AMENDED AND RESTATED EMPLOYMENT
AGREEMENT
AMENDED AND
RESTATED EMPLOYMENT AGREEMENT (this “ Agreement
”), dated as of December 19, 2008 (the “
Effective Date ”), between Questcor Pharmaceuticals,
Inc., a California corporation (the “ Company
”), and Don Bailey (“ Executive
”).
WHEREAS,
Executive has been employed by the Company pursuant to an
Employment Agreement dated June 2, 2008 (the “ Employment
Agreement ”), and the Company and Executive desire to
amend and restate the terms of the Employment Agreement in order
that the terms of the Employment Agreement comply with
Section 409A of the Internal Revenue Code and the regulations
promulgated thereunder.
NOW, THEREFORE,
in consideration of the mutual covenants herein contained, the
Company and Executive hereby agree as follows:
(a)
Agreement to Employ . Upon the terms and subject to the
conditions of this Agreement, the Company hereby agrees to employ
Executive and Executive hereby agrees to be employed by the Company
under the terms of this Agreement, effective as of the Effective
Date.
(b)
Term of Employment . Executive’s employment with the
Company pursuant to this Agreement shall commence on the Effective
Date and shall continue for an indefinite period of time until
terminated as provided in Section 5 hereof (the “
Employment Period ”).
2. Duties
and Responsibilities . During the Employment Period, Executive
shall serve as President and Chief Executive Officer of the Company
and shall have duties and responsibilities as may be assigned to
him from time to time by the Board of Directors of the Company (the
“ Board ”); provided, however, that the Board
shall delegate to Executive duties and responsibilities consistent
with the duties and responsibilities of a chief executive officer.
Executive shall report directly to the Board and shall comply with
directives of the Board and all policies of the Company. Executive
shall devote all of his skill and knowledge and all of his working
time (other than periods of vacation, illness or disability) to the
business of the Company. During the Employment Period, Executive
shall not serve as an employee, officer, director, or consultant
of, or otherwise perform services for compensation for, any other
entity without the prior written consent of the Board;
provided that Executive may serve as an officer or
director of or otherwise participate in purely not-for-profit
educational, welfare, social, religious and civic organizations so
long as such activities do not interfere with Executive’s
employment hereunder. The Company acknowledges that Executive
currently serves on the board of directors of the entities set
forth on Schedule 2, and the Board hereby consents to
Executive’s continued service on these boards.
3. Board
Membership; Post-Employment Option Vesting . Upon the
termination of Executive’s employment (including, without
limitation, a termination by the Company with or
Without Cause
(as hereinafter defined) or termination by Executive for Good
Reason (as hereinafter defined), if Executive is a member of the
Company’s Board at the time of such termination, he shall
immediately tender to the Board his written and signed resignation
from the Board, which resignation shall be effective immediately.
If Executive desires to remain on the Board following the
termination of his employment, he shall condition his resignation
solely on the Board’s acceptance thereof and the Board shall
in its sole discretion decide whether or not to accept the
resignation. If the Board does not accept the resignation, then
Executive shall continue to serve as a member of the Board and any
stock options or restricted shares held by Executive shall continue
to vest in accordance with their terms for so long as Executive
remains on the Board. If Executive fails to tender his resignation
from the Board in accordance with this Section 3 or if the Board
accepts his resignation, then Executive’s stock options will
stop vesting as of the date Executive’s employment was
terminated.
4.
Compensation and Benefits .
(a)
Base Salary . During the Employment Period, the Company
shall pay Executive a base salary at the annual rate of $525,000,
subject to review and change by the Board at its discretion, which
will be paid in a manner consistent with the Company’s
customary payroll practices. Executive’s annual base salary
payable hereunder is referred to herein as “ Base
Salary ”.
(b)
Annual Bonus . In addition to Base Salary, Executive shall
be eligible to receive a discretionary annual cash bonus (the
“ Cash Bonus ”) in accordance with the
Company’s “Incentive Compensation Policy and
Process” (as such may be amended or replaced from time to
time), in an amount up to a target percentage of Base Salary, which
target percentage shall be set annually by the Board. For the year
ending December 31, 2008, the target percentage is sixty-five
percent (65%). The actual amount of any year end Cash Bonus will be
determined by and within the discretion of the Board, and the Cash
Bonus shall be paid on or before the fifteenth (15th) day after the
completion of the external audit of the Company’s financial
statements for the period for which the Cash Bonus relates,
provided, however, it is the Company’s intent that the
Board’s determination shall be completed and, if applicable,
the Cash Bonus shall be paid, no later than December 31 of the
calendar year following the calendar year to which such Cash Bonus
relates.
(c)
Equity Incentive Compensation . In addition to Base Salary
and the discretionary Cash Bonus, Executive shall be eligible to
receive stock option awards and grants of restricted stock under
the Company’s equity incentive plans, as determined from time
to time by the Board.
(d)
Employee Benefit/Plan Participation . During the Employment
Period, Executive shall be eligible, but shall not be required, to
participate in various employee benefit plans sponsored or
maintained by the Company in accordance with the terms and
conditions of such plans, including those related to medical,
dental, disability, and life insurance. Executive recognizes that
the Company has the right, in its sole discretion, to amend, modify
or terminate any employee benefit plans in accordance with their
terms.
(e)
Business Expenses . Subject to the Company’s
reimbursement policies and procedures, the Company shall reimburse
Executive for all reasonable and necessary expenses incurred in the
performance of Executive’s duties hereunder, upon
presentation of expense statements or vouchers, receipts, and such
other information and documentation as the Company may require. Any
amounts payable under this Section 4(e) shall be made in accordance
with Treasury Regulation Section 1.409A-3(i)(1)(iv) and shall
be paid on or before the last day of Executive’s taxable year
following the taxable year in which Executive incurred the
expenses. The amounts
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provided under
this Section 4(e) during any taxable year of Executive will not
affect such amounts provided in any other taxable year of
Executive, and Executive’s right to reimbursement for such
amounts shall not be subject to liquidation or exchange for any
other benefit.
5.
Termination of Employment .
(a)
Termination of the Employment Period . The Employment Period
shall end if Executive’s employment with the Company
terminates with or without Cause at the election of either
Executive or the Company, or as a result of Executive’s death
or Disability ( “Disability” shall mean a
physical or mental impairment that renders Executive unable to
perform the essential functions of his position, with or without
reasonable accommodation). In any such event, the Employment Period
shall end and, except as otherwise provided herein, including with
respect to the ongoing post-employment restrictions and covenants
contained in Section 12, this Agreement shall terminate upon
the effective date of such termination.
(b)
Termination by the Company With or Without Cause . The
Company may terminate Executive’s employment at any time
during the Employment Period with or without Cause effective
immediately upon delivery of a Notice of Termination to Executive.
Subject to the immediately following sentence “ Cause
” shall mean with respect to Executive, any of the following:
(i) Executive’s material neglect of assigned duties with the
Company or Executive’s failure or refusal to perform assigned
duties with the Company, which continues uncured for thirty
(30) days following receipt of written notice of such
deficiency from the Board, specifying the scope and nature of the
deficiency; (ii) Executive’s commission of a felony or
fraud; or Executive’s misappropriation of property belonging
to the Company or its affiliates; (iii) Executive’s
commission of a misdemeanor or act of dishonesty, which causes
material harm to the Company; (iv) Executive’s engaging
in any act of moral turpitude which causes material harm to the
Company; (v) Executive’s breach of the terms of this
Agreement or any trading compliance program or any confidentiality,
proprietary information or nondisclosure agreement with the
Company; or (vi) Executive’s working for another
company, partnership or other entity, whether as an employee,
consultant or director, while an employee of the Company without
the prior written consent of the Board (unless permitted by Section
2). Following a Change in Control (as defined in Section 7(c)
below), “Cause” shall not include
Executive’s acts or omissions contemplated by clause
(i) in the immediately preceding sentence and shall only
include those acts and omissions set forth in (ii) through
(vi) above. Any determination of Cause as used herein will be
made in good faith by the Board. A termination by the Company for
reasons other than set forth in clauses (i) through (vi) (but
excluding clause (i) following a Change in Control) above, or for
no reason at all but not including a termination of the Employment
Period as a result of death or Disability, shall be deemed a
“ Termination Without Cause .”
(c)
Voluntary Termination by Executive . Executive may
voluntarily terminate his employment with the Company upon
30 days written notice to the Company.
(d)
Termination by Executive for Good Reason. Executive may
terminate his employment with the Company for Good Reason. “
Good Reason ” shall mean the occurrence, without
Executive’s written consent, of one or more of the following
events: (i) the Company decreases Executive’s Base
Salary below $400,000, (ii) the Company decreases
Executive’s Annual Bonus target percentage to below 50% of
Base Salary, (iii) the Company materially decreases
Executive’s responsibilities, or (iv) the Company
materially breaches the terms of this Agreement; provided that no
such event shall constitute Good Reason hereunder unless
(a) Executive shall have
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given written
notice to the Company of Executive’s intent to resign for
Good Reason within 30 days after Executive becomes aware of the
occurrence of any such event (specifying in detail the nature and
scope of the event), (b) such event or occurrence shall not
have been cured within 30 days of the Company’s receipt of
such notice, and (c) any Termination by Executive for Good
Reason following such 30 day cure period must occur no later
than the date that is 30 days following the expiration of such
30 day cure period. Executive’s Termination for Good
Reason shall be treated as involuntary.
For
purposes of clause (iii) above, a material decrease in
Executive’s responsibilities shall include, without
limitation, a situation where Executive was no longer serving as
the sole Chief Executive Officer of the Company’s parent
corporation.
(e)
Notice of Termination . Any termination of Executive’s
employment by the Company or by Executive shall be communicated by
a written Notice of Termination addressed to Executive or the
Company, as applicable. The Company may also communicate its Notice
of Termination verbally, in accordance with Section 14(g).
Termination may be effective immediately upon communication of such
Notice of Termination. A “ Notice of Termination
” shall mean a notice stating that Executive’s
employment with the Company has been or will be terminated and the
specific provisions of this Section 5 under which such
termination is being effected.
(f)
Payments Upon Termination . Upon termination of
Executive’s employment for any reason, the Company shall pay
Executive (i) his Base Salary earned but not yet paid for
services rendered to the Company on or prior to the date on which
the Employment Period ends, (ii) any accrued but unused
vacation days, (iii) any incurred but unpaid business expenses
contemplated by Section 4(e) and other insurance related
reimbursable expenses, and (iv) any amounts required under the
Company’s Employee Stock Purchase Plan (or successor
plans).
6.
Payments Upon Certain Terminations Not Involving a Change in
Control .
(a)
Termination by the Company Without Cause or Termination by
Executive for Good Reason . In addition to the payments
described in Section 5(f) and subject to Section 8 and
Section 10, provided that Executive has resigned from the
Board as contemplated by Section 3 and is in compliance with
his obligations under Section 12, in the event the Employment
Period ends by reason of termination of Executive’s
employment by the Company Without Cause or by Executive for Good
Reason, the Company shall (i) in accordance with
Section 4(b), pay Executive any annual bonus payable for
services rendered in any annual bonus period for the year which had
been completed in its entirety prior to the date on which the
Employment Period ends and that had not previously been paid,
(ii) continue to make Base Salary payments for a period
12 months following such termination of employment (the period
of time such payments are provided, the “ Severance
Period ”), payable over such 12 month period on the
regular payroll dates of the Company in accordance with the
Company’s payroll practices as in effect on such termination
date, and subject to applicable tax withholding. Such continued
Base Salary payments shall commence upon the first payroll date
following the effective date of the Release Agreement referenced in
Section 10, and the first continued Base Salary payment shall
cover the period between the termination date and such payment,
provided, however, no amount shall be paid pursuant to this Section
6(a) unless, on or prior to the fifty-fifth (55th) day following
the date of the Executive’s Separation from Service (as
defined in Section 8 below), Executive has executed an
effective Release Agreement and any applicable revocation period
has expired. Each installment payment made pursuant to this Section
6(a) (ii) shall be considered a separate payment for purposes of
Section 409A of the Internal Revenue Code of 1986, as amended
(the “Code”) (including, without limitation, for
purposes of Treasury Regulation
4
Section 1.409A-2(b)(2)(iii)). In the event
the Employment Period ends on or prior to December 31, 2009 by
reason of termination of Executive’s employment by the
Company Without Cause or by Executive for Good Reason, subject to
Section 10, Executive shall receive a pro rata portion (based
upon the number of complete months within the fiscal year that
shall have elapsed through the date of Executive’s
termination of employment) of any Annual Bonus that the Board
determines Executive would otherwise have received pursuant to
Section 4(b) hereof for that calendar year had Executive been
employed through the end of the year, which will be payable when
and if such Annual Bonus would otherwise have been payable in
accordance with Section 4(b) had Executive’s employment not
terminated, provided again that Executive resigned from the Board
immediately as contemplated by Section 3 and has been in
compliance with his obligations under Section 12 from the date
of termination through such payment dates. Notwithstanding the
foregoing, Executive shall not be entitled to any pro-rated bonus
unless the date of termination is after the first six months of the
fiscal year in which it occurs. During the Severance Period, the
Company shall continue to pay health insurance premiums for
continued health insurance coverage for Executive and his currently
insured dependents, provided that Executive makes a timely election
to continue such coverage under COBRA and is not otherwise eligible
for health insurance through any subsequent employer. If the
termination is a result of Executive’s death or Disability,
then Executive’s currently insured dependents shall upon
their timely election be eligible to receive continued benefits
pursuant to COBRA.
(b)
Duty to Mitigate . If Executive is reemployed for at least
twenty (20) hours per week on average at any time after the
termination date and before the end of the Severance Period,
Executive shall promptly provide written notice to the Company of
such reemployment, and all further severance compensation payments
under this Section 6 shall be decreased by the amount of the
annual compensation received by Executive from the new
employer.
7.
Payments Upon Certain Terminations Involving a Change in
Control .
(a)
Statement of Intent. The Board recognizes that, as is the
case with many publicly held corporations, the possibility of a
change in control of the Company may exist and that the uncertainty
and questions that it may raise among management could result in
the departure or distraction of management personnel to the
detriment of the Company and its shareholders. Accordingly, the
Board has decided to reinforce and encourage Executive’s
attention and dedication to Executive’s assigned duties
without the distraction arising from the possibility of a change in
control of the Company.
(b)
Accelerated Vesting . Notwithstanding anything to the
contrary in Section 13 of the Company’s 2006 Equity
Incentive Award Plan (the “2006 Plan”), other than
Sections 12.2(a) and 12.2(e) of the 2006 Plan, in the event
that a Change in Control (as defined in the 2006 Plan) occurs, and
Executive’s employment with the Company is terminated by the
Company Without Cause or by Executive for Good Reason at any time
within the three (3) month period before the date of such
Change in Control or during the twelve (12) month period
following the date of such Change in Control, one-hundred percent
(100%) of the then-unvested shares of Questcor’s common stock
subject to each of Executive’s outstanding stock options and
one-hundred percent (100%) of Executive’s restricted shares
subject to vesting will become immediately vested and exercisable
on the date of such termination. The Company shall cause each
option agreement evidencing the grant of stock options to Executive
under the 2006 Plan (and successors to such plan) to reflect the
accelerated vesting provisions set forth in this
Agreement.
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(c)
Cash Severance Upon Termination Without Cause or for Good
Reason . Subject to Section 8 below, in the event that a
Change in Control occurs, and Executive’s employment with the
Company is terminated by the Company Without Cause or by Executive
for Good Reason at any time within the three (3) month period
before the date of such Change in Control or during the twelve
(12) month period following the date of such Change in
Control, Executive will receive severance compensation equal to the
sum of (i) an amount equal to the product of his highest Base
Salary in the calendar year in which the Change in Control occurs
(but in no event less than $400,000) multiplied by the number two
(2), plus (ii) an amount equal to the product of his target
bonus as established by the Board or its Compensation Committee for
the year during which the termination takes place (or if such
target bonus has not yet been established, the target bonus for the
prior year, but in no event using less than a 50% target percentage
to establish the target bonus) multiplied by the number two (2),
payable in accordance with Section 7(d) below.
For
purposes of this Section 7(c), “Change in Control”
shall mean and include the following:
(i) the
acquisition, directly or indirectly, by any “person” or
“group” (as those terms are defined in
Sections 3(a)(9), 13(d) and 14(d) of the Exchange Act and the
rules thereunder) of “beneficial ownership” (as
determined pursuant to Rule 13d-3 under the Exchange Act) of
securities entitled to vote generally in the election of directors
(“voting securities”) of the Company that represent 50%
or more of the combined voting power of the Company’s then
outstanding voting securities, other than:
(x) an
acquisition by a trustee or other fiduciary holding securities
under any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company
or by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the
Company;
(y) an
acquisition of voting securities by the Company or a corporation
owned, directly or indirectly by the shareholders of the Company in
substantially the same proportions as their ownership of the stock
of the Company; or
(z) in
a public offering of the Company’s securities.
(ii) A
change in the composition of the Board occurring within a twelve
(12) month period, as a result of which a majority of the
incumbent directors are replaced by directors whose appointment or
election is not endorsed by a majority of the incumbent directors
before the date of the appointment or election; or
(iii) the
consummation by the Company (whether directly involving the Company
or indirectly involving the Company through one or more
intermediaries) of (x) a merger, consolidation,
reorganization, or business combination or (y) a sale or other
disposition of all or substantially all of the Company’s
assets (provided, the sale of assets does not constitute a related
party transfer as set forth in Treasury Regulation
§1.409A-3(i)(5)(viii)(B)), in each case other than a
transaction which results i
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