the same legal force and effect as if executed by me.

          (g) Records. I agree to keep and maintain adequate and current records (in the form of notes,
sketches, drawings and in any other form that may be required by the Company) of all Proprietary
Information developed by me and all Inventions made by me during the period of my employment at the
Company, which records shall be available to and remain the sole property of the Company at all
times

          (h) No Solicitation. During the term of my employment and for one (1) year thereafter, I will
not, either directly or through others, solicit or attempt to solicit any employee, independent
contractor or consultant of the Company to terminate his or her relationship with the Company in
order to become an employee, consultant or independent contractor to or for any other person or
entity, or otherwise encourage or solicit any employee of the Company to leave the Company for any
reason or to devote less than all of any such employee’s efforts to the affairs of the Company;
provided that the foregoing shall not affect any responsibility I may have as an employee of the
Company with respect to the bona fide hiring and firing of Company personnel.

          (i) No Conflicting Obligations. I represent that my performance of all the terms of this
Agreement will not breach any agreement or obligation to keep in confidence proprietary information
acquired by me in confidence or in trust prior to my employment with the Company. I have not
entered into, and I agree I will not enter into, any agreement either written or oral in conflict
with this Agreement or in conflict with my employment with the Company.

          (j) No Improper Use of Information of Prior Employers and Others. During my employment by the
Company, I will not improperly use or disclose any confidential information or trade secrets, if
any, of any former employer or any other person to whom I have an obligation of confidentiality,
and I will not bring onto the premises of the Company any unpublished documents or any property
belonging to any former employer or any other person to whom I have an obligation of
confidentiality unless consented to in writing by that former employer or person. I will use in
the performance of my duties only information which is generally known and used by persons with
training and experience comparable to my own, which is common knowledge in the industry or
otherwise legally in the public domain, or which is otherwise provided or developed by the Company.

          (k) Notification of New Employer. In the event that I leave the employ of the Company, I
hereby consent to the notification of my new employer of my rights and obligations under this
Agreement.

     3. General Provisions.

          (a) Employment. I agree and understand that nothing in this Agreement shall confer any right
with respect to continuation of employment by the Company, nor shall it interfere in any way with
my right or the Company’s right to terminate my employment at any time, with or without cause.

2

 

          (b) Successors and Assigns. This Agreement shall be effective as of the first day of my
employment by the Company, and shall be binding upon me, my heirs, executors, assigns, and
administrators and shall inure to the benefit of the Company, its subsidiaries, successors and
assigns.

          (c) Survival. The provisions of this Agreement shall survive the termination of my employment
and the assignment of this Agreement by the Company to any successor in interest or other assignee.

          (d) Legal and Equitable Remedies. Because my services are personal and unique and because I
may have access to and become acquainted with the Proprietary Information of the Company, the
Company shall have the right to enforce this Agreement and any of its provisions by injunction,
specific performance or other equitable relief, without bond and without prejudice to any other
rights and remedies that the Company may have for a breach of this Agreement.

          (e) Severability. If one or more provisions of this Agreement are held to be unenforceable
under applicable law, such provisions shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provisions were so excluded and shall be enforceable in
accordance with its terms.

          (f) Amendment. This Agreement can only be modified by a subsequent written agreement executed
by an officer of the Company.

          (g) Governing Law; Consent to Personal Jurisdiction. I understand and agree that this
Agreement shall be interpreted and enforced in accordance with the laws of the State of California
without regard to the conflict of laws provisions thereof. I hereby expressly consent to the
personal jurisdiction of the state and federal courts located in San Diego County, California for
any lawsuit filed there against me by Company arising from or related to this Agreement.

          (h) Titles. The titles and headings appearing at the beginning of the numbered sections and
at the beginning of paragraphs have been inserted for convenience only and do not constitute any
part of this Agreement.

          (i) Counterparts. This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall be deemed one instrument.

Dated:                     

	 	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Print Name:	 	 	 	 
	 

	 	 	 	 

	 	 

	 	 	 	 	 
	Accepted and Agreed to:	 	 
	 
	 	 	 	 
	Somaxon Pharmaceuticals, Inc.	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 

Name:
	 	 
	 

	 	Title:	 	 

3

 

EXHIBIT A

          §2870. Application of provision providing that employee shall assign or offer to assign
rights in invention to employer.

          Any provision in an employment agreement which provides that an employee shall assign or offer
to assign any of his or her rights in an invention to his or her employer shall not apply to an
invention for which no equipment, supplies, facility, or trade secret information of the employer
was used and which was developed entirely on the employee’s own time, and (a) which does not relate
(1) to the business of the employer or (2) to the employer’s actual or demonstrably anticipated
research or development, or (b) which does not result from any work performed by the employee for
the employer. Any provision which purports to apply to such an invention is to that extent against
the public policy of this state and is to that extent void and unenforceable.

 

 

EXHIBIT B

Somaxon Pharmaceuticals, Inc.

[Address]

Ladies and Gentlemen:

          1. The following is a complete list of all inventions or improvements relevant to the subject
matter of my employment by Somaxon Pharmaceuticals, Inc. (the “Company”) that have been
made or conceived or first reduced to practice by me alone or jointly with others prior to my
employment by the Company that I desire to remove from the operation of the Company’s Proprietary
Information and Inventions Agreement.

                         No inventions or improvements.

                         See below:

                         Additional sheets attached.

          2. I propose to bring to my employment the following materials and documents of a former
employer:

                         No materials or documents.

                         See below:

	 	 	 	 	 	 	 
	 	 	 	 	 
	 

	 	Print Name:	 	 	 	 
	 

	 	 	 	 

	 	 

 

 

EXHIBIT D

SOMAXON PHARMACEUTICALS, INC.

INDEMNIFICATION AGREEMENT

     This Indemnification Agreement (“Agreement”) is made as of ___, 20___by
and between Somaxon Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and
___(“Indemnitee”).

Recitals

     WHEREAS, highly competent persons have become more reluctant to serve corporations as
directors or in other capacities unless they are provided with adequate protection through
insurance or adequate indemnification against inordinate risks of claims and actions against them
arising out of their service to and activities on behalf of the corporation;

     WHEREAS, the Board of Directors of the Company (the “Board”) has determined that, in order to
attract and retain qualified individuals, the Company will attempt to maintain on an ongoing basis,
at its sole expense, liability insurance to protect persons serving the Company and its
subsidiaries from certain liabilities. Although the furnishing of such insurance has been a
customary and widespread practice among United States-based corporations and other business
enterprises, the Company believes that, given current market conditions and trends, such insurance
may be available to it in the future only at higher premiums and with more exclusions. At the same
time, directors, officers and other persons in service to corporations or business enterprises are
being increasingly subjected to expensive and time-consuming litigation relating to, among other
things, matters that traditionally would have been brought only against the Company or business
enterprise itself. The certificate of incorporation and bylaws of the Company require
indemnification of the officers and directors of the Company. Indemnitee may also be entitled to
indemnification pursuant to the General Corporation Law of the State of Delaware (“DGCL”). The
certificate of incorporation, bylaws and the DGCL expressly provide that the indemnification
provisions set forth therein are not exclusive, and thereby contemplate that contracts may be
entered into between the Company and members of the Board, officers and other persons with respect
to indemnification;

     WHEREAS, the uncertainties relating to such insurance and to indemnification have increased
the difficulty of attracting and retaining such persons;

     WHEREAS, the Board has determined that the increased difficulty in attracting and retaining
such persons is detrimental to the best interests of the Company’s stockholders and that the
Company should act to assure such persons that there will be increased certainty of such protection
in the future;

     WHEREAS, it is reasonable, prudent and necessary for the Company contractually to obligate
itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the Company free from
undue concern that they will not be so indemnified;

     WHEREAS, this Agreement is a supplement to and in furtherance of the certificate of
incorporation and bylaws of the Company and any resolutions adopted pursuant thereto and shall not
be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder;
and

     WHEREAS, Indemnitee does not regard the protection available under the Company’s certificate
of incorporation, bylaws and insurance as adequate in the present circumstances, and may not be
willing

 

 

to serve as an officer or director without adequate protection, and the Company desires
Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to
take on additional service for or on behalf of the Company on the condition that he or she be so
indemnified.

     NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the
Company and Indemnitee do hereby covenant and agree as follows:

     1. Services to the Company. Indemnitee will serve or continue to serve as an
officer, director or key employee of the Company for so long as Indemnitee is duly elected or
appointed or until Indemnitee tenders his or her resignation.

     2. Definitions. As used in this Agreement:

          (a) “Beneficial Owner” shall have the meaning given to such term in Rule 13d-3 under the
Exchange Act; provided, however, that Beneficial Owner shall exclude any Person
otherwise becoming a Beneficial Owner by reason of the stockholders of the Company approving a
merger of the Company with another entity.

          (b) A “Change in Control” shall be deemed to occur upon the earliest to occur after the date
of this Agreement of any of the following events:

          (i) Acquisition of Stock by Third Party. Any Person (as defined below) is or
becomes the Beneficial Owner, directly or indirectly, of securities of the Company
representing 50.1% or more of the combined voting power of the Company’s then outstanding
securities;

          (ii) Change in Board of Directors. During any period of two (2) consecutive
years (not including any period prior to the execution of this Agreement), individuals who
at the beginning of such period constitute the Board, and any new director (other than a
director designated by a person who has entered into an agreement with the Company to effect
a transaction described in Sections 2(b)(i), 2(b)(iii) or 2(b)(iv)) whose election by the
Board or nomination for election by the Company’s stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute at least a majority of the members of the
Board;

          (iii) Corporate Transactions. The effective date of a merger or consolidation
of the Company with any other entity, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior to such merger
or consolidation continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than 50.1% of the combined
voting power of the voting securities of the surviving entity outstanding immediately after
such merger or consolidation and with the power to elect at least a majority of the board of
directors or other governing body of such surviving entity; or

          (iv) Liquidation. The approval by the stockholders of the Company of a
complete liquidation of the Company or an agreement or series of agreements for the sale or
disposition by the Company of all or substantially all of the Company’s assets.

          (c) “Corporate Status” describes the status of a person who is or was a director, officer,
trustee, general partner, managing member, fiduciary, employee or agent of the Company or of

2

 

any other Enterprise (as defined below) which such person is or was serving at the request of
the Company.

          (d) “Disinterested Director” means a director of the Company who is not and was not a party to
the Proceeding in respect of which indemnification is sought by Indemnitee.

          (e) “Enterprise” shall mean the Company and any other corporation, limited liability company,
partnership, joint venture, trust, employee benefit plan or other enterprise of which Indemnitee is
or was serving at the request of the Company as a director, officer, trustee, general partner,
managing member, fiduciary, employee or agent.

          (f) “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

          (g) “Expenses” shall include all reasonable attorneys’ fees, retainers, court costs,
transcript costs, fees of experts, witness fees, travel expenses, duplicating costs, printing and
binding costs, telephone charges, postage, delivery service fees and all other disbursements or
expenses of the type customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, being or preparing to be a witness in, or otherwise
participating in, a Proceeding. Expenses also shall include Expenses incurred in connection with
any appeal resulting from any Proceeding, including, without limitation, the premium, security for
and other costs relating to any cost bond, supersedeas bond or other appeal bond or its equivalent.
Expenses, however, shall not include amounts paid in settlement by Indemnitee or the amount of
judgments or fines against Indemnitee.

          (h) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in
matters of corporation law and neither presently is, nor in the past five years has been, retained
to represent: (i) the Company or Indemnitee in any matter material to either such party (other
than with respect to matters concerning Indemnitee under this Agreement, or of other indemnitees
under similar indemnification agreements), or (ii) any other party to the Proceeding giving rise to
a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent
Counsel” shall not include any person who, under the applicable standards of professional conduct
then prevailing, would have a conflict of interest in representing either the Company or Indemnitee
in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the
reasonable fees and expenses of the Independent Counsel referred to above and to fully indemnify
such counsel against any and all Expenses, claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.

          (i) “Person” shall have the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act;
provided, however, that Person shall exclude (i) the Company, (ii) any trustee or
other fiduciary holding securities under an employee benefit plan of the Company and (iii) any
corporation owned, directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company.

          (j) The term “Proceeding” shall include any threatened, pending or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing
or any other actual, threatened or completed proceeding, whether brought in the right of the
Company or otherwise and whether of a civil, criminal, administrative or investigative nature, in
which Indemnitee was, is or will be involved as a party or otherwise by reason of the fact that
Indemnitee is or was a director or officer of the Company, by reason of any action taken (or
failure to act) by him or her or of any action (or failure to act) on his or her part while acting
as a director or officer of the Company, or by reason of the fact that he or she is or was serving
at the request of the Company as a director, officer, trustee, general partner, managing member,
fiduciary, employee or agent of any other Enterprise, in each

3

 

case whether or not serving in such capacity at the time any liability or expense is incurred
for which indemnification, reimbursement or advancement of expenses can be provided under this
Agreement.

          (k) References to “other enterprise” shall include employee benefit plans; references to
"fines” shall include any excise tax assessed with respect to any employee benefit plan; references
to “serving at the request of the Company” shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed
to be in the best interests of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred
to in this Agreement.

     3. Indemnity in Third-Party Proceedings. The Company shall indemnify Indemnitee in
accordance with the provisions of this Section 3 if Indemnitee is, or is threatened to be made, a
party to or a participant (as a witness or otherwise) in any Proceeding, other than a Proceeding by
or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 3,
Indemnitee shall be indemnified against all Expenses, judgments, fines, penalties and amounts paid
in settlement (including all interest, assessments and other charges paid or payable in connection
with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement)
actually and reasonably incurred by Indemnitee or on his or her behalf in connection with such
Proceeding or any claim, issue or matter therein, if Indemnitee acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of the Company and, in
the case of a criminal proceeding, he or she had no reasonable cause to believe that his or her
conduct was unlawful.

     4. Indemnity in Proceedings by or in the Right of the Company. The Company shall
indemnify Indemnitee in accordance with the provisions of this Section 4 if Indemnitee is, or is
threatened to be made, a party to or a participant (as a witness or otherwise) in any Proceeding by
or in the right of the Company to procure a judgment in its favor. Pursuant to this Section 4,
Indemnitee shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee
or on his or her behalf in connection with such Proceeding or any claim, issue or matter therein,
if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of the Company. No indemnification for Expenses shall be made under
this Section 4 in respect of any claim, issue or matter as to which Indemnitee shall have been
finally adjudged by a court to be liable to the Company, unless and only to the extent that any
court in which the Proceeding was brought or the Delaware Court of Chancery shall determine upon
application that, despite the adjudication of liability but in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnification.

     5. Indemnification for Expenses of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee is a party to
(or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in
defense of any claim, issue or matter therein, in whole or in part, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or her in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding, the Company shall indemnify Indemnitee against all Expenses actually and reasonably
incurred by him or her or on his or her behalf in connection with each successfully resolved claim,
issue or matter. If Indemnitee is not wholly successful in such Proceeding, the Company also shall
indemnify Indemnitee against all Expenses reasonably incurred in connection with a claim, issue or
matter related to any claim, issue or matter on which Indemnitee was successful. For purposes of
this Section and without limitation, the termination of any claim, issue or

4

 

matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a
successful result as to such claim, issue or matter.

     6. Indemnification For Expenses of a Witness. Notwithstanding any other provision of
this Agreement, to the extent that Indemnitee is, by reason of his Corporate Status, a witness in
any Proceeding to which Indemnitee is not a party, he shall be indemnified against all Expenses
actually and reasonably incurred by him or her or on his or her behalf in connection therewith.

7. Additional Indemnification.

          (a) Notwithstanding any limitation in Sections 3, 4 or 5, the Company shall indemnify
Indemnitee to the fullest extent permitted by law if Indemnitee is a party to or threatened to be
made a party to any Proceeding (including a Proceeding by or in the right of the Company to procure
a judgment in its favor) against all Expenses, judgments, fines, penalties and amounts paid in
settlement (including all interest, assessments and other charges paid or payable in connection
with or in respect of such Expenses, judgments, fines, penalties and amounts paid in settlement)
actually and reasonably incurred by Indemnitee in connection with the Proceeding. No indemnity
shall be made under this Section 7(a) on account of Indemnitee’s conduct which constitutes a breach
of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in
good faith or which involves intentional misconduct or a knowing violation of the law.

          (b) For purposes of Section 7(a), the meaning of the phrase “to the fullest extent permitted
by law” shall include, but not be limited to:

          (i) to the fullest extent permitted by the provision of the DGCL that authorizes or
contemplates additional indemnification by agreement, or the corresponding provision of any
amendment to or replacement of the DGCL; and

          (ii) to the fullest extent authorized or permitted by any amendments to or replacements
of the DGCL adopted after the date of this Agreement that increase the extent to which a
corporation may indemnify its officers and directors.

     8. Exclusions. Notwithstanding any other provision in this Agreement, the Company
shall not be obligated under this Agreement to make any indemnity in connection with any claim made
against Indemnitee:

          (a) for which payment has actually been received by or on behalf of Indemnitee under any
insurance policy or other indemnity provision, except with respect to any excess beyond the amount
actually received under any insurance policy or other indemnity provision;

          (b) for an accounting of profits made from the purchase and sale (or sale and purchase) by
Indemnitee of securities of the Company within the meaning of Section 16(b) of the Exchange Act or
similar provisions of state statutory law or common law; or

          (c) except as otherwise provided in Sections 13(d)-(f) hereof, prior to a Change in Control,
in connection with any Proceeding (or any part of any Proceeding) initiated by Indemnitee,
including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the
Company or its directors, officers, employees or other indemnitees, unless (i) the Board of
Directors of the Company authorized the Proceeding (or any part of any Proceeding) prior to its
initiation or (ii) the Company provides the indemnification, in its sole discretion, pursuant to
the powers vested in the Company under applicable law.

5

 

     9. Advances of Expenses; Defense of Claim.

          (a) Notwithstanding any provision of this Agreement to the contrary, the Company shall advance
the expenses incurred by Indemnitee in connection with any Proceeding within ten (10) days after
the receipt by the Company of a statement or statements requesting such advances from time to time,
whether prior to or after final disposition of any Proceeding. Advances shall be unsecured and
interest free. Advances shall be made without regard to Indemnitee’s ability to repay the expenses
and without regard to Indemnitee’s ultimate entitlement to indemnification under the other
provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred
pursuing an action to enforce this right of advancement, including Expenses incurred preparing and
forwarding statements to the Company to support the advances claimed. Indemnitee shall qualify for
advances solely upon the execution and delivery to the Company of an undertaking providing that
Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that
Indemnitee is not entitled to be indemnified by the Company. This Section 9(a) shall not apply to
any claim made by Indemnitee for which indemnity is excluded pursuant to Section 8.

          (b) The Company will be entitled to participate in the Proceeding at its own expense.

          (c) The Company shall not settle any action, claim or Proceeding (in whole or in part) which
would impose any Expense, judgment, fine, penalty or limitation on Indemnitee without Indemnitee’s
prior written consent.

     10. Procedure for Notification and Application for Indemnification.

          (a) Within sixty (60) days after the actual receipt by Indemnitee of notice that he or she is
a party to or a participant (as a witness or otherwise) in any Proceeding, Indemnitee shall submit
to the Company a written notice identifying the Proceeding. The omission by Indemnitee to notify
the Company will not relieve the Company from any liability which it may have to Indemnitee (i)
otherwise than under this Agreement and (ii) under this Agreement only to the extent the Company
can establish that such omission to notify resulted in actual prejudice to the Company.

          (b) Indemnitee shall thereafter deliver to the Company a written application to indemnify
Indemnitee in accordance with this Agreement. Such application(s) may be delivered from time to
time and at such time(s) as Indemnitee deems appropriate in his or her sole discretion. Following
such a written application for indemnification by Indemnitee, Indemnitee’s entitlement to
indemnification shall be determined in accordance with Section 11(a) of this Agreement.

     11. Procedure Upon Application for Indemnification.

          (a) Upon written request by Indemnitee for indemnification pursuant to Section 10(b), a
determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto
shall be made in the specific case: (i) by a majority vote of the Disinterested Directors, even
though less than a quorum of the Board; or (ii) if so requested by Indemnitee, in his or her sole
discretion, by Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification,
payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee
shall reasonably cooperate with the person, persons or entity making such determination with
respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons
or entity upon reasonable advance request any documentation or information which is not privileged
or otherwise protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to such determination. Any costs or expenses

6

 

(including attorneys’ fees and disbursements) incurred by Indemnitee in so cooperating with
the person, persons or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee’s entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.

          (b) In the event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 11(a) hereof, the Independent Counsel shall be selected as
provided in this Section 11(b). If a Change in Control shall not have occurred, the Independent
Counsel shall be selected by the Board of Directors, and the Company shall give written notice to
Indemnitee advising him of the identity of the Independent Counsel so selected. If a Change in
Control shall have occurred, the Independent Counsel shall be selected by Indemnitee (unless
Indemnitee shall request that such selection be made by the Board of Directors, in which event the
preceding sentence shall apply), and Indemnitee shall give written notice to the Company advising
it of the identity of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of selection shall have
been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to
such selection; provided, however, that such objection may be asserted only on the
ground that the Independent Counsel so selected does not meet the requirements of “Independent
Counsel” as defined in Section 2 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely objection, the
person so selected shall act as Independent Counsel. If such written objection is so made and
substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and
until such objection is withdrawn or a court of competent jurisdiction has determined that such
objection is without merit. If, within 20 days after submission by Indemnitee of a written request
for indemnification pursuant to Section 10(b) hereof, no Independent Counsel shall have been
selected and not objected to, either the Company or Indemnitee may petition a court of competent
jurisdiction (the “Court”) for resolution of any objection which shall have been made by the
Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as
Independent Counsel of a person selected by the Court or by such other person as the Court shall
designate, and the person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 11(a) hereof. Upon the due commencement
of any judicial proceeding or arbitration pursuant to Section 13(a) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to
the applicable standards of professional conduct then prevailing).

          (c) The Company agrees to pay the reasonable fees of Independent Counsel and to fully
indemnify such Independent Counsel against any and all Expenses, claims, liabilities and damages
arising out of or relating to this Agreement or its engagement pursuant hereto.

     12. Presumptions and Effect of Certain Proceedings.

          (a) In making a determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that Indemnitee is entitled to
indemnification under this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 10(b) of this Agreement, and the Company shall have the burden of proof to
overcome that presumption in connection with the making by any person, persons or entity of any
determination contrary to that presumption. Neither the failure of the Company (including by the
Board or Independent Counsel) to have made a determination prior to the commencement of any action
pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee
has met the applicable standard of conduct, nor an actual determination by the Company (including
by the Board or Independent Counsel) that Indemnitee has not met such applicable standard of
conduct, shall be

7

 

a defense to the action or create a presumption that Indemnitee has not met the applicable
standard of conduct.

          (b) If the person, persons or entity empowered or selected under Section 11 of this Agreement
to determine whether Indemnitee is entitled to indemnification shall not have made a determination
within sixty (60) days after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by Indemnitee of a material
fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially
misleading, in connection with the request for indemnification or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 60-day period
shall be extended for a reasonable time, not to exceed an additional thirty (30) days, if the
person, persons or entity making the determination with respect to entitlement to indemnification
in good faith requires such additional time for the obtaining or evaluating of documentation and/or
information relating thereto.

          (c) The termination of any Proceeding or of any claim, issue or matter therein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself
adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee
did not act in good faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal Proceeding, that
Indemnitee had reasonable cause to believe that his or her conduct was unlawful.

          (d) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted
in good faith if Indemnitee’s action is based on the records or books of account of the Enterprise,
including financial statements, or on information supplied to Indemnitee by the officers of the
Enterprise in the course of their duties, or on the advice of legal counsel for the Enterprise or
on information or records given or reports made to the Enterprise by an independent certified
public accountant or by an appraiser or other expert selected by the Enterprise. The provisions of
this Section 12(d) shall not be deemed to be exclusive or to limit in any way the other
circumstances in which Indemnitee may be deemed or found to have met the applicable standard of
conduct set forth in this Agreement.

          (e) The knowledge and/or actions, or failure to act, of any other director, trustee, partner,
managing member, fiduciary, officer, agent or employee of the Enterprise shall not be imputed to
Indemnitee for purposes of determining the right to indemnification under this Agreement.

     13. Remedies of Indemnitee.

          (a) In the event that (i) a determination is made pursuant to Section 11 of this Agreement
that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of
Expenses is not timely made pursuant to Section 9 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 11(a) of this Agreement
within the time period specified in Section 12(b) of this Agreement, (iv) payment of
indemnification is not made pursuant to Section 5, 6, 7 or the last sentence of Section 11(a) of
this Agreement within ten (10) days after receipt by the Company of a written request therefor or
(v) payment of indemnification pursuant to Section 3 or Section 4 of this Agreement is not made
within ten (10) days after a determination has been made that Indemnitee is entitled to
indemnification, Indemnitee shall be entitled to an adjudication by a court of his or her
entitlement to such indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to
the

8

 

Commercial Arbitration Rules of the American Arbitration Association. The Company shall not
oppose Indemnitee’s right to seek any such adjudication or award in arbitration.

          (b) In the event that a determination shall have been made pursuant to Section 11(a) of this
Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or
arbitration commenced pursuant to this Section 13 shall be conducted in all respects as a
de novo trial, or arbitration, on the merits and Indemnitee shall not be prejudiced
by reason of that adverse determination. In any judicial proceeding or arbitration commenced
pursuant to this Section 13 the Company shall have the burden of proving Indemnitee is not entitled
to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to
or introduce into evidence any determination pursuant to Section 11(a) of this Agreement adverse to
Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant
to this Section 13, Indemnitee shall not be required to reimburse the Company for any advances
pursuant to Section 9 until a final determination is made with respect to Indemnitee’s entitlement
to indemnification (as to which all rights of appeal have been exhausted or lapsed).

          (c) If a determination shall have been made pursuant to Section 11(a) of this Agreement that
Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any
judicial proceeding or arbitration commenced pursuant to this Section 13, absent (i) a misstatement
by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s
statement not materially misleading, in connection with the request for indemnification or (ii) a
prohibition of such indemnification under applicable law.

          (d) In the event that Indemnitee, pursuant to this Section 13, seeks a judicial adjudication
of or an award in arbitration to enforce his or her rights under, or to recover damages for breach
of, this Agreement, Indemnitee shall be entitled to recover from the Company, and shall be
indemnified by the Company against, any and all Expenses actually and reasonably incurred by him or
her in such judicial adjudication or arbitration. If it shall be determined in said judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not all of the
indemnification or advancement of Expenses sought, Indemnitee shall be entitled to recover from the
Company, and shall be indemnified by the Company against, any and all Expenses reasonably incurred
by Indemnitee in connection with such judicial adjudication or arbitration.

          (e) The Company shall be precluded from asserting in any judicial proceeding or arbitration
commenced pursuant to this Section 13 that the procedures and presumptions of this Agreement are
not valid, binding and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.

          (f) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all
Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt
of such written request) advance such Expenses to Indemnitee, which are incurred by Indemnitee in
connection with any judicial proceeding or arbitration brought by Indemnitee for (i)
indemnification or advances of Expenses by the Company under this Agreement or any other agreement
or provision of the Company’s certificate of incorporation or bylaws now or hereafter in effect or
(ii) recovery or advances under any insurance policy maintained by any person for the benefit of
Indemnitee, regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance or insurance recovery, as the case may be.

     14. Non-Exclusivity; Survival of Rights; Insurance; Subrogation. 

9

 

          (a) The rights of indemnification and to receive advancement of Expenses as provided by this
Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be
entitled under applicable law, the Company’s certificate of incorporation, the Company’s bylaws,
any agreement, a vote of stockholders, a resolution of directors or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee in
his Corporate Status prior to such amendment, alteration or repeal. To the extent that a change in
Delaware law, whether by statute or judicial decision, permits greater indemnification or
advancement of Expenses than would be afforded currently under the Company’s bylaws and this
Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits so afforded by such change. No right or remedy herein conferred is intended to be
exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter existing at law, in
equity or otherwise. The assertion or employment of any right or remedy hereunder or otherwise,
shall not prevent the concurrent assertion or employment of any other right or remedy.

          (b) To the extent that the Company maintains an insurance policy or policies providing
liability insurance for directors, officers, trustees, partners, managing members, fiduciaries,
employees or agents of the Company or of any other Enterprise which such person serves at the
request of the Company, Indemnitee shall be covered by such policy or policies in accordance with
its or their terms to the maximum extent of the coverage available for any such director, trustee,
partner, managing member, fiduciary, officer, employee or agent under such policy or policies. If,
at the time the Company receives notice from any source of a Proceeding as to which Indemnitee is a
party or a participant (as a witness or otherwise), the Company has director and officer liability
insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in
accordance with the procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all
amounts payable as a result of such Proceeding in accordance with the terms of such policies.

          (c) In the event of any payment under this Agreement, the Company shall be subrogated to the
extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including execution of such documents
as are necessary to enable the Company to bring suit to enforce such rights.

          (d) The Company shall not be liable under this Agreement to make any payment of amounts
otherwise indemnifiable hereunder (or for which advancement is provided hereunder) if and to the
extent that Indemnitee has otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.

          (e) The Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is
or was serving at the request of the Company as a director, officer, trustee, partner, managing
member, fiduciary, employee or agent of any other Enterprise shall be reduced by any amount
Indemnitee has actually received as indemnification or advancement of expenses from such
Enterprise.

     15. Duration of Agreement. This Agreement shall continue until and terminate upon
the later of: (a) ten (10) years after the date that Indemnitee shall have ceased to serve as a
director or officer of the Company or as a director, officer, trustee, partner, managing member,
fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which Indemnitee served at the request of the Company; or (b) one
(1) year after the final termination of any Proceeding (including any rights of appeal thereto)
then pending in respect of which Indemnitee is granted rights of indemnification or advancement of
Expenses hereunder and of any

10

 

Proceeding commenced by Indemnitee pursuant to Section 13 of this Agreement relating thereto
(including any rights of appeal of any Section 13 Proceeding).

     16. Severability. If any provision or provisions of this Agreement shall be held to
be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law;
(b) such provision or provisions shall be deemed reformed to the extent necessary to conform to
applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the
fullest extent possible, the provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to be invalid, illegal
or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to
give effect to the intent manifested thereby.

     17. Enforcement and Binding Effect.

          (a) The Company expressly confirms and agrees that it has entered into this Agreement and
assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director
or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as a director or officer of the Company.

          (b) This Agreement constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and supersedes all prior agreements and understandings, oral, written and
implied, between the parties hereto with respect to the subject matter hereof.

          (c) The indemnification and advancement of expenses provided by or granted pursuant to this
Agreement shall apply to Indemnitee’s service as an officer, director or key employee of the
Company prior to the date of this Agreement.

          (d) The indemnification and advancement of expenses provided by or granted pursuant to this
Agreement shall continue as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators of such a person.

     18. Modification and Waiver. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of any other
provisions of this Agreement nor shall any waiver constitute a continuing waiver.

     19. Notice by Indemnitee. Indemnitee agrees promptly to notify the Company in
writing upon being served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder. The failure of Indemnitee to so notify the Company
shall not relieve the Company of any obligation which it may have to Indemnitee under this
Agreement or otherwise.

     20. Notices. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given (a) if delivered by hand
and receipted for by the party to whom said notice or other communication shall have been directed
or (b) mailed by certified or registered mail with postage prepaid, on the third business day after
the date on which it is so mailed:

11

 

          (a) If to Indemnitee, at the address indicated on the signature page of this Agreement, or
such other address as Indemnitee shall provide in writing to the Company.

          (b) If to the Company to:

Somaxon Pharmaceuticals, Inc.

                                        

                                        

                                        

or to any other address as may have been furnished to Indemnitee in writing by the Company.

     21. Contribution. To the fullest extent permissible under applicable law, if the
indemnification provided for in this Agreement is unavailable to Indemnitee for any reason
whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount
incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to
be paid in settlement and/or for Expenses, in connection with any claim relating to an
indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in
light of all of the circumstances of such Proceeding in order to reflect: (i) the relative benefits
received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving
rise to such Proceeding; and/or (ii) the relative fault of the Company (and its directors,
officers, employees and agents) and Indemnitee in connection with such event(s) and/or
transaction(s).

     22. Applicable Law and Consent to Jurisdiction. This Agreement and the legal
relations among the parties shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to its conflict of laws rules. Except with
respect to any arbitration commenced by Indemnitee pursuant to Section 13(a) of this Agreement, the
Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or
proceeding arising out of or in connection with this Agreement shall be brought only in the
Chancery Court of the State of Delaware (the “Delaware Court”), and not in any other state or
federal court in the United States of America or any court in any other country, (ii) consent to
submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding
arising out of or in connection with this Agreement, (iii) appoint, to the extent such party is not
a resident of the State of Delaware, irrevocably Corporation Service Company, 2711 Centerville
Road, Suite 400, Wilmington, Delaware 19808, as its agent in the State of Delaware as such party’s
agent for acceptance of legal process in connection with any such action or proceeding against such
party with the same legal force and validity as if served upon such party personally within the
State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding
in the Delaware Court and (v) waive, and agree not to plead or to make, any claim that any such
action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient
forum.

     23. Identical Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same Agreement. Only one such counterpart signed by the
party against whom enforceability is sought needs to be produced to evidence the existence of this
Agreement.

     24. Miscellaneous. Use of the masculine pronoun shall be deemed to include usage of
the feminine pronoun where appropriate. The headings of the sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.

12

 

     In Witness Whereof, the parties have caused this Indemnification Agreement
to be signed as of the day and year first above written.

	 	 	 	 	 	 	 	 	 	 	 
	Somaxon Pharmaceuticals, Inc.,	 	 	 	Indemnitee:	 	 
	a Delaware corporation	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Name:	 	 	 	 	 	                    [Name]	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	Title:
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	Address:	 	 	 	 
	 

	 	 	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 
	 

	 	 	 	 	 	 

	 	 

13Prepared and filed by St Ives Financial

Exhibit 10.3

OPTION CERTIFICATE

This Option Certificate evidences an Option (“Option”) to purchase shares (“Option Shares”) of Common Stock, par value $0.0025, of PacificHealth Laboratories, Inc. (the “Company”) granted to DAVID PORTMAN (the “Optionee”) pursuant to the Company’s 1995 Incentive Stock Option Plan (the “Plan”), a copy of which has been furnished to the Optionee simultaneously with the delivery of this Option Certificate. The Option and Option Shares are subject to the terms, conditions, limitations and restrictions set forth in the Plan and the following terms and conditions:

a.        The effective date of the grant of the Option is February 10, 2006, and the number of Option Shares that may be purchased upon exercise of the Option is THIRTY THOUSAND (30,000) shares (the “Option Shares”).

b.        The
  Option Price shall be $0.60 per
  Option Share.

c.        The Option shall vest, subject to the provisions for early termination set forth herein and in the Plan, on February 10, 2007.

d.        The Option shall be exercisable to purchase Option Shares beginning on the date the Option vests as to such Shares, and shall terminate as to vested Option Shares on February 10, 2011, unless sooner terminated pursuant to the Plan.

e.        The Option may not be exercised as to any Option Share prior to the time that the Option becomes vested as to such Share. 

f.        The Option Price is payable at the time of exercise and shall be paid at the election of the Optionee (i) in cash; or (ii) in such other manner as may be approved by the Board of Directors or Committee of the Board then administering the Plan. 

IN WITNESS WHEREOF, this Option Certificate has been executed on behalf of the Company by a duly authorized officer effective this 23rd day of February 2006.

 

	
       
 	
       
 	
            PACIFICHEALTH  LABORATORIES, INC.
 
	
      
 
 
 	
       
 	
      By: 

    	
      

         /s/Robert Portman
 
	
       
 	
       
 	
       
 	
            

 
	
       
 	
       
 	
       
 	
      Robert Portman, President

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