SEVERANCE
AGREEMENT (this “ Agreement ”), dated as of
September 10, 2008 (the “ Effective Date
”), between Questcor Pharmaceuticals, Inc., a California
corporation (the “ Company ”), and Gary Sawka
(“ Executive ”).
WHEREAS, Executive
is being employed by the Company pursuant to an Offer Letter dated
September 9, 2008, and the Company and Executive desire to
enter into this Agreement to set forth the terms on which Executive
may be entitled to severance benefits from the Company.
NOW, THEREFORE, in
consideration of the mutual covenants herein contained, the Company
and Executive hereby agree as follows:
1.
At-Will Nature of Employment .
(a)
Termination of Employment . The Company may terminate
Executive’s employment at any time with or without Cause
effective immediately upon delivery of a Notice of Termination to
Executive. Subject to the immediately following sentence and for
purposes of this Agreement only, “ 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 of Directors of the Company (“
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 Company’s
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. 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) above, or for no reason at all but not
including a termination of Executive’s employment with the
Company as a result of death or Disability, shall be deemed a
“ Termination Without Cause .”
(b)
Voluntary Termination by Executive . Executive may
voluntarily terminate his employment with the Company upon
30 days written notice to the Company.
(c)
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 materially
decreases Executive’s responsibilities, or (ii) the
Company breaches the terms of this Agreement; provided that no such
event shall constitute Good Reason hereunder unless
(a) Executive shall have 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)
and (b) such event or occurrence shall not have been resolved
to Executive’s reasonable satisfaction within 30 days of
the Company’s receipt of such notice.
(d)
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. 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 1
under which such termination is being effected.
(e)
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 reimbursable
business expenses and other insurance related reimbursable
expenses, and (iv) any amounts required under the
Company’s Employee Stock Purchase Plan (or successor
plans).
2.
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 1(e) and subject to Section 4, provided
that Executive is in compliance with his obligations under his
Proprietary Information and Inventions Agreement with the Company,
in the event Executive’s employment is terminated by the
Company Without Cause or by Executive for Good Reason, the Company
shall (i) 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) a
period 6 months following such termination of employment if
the termination occurs on or before the third anniversary of the
date on which Executive commenced employment with the Company, or
(B) a period 12 months following such termination of
employment if the termination occurs after such third anniversary
date (the period of time such payments are provided, the “
Severance Period ”), payable in accordance with the
Company’s payroll practices as in effect on such termination
date, except that such continued Base Salary payments shall not
commence until the first payroll date following the effective date
of the Release Agreement referenced in Section 4, and the
first continued Base Salary payment shall cover the period between
the termination date and such payment. Each installment payment
made pursuant to this Section 2(a)(ii) shall be considered a
separate payment for purposes of Section 409A of the Internal
Revenue Code of 1986 (the “Code”).
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(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 2 shall be decreased by the amount of the
annual compensation received by Executive from the new
employer.
3.
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 the Company’s 1992 Employee Stock Option Plan or
its 2006 Equity Incentive Award Plan (the “Option
Plans”), in the event that a Change in Control (as defined in
the Option Plans) 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.
(c) Cash
Severance Upon Termination Without Cause or for Good Reason .
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 his highest Base
Salary in the calendar year in which the Change in Control occurs,
plus (ii) an amount equal to 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).
(d)
Payment Administration . The severance payment under Section
3(c) shall be made in a single lump sum on the release effective
date of the Release Agreement referenced in Section 4.
Payments under Section 3(c) shall be in addition to the payments
under Section 1(e) but shall be in lieu of, and not in addition to,
the payment of any cash severance payments that Executive may
otherwise be entitled to under Section 2 of this
Agreement.
(e) No
Duty to Mitigate . Executive’s reemployment at any time
following the termination of Executive’s employment shall
have no effect on his right to collect severance under this
Section 3.
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(a)
Execution of Release . As a condition of Executive’s
right to receive the payments described in Sections 2(a) and
3(c), Executive shall within 21 days following
Executive’s termination of employment (or within 45 days
if Executive is terminated as part of a group layoff) execute and
deliver to the Company a full and complete release of all claims,
known and unknown, that Executive may have against the Company and
its related past and present entities, officers, directors,
shareholders, agents, representatives, successors and employees,
such release to be substantially in the form of the release
attached hereto as Exhibit A (the “ Release
Agreement ”); provided, however, that any conflict
between the terms of this Agreement and such form of release
attached as Exhibit A shall be resolved in favor of
this Agreement.
(b)
Effect of Failure . In the event Executive fails to deliver
or revokes the release referred to in Section 4(a) above,
Executive shall not be entitled to any of the payments described in
Section 2(a) or 3(c) above. In the event that, prior to the end of
the Severance Period, Executive breaches any of his obligations
under this Agreement, including this Section 4, the
Company’s obligations to provide the payments under Sections
2(a) and 3(c) shall thereupon cease and the Company shall be
entitled to recover from Executive any and all amounts theretofore
paid to Executive pursuant to Section 2(a) or 3(c).
5. Death
and Disability . In the event the Executive’s employment
at the Company ends as a result of Executive’s death, this
Agreement shall automatically terminate and Executive’s
estate shall be entitled to receive (i) the amounts described
in Section 1(e), and (ii) 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. The
bonus amount under clause (ii) will be payable to
Executive’s estate when and if such annual bonuses would
otherwise have been payable. In the event of Executive’s
Disability, the Company shall have the right to terminate this
Agreement and Executive’s employment immediately.
Additionally, Executive shall be entitled to his annual bonus as
described under clause (ii) above, except that the payments
shall be to Executive and not his estate.
(a)
Survival . To the extent necessary to give effect to such
provisions, the provisions of this Agreement shall survive the
termination hereof, whether such termination shall be by expiration
of the Employment Period or otherwise.
(b)
Binding Effect . This Agreement shall be binding on, and
shall inure to the benefit of, the Company and any person or entity
that succeeds to the interest of the Company (regardless of whether
such succession occurs by operation of law) by reason of the sale
of all or a portion of the Company’s equity securities, a
merger, consolidation or reorganization involving the Company or,
unless the Company otherwise elects in writing, a sale of all or a
portion of the assets of the business of the Company. This
Agreement shall also inure to the benefit of Executive’s
heirs, executors, administrators and legal
representatives.
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