Exhibit 10.3

CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE OF CLAIMS

This Confidential Separation Agreement and Release of Claims (“Agreement and
Release”) is entered into this 28th day of August 2009 between SCOLR Pharma,
Inc. (“Company”) and Bruce Morra (“Executive”).

WHEREAS, Executive has been employed by the Company under an Executive
Employment Agreement, dated January 30, 2009 (the “Employment Agreement”), which
provides for the payment of potential severance benefits to Executive under the
terms and conditions set forth therein; and

WHEREAS, the parties desire to have Executive remain on the Company’s Board of
Directors but have agreed to end their employment relationship and wish to do so
amicably on the terms described herein, which are different from those
potentially available under the Employment Agreement; and

WHEREAS, except as provided herein, the parties wish to completely and forever
resolve Executive's claims and rights under the Employment Agreement and any and
all other existing or potential claims between them and to agree upon modified
terms related to his departure;

NOW, THEREFORE, in consideration of the foregoing and the potential benefits to
be realized by Executive as a result of executing this Agreement and Release,
Executive and the Company hereby agree as follows:

1.  
End of Employment Relationship.  The parties agree that Executive’s employment
with the Company shall end on August 28, 2009 [last day of employment] and that
Executive shall resign as CEO and President as of close of business on that day;
provided that the Company shall not characterize Executive’s resignation as
voluntary in response to any claim Executive may make for unemployment
benefits.   Executive shall receive payment for work through the last day of
employment in the next regularly scheduled payroll after August 28, 2009.   The
parties desire Executive to continue to serve as a Director of the Company and,
except as specifically addressed to the contrary herein, to be compensated
pursuant to the Director compensation policy as such may be amended from time to
time, but agree that the Company is not contractually obligated to continue
Executive as a Director.

 
2.  
Additional Payments.

 
a.  
Within eight (8) business days of Executive's execution and return of this
Agreement and Release (the “Effective Date”), the Company will pay Executive:

 
i.  
the gross sum of $222,800.

 
ii.  
the gross sum of $16,916.72 as payment for 95.75 hours of accrued but unused
paid time off (PTO).

 

 
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b.  
Also, commencing January 1, 2010 and ending June 1, 2010, Executive shall
receive $35,466.66 each month in six monthly installments paid on the first of
each month.

 
Each of the foregoing payments shall be subject to normal, customary, and/or
required withholdings and deductions related to the payment of wages by a
company to an employee including federal taxes, Medicare, and FICA.
 
Executive and the Company recognize that their respective views differ on their
rights and obligations under the Employment Agreement.  Executive understands
that the Company does not admit that any severance is, in fact, owed under the
circumstances, and the Company understands that Executive does not
agree.  Executive acknowledges, however, that he would not be entitled to
severance from the Company without a separation and release agreement and that
this Agreement and Release represents a compromise intended to resolve any
disagreement based on the parties’ differing views.  Executive understands and
agrees that he is giving up all potential rights to additional payments –
whether severance, bonus, options or stock grants – not specifically provided
for in this Agreement and Release.
 
3.  
Non-Competition Restrictions.  Executive is released from the non-competition
restrictions of Section 9 of the Employment Agreement, but Sections 10 and 11
remain in full effect unless specifically modified herein.  The Confidentiality
and Non-Compete Agreement signed on January 30, 2009 continues in full force and
effect to the extent applicable, provided that the reference to non-compete in
Section 2 is hereby deleted.

 
4.  
Stock Grant.  On January 4, 2010, the Company shall issue Executive 214,285
shares of the Company’s Common Stock.

 
5.  
Stock Options.  The parties agree that on the Effective Date Executive shall
vest in the 125,000 stock options that would have vested on January 18, 2010 if
Executive had continued to serve as CEO.  In addition, any options granted
pursuant to Section 2.2. of the Employment Agreement will expire one year after
Executive’s last day of employment.  Executive relinquishes any right to other
options mentioned during contract discussions which the parties determined could
not be granted.

 
6.  
COBRA.  Assuming that Executive exercises his rights under COBRA and, throughout
the twelve months, does not have medical insurance available through other
employment, Executive will receive continued medical coverage at the Company's
expense for a period of twelve (12) months following the Effective Date,
pursuant to COBRA at existing levels for his own medical coverage and for fifty
percent of his spouse and children’s coverage, if such is elected.

 
7.  
Purchase of Equipment. Executive agrees to buy his Company cell phone and
computer systems for $1,000, consisting of:

 
 
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·  
Apple iPhone, case, car charger, and wireless headset

 
·  
Sony Vaio lap top computer system (including docking station, cables,
connectors, mouse, keyboard, monitor, printer, surge protector) and software

·  
Manuals, disks, licenses and proof of purchases for all of the above

The Company will provide reasonable assistance to Executive to adapt the systems
for personal use.  If more than reasonable assistance is required, as determined
by the Company in its sole discretion, and hence, is not provided, then
Executive can elect not to purchase the equipment.
 
8.  
Section 409A Compliance.  The parties intend for this Agreement and Release to
be exempt from the application of Section 409A, whether pursuant to the
short-term deferral exception described in Treasury Regulation Section
1.409A-1(b)(4), the involuntary separation pay plan exception described in
Treasury Regulation Section 1.409A-1(b)(9)(iii), or otherwise, and this
Agreement and Release shall be construed and interpreted accordingly.  If the
Company or Executive reasonably determines that any provision of this Agreement
and Release either fails to satisfy the requirements of Section 409A or is not
exempt from the application of Section 409A, then the parties hereby agree to
amend or to clarify this Agreement and Release in a timely manner so that this
Agreement and Release either satisfies the requirements of Section 409A or is
exempt from the application of Section 409A.

 
9.  
Reimbursement of Attorney’s Fees.  The Company shall pay Executive’s legal
counsel up to $5,000 for attorney’s fees incurred by Executive related to this
Agreement and Release.  Executive shall be responsible for submitting an invoice
to the Company after the Effective Date detailing actual attorney’s fees
incurred.  Payment shall be made within ten (10) days of receipt of such
invoice.

 
10.  
Unemployment Insurance.  Notwithstanding the reference in Section 1 above to
Executive resigning as president and CEO of the Company, it is understood that
the Company will not contest Executive’s application for unemployment benefits;
however, the Company will disclose that Executive is receiving severance
pursuant to this Agreement and Release.

 
11.  
Waiver and Release of Claims.  Executive understands that in conjunction with
this Agreement and Release, he is being provided with certain benefits to which
he would not otherwise be entitled and other benefits as to which he and the
Company have differing views regarding his entitlement and that the terms of
this Agreement and Release are intended as a compromise of their differing
views.  With that understanding, Executive, on his own behalf, as well as on
behalf of his marital community and his heirs, executors, administrators and
assigns, hereby releases in full and forever discharges, acquits and holds
harmless SCOLR Pharma, Inc. and any parent, subsidiary or otherwise affiliated
corporation, partnership or other business enterprise, and all of its or their
past or current affiliates, related entities, partners, subsidiaries, insurers,
predecessors, successors, assigns, directors, officers, shareholders, attorneys,
investors, representatives,

 
 
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agents and employees (herein collectively referred to as “Associated Persons”)
from any and all claims, causes of action, demands, suits, liabilities, damages,
including damages for pain and suffering and emotional harm, charges,
controversies, expenses and obligations of every nature, character or
kind,  (collectively “Claims”), arising up to and including the date of this
Agreement and Release, whether known or unknown, suspected or
unsuspected,  including, but not limited to, any Claims which in any manner or
fashion arise from or relate to Executive’s employment with the Company, any
contractual agreements between Executive and the Company, including but not
limited to the Employment Agreement, or Executive’s separation from employment
with the Company, including without limitation any claims for damages, equitable
relief, attorney fees or costs.
 
This release includes, but is not limited to, any Claims that Executive might
have for reinstatement, reemployment or for additional compensation for work
performed, including without limitation wages, bonuses, commissions, fees,
payments, incentive payments, sick leave pay-out, extended illness bank pay-out,
severance pay, expenses, salary, paid time off or vacation pay (besides what is
paid at termination per this Agreement and Release), fees or costs, losses,
penalties or benefits.  Without limitation, it applies to Claims for damages or
other personal remedies that Executive might have under any federal, state
and/or local law, statutory, regulatory or common, dealing with employment,
tort, contract, wage and hour, civil rights or any other matters, including, by
way of example and not limitation, applicable civil rights laws, retaliation,
federal and state whistleblower laws, Title VII of the Civil Rights Act of 1964,
the Post-War Civil Rights Act of 1964, the Post-War Civil Rights Acts (42 USC
Sections 1981-1988), the Civil Rights Act of 1991, the Americans with
Disabilities Act, the Age Discrimination in Employment Act, the Older Workers
Benefit Protection Act, the U.S. Family and Medical Leave Act; all State of
Washington laws and regulations, including those governing employment,
discrimination, accommodation, and leave; the Fair Labor Standards Act, the
National Labor Relations Act, the Employment Retirement Income Security Act
(excluding COBRA), the Vietnam Era Veterans Readjustment Assistance Act, the
Fair Credit Reporting Act, the Occupational Safety and Health Act, the
Sarbanes-Oxley Act of 2002, the Health Insurance Portability and Accountability
Act of 1995, the Rehabilitation Act of 1973, the Equal Pay Act of 1963,
Executive Order 11246, Washington’s Law Against Discrimination, Chapter 49.60
RCW, Washington’s Minimum Wage Act, Chapter 49.46 RCW, Chapter 49.48 RCW, and
any regulations under such laws.  This release further applies to any Claims or
right to personal damages, benefits or other personal legal or equitable
remedies that Executive may have as a result of filing any complaint, charge or
other action before any administrative agency.  EXECUTIVE ACKNOWLEDGES AND
AGREES THAT THROUGH THIS RELEASE HE IS GIVING UP ALL RIGHTS AND CLAIMS OF EVERY
KIND AND NATURE WHATSOEVER, KNOWN OR UNKNOWN, CONTINGENT OR LIQUIDATED, THAT HE
MAY HAVE AGAINST THE COMPANY AND ASSOCIATED PERSONS, ARISING ON OR BEFORE THE
DATE OF THIS AGREEMENT AND RELEASE.

 
 
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ADEA Waiver.  Executive acknowledges that his waiver and release hereunder of
any rights he may have under the Age Discrimination in Employment Act of 1967
(ADEA), as amended by the Older Workers Benefit Protection Act, is knowing and
voluntary.  He certifies that he has read, has received an explanation of, and
understands the provisions of this release of claims.  The parties agree that
this waiver and release does not apply to any rights or claims that may arise
under ADEA after the date this Agreement is executed.  Executive acknowledges
that he has been advised by this writing, as required by the Older Workers
Benefit Protection Act, that (a) he should consult with an attorney prior to
executing this Agreement; (b) he has twenty-one (21) days to consider this
Agreement (although he may, by his own choice, execute this Agreement earlier);
(c) he has seven (7) days following the execution of this Agreement by him to
revoke the Agreement; and (d) this Agreement shall not be effective until the
Effective Date (which is after the revocation period has expired).
 
The foregoing release does not apply to claims relating to breach or
enforceability of this Agreement and Release, Executive’s right to file a
complaint with a governmental agency, or claims arising after the execution of
this Agreement and Release.  However, with respect to agency complaints,
Executive understands and agrees that he is expressly waiving any right to
obtain monetary damages or any other relief that provides personal benefit
resulting from the agency claim.  This waiver and release is effective to the
full extent the law permits him to release his individual claims.  It does not
affect accrued reimbursement rights he may currently possess under any health
insurance coverage or accrued rights he may have under any retirement plan after
termination.
 
Through this release Executive is fully, finally, and for all times settling and
releasing all disputes and differences within the scope of matters known or
unknown, suspected or unsuspected, which now exist, or may have existed between
Executive, the Company and/or Associated Persons, on or before the date of this
Agreement and Release.  In furtherance of this intention, this release shall be
and remain in effect as a full and complete release of claims arising on or
before the date of this Agreement and Release notwithstanding the discovery or
existence of any such additional or different Claim or fact.  The provisions of
any law, regulation, statue or ordinance providing in substance that releases
shall not extend to Claims, damages or injuries which are unknown or unsuspected
to exist at the time the person executes the release are hereby expressly waived
by Executive.
 
This Agreement and Release is not intended to and does not release or reduce any
indemnification rights possessed by Executive or any rights to insurance
coverage afforded to Executive by virtue of his service as a director and/or
officer of the Company.
 
12.  
Release by Company.  In consideration of Executive's entering into this
Agreement and Release, SCOLR Pharma Inc. (including any parent, subsidiary or
otherwise affiliated corporation, partnership or other business enterprise, and
all of its or their past or current affiliates, related entities, and/or
subsidiaries),  hereby releases in full

 
 
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and forever discharges, acquits and holds harmless Executive from any or all
Claims that SCOLR might possess to the extent that it is found that Executive
was acting in good faith and within the scope of his employment, provided,
however, that this release shall not extend to any rights (a) to obtain
contribution as permitted by law in the event of entry of judgment against the
Company as a result of any act or failure to act for which the Executive and the
Company are jointly liable, (b) arising under, or preserved by, this Agreement
and Release, (c) arising after Executive’s last day of employment or (d) arising
out of any investor, account, insurance or client relationship, which rights
shall be preserved, unaffected by this release.  If the Company brings any claim
against the Executive in a civil action or in arbitration, the judge or
arbitrator shall have discretion based on equitable considerations to award the
prevailing party some or all of its/his reasonable costs, including attorney's
fees, or to deny any such award.
 
13.  
Surviving Terms.  In addition to Sections 10 and 11, the parties intend for
Sections 6.6 (a), 6.7, 6.8, 12, and 13 of the Employment Agreement to continue
in full force and effect to the extent applicable to Executive’s
post-employment.

 
14.  
Nonadmission of Liability.  The Company and Executive each expressly agree and
acknowledge that this Agreement in no way constitutes an admission of liability
on the Company’s part, including Associated Persons, or the Executive, and this
Agreement does not constitute the admission of any fact from which liability to
the Company, including Associated Persons, or Executive can be attributed now or
at any time in the future.  The parties agree that this agreement is not
admissible for any purpose other than an action for enforcement of its terms.

 
15.  
No Transfer.  Executive covenants that he has not assigned, transferred, sold,
encumbered, pledged, mortgaged, distributed or otherwise disposed of or conveyed
to any third party any right or Claim against the Company or Associated Persons
that has been released by this Agreement.

 
16.  
No Representations.  The Company and Executive each warrant that no promise or
inducement has been offered for this Agreement and Release other than as set
forth herein and that this Agreement is executed without reliance upon any other
promises or representations, oral or written.  The Executive specifically
acknowledges and agrees that the Company has made no representations to
Executive regarding the tax consequences of any amounts received by Executive or
provided for Executive’s benefit pursuant to this Agreement.  Any modification
of this Agreement must be made in writing and signed by the Executive and the
Company.

 
17.  
Modification and Supplementation.  Except as noted herein, this Agreement and
Release modifies and supersedes all prior understandings between the Company and
Executive, including the Employment Agreement, and represents the entire
Agreement between the parties with respect to all matters involving Executive’s
employment with and termination from the Company.

 
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18.  
Severability.  In the event any provision of this Agreement and Release is found
unenforceable by an arbitrator or court of competent jurisdiction, such
provision shall be deemed modified to the extent necessary to allow
enforceability of the provision as so limited, it being intended that the
parties shall receive the benefits contemplated herein to the fullest extent
permitted by law.  If a deemed modification is not satisfactory in the judgment
of such arbitrator or court, the unenforceable provision shall be deemed deleted
and the validity and enforceability of the remaining provisions shall not be
affected thereby.

 
19.  
Governing Law and Dispute Resolution.  This Agreement and Release shall be
governed in accordance with the laws of the State of Washington, without regard
to its conflict of law principles.  The parties further agree that disputes
arising out of the Agreement and Release will be submitted for binding
arbitration, with the exception that the Company may seek injunctive and/or
declaratory relief in a court of competent jurisdiction to protect the Company’s
trade secret(s), proprietary information, confidential information and other
Company property, and/or the Company’s business reputation.  Arbitration will be
conducted by the American Arbitration Association (“AAA”) and governed by the
AAA National Rules for the Resolution of Employment Disputes (“AAA Rules”).

 
20.  
Notice.  For the purposes of any notice to Executive, his current address is

 
Bruce S. Morra
427 11th Avenue West
Kirkland, WA 98033
With a copy e-mailed to: brucemorra@gmail.com
 
                      For the purposes of any notice to Company, its current
address is
 
Stephen Turner
Vice President & Chief Technical Officer
SCOLR Pharma, Inc.
19204 North Creek Parkway
Suite 100
Bothell, WA 98011
With a copy e-mailed to: sturner@scolr.com
With a copy e-mailed to: apreston@gsblaw.com
 
EXECUTIVE ACKNOWLEDGES AND AGREES THAT EXECUTIVE HAS CAREFULLY READ AND
VOLUNTARILY SIGNED THIS AGREEMENT, THAT EXECUTIVE HAS HAD AN OPPORTUNITY TO
CONSULT WITH AN ATTORNEY OF EXECUTIVE’S CHOICE, AND THAT EXECUTIVE SIGNS THIS
AGREEMENT WITH THE INTENT OF RELEASING ALL ASSOCIATED PERSONS, INCLUDING, THE
COMPANY AND ITS OFFICERS, DIRECTORS, EXECUTIVES AND AGENTS FROM ANY AND ALL
CLAIMS.
 
 
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IN WITNESS WHEREOF, Executive and the Company have caused this Agreement and
Release to be executed as of the day and year first above written.

Executive
 
 
/s/ Bruce Morra
Bruce Morra
SCOLR Pharma, Inc.
 
 
By: /s/ Michael Taglich
 
Its: Chairman

SEA_DOCS:935205.9
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