Exhibit 10.1

 

DEPOMED, INC.

 

MANAGEMENT CONTINUITY AGREEMENT

 

This Management Continuity Agreement (the “Agreement”) is dated as of [date],
[year] by and between                 (“Employee”) and Depomed, Inc., a
California corporation (the “Company”).

 

RECITALS

 

A.                                   It is expected that another company
may from time to time consider the possibility of acquiring the Company or that
a change in control may otherwise occur, with or without the approval of the
Company’s Board of Directors. The Board of Directors recognizes that such
consideration can be a distraction to Employee and can cause Employee to
consider alternative employment opportunities. The Board of Directors has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication and objectivity of
the Employee, notwithstanding the possibility, threat or occurrence of a Change
of Control (as defined below) of the Company.

 

B.                                     The Company’s Board of Directors believes
it is in the best interests of the Company and its shareholders to retain
Employee and provide incentives to Employee to continue in the service of the
Company.

 

C.                                     The Board of Directors further believes
that it is imperative to provide Employee with certain benefits upon certain
termination of Employee’s employment in connection with a Change of Control,
which benefits are intended to provide Employee with financial security and
provide sufficient income and encouragement to Employee to remain with the
Company, notwithstanding the possibility of a Change of Control.

 

D.                                    To accomplish the foregoing objectives,
the Board of Directors has directed the Company, upon execution of this
Agreement by Employee, to agree to the terms provided in this Agreement.

 

Now therefore, in consideration of the mutual promises, covenants and agreements
contained herein, and in consideration of the continuing employment of Employee
by the Company, the parties hereto agree as follows:

 

1.                                       At-Will Employment. The Company and
Employee acknowledge that Employee’s employment is and shall continue to be
at-will, as defined under applicable law, and that Employee’s employment with
the Company may be terminated by either party at any time for any or no reason.
If Employee’s employment terminates for any reason, Employee shall not be
entitled to any payments, benefits, damages, award or compensation other than as
provided in this Agreement or otherwise agreed to by the Company. The terms of
this Agreement shall terminate upon the earliest of: (i) the date on which
Employee ceases to be employed as an corporate officer of the Company, other
than as a result of an Involuntary Termination, (ii) the date that all
obligations of the parties hereunder have been satisfied (iii) one (1) year
after a Change of Control or (iv) the second anniversary of the Effective Date
(or, if later in the case of

 

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subclause (iv), the later to occur of (x) the termination of any Pending Change
of Control (as defined below) and (y) one year after the completion of any
Pending Change of Control). A termination of the terms of this Agreement
pursuant to the preceding sentence shall be effective for all purposes, except
that such termination shall not affect the payment or provision of compensation
or benefits on account of a termination of employment occurring prior to the
termination of the terms of this Agreement. The rights and duties created by
this Section 1 are contingent upon the Employee’s release of claims against the
Company (at the time of termination in a form reasonably satisfactory to the
Company) and may not be modified in any way except by a written agreement
executed by an officer of the Company upon direction from the Board of
Directors. The “Effective Date” for purposes of this Agreement is May 15, 2006.

 

2.                                       Benefits Upon a Change of Control;
Termination of Employment.

 

(a)                                  Treatment of Stock Options Upon a Change of
Control. In the event of Employee suffers an Involuntary Termination within
twelve months following the effective date of a Change of Control 100% of
Employee’s  unvested Company option shares shall become immediately vested on
such termination date. Each such option shall be exercisable in accordance with
the provisions of the option agreement and plan pursuant to which such option
was granted.

 

(b)                                 Severance. In the event that Employee
suffers an Involuntary Termination at any time within twelve months following
the effective date of a Change of Control, Employee will be entitled to receive
severance benefits as follows:  (A) severance payments during the period from
the date of Employee’s termination until the date [insert “24 months” if the
Employee is the Chief Executive Officer] [insert “18 months” if the Employee is
the Chief Operating Officer] [insert “12 months” if the Employee is not the
Chief Executive Officer or Chief Operating Officer] months after the effective
date of the termination (the “Severance Period”) equal to the base salary which
Employee was receiving immediately prior to the Change of Control, which
payments shall be paid during the Severance Period in accordance with the
Company’s standard payroll practices, (B) a lump sum payment as soon as
practicable after the date of termination of employment [insert “equal to two
times” if the Employee is the Chief Executive Officer] [insert “equal to one and
one-half times” if the Employee is the Chief Operating Officer] [insert “equal
to” if the Employee is not the Chief Executive Officer or Chief Operating
Officer] Employee’s average annual bonus paid for the Company’s fiscal years (up
to three) immediately preceding the Company’s fiscal year in which the
termination occurs and (C) continuation of payment by the Company of its portion
of the health insurance benefits provided to Employee immediately prior to the
Change of Control pursuant to the terms of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended (“COBRA”) or other applicable law through
the earlier of the end of the Severance Period or the date upon which Employee
is no longer eligible for such COBRA or other benefits under applicable law. In
addition, Employee will receive payment(s) for all salary, bonuses and unpaid
vacation accrued as of the date of Employee’s termination of employment.

 

(c)                                  Termination for Cause. If Employee’s
employment is terminated for Cause at any time, then Employee shall not be
entitled to receive payment of any severance benefits or option acceleration.
Employee will receive payment(s) for all salary, bonuses and unpaid vacation
accrued as of the date of Employee’s termination of employment.

 

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(d)                                 Voluntary Resignation. If Employee
voluntarily resigns from the Company under circumstances which do not constitute
an Involuntary Termination, then Employee shall not be entitled to receive
payment of any severance benefits or option acceleration. Employee will receive
payment(s) for all salary, bonuses and unpaid vacation accrued as of the date of
Employee’s termination of employment.

 

3.                                       Definition of Terms. The following
terms referred to in this Agreement shall have the following meanings:

 

(a)                                  Change of Control; Pending Change of
Control. “Change of Control” shall mean any event so determined by the Board of
Directors pursuant to Section 10.4 of the Company’s 2004 Equity Incentive Plan.
“Pending Change of Control” shall mean any Change of Control with respect to
which the Company enters into a definitive agreement prior to the second
anniversary of the Effective Date which has not been completed or terminated as
of the second anniversary of the Effective Date. Pending Change of Control shall
include any Change of Control with respect to which the Company enters into a
binding agreement within thirty days after the termination of any other Pending
Change of Control.

 

(b)                                 Cause. “Cause” shall mean (i) gross
negligence or willful misconduct in the performance of Employee’s duties to the
Company where such gross negligence or willful misconduct has resulted or is
likely to result in substantial and material damage to the Company or its
subsidiaries (ii) repeated unexplained or unjustified absence from the Company,
(iii) a material and willful violation of any federal or state law;
(iv) commission of any act of fraud with respect to the Company or
(v) conviction of a felony or a crime involving moral turpitude causing material
harm to the standing and reputation of the Company, in each case as determined
in good faith by the Board of Directors.

 

(c)                                  Involuntary Termination. “Involuntary
Termination” shall include any termination by the Company other than for Cause
and Employee’s voluntary termination, upon 30 days prior written notice to the
Company, following (i) a material reduction or change in job duties,
responsibilities and requirements inconsistent with the Employee’s position with
the Company and the Employee’s prior duties, responsibilities and requirements
or a change in Employee’s reporting relationship; (ii) any reduction of
Employee’s base compensation (other than in connection with a general decrease
in base salaries for most officers of the successor corporation); or
(iii) Employee’s refusal to relocate to a facility or location more than 30
miles from the Company’s current location.

 

4.                                       Limitation on Payments. In the event
that the severance and other benefits provided for in this Agreement to the
Employee (i) constitute “parachute payments” within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended (the “Code”) and (ii) but for
this Section, would be subject to the excise tax imposed by Section 4999 of the
Code, then the Employee’s severance benefits under Sections 2(a) and 2(b) shall
be payable either:

 

(a)                                  in full, or

 

(b)                                 as to such lesser amount which would result
in no portion of such severance benefits being subject to excise tax under
Section 4999 of the Code, whichever of the

 

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foregoing amounts, taking into account the applicable federal, state and local
income taxes and the excise tax imposed by Section 4999, results in the receipt
by the Employee on an after-tax basis, of the greatest amount of severance
benefits under Section 2(a) and 2(b), notwithstanding that all or some portion
of such severance benefits may be taxable under Section 4999 of the Code. Unless
the Company and the Employee otherwise agree in writing, any determination
required under this Section 4 shall be made in writing by independent public
accountants selected by the Company (the “Accountants”), whose determination
shall be conclusive and binding upon the Employee and the Company for all
purposes. For purposes of making the calculations required by this Section 4,
the Accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of Section 280G and 4999 of the Code. The Company and
the Employee shall furnish to the Accountants such information and documents as
the Accountants may reasonably request in order to make a determination under
this Section. The Company shall bear all costs the Accountants may reasonably
incur in connection with any calculations contemplated by this Section 4.

 

5.                                       Conflicts. Employee represents that
Employee’s performance of all the terms of this Agreement will not breach any
other agreement to which Employee is a party. Employee has not, and will not
during the term of this Agreement, enter into any oral or written agreement in
conflict with any of the provisions of this Agreement. Employee further
represents that Employee is entering into or has entered into an employment
relationship with the Company of Employee’s own free will and that Employee has
not been solicited as an employee in any way by the Company.

 

6.                                       Successors. Any successor to the
Company (whether direct or indirect and whether by purchase, lease, merger,
consolidation, liquidation or otherwise) to all or substantially all of the
Company’s business and/or assets shall assume the obligations under this
Agreement and agree expressly to perform the obligations under this Agreement in
the same manner and to the same extent as the Company would be required to
perform such obligations in the absence of a succession. The terms of this
Agreement and all of Employee’s rights hereunder and thereunder shall inure to
the benefit of, and be enforceable by, Employee’s personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.

 

7.                                       Notice. Notices and all other
communications contemplated by this Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by U.S.
registered or certified mail, return receipt requested and postage prepaid.
Mailed notices to Employee shall be addressed to Employee at the home address
which Employee most recently communicated to the Company in writing. In the case
of the Company, mailed notices shall be addressed to its corporate headquarters,
and all notices shall be directed to the attention of its Secretary.

 

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8.                                       Miscellaneous Provisions.

 

(a)                                  No Duty to Mitigate. Employee shall not be
required to mitigate the amount of any payment contemplated by this Agreement
(whether by seeking new employment or in any other manner), nor shall any such
payment be reduced by any earnings that Employee may receive from any other
source.

 

(b)                                 Waiver. No provision of this Agreement shall
be modified, waived or discharged unless the modification, waiver or discharge
is agreed to in writing and signed by Employee and by an authorized officer of
the Company (other than Employee). No waiver by either party of any breach of,
or of compliance with, any condition or provision of this Agreement by the other
party shall be considered a waiver of any other condition or provision or of the
same condition or provision at another time.

 

(c)                                  Whole Agreement. No agreements,
representations or understandings (whether oral or written and whether express
or implied) which are not expressly set forth in this Agreement have been made
or entered into by either party with respect to the subject matter hereof. This
Agreement supersedes any agreement of the same title and concerning similar
subject matter dated prior to the Effective Date, and by execution of this
Agreement both parties agree that any such predecessor agreement shall be deemed
null and void.

 

(d)                                 Choice of Law. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws of
the State of California without reference to conflict of laws provisions.

 

(e)                                  Severability. If any term or provision of
this Agreement or the application thereof to any circumstance shall, in any
jurisdiction and to any extent, be invalid or unenforceable, such term or
provision shall be ineffective as to such jurisdiction to the extent of such
invalidity or unenforceability without invalidating or rendering unenforceable
the remaining terms and provisions of this Agreement or the application of such
terms and provisions to circumstances other than those as to which it is held
invalid or unenforceable, and a suitable and equitable term or provision shall
be substituted therefor to carry out, insofar as may be valid and enforceable,
the intent and purpose of the invalid or unenforceable term or provision.

 

(f)                                    Arbitration. Any dispute or controversy
arising under or in connection with this Agreement may be settled at the option
of either party by binding arbitration in the County of Santa Clara, California,
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator’s  award in any court having
jurisdiction. Punitive damages shall not be awarded.

 

(g)                                 Legal Fees and Expenses. The parties shall
each bear their own expenses, legal fees and other fees incurred in connection
with this Agreement.

 

(h)                                 No Assignment of Benefits. The rights of any
person to payments or benefits under this Agreement shall not be made subject to
option or assignment, either by voluntary or involuntary assignment or by
operation of law, including (without limitation)

 

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bankruptcy, garnishment, attachment or other creditor’s process, and any action
in violation of this Section 8(h) shall be void.

 

(i)                                     Employment Taxes. All payments made
pursuant to this Agreement will be subject to withholding of applicable income
and employment taxes.

 

(j)                                     Assignment by Company. The Company
may assign its rights under this Agreement to an affiliate, and an affiliate
may assign its rights under this Agreement to another affiliate of the Company
or to the Company. In the case of any such assignment, the term “Company” when
used in a section of this Agreement shall mean the corporation that actually
employs the Employee.

 

(k)                                  Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an original, but all of
which together will constitute one and the same instrument.

 

[SIGNATURE PAGE FOLLOWS]

 

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The parties have executed this Agreement on the date first written above.

 

 

DEPOMED, INC.

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

EMPLOYEE

 

 

 

[                                ]

 

 

 

 

 

Signature:

 

 

 

 

 

Address:

 

 

 

 

 

 

 

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