EXHIBIT 10.1
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
     THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made
and entered into as of May 24, 2007 (the “Effective Date”), by and between James
R. Talevich (“Talevich”) and I-Flow Corporation, a Delaware corporation (the
“Company”).
Background
     The Company and Talevich previously entered into that certain Employment
Agreement dated as of June 21, 2000. The parties wish to amend and restate their
prior agreement as provided herein.
Agreement
     1. Employment. The Company agrees to employ Talevich, and Talevich agrees
to serve, in the capacity of Chief Financial Officer. The Company’s Board of
Directors (the “Board”) may provide such additional designations of title to
Talevich as the Board, in its discretion, may deem appropriate. The Company
shall employ Talevich at will, and either Talevich or the Company may terminate
Talevich’s employment with the Company at any time and for any reason, with or
without cause.
     2. Employment Compensation And Benefits.
     (a) Base Salary. Talevich’s base salary as of the Effective Date of this
Agreement shall be at the annual rate of Two Hundred Twenty Five Thousand
Dollars ($225,000). This salary level shall be reviewed at least annually by the
Board’s Compensation Committee on the basis of Talevich’s performance and the
Company’s financial success and progress. During the term of this Agreement,
Talevich’s base salary shall not be reduced.
     (b) Annual Bonus and Stock Options. In addition to the base salary
specified in subsection (a) above, Talevich shall be entitled to earn an annual
bonus in accordance with the terms of each year’s management bonus program as
reasonably determined by the Board. In addition, Talevich is eligible to
participate in the equity incentive programs as established by the Company from
time to time. The level of such participation shall be determined by the Board
in the reasonable exercise of its discretion.
     (c) Vacation. Talevich shall be entitled to at least four (4) weeks paid
vacation during each year of this Agreement. In the event Talevich does not use
such vacation, he shall receive, at the end of each year of this Agreement (or
upon termination of this Agreement, if earlier), vacation pay for all unused
vacation calculated at the base salary rate then in effect as set forth in
Section 2(a) above.

 

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     (d) Automobile Allowance. During the term of this Agreement, the Company
shall pay Talevich an automobile expense allowance of $1,000 per month, grossed
up for income tax purposes, and shall reimburse Talevich for all gasoline and
maintenance expenses incurred by him in operating his automobile.
     (e) Expense Reimbursement. The Company shall reimburse Talevich for all
reasonable business expenses incurred by Talevich in the course of performing
services for the Company.
     (f) Life Insurance. The Company shall provide Talevich, at the Company’s
cost, with a life insurance policy on the life of Talevich, which policy shall
be owned personally by Talevich or his assignee. The amount of such policy shall
be at least equal to two times Talevich’s base salary, as determined from time
to time under Section 2(a) above. Talevich shall be entitled to increase the
amount of such policy by reimbursing the Company for the additional premium
attributable to such increase.
     (g) Other Benefits. The Company shall provide Talevich with such other
employment benefits, including, without limitation, medical and dental
insurance, as is provided by the Company to its other executive employees.
     3. Severance Pay.
     (a) Termination of Employment With Good and Valid Cause. In the event
Talevich’s employment by the Company is terminated for “good and valid cause,”
or Talevich voluntarily resigns, the Company shall have no obligation to pay any
severance pay to Talevich. For purposes of this Section 3(a), the term “good and
valid cause” shall mean:
     (i) Conviction of a felony.
     (ii) The death of Talevich.
     (iii) Talevich’s malfeasance in connection with his employment or habitual
neglect of his duty hereunder not cured after written notification thereof by
the Board of Directors, which notice shall specify the alleged instances of
neglect of his duty, and shall provide Talevich with 60 days in which to remedy
such malfeasance or neglect.
     (b) Termination Without Cause. In the event Talevich’s employment as
provided herein is terminated by the Company without cause, or in the event
Talevich resigns his employment because his job location is transferred (without
his prior, voluntary consent) to a site more than thirty (30) miles away from
his current place of employment, the Company shall be obligated to pay and
provide and Talevich shall be entitled to receive, as severance, the following
payments (to be made in a lump sum immediately upon termination of employment)
and benefits:

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     (i) A cash payment equal to one (1) times the sum of (A) Talevich’s annual
salary in effect at the time of termination, plus (B) the average annual bonus
earned by Talevich in the previous three full fiscal years;
     (ii) Any bonus, or relevant pro rata portion thereof, earned by Talevich
for the fiscal year in which the termination occurs;
     (iii) For the 12-month period following Talevich’s termination without
cause, Talevich shall be entitled to continue to participate at the Company’s
expense in the group medical insurance programs (including health, drug, dental,
and vision insurance) which had been made available to him (including his
family) before his termination (or a substantively equivalent program). The
programs shall be continued in the same way and at the same level as immediately
prior to Talevich’s termination without cause. Talevich’s participation in such
group medical insurance programs shall be terminated prior to the 12-month
anniversary of Talevich’s termination if and when Talevich receives group
medical insurance benefits as a result of concurrent coverage through another
employer’s program; and
     (iv) Talevich’s unvested and outstanding stock options, restricted stock or
other equity-based awards shall immediately and automatically become fully
vested and (to the extent relevant) exercisable. Any stock options and stock
appreciation rights shall remain exercisable for their remaining terms.
Notwithstanding the foregoing or anything in this Agreement, Talevich shall be
entitled to receive whatever additional severance pay and other benefits, if
any, for which he may qualify according to the terms of the “Agreement Re:
Change in Control” entered into as of June 21, 2001 between the Company and
Talevich.
     (c) Disability.
     (i) In the event that Talevich is terminated as a result of a Disability
(as defined below), Talevich shall receive amounts equal to 60% of his total
compensation in effect at the time of such termination until Talevich achieves
the age of 65, or until such time as Talevich shall have recovered from such
disability and is able to secure full time employment, whichever first occurs.
To this end, the Company shall secure disability coverage for Talevich, which
coverage shall be sufficient to pay Talevich the amounts set forth in the
foregoing sentence. During any such period of disability, options and restricted
stock granted to Talevich shall not lapse by virtue of such disability.
     (ii) “Disability” shall mean a physical or mental incapacity that results
in Talevich becoming unable to continue to perform his responsibilities for the
Company and its affiliated companies and which, at least six (6) months after
its commencement, is determined to be total and permanent by a physician agreed
to by the Company and Talevich, or in the event of Talevich’s inability to
designate a physician, his legal representative. In the absence of agreement
between the Company and Talevich, each

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party shall nominate a qualified physician and the two physicians so nominated
shall select a third physician who shall make the determination as to
Disability.
     (d) No Mitigation Required. Talevich shall not be required to mitigate the
amount of any payments or benefits provided for in Section 3(b) by seeking other
employment or otherwise, nor shall the amount of any payments or benefits
provided for in Section 3(b) be reduced by any compensation earned by Talevich
as the result of employment by another employer after the date of Talevich’s
termination by the Company or otherwise.
     4. Nondisclosure of Confidential Information. Talevich agrees to execute,
deliver and perform, during the term of his employment with the Company and
thereafter, all reasonable confidentiality and nondisclosure agreements,
concerning the Company and its products, which are executed by other key
employees and executives of the Company.
     5. Successors. This Agreement is personal to Talevich, and without the
prior written consent of the Company, shall not be assignable by Talevich other
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by Talevich’s legal representatives. The
rights and obligations of the Company under this Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the Company.
     6. Governing Law. This Agreement is made and entered into in the State of
California, and the internal laws of California shall govern its validity and
interpretation in the performance by the parties hereto of their respective
duties and obligations hereunder.
     7. Modifications. This Agreement may be amended or modified only by an
instrument in writing executed by all of the parties hereto.
     8. Entire Agreement. Except as otherwise set forth herein, this Agreement,
together with the exhibits attached hereto, supercedes any and all prior written
or oral agreements between Talevich and the Company, and contains the entire
understanding of the parties hereto with respect to the terms and conditions of
Talevich’s employment with the Company; provided, however, that this Agreement
is not intended to supercede the Agreement re: Change in Control between
Talevich and the Company, which they entered into as of June 21, 2001, or any
agreements which Talevich may previously have entered into regarding the
protection of trade secrets and confidential information.
9. Dispute Resolution.
     (a) Any controversy or dispute between the parties involving the
construction, interpretation, application or performance of the terms,
covenants, or conditions of this Agreement or in any way arising under this
Agreement (a “Covered Dispute”) shall, on demand by either of the parties by
written notice served on the other party in the manner prescribed in Section 10
hereof, be referenced pursuant to the procedures described in California Code of
Civil Procedure (“CCP”) Sections 638, et seq., as they may be amended from time
to time (the “Reference Procedures”), to a retired Judge from the Superior Court
for the County of Orange for a decision.

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     (b) The Reference Procedures shall be commenced by either party by the
filing in the Superior Court of the State of California for the County of Orange
of a petition pursuant to CCP Section 638(1) (a “Petition”). Said Petition shall
designate as a referee a Judge from the list of retired Orange County Superior
Court Judges who have made themselves available for trial or settlement of civil
litigation under said Reference Procedures. If the parties hereto are unable to
agree on the designation of a particular retired Orange County Superior Court
Judge or the designated Judge is unavailable or unable to serve in such
capacity, request shall be made in said Petition that the Presiding or Assistant
Presiding Judge of the Orange County Superior Court appoint as referee a retired
Orange County Superior Court Judge from the aforementioned list.
     (c) Except as hereafter agreed by the parties, the referee shall apply the
internal law of California in deciding the issues submitted hereunder. Unless
formal pleadings are waived by agreement among the parties and the referee, the
moving party shall file and serve its complaint within 15 days from the date a
referee is designated as provided herein, and the other party shall have 15 days
thereafter in which to plead to said complaint. Each of the parties reserves its
respective rights to allege and assert in such pleadings all claims, causes of
action, contentions and defenses which it may have arising out of or relating to
the general subject matter of the Covered Dispute that is being determined
pursuant to the Reference Procedures. Reasonable notice of any motions before
the referee shall be given, and all matters shall be set at the convenience of
the referee. Discovery shall be conducted as the parties agree or as allowed by
the referee. Unless waived by each of the parties, a reporter shall be present
at all proceedings before the referee.
     (d) It is the parties’ intention by this Section 9 that all issues of fact
and law and all matters of a legal and equitable nature related to any Covered
Dispute will be submitted for determination by a referee designated as provided
herein. Accordingly, the parties hereby stipulate that a referee designated as
provided herein shall have all powers of a Judge of the Superior Court
including, without limitation, the power to grant equitable and interlocutory
and permanent injunctive relief.
     (e) Each of the parties specifically (i) consents to the exercise of
jurisdiction over his person by a referee designated as provided herein with
respect to any and all Covered Disputes; and (ii) consents to the personal
jurisdiction of the California courts with respect to any appeal or review of
the decision of any such referee.
     (f) Each of the parties acknowledges that the decision by a referee
designated as provided herein shall be a basis for a judgment as provided in CCP
Section 644 and shall be subject to exception and review as provided in CCP
Section 645.
     10. Notices. Any notice or communications required or permitted to be given
to the parties hereto shall be delivered personally or be sent by United States
registered or certified mail, postage prepaid and return receipt requested, and
addressed or delivered as follows, or at such other addresses the party
addressed may have substituted by notice pursuant to this Section:

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I-Flow Corporation
  James R. Talevich
20202 Windrow Drive
  27232 Lost Colt Drive
Lake Forest, California 92630
  Laguna Hills, California 92653
Attn: Chief Executive Officer
   

     11. Captions. The captions of this Agreement are inserted for convenience
and do not constitute a part hereof.
     12. Severability. In case any one or more of the provisions contained in
this Agreement shall for any reason be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provision had never
been contained herein and there shall be deemed substituted for such invalid,
illegal or unenforceable provision such other provision as will most nearly
accomplish the intent of the parties to the extent permitted by the applicable
law. In case this Agreement, or any one or more of the provisions hereof, shall
be held to be invalid, illegal or unenforceable within any governmental
jurisdiction or subdivision thereof, this Agreement or any such provision
thereof shall not as a consequence thereof be deemed to be invalid, illegal or
unenforceable in any other governmental jurisdiction or subdivision thereof.
     14. Attorneys’ Fees. In the event any party institutes any action or
proceeding to enforce any provision of this Agreement, the prevailing party
shall be entitled to receive from the losing party actual attorneys’ fees and
costs incurred in such action or proceeding.
     15. Further Assurances. Each party hereto shall promptly execute and
deliver such further instruments and take such further actions as the other
party may reasonably require or request in order to carry out the intent of this
Agreement.
     16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
together constitute one in the same Agreement.
     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered effective as of the day and year first written above
in Lake Forest, California.

                  I-FLOW CORPORATION       JAMES R. TALEVICH    
 
               
By:
  /s/ Donald M. Earhart       /s/ James R. Talevich    
 
               
 
  Name: Donald M. Earhart       James R. Talevich    
 
  Title: President & CEO            

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