Document:

Exhibit 10.1

 

September 24, 2008

 

Mr. Faheem Hasnain

[**]

[**]

 

Dear Faheem:

 

On behalf of PDL BioPharma, Inc. (“PDL” or “we”), I
am pleased to extend to you an employment offer for the position of President
and Chief Executive Officer, reporting to our Board of Directors (the “Board”).  Also, you will be appointed to the Board effective
as of the date you become President and Chief Executive Officer.  Your employment with PDL will begin on October 1,
2008 (the “Employment Date”).

 

As we have discussed, PDL is undertaking to spin off of its
biotechnology operations into a separate publicly traded company, currently
named Facet Biotech Corporation (“Facet”).  You and PDL agree that, subject to and in
connection with the spin off of Facet, PDL shall cause Facet to offer to employ
you as its President and Chief Executive Officer on the terms and conditions
set forth in the form of offer letter attached hereto as Exhibit A
(the “Facet Offer Letter”) and you agree to accept such offer of
employment with Facet on such terms and conditions.  You and PDL further agree that PDL will
terminate your employment with PDL upon your commencement of employment with
Facet, and you will resign from PDL’s Board upon or after the spin-off at the
request of PDL’s Board.  We intend to
appoint you to the Board of Directors of Facet at or prior to the time of the
spin-off.  While we plan to complete the
spin-off transaction by the end of 2008, it is possible for various reasons
that the spin-off may not occur by that time or at all.  If PDL does not complete the spin-off
transaction for any reason, you will remain President and Chief Executive
Officer of PDL and a member of the PDL Board.

 

You agree that you will devote your full business time and efforts to
PDL.  You agree that you will not engage
in any other business or serve in any position with or as a consultant or
adviser to any other corporation or entity (including as a member of  such corporation’s or entity’s board of
directors or other governing or advising body), without the prior written
consent of the Board.  Notwithstanding
the foregoing, but only for so long as such activities in the aggregate do not
materially interfere with your duties hereunder or create a business or
fiduciary conflict, you will not be prohibited from (i) participating in
charitable, civic, educational, professional, community or industry affairs
(including membership on boards of directors), (ii) managing your passive
personal investments, and (iii) continuing your service in the positions
that you held as of

 

 

the date of this offer letter, which positions you have disclosed to
the Board, provided that any such service obligation is not materially
increased beyond what you have disclosed to us.

 

Your monthly base salary for this position (as in effect from time to
time, “Base Salary”) will be $45,833.33 ($550,000/annually), less
applicable taxes and withholdings, and will be payable in accordance PDL’s
payroll procedures.  Your Base Salary
shall be reviewed each year but will not be subject to decrease unless such
decrease is part of an overall reduction effected for executive officers of PDL.  Your annual target bonus will be set at 75%
of your annual Base Salary.  Your bonus
with respect to 2008 service will be prorated from the Employment Date and based
on your contribution to PDL’s achievement of its 2008 goals and objectives during
2008 and your individual performance during this period as determined by the Board
or the Compensation Committee of the Board. 
Your annual bonus payout and the applicable performance goals for
subsequent years will be determined annually by the Board or the Compensation
Committee.

 

In lieu of your participation in the PDL relocation policy applicable
to your position with PDL (except as provided in the next sentence), beginning
on the Employment Date and ending on the earlier of the date of your
termination of employment with PDL or the second anniversary of the Employment
Date, PDL will pay to you a monthly housing allowance of $6,000.00.  In addition, PDL will reimburse you for
reasonable moving expenses from your current residence in San Diego, California
to the San Francisco Bay area in accordance with PDL’s relocation policy
applicable to your position with PDL.  PDL
will reimburse you for actual and reasonable attorney fees incurred by you in
connection with your negotiation of this agreement in an amount not to exceed
$7,500.  Any reimbursement of expenses or in-kind benefit you are entitled to
receive pursuant to this paragraph shall be subject to the following: (i) such
reimbursements shall be paid no later than the last day of your taxable year
following the taxable year in which the expense was incurred, (ii) the amount of expenses eligible for
reimbursement, or in-kind benefits to be provided, during any taxable year
shall not affect the expenses eligible for reimbursement, or in-kind benefits
to be provided, in any other taxable year, and (iii) the right
to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

 

We also offer to our employees other incentive programs and a benefits
package, including a comprehensive medical policy and dental plan, as well as
life insurance coverage, in which you will be eligible to participate in
accordance with company guidelines.

 

The Compensation Committee of the Board will grant to you, effective on
the Employment Date, (i) an option (the “Option”) to purchase 650,000
shares of common stock of PDL under PDL’s 1999 Stock Option Plan, with an
exercise price per share 

 

2

 

equal to the fair market value of a share of our common stock on the
grant date, and (ii) a restricted stock award (the “Restricted Stock
Award”) for 125,000  shares of
common stock of PDL under PDL’s 2005 Equity Incentive Plan.  The Option and Restricted Stock Award will be
subject to your execution of a Notice of Grant of Stock Option and Notice of
Grant of Restricted Stock Award in the forms attached hereto, respectively, and
the terms and conditions of the applicable plan and award agreement and the
Retention and Severance Plan for Chief Executive Officer attached hereto as Exhibit B
(the “Severance Plan”).  Subject
to your continued employment with PDL, the Option will vest over four years,
with one-fourth of the shares vesting one year after grant and the remainder
vesting in equal monthly increments over the remaining three years, and the
Restricted Stock Award will vest with respect to one-fourth of the shares
annually following grant.  You
acknowledge that at the time of the termination of your employment with PDL,
including in connection with the spin-off of Facet, (i) the unvested
portion of the Option will terminate immediately, (ii) the vested portion
of the Option will remain exercisable for three months after such employment
termination (or for one year in case your employment is terminated because of
death or disability) and thereafter will terminate, and (iii) any unvested
portion of the Restricted Stock Award will be immediately forfeited and
cancelled.  Provided that you are still
employed with PDL and the spin-off has not occurred, beginning with the second
year of your employment with PDL you shall be eligible for annual equity awards
in an amount commensurate with your title and position at PDL, as determined by
the Compensation Committee of the Board in its discretion, taking into account
your and PDL’s performance over the preceding year.

 

Your employment with PDL will not be for a set term, and you will be an
at-will employee.  As a PDL employee, you
will be free to resign at any time, just as we will be free to terminate your
employment at any time, with or without cause. 
There will be no express or implied agreements to the contrary.  In the event that your employment with PDL
terminates, you will be entitled to receive the applicable benefits provided
under the Severance Plan, subject to its terms and conditions.  However, you agree that neither (i) the spin-off
of Facet, (ii) the sale, transfer, pledge or other disposition of all or a
portion of PDL’s rights to receive antibody humanization royalties or a
distribution of the proceeds of such monetization or sale, nor (iii) your
termination of employment by PDL at the time you commence employment with Facet
pursuant to the Facet Offer Letter will entitle you to any rights or benefits
under the Severance Plan.

 

PDL intends that income provided to you pursuant to this letter
agreement will not be subject to taxation under Section 409A of the
Internal Revenue Code of 1986, as amended. 
The provisions of this letter agreement shall be interpreted and
construed in favor of satisfying any applicable requirements of Section 409A.

 

For purposes of federal immigration law, you will be required to
provide PDL documentary evidence of your identity and eligibility for employment
in the United States.

 

3

 

To indicate your acceptance of our offer, please sign and date this
letter in the space provided below and return it, along with a signed copy of
the enclosed Proprietary Information and Invention Assignment Agreement, to Francis
Sarena in the enclosed envelope.  This
letter, along with the Proprietary Information and Invention Assignment
Agreement, supersedes any prior representations or agreements, whether written
or oral, with respect to our offer of employment to you.  This letter may not be modified or amended
except by a written agreement, signed by PDL and you.

 

We are very excited at the
prospect of your joining PDL.  This offer
will remain open until September 26, 2008, at which time it will expire if
not previously accepted,

 

Sincerely,

 

	
  PDL BioPharma, Inc.

  	
   

  	
  Accepted by:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Francis Sarena

  	
   

  	
  /s/ Faheem Hasnain

  
	
  Francis Sarena

  	
   

  	
  Faheem Hasnain

  
	
  Vice President, General Counsel

  	
   

  	
   

  
	
  and Secretary

  	
   

  	
  September 24, 2008

  
	
   

  	
   

  	
  Date

  

 

4

 

Exhibit A

 

Form of Facet Offer Letter for CEO

 

[Date]

 

Mr. Faheem Hasnain

[Address]

[City, State Zip]

 

Dear Faheem:

 

On behalf of Facet Biotech Corporation (“Facet” or “we”),
I am pleased to extend to you an employment offer for the position of President
and Chief Executive Officer, reporting to our Board of Directors (the “Board”).  Also, you will be appointed to the Board
effective as of the date you become President and Chief Executive Officer.  Your employment with Facet will begin on [                    ]
(the “Employment Date”).

 

You agree that you will devote your full business time and efforts to Facet.  You agree that you will not engage in any
other business or serve in any position with or as a consultant or adviser to
any other corporation or entity (including as a member of  such corporation’s or entity’s board of
directors or other governing or advising body), without the prior written
consent of the Board.  Notwithstanding
the foregoing, but only for so long as such activities in the aggregate do not
materially interfere with your duties hereunder or create a business or
fiduciary conflict, you will not be prohibited from (i) participating in
charitable, civic, educational, professional, community or industry affairs
(including membership on boards of directors), (ii) managing your passive
personal investments, and (iii) continuing your service in the positions
that you held as of the date of this offer letter, which positions you have
disclosed to the Board, provided that any such service obligation is not
materially increased beyond what you have disclosed to us.

 

Your monthly base salary for this position (as in effect from time to
time, “Base Salary”) will be $45,833.33 ($550,000/annually), less
applicable taxes and withholdings, and will be payable in accordance Facet’s
payroll procedures.  Your Base Salary
shall be reviewed each year but will not be subject to decrease unless such
decrease is part of an overall reduction effected for executive officers of
Facet.  Your annual target bonus will be
set at 75% of your annual Base Salary. 
Your bonus with respect to 2008 service will be prorated based on your
start date with PDL BioPharma, Inc. (“PDL”) and based on your contribution
to PDL’s and Facet’s achievement of 2008 goals and objectives during 2008 and
your individual performance during this period as determined by the by the
Board or the Compensation Committee of the Board.  Your annual bonus payout and the

 

 

applicable performance goals for subsequent years will be determined
annually by the Board or the Compensation Committee.

 

In lieu of your participation in the Facet relocation policy applicable
to your position with Facet (except as provided in the next sentence),
beginning on the commencement of your employment with Facet and ending on the
earlier of the date of your termination of employment with Facet or the second
anniversary of the date of your commencement of employment with PDL, Facet will
pay to you a monthly housing allowance of $6,000.00 (except to the extent of
any such housing allowance pre-paid by PDL). 
In addition, Facet will reimburse you for reasonable moving expenses
from you current residence in San Diego, California to the San Francisco Bay
area in accordance with Facet’s relocation policy applicable to your position
with Facet, reduced by the sum of any such moving expenses reimbursed to you by
PDL.  Any reimbursement of expenses or in-kind benefit you are entitled to
receive pursuant to this paragraph shall be subject to the following: (i) such
reimbursements shall be paid no later than the last day of your taxable year
following the taxable year in which the expense was incurred, (ii) the amount of expenses eligible for
reimbursement, or in-kind benefits to be provided, during any taxable year
shall not affect the expenses eligible for reimbursement, or in-kind benefits
to be provided, in any other taxable year, and (iii) the right
to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another benefit.

 

We also offer to our employees other incentive programs and a benefits
package, including a comprehensive medical policy and dental plan, as well as
life insurance coverage, in which you will be eligible to participate in
accordance with company guidelines.

 

The Compensation Committee of the Board will grant to you (i) an
option (the “Facet Option”) to purchase 300,000 shares of common stock
of Facet, reduced pro rata to the extent that you exercise any portion of the
option to purchase shares of common stock of PDL granted to you upon the
commencement of your employment with PDL, with an exercise price per share
equal to the fair market value of a share of our common stock on the grant date,
and (ii) a restricted stock award (the “Facet Stock Award”) for 100,000
shares of common stock of Facet, reduced pro rata to the extent that you vest
in any of the restricted shares of common stock of PDL granted to you upon the
commencement of your employment with PDL. 
The Facet Option and Facet Stock Award will be granted under Facet’s
2008 Equity Incentive Plan (the “Equity Plan”) and will be subject to
your execution of a Notice of Grant of Stock Option and Notice of Grant of
Restricted Stock Award in the forms attached hereto, respectively, and the
terms and conditions of the Equity Plan and applicable award agreement and
Facet’s Retention and Severance Plan (the “Facet Severance Plan”),
subject to your entry into an agreement to participate in the Facet Severance
Plan.  Subject to your continued
employment with Facet, the Facet Option will vest with respect to one-fourth of
the shares one year after the date you started your employment with PDL (the “PDL
Start Date”) and the remainder will vest in 

 

2

 

36 equal monthly increments commencing with the month following the
first anniversary of the PDL Start Date.  Subject to your continued
employment with Facet, the Facet Stock Award will vest with respect to
one-fourth of the shares annually, with the first such installment vesting on
the date one year after the PDL Start Date. 
We expect that the Facet Option and the Facet Stock Award will be
granted approximately 20 trading days after the spin-off of Facet from PDL.  Beginning with the second year following the
commencement of your employment with PDL, you shall be eligible for annual
equity awards in an amount commensurate with your title and position at Facet,
as determined by the Compensation Committee of the Board in its discretion,
taking into account your, PDL’s and Facet’s performance over the preceding
year.

 

Your employment with Facet as President and Chief Executive Officer
will not be for a set term, and you will be an at-will employee.  As a Facet employee, you will be free to
resign at any time, just as we will be free to terminate your employment at any
time, with or without cause.  There will
be no express or implied agreements to the contrary.  Facet will designate you a “Participant” in
the Facet Severance Plan, subject to your entry into an agreement to
participate in such plan.  The Facet
Severance Plan will include, with respect to your participation in such plan, a
“gross-up” payment provision substantially similar to that set forth in Section 6.1
of the PDL BioPharma, Inc. Retention and Severance Plan for Chief
Executive Officer attached as Exhibit B to the offer letter employment
agreement between you and PDL, dated September 17, 2008.  In the event that your employment with Facet
terminates, you will be entitled to receive the applicable benefits provided
under the Facet Severance Plan, subject to its terms and conditions.

 

Facet intends that income provided to you pursuant to this letter
agreement will not be subject to taxation under Section 409A of the Internal
Revenue Code of 1986, as amended.  The
provisions of this letter agreement shall be interpreted and construed in favor
of satisfying any applicable requirements of Section 409A.

 

For purposes of federal immigration law, you will be required to provide
Facet documentary evidence of your identity and eligibility for employment in
the United States.

 

[Remainder of Page Intentionally Blank]

 

3

 

To indicate your acceptance of our offer, please sign and date this
letter in the space provided below and return it, along with a signed copy of
the enclosed Proprietary Information and Invention Assignment Agreement, to                   
in the enclosed envelope.  This letter,
along with the Proprietary Information and Invention Assignment Agreement,
supersedes any prior representations or agreements, whether written or oral,
with respect to our offer of employment to you. 
This letter may not be modified or amended except by a written
agreement, signed by Facet and you.

 

Sincerely,

 

	
  Facet Biotech Corporation

  	
   

  	
  Accepted by:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  [Exhibit form; do not sign]

  	
   

  	
  [Exhibit form; do not sign]

  
	
   

  	
   

  	
  Faheem Hasnain

  
	
  Chairperson of the Board

  	
   

  	
   

  
	
   

  	
   

  	
  [Exhibit form; do not date]

  
	
   

  	
   

  	
  Date

  

 

4

 

Exhibit B

 

Form of Retention and Severance Plan

for Chief Executive OfficerExhibit 10.2

 

PDL
BIOPHARMA, INC.

RETENTION
AND SEVERANCE PLAN

FOR CHIEF
EXECUTIVE OFFICER

 

1.             ESTABLISHMENT AND PURPOSE OF PLAN

 

1.1           Establishment.  The
PDL BioPharma, Inc. Retention and Severance Plan for Chief Executive
Officer (the “Plan”)
is hereby established by the Compensation Committee of the Board of Directors
of PDL BioPharma, Inc., effective October 1, 2008 (the “Effective Date”).

 

1.2           Purpose.  The Company
draws upon the knowledge, experience and advice of its officers in order to
manage its business for the benefit of the Company’s stockholders.  Due to the widespread awareness of the
possibility of mergers, acquisitions and other strategic alliances in the
Company’s industry, the topics of compensation and other employee benefits in
the event of a Change in Control or other circumstances that may result in
termination of employment are issues in competitive recruitment and retention
efforts.  The Committee recognizes that
the possibility or pending occurrence of a Change in Control could lead to
uncertainty regarding the consequences of such an event and could adversely
affect the Company’s ability to attract, retain and motivate present and future
officers.  The Committee has therefore
determined that it is in the best interests of the Company and its stockholders
to provide for the continued dedication of its officers notwithstanding the
possibility or occurrence of circumstances that may result in termination of
employment by establishing this Plan to provide the Chief Executive with
enhanced financial security in the event of a termination of employment.  The purpose of this Plan is to provide its
Participant with specified compensation and benefits in the event of
termination of employment under circumstances specified herein.

 

2.             DEFINITIONS AND CONSTRUCTION

 

2.1           Definitions.  Whenever
used in this Plan, the following terms shall have the meanings set forth below:

 

(a)           “Applicable Benefit Period”
means:

 

(1)           with
respect to the Participant’s Involuntary Termination Absent a Change in
Control, a period of eighteen (18) months; and

 

(2)           with
respect to the Participant’s Involuntary Termination Following a Change in
Control, a period of twenty-four (24) months.

 

(b)           “Base Salary Rate” means, as
applicable, either:

 

(1)           with
respect to the Participant’s Involuntary Termination Absent a Change in
Control, the Participant’s monthly base salary rate in effect immediately 

 

1

 

prior to such
termination of employment (without giving effect to any reduction in the
Participant’s base salary rate constituting Good Reason); or

 

(2)           with
respect to the Participant’s Involuntary Termination Following a Change in
Control, the greater of (i) the Participant’s monthly base salary rate in
effect immediately prior to such termination of employment (without giving
effect to any reduction in the Participant’s base salary rate constituting Good
Reason) or (ii) the Participant’s monthly base salary rate in effect
immediately prior to the applicable Change in Control.

 

For this purpose, base salary does not include any bonuses,
commissions, fringe benefits, car allowances, other irregular payments or any
other compensation except base salary.

 

(c)           “Board” means the Board of
Directors of the Company.

 

(d)           “Bonus Rate” means the
quotient determined by dividing whichever of the following amounts is the
greatest by twelve (12):

 

(1)           the
aggregate of all annual incentive bonuses earned by the Participant (whether or
not actually paid) under the terms of the programs, plans or agreements
providing for such bonuses for the fiscal year of the Company immediately
preceding the fiscal year of the Change in Control; or

 

(2)           the
aggregate of all annual incentive bonuses earned by the Participant (whether or
not actually paid) under the terms of the programs, plans or agreements
providing for such bonuses for the fiscal year of the Company immediately
preceding the fiscal year of the Participant’s Involuntary Termination
Following a Change in Control; or

 

(3)           the
aggregate of all annual incentive bonuses that would be earned by the
Participant at the Participant’s annual incentive bonus target rate (assuming
attainment of 100% of all applicable performance goals) under the terms of the
programs, plans or agreements providing for such bonuses in which the
Participant was participating for the fiscal year of the Participant’s
Involuntary Termination Following a Change in Control (without giving effect to
any reduction in the Participant’s annual incentive bonus target rate
constituting Good Reason);

 

provided, however, that for the purposes of this
definition, “annual incentive bonuses” shall not include signing bonuses,
retention bonuses or other nonrecurring cash awards that are not part of an
annual incentive bonus program.

 

(e)           “Cause” means the occurrence
of any of the following:

 

(1)           the
Participant’s intentional theft, dishonesty, willful misconduct, breach of
fiduciary duty for personal profit, or falsification of any Company Group
documents or records; or

 

(2)           the
Participant’s material failure to abide by the Company’s code of conduct or
other written policies (including, without limitation, policies relating to
confidentiality and reasonable workplace conduct); or

 

2

 

(3)           the
Participant’s material and intentional unauthorized use, misappropriation,
destruction or diversion of any tangible or intangible asset or corporate
opportunity of the Company Group (including, without limitation, the
Participant’s improper use or disclosure of Company Group confidential or
proprietary information); or

 

(4)           any
intentional act by the Participant which has a material detrimental effect on
the Company Group’s reputation or business; or

 

(5)           the
Participant’s repeated failure or inability to perform any reasonable assigned
duties after written notice from the Board of, and a reasonable opportunity to
cure, such failure or inability; or

 

(6)           any
material breach by the Participant of any employment, service, non-disclosure,
non-competition, non-solicitation or other similar agreement between the
Participant and a member of the Company Group, which breach is not cured
pursuant to the terms of such agreement or within twenty (20) days of receiving
written notice of such breach; or

 

(7)           the
Participant’s conviction (including any plea of guilty or nolo contendere) of
any criminal act involving fraud, dishonesty, misappropriation or moral
turpitude, or which impairs the Participant’s ability to perform his or her
duties with the Company Group.

 

(f)            “Change in Control” means the
occurrence of any of the following:

 

(1)           any “person”
(as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes the “beneficial owner” (as such term is defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing more than fifty percent (50%) of the total fair market
value or total combined voting power of the Company’s then-outstanding
securities entitled to vote generally in the election of directors of the Company;
provided, however, that a Change in Control shall not be deemed to have
occurred if such degree of beneficial ownership results from any of the
following: (i) an acquisition by any person who on the Effective Date is
the beneficial owner of more than fifty percent (50%) of such voting power, (ii) any
acquisition directly from the Company, including, without limitation, pursuant
to or in connection with a public offering of securities, (iii) any
acquisition by the Company, (iv) any acquisition by a trustee or other
fiduciary under an employee benefit plan of a member of the Company Group or (v) any
acquisition by an entity owned directly or indirectly by the stockholders of
the Company in substantially the same proportions as their ownership of the voting
securities of the Company; or

 

(2)           the
Company is party to a merger, consolidation or similar corporate transaction,
or series of related transactions, which results in the holders of the voting
securities of the Company outstanding immediately prior to such transaction(s) failing
to retain immediately after such transaction(s) direct or indirect
beneficial ownership of more than fifty percent (50%) of the total combined
voting power of the securities entitled to vote generally in the election of
directors of the Company or the surviving entity outstanding immediately after
such transaction(s); or

 

3

 

(3)           the sale,
exchange or transfer of all or substantially all of the assets of the Company
or consummation of any transaction, or series of related transactions, having
similar effect (other than a sale or disposition to one or more subsidiaries of
the Company); or

 

(4)           a change
in the composition of the Board within any consecutive twelve-month period as a
result of which fewer than a majority of the directors are Incumbent Directors;

 

provided, however, that a Change in
Control shall be deemed not to include (i) a transaction described in
subsections (1) or (2) of this Section in which a majority of
the members of the board of directors of the continuing, surviving or successor
entity, or parent thereof, immediately after such transaction is comprised of
Incumbent Directors, or (ii) a transaction described in subsection (3) in
which the holders of the voting securities of the Company outstanding
immediately prior to such transaction(s) retain immediately after such
transaction(s) direct or indirect beneficial ownership of more than fifty
percent (50%) of the total combined voting power of the securities entitled to
vote generally in the election of directors of the entity to which the assets
of the Company were transferred, or (iii) a transaction described in
subsection (3) involving the sale, exchange, transfer, pledge or other
disposition of all or a portion of the Company Group’s rights to receive
antibody humanization royalties or a distribution of the proceeds of such
monetization or sale.

 

(g)           “Change in Control Period”
means a period commencing upon the consummation of a Change in Control and
ending on the date occurring eighteen (18) months thereafter.

 

(h)           “Chief Executive Officer”
means the individual appointed by the Board as the Chief Executive Officer of
the Company and who is serving in such capacity immediately prior to the first
to occur of: (1) a condition constituting Good Reason with respect to such
individual, (2) such individual’s termination of employment with the
Company Group, or (3) the commencement of the applicable Change in Control
Period.

 

(i)            “COBRA”
means the group health plan continuation coverage provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 and any applicable
regulations promulgated thereunder.

 

(j)            “Code” means the Internal
Revenue Code of 1986, as amended, and any applicable regulations or
administrative guidelines promulgated thereunder.

 

(k)           “Committee” means the
Compensation Committee of the Board.

 

(l)            “Company” means PDL BioPharma, Inc.,
a Delaware corporation, and, following a Change in Control, a Successor that
agrees to assume all of the rights and obligations of the Company under this
Plan or a Successor which otherwise becomes bound by operation of law under
this Plan.

 

(m)          “Company Group” means the
group consisting of the Company and each present or future parent and
subsidiary corporation or other business entity thereof.

 

4

 

(n)           “Equity Award” means any
stock option (excluding, however, an option described in Section 423 of
the Code), stock appreciation right, stock bonus, stock purchase, restricted
stock, restricted stock unit, performance share, performance unit, phantom
stock or other stock-based compensation award of any kind granted by any member
of the Company Group and held by the Participant, including any such award
which is assumed by, or for which a replacement award is substituted by, the
Successor or any other member of the Company Group in connection with a Change
in Control.

 

(o)           “Exchange Act”
means the Securities Exchange Act of 1934, as amended.

 

(p)           “Good Reason” means the occurrence
of any of the following conditions without the Participant’s informed written
consent:

 

(1)           a
material diminution in the Participant’s authority, duties or responsibilities,
causing the Participant’s position to be of materially lesser rank or responsibility
within the Company Group; or

 

(2)           a
requirement that the Participant report to a corporate officer or other
employee rather than directly to the Board or the board of directors of the
Company’s parent; or

 

(3)           a
material reduction in the Participant’s Base Salary Rate or annual incentive
bonus target rate, unless reductions comparable in amount and duration are
concurrently made for all other officers of the Company Group; or

 

(4)           a change
in the Participant’s work location that increases the regular one-way commute
distance between the Participant’s residence prior to such change and work
location by more than thirty (30) miles; or

 

(5)           any
action or inaction by a member of the Company Group that constitutes, with
respect to the Participant, a material breach of this Plan or an employment
agreement under which the Participant provides services to the Company Group,
including a breach described in Section 14.2.

 

(q)           “Incumbent Director” means a
director who either (1) is a member of the Board as of the Effective Date,
or (2) is elected, or nominated for election, to the Board with the
affirmative votes of at least a majority of the Incumbent Directors at the time
of such election or nomination, but (3) who was not elected or nominated
in connection with an actual or threatened proxy contest relating to the
election of directors of the Company.

 

(r)            “Involuntary
Termination” means the occurrence of any of the following
events:

 

(1)           termination
by the Company Group of the Participant’s employment for any reason other than
Cause, the Participant’s death, or the Participant’s Permanent Disability; or

 

5

 

(2)           failure
by the Company Group to renew an employment agreement under which the
Participant provides services to the Company Group, provided that the
Participant was willing and able to execute a new employment agreement
providing terms and conditions substantially similar to those of the expiring
employment agreement and to continue providing such services; or

 

(3)           the
Participant’s resignation for Good Reason from employment with the Company
Group within one hundred eighty (180) days following the initial existence of a
condition constituting Good Reason, provided that the Participant delivered
written notice to the Company of such condition within ninety (90) days after
its initial existence and the Company failed to cure such condition within
thirty (30) days following such written notice;

 

provided, however, that Involuntary
Termination shall not include any voluntary resignation from employment by the
Participant for any reason other than Good Reason.

 

(s)           “Involuntary Termination Absent a Change in Control”
means an Involuntary Termination that does not occur during a Change in Control
Period.

 

(t)            “Involuntary Termination Following a Change in
Control” means an Involuntary Termination that occurs
during a Change in Control Period.

 

(u)           “Participant” means the Chief
Executive Officer, provided the Chief Executive Officer has executed a
Participation Agreement.

 

(v)           “Participation Agreement”
means an Agreement to Participate in the PDL BioPharma, Inc. Retention and
Severance Plan for Chief Executive Officer in the form attached hereto as Exhibit A
or in such other form as the Committee may approve from time to time; provided,
however, that, after a Participation Agreement has been entered into between
the Participant and the Company, it may be modified only by a supplemental
written agreement executed by both the Participant and the Company.

 

(w)          “Performance-Based Equity Award”
means an Equity Award the vesting or earning of which is conditioned in whole
or in part upon the achievement of one or more performance goals (e.g., the
attainment of a target stock price, achievement of a corporate financial goal
or achievement of an individual goal other than continued performance of
services for a specified period of time), notwithstanding that the vesting or
earning of such Equity Award may also be conditioned upon the continued
performance of services for the Company Group.

 

(x)            “Permanent
Disability” means the Participant’s incapacity due to
bodily injury or physical or mental illness which (1) prevents the
Participant from engaging in the full-time performance of the Participant’s
duties for a period of six (6) consecutive months and (2) will, in
the opinion of a qualified physician, be permanent and continuous during the
remainder of the Participant’s life.

 

(y)           “Release” means a general
release of all known and unknown claims against the Company and its affiliates
and their stockholders, directors, officers, employees, agents, successors and
assigns substantially in the form attached hereto as Exhibit B  

 

6

 

(“General Release of Claims Age 40 and over”), with any modifications
thereto determined by legal counsel to the Company to be necessary or advisable
to comply with applicable law or to accomplish the intent of Section 8
(Exclusive Remedy) hereof.

 

(z)            “Section 409A” means Section 409A
of the Code.

 

(aa)         “Section 409A Deferred Compensation”
means compensation, benefits or arrangements provided by the Plan or otherwise
that constitute or would give rise to deferred compensation subject to and not
exempted from the requirements of Section 409A.

 

(bb)         “Separation from Service”
means a separation from service within the meaning of Section 409A.

 

(cc)         “Service-Based Equity Award”
means an Equity Award the vesting or earning of which is conditioned solely
upon the continued performance of services for the Company Group.

 

(dd)         “Specified Employee” means a
specified employee within the meaning of Section 409A.

 

(ee)         “Successor” means any
successor in interest to substantially all of the business and/or assets of the
Company.

 

(ff)           “Target Bonus Rate” means,
with respect to the Participant’s Involuntary Termination Absent a Change in
Control, the quotient determined by dividing the following amount by twelve
(12):  the aggregate of all annual
incentive bonuses that would be earned by the Participant at the Participant’s
annual incentive bonus target rate (assuming attainment of 100% of all
applicable performance goals) under the terms of the programs, plans or
agreements providing for such bonuses in which the Participant was
participating for the fiscal year of the Participant’s Involuntary Termination
Absent a Change in Control (without giving effect to any reduction in the
Participant’s annual incentive bonus target rate constituting Good Reason);
provided, however, that for the purposes of this definition, “annual incentive
bonuses” shall not include signing bonuses, retention bonuses or other
nonrecurring cash awards that are not part of an annual incentive bonus
program.

 

2.2           Construction.  The
Company intends that all payments and benefits provided by this Plan be exempt from
or comply with all applicable requirements of Section 409A, and any
ambiguities in the Plan shall be construed in a manner consistent with such
intent.  Captions and titles contained
herein are for convenience only and shall not affect the meaning or interpretation
of any provision of the Plan.  Except
when otherwise indicated by the context, the singular shall include the plural
and the plural shall include the singular. 
Use of the term “or” is not intended to be exclusive, unless the context
clearly requires otherwise.

 

3.             ELIGIBILITY AND PARTICIPATION

 

The individual eligible to be designated to
participate in the Plan shall be the Chief Executive Officer.  The Chief Executive Officer shall become a
Participant upon such individual’s execution of a Participation Agreement.

 

7

 

4.             PAYMENTS AND BENEFITS
UPON TERMINATION OF EMPLOYMENT.

 

In the
event of the Participant’s termination of employment with the Company Group,
the Participant shall be entitled to receive the applicable compensation and
benefits described in this Section 4.

 

4.1           Involuntary Termination Absent a Change in Control.  In the event of the Participant’s Involuntary
Termination Absent a Change in Control, the Participant shall be entitled to
receive the following compensation and benefits:

 

(a)           Accrued Obligations.  The Participant shall be entitled
to receive:

 

(1)           all
salary, commissions, bonuses and accrued but unused vacation earned through the
date of the Participant’s termination of employment, which shall be paid at the
time required by applicable law or pursuant to the terms and conditions of the
plans or agreements providing for such payments; and

 

(2)           reimbursement
within ten (10) business days of submission of proper reports, such
submission to be made within thirty (30) days following the Participant’s
termination of employment, of all business expenses reasonably and necessarily
incurred by the Participant in connection with the business of the Company
Group prior to his or her termination of employment in accordance with the
Company Group’s business expense policy; and

 

(3)           the
benefits, if any, under any Company Group retirement plan, nonqualified
deferred compensation plan, Equity Award plan or agreement, welfare benefit
plan or other Company Group compensation or benefit plan to which the
Participant may be entitled pursuant to the terms and conditions of such plans
or agreements.

 

(b)           Severance Benefits.  Provided that the Participant resigns upon
such Involuntary Termination Absent a Change in Control from all capacities in
which the Participant is then rendering service to the Company Group
(including, without limitation, service as a member of the Board), executes the
Release and such Release becomes effective in accordance with its terms on or
before the sixtieth (60th) day following the date of the Participant’s
Involuntary Termination Absent a Change in Control, the Participant shall be
entitled to receive the following severance payments and benefits to which the
Participant would not otherwise be entitled:

 

(1)           Cash Severance Payments. 
Subject to Section 6.2, the Company shall pay to the Participant in
a lump sum cash payment on the sixtieth (60th) day following the date of the
Participant’s termination of employment an amount equal to (i) the sum of
the Participant’s applicable Base Salary Rate and the Participant’s Target
Bonus Rate multiplied by (ii) the number of months contained in the
Participant’s Applicable Benefit Period.

 

(2)           Health and Life Insurance Benefits.  Subject to Section 6.2, for the period
commencing immediately following the Participant’s termination of employment
and continuing for the duration of the Applicable Benefit Period, the Company
shall arrange to provide the Participant and his or her dependents with health
benefits (including medical and dental) and life insurance benefits
substantially similar to those provided to the 

 

8

 

Participant and
his or her dependents immediately prior to the date of such termination of
employment or shall reimburse the Participant for the cost of obtaining such
benefits to the extent described below. 
Such benefits shall be provided to the Participant at the same premium
cost to the Participant and at the same coverage level as in effect as of the
Participant’s termination of employment; provided, however, that the
Participant shall be subject to any change in the premium cost and/or level of
coverage applicable generally to all employees holding the position or comparable
position with the Company Group which the Participant held immediately prior to
termination of employment.  The Company
may satisfy its obligation to provide a continuation of health benefits by
paying that portion of the Participant’s premiums required under COBRA that
exceeds the amount of premiums that the Participant would have been required to
pay for continuing coverage had he or she continued in employment.  If the Company is not reasonably able to
continue such coverage under the Company’s health benefit plans, the Company
shall provide substantially equivalent coverage under other sources or will
reimburse (without a tax gross-up) the Participant for premiums (in excess of
the Participant’s premium cost described above) incurred by the Participant to
obtain his or her own such coverage.  If
the Participant and/or the Participant’s dependents become eligible to receive
such coverage under another employer’s health benefit plans during the
Applicable Benefit Period, the Participant shall report such eligibility to the
Company, and the Company’s obligations under this subsection shall be secondary
to the coverage provided by such other employer’s plans.  For the balance of any period in excess of
the Applicable Benefit Period during which the Participant is entitled to
continuation coverage under COBRA, the Participant shall be entitled to
maintain coverage for himself or herself and the Participant’s eligible
dependents at the Participant’s own expense.

 

(3)           Outplacement Benefits. 
Subject to Section 6.2, for the period commencing immediately
following the Participant’s termination of employment and continuing for a
period of six (6) months, the Company will provide the Participant with
reasonable outplacement services from vendors designated by the Company.

 

(4)           Acceleration of Vesting of Equity Awards.

 

(i)            Service-Based Equity Awards. 
Notwithstanding any provision to the contrary contained in any plan or
agreement evidencing a Service-Based Equity Award, but subject to Section 6.2
and subsections (iv) and (v) below, each of the Participant’s
Service-Based Equity Awards outstanding at the time of the Participant’s
termination of employment with the Company Group shall vest effective as of the
time of the Participant’s termination of employment to the same extent that
such Equity Award would have vested in accordance with its terms over the
period of eighteen (18) months following the date of the Participant’s
termination of employment had the Participant’s employment with the Company
Group continued throughout such period.

 

(ii)           Performance-Based Equity Awards Other Than Section 162(m) Exempt
Awards.  Notwithstanding any
provision to the contrary contained in any plan or agreement evidencing a
Performance-Based Equity Award, but subject to Section 6.2 and subsection (iv) below,
each of the Participant’s Performance-Based Equity Awards, other than any such
Equity Award intended to result in “qualified performance-based compensation”
within the meaning of Section 162(m) of the Code (a “Section 162(m) Exempt Award”),

 

9

 

outstanding at the
time of the Participant’s termination of employment with the Company Group
shall vest effective as of the time of the Participant’s termination of
employment as follows:

 

(A)          If the
performance period of such award is scheduled to end within eighteen (18)
months following the date of the Participant’s termination of employment, such
award shall vest to the same extent that it would have vested had one hundred
percent (100%) of the target level of performance been achieved and had the
Participant’s employment with the Company Group continued through the date on
which such award was to be settled in accordance with its terms.

 

(B)           If the
performance period of such award is scheduled to end more than eighteen (18)
months following the date of the Participant’s termination of employment, such
award shall vest in an amount equal to the product of: (1) the amount of
such award that would have vested had one hundred percent (100%) of the target
level of performance been achieved and had the Participant’s employment with
the Company Group continued through the date on which such award was to be
settled in accordance with its terms, and (2) a fraction (not greater than
one), the numerator of which is the number of days from the commencement of the
performance period until the date eighteen (18) months following the date of
the Participant’s termination of employment and the denominator of which is the
total number of days contained in the performance period.

 

(iii)          Performance-Based Equity Awards Which Are Section 162(m) Exempt
Awards.  Notwithstanding any
provision to the contrary contained in any plan or agreement evidencing a
Performance-Based Equity Award, but subject to Section 6.2, each of the
Participant’s Performance-Based Equity Awards which is a Section 162(m) Exempt
Award and is outstanding at the time of the Participant’s termination of
employment with the Company Group shall continue to remain outstanding and
shall vest and be settled as follows:

 

(A)          The
Participant shall vest in and be entitled to receive an amount equal to the
product of: (1) the amount of such award that would actually vest based
upon the extent to which the applicable performance goals are actually attained
as of the completion of the applicable performance period and had the
Participant’s employment with the Company Group continued through the date on
which such award was to be settled in accordance with its terms, and (2) a
fraction (not greater than one), the numerator of which is the number of days
from the commencement of the performance period until the date eighteen (18)
months following the date of the Participant’s termination of employment and
the denominator of which is the total number of days contained in the
performance period.

 

(B)           Payment
of the amount determined under subsection (A) above shall be made at the
same time payments are made to other participants in the plan or arrangement
governing such award in accordance with its terms, but in any event no later
than the 15th day of the third month following the later of (x) end of the
Participant’s taxable year in which the performance period ends or (y) the
end of the Company’s taxable year in which the performance period ends.

 

10

 

(C)           Notwithstanding
the foregoing, in the event of the consummation of a Change in Control prior to
the date on which payment would otherwise be made in accordance with subsection
(B) above, then such award shall vest and be settled as provided by Section 5.2,
but subject in any event to Section 6.2.

 

(iv)          Settlement of Certain Equity Awards Not Subject to Exercise.  Any Equity Award the vesting of which is
accelerated by this Section 4.1(b)(4), other than a Section 162(m) Exempt
Award, which is an award of restricted stock units, performance shares,
performance units, phantom stock or similar stock-based compensation
representing a future right to receive shares or other consideration the
settlement of which is not determined by its holder’s election to exercise such
award shall be settled in full on the first to occur of (A) the sixtieth
(60th) day following the date of the Participant’s termination of employment,
and (B) the effective time of a Change in Control, but subject in either
case to Section 6.2.

 

(v)           Extension of Stock Option Exercise Period.  Notwithstanding any provision to the contrary
contained in the agreement evidencing any Equity Award which is a stock option,
the stock option, to the extent unexercised on the date on which the
Participant’s employment terminated, may be exercised by the Participant (or
the Participant’s guardian or legal representative) at any time prior to the
expiration of one (1) year after the date on which the Participant’s
employment terminated, but in any event no later than the date of expiration of
the stock option’s term as set forth in the agreement evidencing such stock
option.

 

(5)           Forfeiture of Benefits. 
If the Release which is a condition to the Participant’s right to
payments and benefits pursuant to this Section 4.1(b) does not become
effective on or before the sixtieth (60th) day following the date of the
Participant’s termination of employment, then the Company shall have the right
to: (i) terminate any further provision of such severance benefits pursuant
to this Plan, (ii) seek reimbursement from the Participant for all such
severance benefits previously provided to the Participant pursuant to this
Plan, (iii) recover from the Participant all shares of the Company’s stock
owned by the Participant (or the proceeds therefrom, reduced by any exercise or
purchase price paid to acquire such shares) the vesting of which was
accelerated pursuant to this Plan, and (iv) to immediately cancel all
Equity Awards the vesting of which was accelerated pursuant to this Plan.

 

4.2           Involuntary Termination Following a Change in Control.  In the event of the Participant’s Involuntary
Termination Following a Change in Control, the Participant shall be entitled to
receive the following compensation and benefits:

 

(a)           Accrued Obligations.  The Participant shall be entitled
to receive all of the accrued obligations described in Section 4.1(a),
which shall be provided in the same manner as described in such Section.

 

(b)           Severance Benefits.  Provided that the Participant resigns upon
such Involuntary Termination Following a Change in Control from all capacities
in which the Participant is then rendering service to the Company Group
(including, without limitation, service as a member of the Board), executes the
Release and such Release becomes effective in 

 

11

 

accordance with
its terms on or before the sixtieth (60th) day following the date of the
Participant’s Involuntary Termination Following a Change in Control, the
Participant shall be entitled to receive the following severance payments and
benefits to which the Participant would not otherwise be entitled:

 

(1)           Cash Severance Payments. 
Subject to Section 6.2, the Company shall pay to the Participant in
a lump sum cash payment on the sixtieth (60th) day following the date of the
Participant’s termination of employment an amount equal to (i) the sum of
the Participant’s applicable Base Salary Rate and the Participant’s applicable
Bonus Rate multiplied by (ii) the number of months contained in the
Participant’s Applicable Benefit Period.

 

(2)           Health and Life Insurance Benefits.  Subject to Section 6.2, for the period
commencing immediately following the Participant’s termination of employment
and continuing for the duration of the Applicable Benefit Period, the Company
shall arrange to provide the Participant and his or her dependents with health
benefits (including medical and dental) and life insurance benefits
substantially similar to those provided to the Participant and his or her
dependents immediately prior to the date of such termination of employment or
shall reimburse the Participant for the cost of obtaining such benefits to the
extent described below.  Such benefits
shall be provided to the Participant at the same premium cost to the
Participant and at the same coverage level as in effect as of the Participant’s
termination of employment; provided, however, that the Participant shall be
subject to any change in the premium cost and/or level of coverage applicable
generally to all employees holding the position or comparable position with the
Company Group which the Participant held immediately prior to termination of
employment.  The Company may satisfy its
obligation to provide a continuation of health benefits by paying that portion
of the Participant’s premiums required under COBRA that exceeds the amount of
premiums that the Participant would have been required to pay for continuing
coverage had he or she continued in employment. 
If the Company is not reasonably able to continue such coverage under
the Company’s health benefit plans, the Company shall provide substantially
equivalent coverage under other sources or will reimburse (without a tax
gross-up) the Participant for premiums (in excess of the Participant’s premium
cost described above) incurred by the Participant to obtain his or her own such
coverage.  If the Participant and/or the
Participant’s dependents become eligible to receive such coverage under another
employer’s health benefit plans during the Applicable Benefit Period, the
Participant shall report such eligibility to the Company, and the Company’s
obligations under this subsection shall be secondary to the coverage provided
by such other employer’s plans.  For the
balance of any period in excess of the Applicable Benefit Period during which
the Participant is entitled to continuation coverage under COBRA, the
Participant shall be entitled to maintain coverage for himself or herself and
the Participant’s eligible dependents at the Participant’s own expense.

 

(3)           Outplacement Benefits. 
Subject to Section 6.2, for the period commencing immediately
following the Participant’s termination of employment and continuing for a
period of six (6) months, the Company will provide the Participant with
reasonable outplacement services from vendors designated by the Company.

 

12

 

(4)           Acceleration of Vesting of Equity Awards; Extension of Stock Option
Exercise Period.

 

(i)            Notwithstanding
any provision to the contrary contained in any plan or agreement evidencing an
Equity Award granted to the Participant, but subject to Section 6.2, the
vesting of each of the Participant’s Equity Awards outstanding at the time of
the Participant’s termination of employment with the Company Group shall be
accelerated in full effective as of the time of the Participant’s termination
of employment.

 

(ii)           In
determining the extent of such acceleration of vesting of any Performance-Based
Equity Award, it shall be assumed that one hundred percent (100%) of the target
level of performance has been achieved.

 

(iii)          Any
Equity Awards the vesting of which is accelerated by this Section 4.2(b)(4) which
is an award of restricted stock units, performance shares, performance units,
phantom stock or similar stock-based compensation representing a future right
to receive shares or other consideration the settlement of which is not
determined by its holder’s election to exercise such award shall be settled in
full on the sixtieth (60th) day following the date of the Participant’s
termination of employment, subject to Section 6.2.

 

(iv)          Notwithstanding
any provision to the contrary contained in the agreement evidencing any Equity
Award which is a stock option, the stock option, to the extent unexercised on
the date on which the Participant’s employment terminated, may be exercised by
the Participant (or the Participant’s guardian or legal representative) at any
time prior to the expiration of one (1) year after the date on which the
Participant’s employment terminated, but in any event no later than the date of
expiration of the stock option’s term as set forth in the agreement evidencing
such stock option.

 

(5)           Forfeiture of Benefits. 
If the Release which is a condition to the Participant’s rights to
payments and benefits pursuant to this Section 4.2(b) does not become
effective on or before the sixtieth (60th) day following the date of the
Participant’s termination of employment, then the Company shall have the right
to: (i) terminate any further provision of such severance benefits
pursuant to this Plan, (ii) seek reimbursement from the Participant for
all such severance benefits previously provided to the Participant pursuant to
this Plan, (iii) recover from the Participant all shares of the Company’s
stock owned by the Participant (or the proceeds therefrom, reduced by any
exercise or purchase price paid to acquire such shares) the vesting of which
was accelerated pursuant to this Plan, and (iv) to immediately cancel all
Equity Awards the vesting of which was accelerated pursuant to this Plan.

 

4.3           Other Termination.  In the event of the Participant’s termination
of employment with the Company Group which is not an Involuntary Termination,
the Participant shall be entitled to receive only the accrued obligations described in Section 4.1(a), which shall be
provided in the same manner as described in such Section.

 

13

 

4.4           Indemnification; Insurance.

 

(a)           In
addition to any rights the Participant may have under any indemnification
agreement previously entered into between the Company and such Participant (a “Prior Indemnity Agreement”),
from and after the date of the Participant’s Involuntary Termination Absent a
Change in Control or Involuntary Termination Following a Change in Control, the
Company shall indemnify and hold harmless the Participant against any costs or
expenses (including attorneys’ fees), judgments, fines, losses, claims, damages
or liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative, by
reason of the fact that the Participant is or was a director, officer, employee
or agent of the Company Group, or is or was serving at the request of the
Company Group as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, whether asserted or
claimed prior to, at or after the date of the Participant’s termination of
employment, to the fullest extent permitted under applicable law, and the
Company shall also advance fees and expenses (including attorneys’ fees) as
incurred by the Participant to the fullest extent permitted under applicable
law.  In the event of a conflict between
the provisions of a Prior Indemnity Agreement and the provisions of this Plan,
the Participant may elect which provisions shall govern.

 

(b)           For a
period of six (6) years from and after the date of the Participant’s
Involuntary Termination Following a Change in Control, the Company shall use
its best efforts to maintain a policy of directors’ and officers’ liability
insurance for the benefit of such Participant which provides him or her with
coverage no less favorable than that provided for the Company’s continuing
officers and directors.

 

5.             TREATMENT OF EQUITY AWARDS UPON A
CHANGE IN CONTROL

 

5.1           Acceleration of Vesting Upon Non-Assumption of Service-Based Equity
Awards.  Notwithstanding any
provision to the contrary contained in any plan or agreement evidencing a
Service-Based Equity Award held by the Participant, but subject to Section 6.2,
in the event of a Change in Control in which the surviving, continuing,
successor, or purchasing corporation or other business entity or parent
thereof, as the case may be (the “Acquiring
Corporation”), does not assume or continue the Company’s
rights and obligations under such then-outstanding Service-Based Equity Award
or substitute for such then-outstanding Service-Based Equity Award a
substantially equivalent equity award for the Acquiring Corporation’s stock,
then the vesting, exercisability and settlement of such Service-Based Equity
Award which is not assumed, continued or substituted for shall be accelerated
in full effective immediately prior to but conditioned upon the consummation of
the Change in Control, provided that the Participant remains an employee or
other service provider with the Company Group immediately prior to the Change
in Control.

 

5.2           Acceleration of Vesting of Performance-Based Equity Awards.  Notwithstanding any provision to
the contrary contained in any plan or agreement evidencing a Performance-Based
Equity Award held by the Participant, but subject to Section 6.2, in the
event of a Change in Control the vesting, exercisability and settlement of such
then-outstanding Performance-Based Equity Award shall be accelerated in full
immediately prior to but conditioned upon the consummation of the Change in
Control (assuming for the purpose of 

 

14

 

determining the
extent of such acceleration, if applicable, that one hundred percent (100%) of
the target level of performance has been achieved), provided that the
Participant remains an employee or other service provider with the Company
Group immediately prior to the Change in Control or as otherwise provided by Section 4.1(b)(4)(iii)(C).

 

6.             CERTAIN FEDERAL TAX
CONSIDERATIONS

 

6.1           Federal Excise Tax Under Section 4999 of the Code.

 

(a)           Additional Payment. 
In the event that any payment or benefit received or to be received by
the Participant pursuant to this Plan or otherwise payable to the Participant
(collectively, the “Payments”)
would be subject to the excise tax imposed by Section 4999 of the Code, or
any similar or successor provision (the “Excise Tax”),
the Company shall pay to the Participant within ninety (90) days following the
date on which the Participant remits the Excise Tax, an additional amount (the “Gross-Up Payment”) such that the net amount retained by the Participant from
the Payments and the Gross-Up Payment, after deduction of (a) any Excise
Tax on the Payments, (b) any federal, state and local income or employment
tax and Excise Tax on the Gross-Up Payment and (c) any interest, penalties
or additions to tax payable by the Participant with respect thereto, shall be
equal to the Payments.  Notwithstanding
the foregoing, if the Payments that would otherwise be subject to the Excise
Tax do not exceed the greatest amount of Payments that could be paid to the
Participant without giving rise to the Excise Tax (the “Reduced Amount”) by more than an amount equal to
the lesser of $100,000 or five percent of the Payments, then no Gross-Up
Payment shall be payable to the Participant and the Payments, in the aggregate,
shall be reduced to the Reduced Amount.

 

(b)           Determination of Amounts.

 

(1)           Determination by Accountants.  All
computations and determinations called for by this Section 6.1 shall be
promptly determined and reported in writing to the Company and the Participant
by independent public accountants selected by the Company and reasonably
acceptable to the Participant (the “Accountants”).  For the purposes of such determinations, the
Accountants may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code.  The Company and the Participant shall furnish
to the Accountants such information and documents as the Accountants may
reasonably request in order to make their required determinations.  The Company shall bear all fees and expenses
charged by the Accountants in connection with such services.

 

(2)           Determination of Applicability of Reduced Amount.  For purposes of determining whether the
Payments will be reduced to the Reduced Amount, any payments or benefits
received or to be received by the Participant in connection with transactions
contemplated by a Change in Control event or the Participant’s termination of
employment (whether pursuant to the terms of this Plan or any other plan,
arrangement or agreement with the Company), shall be treated as “parachute payments” within the meaning of Section 280G
of the Code or any similar or successor provision (“Section 280G”), and all “excess parachute payments” within the meaning of Section 280G
shall be treated as subject to the Excise Tax, except to the extent that, in
the opinion of the Accountants, such payments or benefits otherwise
constituting excess parachute payments represent (in whole or in part)
reasonable compensation 

 

15

 

for services
actually rendered within the meaning of Section 280G, or are otherwise not
subject to the Excise Tax.

 

(c)           Notice and Contest of Claim.

 

(1)           The
Participant shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by the Company
of a Gross-Up Payment.  Such notification
shall be given as soon as practicable but no later than sixty (60) calendar
days after the Participant is informed in writing of such claim and shall
apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid.  The
Participant shall not pay such claim prior to the expiration of the thirty
(30) day period following the date on which the Participant gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due).  If the Company notifies the Participant in
writing prior to the expiration of such period that it desires to contest such
claim, the Participant shall:

 

(i)            give the
Company any information reasonably requested by the Company relating to such
claim;

 

(ii)           take such
action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney reasonably
selected by the Company and reasonably satisfactory to the Participant;

 

(iii)          cooperate
with the Company in good faith in order to effectively contest such claim; and

 

(iv)          permit the
Company to participate in any proceedings relating to such claim;

 

provided, however, that the Company shall bear and pay
directly all costs and expenses (including, but not limited to, additional
interest and penalties and related legal, consulting or other similar fees)
incurred in connection with such contest and shall indemnify and hold the
Participant harmless, on an after-tax basis, for any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses.

 

(2)           The
Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct the
Participant to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Participant agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Participant to
pay such claim and sue for a refund, the Company shall advance the amount of
such payment to the Participant on an interest-free basis, and shall indemnify
and hold the Participant harmless, on an after-tax basis, from any Excise Tax
or other tax (including interest or penalties with respect thereto) imposed
with respect 

 

16

 

to such advance or
with respect to any imputed income with respect to such advance; and provided,
further, that if the Participant is required to extend the statute of
limitations to enable the Company to contest such claim, the Participant may
limit this extension solely to such contested amount.  The Company’s control of the contest shall be
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and the Participant shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any
other taxing authority.  In addition, no
position may be taken nor any final resolution be agreed to by the Company without
the Participant’s consent if such position or resolution could reasonably be
expected to adversely affect the Participant (including any other tax position
of the Participant unrelated to the matters covered hereby).

 

(3)           Except
for amounts to be advanced by the Company in accordance with this Section 6.1(c), all
payments required to be made by the Company to the Participant pursuant to this
Section 6.1(c) shall be made prior to the end of the Participant’s
taxable year following the Participant’s taxable year in which the taxes which
are the subject of the claim are remitted by the Participant to the taxing
authority, or where no taxes are required to be remitted, the end of the
Participant’s taxable year following the Participant’s taxable year in which
the audit is completed or there is a final and nonappealable settlement or
other resolution of the litigation.

 

(d)           Adjustments.

 

(1)           In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder, the Participant shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally determined,
the portion of the Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the Excise Tax and federal,
state and local income and employment taxes imposed on the Gross-Up Payment
being repaid by the Participant to the extent that such repayment results in a
reduction in Excise Tax and/or a federal, state or local income or employment tax
deduction) plus interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code.

 

(2)           In the
event that the Excise Tax is subsequently determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such excess
(plus any interest, penalties or additions to tax payable by the Participant
with respect to such excess) within ninety (90) days following the date on
which the Participant remits such additional Excise Tax.

 

(3)           In the
event that it is subsequently determined that, notwithstanding the Accountants’
good faith determination of the Reduced Amount pursuant to Section 6.1(b),
if applicable, the aggregate “parachute payments” within the meaning of Section 280G
paid to the Participant are in an amount that would result in any portion of
such parachute payments not being deductible by reason of Section 280G,
then the Participant shall pay to the Company an amount equal to the sum of (1) the
excess of the aggregate parachute payments paid to the Participant over the
aggregate parachute payments that could have been paid to the 

 

17

 

Participant
without any portion of such parachute payments not being deductible by reason
of Section 280G; and (2) interest on the amount determined pursuant
to clause (1) of this sentence at the rate provided in Section 1274(b)(2)(B) of
the Code from the date of the Participant’s receipt of such excess until the
date of such payment.  Notwithstanding
the foregoing, if the aggregate reduction in Payments resulting from the
initial application of Section 6.1(a) and the subsequent application
of this Section 6.1(d)(3) would exceed the lesser of $100,000 or five
percent of the Payments, then this Section 6.1(d)(3) shall not apply,
and the Company shall direct the Accountants to compute and shall pay the
Gross-Up Payment in accordance with the provisions of Section 6.1(a).

 

6.2           Compliance with Section 409A. 
Notwithstanding any other provision of the Plan to the
contrary, the provision, time and manner of payment or distribution of all
compensation and benefits provided by the Plan that constitute Section 409A
Deferred Compensation shall be subject to, limited by and construed in
accordance with the requirements of Section 409A, including but not
limited to the following:

 

(a)           Installment Payments Treated as Series of Separate Payments.  It is the intent of this Plan that any right
of the Participant to receive installment payments hereunder shall, for
purposes of Section 409A, be treated as a right to a series of separate
payments.

 

(b)           Separation from Service. 
Payments and benefits constituting Section 409A Deferred
Compensation otherwise payable or provided pursuant to the Plan as a result of
the Participant’s termination of employment shall be paid or provided only at
or following the time that the Participant has experienced a Separation from
Service.

 

(c)           Six-Month Delay Applicable to Specified Employees.  Payments and benefits constituting Section 409A
Deferred Compensation to be paid or provided pursuant to the Plan upon or
following and due to the Separation from Service of the Participant who is a
Specified Employee shall be paid or provided only upon the later of (1) the
date that is six (6) months and one (1) day after the date of such
Separation from Service or, if earlier, the date of death of the Participant
(in either case, the “Delayed
Payment Date”), or (2) the date or dates on which
such Section 409A Deferred Compensation would otherwise be paid or
provided in accordance with the Plan. 
All such amounts that would, but for this Section, become payable prior
to the Delayed Payment Date shall be accumulated and paid on the Delayed
Payment Date.

 

(d)           Limitation
on Health and Life Insurance Benefits.  To the extent that all or any portion of the
Company’s payment or reimbursement to the Participant for the cost of the
Company’s obligation to provide health benefits or life insurance benefits
pursuant to Section 4.1(b)(2) or Section 4.2(b)(2) (in
either case, the “Company-Provided Benefits”)
would exceed an amount for which, or continue for a period of time in excess of
which, such Company Provided Benefits would qualify for an exemption from
treatment as Section 409A Deferred Compensation, the Company shall, for
the duration of the Applicable Benefit Period, pay or reimburse the Participant
for the Company-Provided Benefits in an amount not to exceed $150,000 per
calendar year or any portion thereof included in the Applicable Benefit
Period.  The amount of Company-Provided
Benefits furnished in any taxable year of the Participant shall not affect the
amount of Company-Provided Benefits furnished in 

 

18

 

any other taxable
year of the Participant.  Any right of
the Participant to Company-Provided Benefits shall not be subject to liquidation or exchange for another benefit.  Any reimbursement for Company-Provided
Benefits to which the Participant is entitled shall be paid no later than the
last day of the Participant’s taxable year following the taxable year in which
the Participant’s expense for such Company-Provided Benefits was incurred.

 

(e)           Payment Upon a Change in Control.  Notwithstanding any provision of the Plan to
the contrary, to the extent that any amount constituting Section 409A
Deferred Compensation would become payable under this Plan solely by reason of
a Change in Control, such amount shall become payable only if the event
constituting a Change in Control would also constitute a change in ownership or
effective control of the Company or a change in the ownership of a substantial
portion of the assets of the Company within the meaning of Section 409A.

 

(f)            Equity Awards Constituting Section 409A Deferred Compensation.  The following shall apply to any Equity Award
held by the Participant which constitutes Section 409A Deferred
Compensation:

 

(1)           The vesting
of any Equity Award which constitutes Section 409A Deferred Compensation
and which is held by the Participant who is a Specified Employee shall be
accelerated upon the Participant’s Involuntary Termination in accordance with Section 4.1(b)(4) or
4.2(b)(4) to the extent applicable; provided, however, that the payment in
settlement of such Equity Award shall occur on the Delayed Payment Date or on
such later date as provided by such applicable Section.

 

(2)           Any
Equity Award which constitutes Section 409A Deferred Compensation and
which would vest and become payable upon a Change in Control in accordance with
Section 5.1 (subject to the requirement of Section 6.2(e)) shall
vest in full as provided by Section 5.1 but shall be converted
automatically at the effective time of such Change in Control into a right to
receive in cash on the date or dates such award would have been settled in
accordance with its then existing settlement schedule (or on such earlier date
as provided in Section 4.2(b)(4) or as required by Section 6.2(c))
an amount or amounts equal in the aggregate to the intrinsic value of the
Equity Award at the time of the Change in Control.

 

(3)           Equity
Awards constituting Section 409A Deferred Compensation which vest and
become payable upon a Change in Control in accordance with Section 5.2
shall not be subject to this Section but shall be subject to Section 6.2(e).

 

7.             CONFLICT IN BENEFITS; NONCUMULATION OF BENEFITS

 

7.1           Effect of Plan.  The
terms of this Plan, when accepted by the Participant pursuant to an executed
Participation Agreement, shall supersede all prior arrangements, whether
written or oral, and understandings regarding the subject matter of this Plan
and, subject to Section 7.2, shall be the exclusive agreement for the
determination of any payments and benefits due to the Participant upon the
events described in Section 4 and Section 5.  It is the express intent of the Company and
the Participant that the provisions of this Plan applicable to Equity Awards
shall be deemed incorporated into any agreement evidencing an Equity Award
granted 

 

19

 

to the Participant
subsequent to the date of the Participant’s Participation Agreement,
notwithstanding any “integration” or other provision of such Equity Award
agreement to the contrary or the failure of such Equity Award agreement to make
reference to this Plan, excluding only an Equity Award agreement which
expressly refers to this Plan and disclaims such incorporation.

 

7.2           Noncumulation of Benefits. 
Except as expressly provided in a written agreement between the
Participant and the Company entered into after the date of such Participant’s
Participation Agreement and which expressly disclaims this Section 7.2 and
is approved by the Board or the Committee, the total amount of payments and
benefits that may be received by the Participant as a result of the events
described in Section 4 and Section 5 pursuant to (a) the Plan, (b) any
agreement between the Participant and the Company or (c) any other plan,
practice or statutory obligation of the Company, shall not exceed the amount of
payments and benefits provided by this Plan upon such events (plus any payments
and benefits provided pursuant to a Prior Indemnity Agreement, as described in Section 4.4(a)),
and the aggregate amounts payable under this Plan shall be reduced to the
extent of any excess (but to not less than zero).

 

8.             EXCLUSIVE REMEDY

 

The payments and benefits provided by Section 4
(plus any payments and benefits provided pursuant to a Prior Indemnity
Agreement, as described in Section 4.4(a)), if applicable, shall
constitute the Participant’s sole and exclusive remedy for any alleged injury
or other damages arising out of the cessation of the employment relationship
between the Participant and the Company in the event of the Participant’s
termination of employment with the Company Group.  The Participant shall be entitled to no other
compensation, benefits, or other payments from the Company Group as a result of
the Participant’s termination of employment with respect to which the payments
and benefits provided by this Plan (plus any payments and benefits provided
pursuant to a Prior Indemnity Agreement) have been provided to the Participant,
except as expressly set forth in this Plan or, subject to the provisions of Section 7.2,
in a duly executed employment agreement between Company and the Participant.

 

9.             PROPRIETARY AND
CONFIDENTIAL INFORMATION

 

The Participant agrees to continue at all times,
during the Participant’s employment with the Company Group and following the
termination thereof, to abide by the terms and conditions of the
confidentiality and/or proprietary rights agreement between the Participant and
the Company or any other member of the Company Group.

 

10.           NONSOLICITATION

 

If the Company performs its obligations to deliver the
payments and benefits set forth in Section 4 (plus any payments and
benefits provided pursuant to an agreement evidencing an Equity Award or a
Prior Indemnity Agreement), then for a period equal to the Applicable Benefit
Period applicable to the Participant following the Participant’s Involuntary
Termination, the Participant shall not, directly or indirectly, recruit,
solicit or invite the solicitation of any 

 

20

 

employees of any member
of the Company Group to terminate their employment relationship with the
Company Group.

 

11.           NO CONTRACT OF EMPLOYMENT

 

Neither the establishment of the Plan, nor any
amendment thereto, nor the payment or provision of any benefits shall be
construed as giving any person the right to be retained by the Company, a
Successor or any other member of the Company Group.  Except as otherwise established in an
employment agreement between the Company and the Participant, the employment
relationship between the Participant and the Company is an “at-will”
relationship.  Accordingly, either the
Participant or the Company may terminate the relationship at any time, with or
without cause, and with or without notice except as otherwise provided by Section 15.  In addition, nothing in this Plan shall in
any manner obligate any Successor or other member of the Company Group to offer
employment to any Participant or to continue the employment of any Participant
which it does hire for any specific duration of time.

 

12.           CLAIMS FOR BENEFITS

 

12.1         ERISA Plan. 
This Plan is intended to be (a) an employee welfare plan as defined
in Section 3(1) of Employee Retirement Income Security Act of 1974 (“ERISA”)
and (b) a “top-hat” plan maintained for the benefit of a select group of
management or highly compensated employees of the Company Group.

 

12.2         Application for Benefits.  All applications for payments and/or benefits
under the Plan (“Benefits”) shall be submitted to the Company’s
chief human resources officer (the “Claims Administrator”), with
copies to the Company’s chief legal officer and the Committee.  Applications for Benefits must be in writing
on forms acceptable to the Claims Administrator and must be signed by the
Participant or beneficiary.  The Claims
Administrator reserves the right to require the Participant or beneficiary to
furnish such other proof of the Participant’s expenses, including without
limitation, receipts, canceled checks, bills, and invoices as may be required
by the Claims Administrator.

 

12.3         Appeal of Denial of Claim.

 

(a)           If a
claimant’s claim for Benefits is denied, the Claims Administrator shall provide
notice to the claimant in writing of the denial within ninety (90) days after
its submission.  The notice shall be written
in a manner calculated to be understood by the claimant and shall include:

 

(1)           The
specific reason or reasons for the denial;

 

(2)           Specific
references to the Plan provisions on which the denial is based;

 

(3)           A
description of any additional material or information necessary for the
applicant to perfect the claim and an explanation of why such material or
information is necessary; and

 

21

 

(4)           An
explanation of the Plan’s claims review procedures and a statement of claimant’s
right to bring a civil action under ERISA Section 502(a) following an
adverse benefit determination.

 

(b)           If
special circumstances require an extension of time for processing the initial
claim, a written notice of the extension and the reason therefor shall be
furnished to the claimant before the end of the initial ninety (90) day
period.  In no event shall such extension
exceed ninety (90) days.

 

(c)           If a
claim for Benefits is denied, the claimant, at the claimant’s sole expense, may
appeal the denial to the Committee (the “Appeals Administrator”) within
sixty (60) days of the receipt of written notice of the denial.  In pursuing such appeal the applicant or his
duly authorized representative:

 

(1)           may
request in writing that the Appeals Administrator review the denial;

 

(2)           may
review pertinent documents; and

 

(3)           may
submit issues and comments in writing.

 

(d)           The
decision on review shall be made within sixty (60) days of receipt of the
request for review, unless special circumstances require an extension of time
for processing, in which case a decision shall be rendered as soon as possible,
but not later than one hundred twenty (120) days after receipt of the request
for review.  If such an extension of time
is required, written notice of the extension shall be furnished to the claimant
before the end of the original sixty (60) day period.  The decision on review shall be made in
writing, shall be written in a manner calculated to be understood by the
claimant, and, if the decision on review is a denial of the claim for Benefits,
shall include:

 

(1)           The
specific reason or reasons for the denial;

 

(2)           Specific
references to the Plan provisions on which the denial is based;

 

(3)           A
description of any additional material or information necessary for the
applicant to perfect the claim and an explanation of why such material or
information is necessary; and

 

(4)           An
explanation of the Plan’s claims review procedures and a statement of claimant’s
right to bring a civil action under ERISA Section 502(a) following an
adverse benefit determination.

 

13.           ARBITRATION

 

13.1         Disputes Subject to Arbitration.  Any claim, dispute or controversy arising out
of this Plan, the interpretation, validity or enforceability of this Plan or
the alleged breach thereof shall be submitted by the parties to binding
arbitration by the American 

 

22

 

Arbitration Association or as otherwise required by ERISA; provided,
however, that (a) the arbitrator shall have no authority to make any
ruling or judgment that would confer any rights with respect to trade secrets,
confidential and proprietary information or other intellectual property; and (b) this
arbitration provision shall not preclude the parties from seeking legal and
equitable relief from any court having jurisdiction with respect to any
disputes or claims relating to or arising out of the misuse or misappropriation
of intellectual property.  Judgment may
be entered on the award of the arbitrator in any court having jurisdiction.

 

13.2         Site of Arbitration. 
The site of the arbitration proceeding shall be in San Mateo County,
California or any other site mutually agreed to by the Company and the
Participant.

 

13.3         Costs and Expenses Borne by Company.  All costs and expenses of arbitration,
including but not limited to reasonable attorneys’ fees and other costs
reasonably incurred by the Participant in connection with arbitration in
accordance with this Section 13, shall be paid by the Company.  Notwithstanding the foregoing, if the
Participant initiates the arbitration, and the arbitrator finds that the
Participant’s claims were totally without merit or frivolous, then the
Participant shall be responsible for the Participant’s own attorneys’ fees and
costs

 

14.           SUCCESSORS AND ASSIGNS

 

14.1         Successors of the Company. 
The Company shall require any successor or assign (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, expressly, absolutely
and unconditionally to assume and agree to perform this Plan in the same manner
and to the same extent that the Company would be required to perform it if no
such succession or assignment had taken place.

 

14.2         Acknowledgment by Company. 
If, after a Change in Control, the Company fails to reasonably confirm
in writing to the Participant that it has performed the obligation described in
Section 14.1 within twenty (20) days after a written request for such
confirmation is delivered by the Participant to the Company in the manner
provided by Section 15.1, such failure shall constitute a material breach
of this Plan and shall entitle the Participant to resign for Good Reason and to
receive the benefits provided under this Plan upon an Involuntary Termination
Following a Change in Control.

 

14.3         Heirs and Representatives of Participant.  This Plan shall inure to the benefit of and
be enforceable by the Participant’s personal or legal representatives,
executors, administrators, successors, heirs, distributees, devises, legatees
or other beneficiaries.  If the
Participant should die while any amount would still be payable to the
Participant hereunder (other than amounts which, by their terms, terminate upon
the death of the Participant) if the Participant had continued to live, then
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Plan to the executors, personal representatives or
administrators of the Participant’s estate.

 

23

 

15.           NOTICES

 

15.1         General.  For purposes of this Plan, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States certified mail, return receipt requested, or by overnight
courier, postage prepaid, as follows:

 

(a)           if to the Company:

 

PDL BioPharma, Inc.

1400 Seaport Boulevard

Redwood City, California
94063

Attention: General
Counsel

 

(b)           if to the
Committee:

 

Compensation Committee of
the

Board of Directors of

PDL BioPharma, Inc.

1400 Seaport Boulevard

Redwood City, California
94063

Attention: Corporate
Secretary

 

(c)           if to the
Participant, at the home address which the Participant most recently
communicated to the Company in writing.

 

Either party may provide
the other with notices of change of address, which shall be effective upon
receipt.

 

15.2         Notice of Termination. 
Any termination by the Company of the Participant’s employment or any
resignation of employment by the Participant shall be communicated by a notice
of termination or resignation to the other party hereto given in accordance
with Section 15.1.  Such notice
shall indicate the specific termination provision in this Plan relied upon,
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination under the provision so indicated, and shall
specify the termination date.

 

16.           TERMINATION AND AMENDMENT OF PLAN

 

This Plan and/or any
Participation Agreement executed by the Participant may not be terminated with
respect to such Participant without the written consent of the Participant and
the approval of the Board or the Committee. 
This Plan and/or any Participation Agreement executed by the Participant
may be modified, amended or superseded with respect to such Participant only by
a supplemental written agreement between the Participant and the Company
approved by the Board or the Committee. 
Notwithstanding any other provision of the Plan to the contrary, the
Committee may, in its sole and absolute discretion and without the consent of
any Participant, amend the Plan or any Participation Agreement, to take effect
retroactively or otherwise, as it deems necessary or advisable for the purpose
of conforming the Plan or such 

 

24

 

Participation Agreement to any present or future law relating to plans
of this or similar nature (including, but not limited to, Section 409A of
the Code), and to the administrative regulations and rulings promulgated
thereunder.

 

17.           MISCELLANEOUS PROVISIONS

 

17.1         Administration.  The
Plan shall be administered by the Committee. 
The Committee shall have the exclusive discretion and authority to
establish rules, forms and procedures for the administration of the Plan, to
construe and interpret the Plan, and to decide all questions of fact,
interpretation, definition, computation or administration arising in connection
with the Plan, including, but not limited to, eligibility to participate in the
Plan and the type and amount of benefits paid under the Plan.  The rules, interpretations and other actions
of the Committee shall be binding and conclusive on all persons.

 

17.2         Unfunded Obligation. 
Any amounts payable to the Participant pursuant to the Plan are unfunded
obligations.  The Company shall not be
required to segregate any monies from its general funds, or to create any
trusts, or establish any special accounts with respect to such obligations.  The Company shall retain at all times
beneficial ownership of any investments, including trust investments, which the
Company may make to fulfill its payment obligations hereunder.  Any investments or the creation or
maintenance of any trust or any Participant account shall not create or
constitute a trust or fiduciary relationship between the Board or the Company
and the Participant, or otherwise create any vested or beneficial interest in
any Participant or the Participant’s creditors in any assets of the Company.

 

17.3         No Duty to Mitigate; Obligations of Company.  The Participant shall not be required to
mitigate the amount of any payment or benefit contemplated by this Plan by
seeking employment with a new employer or otherwise, nor shall any such payment
or benefit (except for benefits to the extent described in Section 4.1(b)(2) or
Section 4.2(b)(2)) be reduced by any compensation or benefits that the
Participant may receive from employment by another employer.  Except as otherwise provided by this Plan,
including, without limitation, the forfeiture of benefits provisions contained
in Section 4.1(b)(5) and Section 4.2(b)(5), the obligations of
the Company to make payments to the Participant and to make the arrangements
provided for herein are absolute and unconditional and may not be reduced by
any circumstances, including without limitation any set-off, counterclaim,
recoupment, defense or other right which the Company may have against the
Participant or any third party at any time.

 

17.4         No Representations. 
By executing a Participation Agreement, the Participant acknowledges
that in becoming the Participant in the Plan, the Participant is not relying
and has not relied on any promise, representation or statement made by or on
behalf of the Company which is not set forth in this Plan.

 

17.5         Waiver.  No waiver by
the Participant or the Company of any breach of, or of any lack of compliance
with, any condition or provision of this Plan by the other party shall be
considered a waiver of any other condition or provision or of the same
condition or provision at another time.

 

25

 

17.6         Choice of Law.  The
validity, interpretation, construction and performance of this Plan shall be
governed by the substantive laws of the State of California, without regard to
its conflict of law provisions.

 

17.7         Validity.  The
invalidity or unenforceability of any provision of this Plan shall not affect
the validity or enforceability of any other provision of this Plan, which shall
remain in full force and effect.

 

17.8         Benefits Not Assignable. 
Except as otherwise provided herein or by law, no right or interest of
any Participant under the Plan shall be assignable or transferable, in whole or
in part, either directly or by operation of law or otherwise, including,
without limitation, by execution, levy, garnishment, attachment, pledge or in
any other manner, and no attempted transfer or assignment thereof shall be
effective.  No right or interest of any
Participant under the Plan shall be liable for, or subject to, any obligation
or liability of such Participant.

 

17.9         Tax Withholding.  All
payments made pursuant to this Plan will be subject to withholding of
applicable income and employment taxes.

 

17.10       Consultation with Legal and Financial Advisors.  By executing a Participation Agreement, the
Participant acknowledges that this Plan confers significant legal rights, and
may also involve the waiver of rights under other agreements; that the Company
has encouraged the Participant to consult with the Participant’s personal legal
and financial advisors; and that the Participant has had adequate time to
consult with the Participant’s advisors before executing the Participation
Agreement.

 

17.11       Further Assurances.  From time to time, at the Company’s request
and without further consideration, the Participant shall execute and deliver
such additional documents and take all such further action as reasonably
requested by the Company to be necessary or desirable to make effective, in the
most expeditious manner possible, the terms of the Plan, the Participant’s
Participation Agreement and the Release, and to provide adequate assurance of
the Participant’s due performance thereunder.

 

18.           AGREEMENT

 

By executing a Participation Agreement, the
Participant acknowledges that the Participant has received a copy of this Plan
and has read, understands and is familiar with the terms and provisions of this
Plan.  This Plan shall constitute an
agreement between the Company and the Participant executing a Participation
Agreement.

 

26

 

EXHIBIT A

 

FORM OF

 

AGREEMENT TO
PARTICIPATE IN THE

 

PDL BIOPHARMA,
INC.

 

RETENTION AND
SEVERANCE PLAN FOR CHIEF EXECUTIVE OFFICER

 

 

AGREEMENT
TO PARTICIPATE IN THE

PDL
BIOPHARMA, INC. RETENTION AND SEVERANCE PLAN

FOR CHIEF
EXECUTIVE OFFICER

Effective
October 1, 2008

 

In consideration of the
benefits provided by the PDL BioPharma, Inc. Retention and Severance Plan
for Chief Executive Officer (the “Plan”),
the undersigned employee of PDL BioPharma, Inc. (the “Company”) and the Company agree that, as of the
date written below, the undersigned shall become the Participant in the Plan
and shall be fully bound by and subject to all of its provisions.  All references to the “Participant” in the
Plan shall be deemed to refer to the undersigned.

 

The undersigned employee
acknowledges that the Plan confers significant legal rights and may also
constitute a waiver of rights under other agreements with the Company; that the
Company has encouraged the undersigned to consult with the undersigned’s
personal legal and financial advisors; and that the undersigned has had
adequate time to consult with the undersigned’s advisors before executing this
agreement.

 

The undersigned employee
acknowledges that he has received a copy of the Plan and has read, understands
and is familiar with the terms and provisions of the Plan.  The undersigned employee further acknowledges
that (1) by accepting the arbitration provision set forth in Section 13
of the Plan, the undersigned is waiving any right to a jury trial in the event of
any dispute covered by such provision and (2) except as otherwise
established in an employment agreement between a member of the Company Group
and the undersigned, the employment relationship between the undersigned and
the Company Group is an “at-will” relationship.

 

Executed on
                                                  .

 

	
  Participant

  	
   

  	
  PDL BioPharma, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  
	
  Faheem Hasnain

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Address

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Title:

  	
   

  
	
   

  	
   

  	
   

  
					

 

 

EXHIBIT B

 

FORM OF

 

GENERAL RELEASE OF
CLAIMS

[Age 40 and over]

 

 

GENERAL
RELEASE OF CLAIMS

[Age
40 and over]

 

This Agreement is by and
between [Employee Name] (“Employee”)
and [PDL BioPharma, Inc. or successor
that agrees to assume the Retention and Severance Plan for Chief Executive
Officer following a Change in Control] (the “Company”).  This Agreement will become effective on the
eighth (8th) day after it is signed by Employee (the “Effective Date”),
provided that the Company has signed this Agreement and Employee has not
revoked this Agreement (by written notice to [Company
Contact Name] at the Company) prior to that date.

 

RECITALS

 

A.            Employee was employed
by the Company or its
                                    
subsidiary as of
                      ,
        .

 

B.            Employee and the
Company entered into an Agreement to Participate in the PDL BioPharma, Inc.
Retention and Severance Plan for Chief Executive Officer (such agreement and
plan being referred to herein as the “Plan”) effective as of
                    ,
         wherein Employee is entitled
to receive certain benefits in the event of an Involuntary Termination (as
defined by the Plan), provided Employee signs and does not revoke a Release (as
defined by the Plan).

 

C.            [A Change in Control (as defined by the Plan) has
occurred as a result of [briefly describe
change in control]

 

D.            Employee’s employment
is being terminated as a result of an [Involuntary
Termination Absent a Change in Control] [Involuntary Termination Following a
Change in Control].  Employee’s
last day of work and termination are effective as of
                              ,
        .  Employee desires to receive the payments and
benefits provided by the Plan by executing this Release.

 

NOW, THEREFORE, the
parties agree as follows:

 

1.             The Company shall
provide Employee with the applicable payments and benefits set forth in the
Plan in accordance with the terms of the Plan. 
Employee acknowledges that the payments and benefits made pursuant to
this paragraph are made in full satisfaction of the Company’s obligations under
the Plan.  Employee further acknowledges
that Employee has been paid all wages and accrued, unused vacation that
Employee earned during his or her employment with the Company or its
subsidiary.

 

2.             Employee and Employee’s
successors release the Company, its respective subsidiaries, stockholders,
investors, directors, officers, employees, agents, attorneys, insurers, legal
successors and assigns of and from any and all claims, actions and causes of
action, whether now known or unknown, which Employee now has, or at any other
time had, or shall or may have against those released parties based upon or
arising out of any matter, cause, fact, thing, act or omission whatsoever
related to Employee’s employment by the Company or a subsidiary or the
termination of such employment and occurring or existing at any time up to and 

 

1

 

including the date on
which Employee signs this Agreement, including, but not limited to, any claims
of breach of written, oral or implied contract, wrongful termination,
retaliation, fraud, defamation, infliction of emotional distress, or national
origin, race, age, sex, sexual orientation, disability or other discrimination
or harassment under the Civil Rights Act of 1964, the Age Discrimination In
Employment Act of 1967, the Americans with Disabilities Act, the Fair
Employment and Housing Act or any other applicable law.  Notwithstanding the foregoing, this release
shall not apply to (a) any right of the Employee pursuant to Section 4.4
of the Plan or pursuant to a Prior Indemnity Agreement (as such term is defined
by the Plan) or (b) any rights or claims that cannot be released by
Employee as a matter of law, including, but not limited to, any claims for
indemnity under California Labor Code Section 2802.

 

3.             Employee acknowledges
that he or she has read Section 1542 of the Civil Code of the State of
California, which states in full:

 

A general release does not extend to claims which the creditor does not
know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor.

 

Employee waives any
rights that Employee has or may have under Section 1542 and comparable or
similar provisions of the laws of other states in the United States to the full
extent that he or she may lawfully waive such rights pertaining to this general
release of claims, and affirms that Employee is releasing all known and unknown
claims that he or she has or may have against the parties listed above.

 

4.             Employee and the
Company acknowledge and agree that they shall continue to be bound by and
comply with the terms and their obligations under the following agreements: (i) any
proprietary rights or confidentiality agreements between the Company and
Employee, (ii) the Plan, (iii) any Prior Indemnity Agreement (as such
term is defined by the Plan) to which Employee is a party, and (iv) any
agreement between the Company or its subsidiary and Employee evidencing an
Equity Award (as such term is defined by the Plan), as modified by the Plan.

 

5.             This Agreement shall
be binding upon, and shall inure to the benefit of, the parties and their
respective successors, assigns, heirs and personal representatives.

 

6.             The parties agree
that any and all disputes that both (i) arise out of the Plan, the
interpretation, validity or enforceability of the Plan or the alleged breach
thereof and (ii) relate to the enforceability of this Agreement or the
interpretation of the terms of this Agreement shall be subject to binding
arbitration pursuant to Section 13 of the Plan.

 

7.             The parties agree
that any and all disputes that (i) do not arise out of the Plan, the
interpretation, validity or enforceability of the Plan or the alleged breach
thereof and (ii) relate to the enforceability of this Agreement, the
interpretation of the terms of this Agreement or any of the matters herein
released or herein described shall be subject to binding arbitration, to the
extent permitted by law, in San Mateo County, California or any other site
mutually agreed to by the Company and Employee, before the American Arbitration
Association, as provided in this 

 

2

 

paragraph.  The parties agree to and hereby waive their
rights to jury trial as to such matters to the extent permitted by law;
provided however, that (a) the arbitrator shall have no authority to make
any ruling or judgment that would confer any rights with respect to trade
secrets, confidential and proprietary information or other intellectual
property; and (b) this arbitration provision shall not preclude the
parties from seeking legal and equitable relief from any court having
jurisdiction with respect to any disputes or claims relating to or arising out
of the misuse or misappropriation of intellectual property.  The Company shall bear the costs of the
arbitrator, forum and filing fees and each party shall bear its own respective
attorney fees and all other costs, unless otherwise provided by law and awarded
by the arbitrator.

 

8.             This Agreement
constitutes the entire agreement between the parties with respect to the
subject matter hereof and supersedes all prior negotiations and agreements,
whether written or oral, with the exception of any agreements described in
paragraph 4 of this Agreement.  This
Agreement may not be modified or amended except by a document signed by an
authorized officer of the Company and Employee. 
If any provision of this Agreement is deemed invalid, illegal or
unenforceable, such provision shall be modified so as to make it valid, legal
and enforceable, and the validity, legality and enforceability of the remaining
provisions of this Agreement shall not in any way be affected.

 

EMPLOYEE UNDERSTANDS THAT
EMPLOYEE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING THIS AGREEMENT AND
THAT EMPLOYEE IS GIVING UP ANY LEGAL CLAIMS EMPLOYEE HAS AGAINST THE PARTIES
RELEASED ABOVE BY SIGNING THIS AGREEMENT. 
EMPLOYEE FURTHER UNDERSTANDS THAT EMPLOYEE MAY HAVE UP TO [Insert as applicable: [45 DAYS] [21
DAYS] TO CONSIDER THIS AGREEMENT, THAT EMPLOYEE MAY REVOKE IT
AT ANY TIME DURING THE 7 DAYS AFTER EMPLOYEE SIGNS IT, AND THAT IT SHALL NOT
BECOME EFFECTIVE UNTIL THAT 7-DAY PERIOD HAS PASSED.  EMPLOYEE ACKNOWLEDGES THAT EMPLOYEE IS
SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE
COMPENSATION AND BENEFITS DESCRIBED IN PARAGRAPH 1.

 

 

	
  Dated:

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Employee Name]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Company]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dated:

  	
   

  	
   

  	
  By:

  	
   

  

 

3

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