SEVERANCE
AGREEMENT (this “ Agreement ”), dated as of
October 19, 2009 (the “ Effective Date ”),
between Questcor Pharmaceuticals, Inc., a California corporation
(the “ Company ”), and David Young (“
Executive ”).
WHEREAS, Executive
is being employed by the Company pursuant to an Offer Letter dated
October 15, 2009, 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. The following
terms and conditions supersede anything of the same subject matter
provided for in the Offer Letter or any other agreement entered
into prior to the Effective Date.
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 ”) or the Chief Executive Officer of the
Company, 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 engaged in the pharmaceutical,
biotechnology, medical device or other medically related business,
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 reduces Executive’s base salary
by more than 25%, (ii) the Company decreases
Executive’s
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annual bonus
target percentage to below 40% of base salary, (iii) the
Company materially decreases Executive’s responsibilities,
(iv) the Company relocates Executive’s principal place
of work to a location more than fifty (50) miles from the
location of Executive’s principal place of work on the date
of this Agreement, or (v) the Company materially 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),
(b) such event or occurrence shall not have been cured within
30 days of the Company’s receipt of such notice,
(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.
(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).
Any reimbursement for expenses payable under subsection
(iii) 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; provided, however, Executive’s right to
reimbursement for such amounts shall not be subject to liquidation
or exchange for any other benefit.
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 and
Section 5, 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, provided, however, it is the Company’s
intent that any such annual bonus shall be evaluated by the Board,
and if applicable, paid, no later than December 31 of the
calendar year following the calendar year to which such annual
bonus relates, (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 over
such 6 month or 12 month period, as the case may be, on
the regular payroll dates of the Company in accordance with the
Company’s payroll practices as in effect on such
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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 5, 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
2(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 4 below), Executive has executed an
effective Release Agreement and any applicable revocation period
has expired. 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,
as amended (the “ Code ”) (including, without
limitation, for purposes of Treasury
Regulation Section 1.409A-2(b)(2)(iii)).
(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 . Subject to Section 4 below, in the event a Change
in Control occurs which is also a Cash Severance Change in Control
(as defined below), 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 Cash Severance Change in Control or during
the twelve (12) month period following the date of such Cash
Severance 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 Cash
Severance 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), payable in accordance with Section 3(d)
below
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For purposes of
this Section 3(c), “ Cash Severance 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:
(A) 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,
(B) 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
(C) 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 in the Company’s voting securities
outstanding immediately before the transaction continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the Company or the person that, as a
result of the transaction, controls, directly or indirectly, the
Company or owns, directly or indirectly, all or substantially all
of the Company’s assets or otherwise succeeds to the business
of the Company (the Company or such person, the “
Successor Entity ” ) directly or indirectly, at least
fifty percent (50%) of the combined voting power of the Successor
Entity’s outstanding voting securities immediately after the
transaction,
For purposes of
subsection (i) of the definition of “ Change in
Control ,” the calculation of voting power shall be made
as if the date of the acquisition were a record date for a vote of
the Company’s shareholders, and for purposes of subsection
(iii) of the definition of “Change in Control,”
the calculation of voting power shall be made as if the date of the
consummation of the transaction were a record date for a vote of
the Company’s shareholders.
(d)
Application of Section 280G of the Code . In the event
that it shall be determined that any payment or distribution in the
nature of compensation (within the meaning of section 280G(b)(2) of
the Code) to or for the benefit of the Executive, whether paid or
payable or
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distributed or
distributable pursuant to the terms of this Agreement or otherwise
(a “ Payment ”), would constitute an
“excess parachute payment” within the meaning of
section 280G of the Code, the aggregate present value of the
Payments under the Agreement shall be reduced (but not below zero)
to the Reduced Amount (defined below), provided that the reduction
shall be made only if the Accounting Firm (described below)
determines that the reduction will provide the Executive with a
greater net after-tax benefit than would no reduction. The “
Reduced Amount ” shall be an amount expressed in
present value which maximizes the aggregate present value of
Payments under this Agreement without causing any Payment under
this Agreement to be subject to the Excise Tax (defined below),
determined in accordance with section 280G(d)(4) of the Code. The
term “ Excise Tax ” means the excise tax imposed
under section 4999 of the Code, together with any interest or
penalties imposed with respect to such excise tax. Unless the
Executive shall have elected another method of reduction by written
notice to the Company prior to the Change of Control, the Company
shall reduce the Payments under this Agreement by first reducing
Payments that are not payable in cash and then by reducing cash
Payments. Only amounts payable under this Agreement shall be
reduced pursuant to this subsection (d). All determinations to be
made under this subsection (d) shall be made by an independent
certified public accounting firm selected by the Company
immediately prior to the Change of Control (the “
Accounting Firm ”), which shall provide its
determinations and any supporting calculations both to the Company
and the Executive within 10 days of the Change of Control. Any
such determination by the Accounting Firm shall be binding upon the
Company and the Executive. All of the fees and expenses of the
Accounting Firm in performing the determinations referred to in
this subsection (d) shall be borne solely by the
Company.
(e)
Payment Administration . Subject to Section 4 below,
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 5; provided, however, no amount shall be
paid pursuant to this Section 3(e) unless, on or prior to the
fifty-fifth (55th) day following the later of (i) the
Executive’s Separation from Service or (ii) the
effective date of a Cash Severance Change in Control occurring
within three months following Executive’s Separation from
Service, Executive has executed an effective Release Agreement and
any applicable revocation period has expired. 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.
(f)
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.
4.
Section 409A Payment Delay .
(a)
Payment Delay . Notwithstanding anything herein to the
contrary, to the extent any payments to Executive pursuant to
Sections 2 or 3 are treated as non-qualified deferred
compensation subject to Section 409A of the Code, then
(i) no amount shall be payable pursuant to such section unless
Executive’s termination of employment constitutes a
“separation from service” with the Company (as such
term is defined in Treasury
Regulation Section 1.409A-1(h) and any successor
provision thereto) (a “ Separat
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