Exhibit 10.38


 


CONFIDENTIAL SEPARATION AGREEMENT
AND GENERAL RELEASE


 


This
Confidential Separation Agreement and General Release (this “Agreement”) is
made and entered into by and between Biovail Corporation (“Biovail” or the
Company”) and Douglas John Paul Squires, Ph.D (“Dr. Squires”).


 


WHEREAS, Dr. Squires has been employed by Biovail
as its Chief Executive Officer pursuant to the terms of that certain amended
and restated executive employment agreement effective as of September 1,
2007 and executed December 5, 2007 (the “Employment Agreement”); and


 


WHEREAS, Dr. Squires also served as interim
Chairman of the Board of Directors of Biovail (the “Board”); and


 


WHEREAS, in connection with Biovail’s retention of a
new Chief Executive Officer, effective as of May 1, 2008, Dr. Squires
ceased to serve as Chief Executive Officer of the Company and effective as of May 6,
2008 (the “Termination Date”), Biovail involuntarily terminated Dr. Squires’
employment without cause in accordance with the applicable provisions of the
Employment Agreement; and


 


WHEREAS, in connection with Biovail’s termination of Dr. Squires’
employment he is entitled to certain separation payment and benefits pursuant
to the terms of his Employment Agreement, and in addition, Biovail desires to
provide Dr. Squires with certain additional benefits with respect to his
equity compensation awards, in each case, subject to Dr. Squires’
continued compliance with the restrictive covenants set forth in Article Four
of the Employment Agreement and his execution and 


 

















 


non-revocation of a
written waiver and release of all claims, demands and causes of action against
Biovail, as limited in paragraph 3 hereof; and


 


WHEREAS, although Dr. Squires’ employment has
been terminated, Dr. Squires was appointed by the Board as Chairman of the
Board effective May 1, 2008.


 


IT IS HEREBY AGREED, by and between Dr. Squires
and Biovail, as follows:


 


1.             In consideration of Dr. Squires’ execution and
non-revocation of this Agreement, Dr. Squires’ agreement to be legally bound
by its terms, and Dr. Squires’ undertakings as set forth herein, Biovail
agrees, in accordance with the terms of the Employment Agreement, to provide Dr. Squires
the following payments and benefits, subject to Dr. Squires’ continued
compliance with the restrictive covenants set forth in Article Four of the
Employment Agreement and Dr. Squires’ execution and non-revocation of this
Agreement:


 


(a)           a
lump sum payment of US $2,869,622.00 (which amount represents twenty-four (24)
months of the Executive’s base salary plus two (2) times Dr. Squires’
target level of annual compensation under Biovail’s Short Term Incentive Plan for
2007) minus applicable withholdings and deductions, within sixty (60) days of
the Termination Date (subject to the requirements of Section 10(f) below);


 


(b)           a
lump sum payment of US $352,500.00 (which amount represents a pro-rated portion
of the Executive’s target level of annual incentive compensation under the
Short Term Incentive Plan for 2008 based on his employment for the period January 1,
2008 through May 6, 2008 (rounded to the next highest number for a partial
month)), minus applicable withholdings and deductions, within thirty (30) days
of the Termination Date (subject to the requirements of Section 10(f) below).


 


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(c)           until the earlier of (i) the end of the
two (2) year period following Dr. Squires’ Termination Date or (ii) the
date, or dates, Dr. Squires is eligible to receive benefits under the same
type of plan of a subsequent employer (the “Benefit Period”), the Company shall pay to Dr. Squires (minus
applicable withholdings and deductions),
on the first payroll date of each month, the amount of the COBRA premium less
the amount of the active employee contribution for such coverage for the
Benefit Period.   The foregoing payments shall begin on the first payroll date following
the Termination Date and shall continue until the end of the Benefit Period.


 


(d)           With
respect to the restricted stock unit (“RSU”) grants held by Dr. Squires
immediately prior to the Termination Date that vest based upon the attainment
of performance criteria as listed on Schedule A (the “Performance
RSUs”), in connection with Dr. Squires’ termination of employment, 40,000 of
such Performance RSUs shall remain outstanding and shall vest on November 26,
2012 (the original vesting date for such Performance RSUs), as if Dr. Squires
had remained employed by the Company through that date, subject to the
attainment of the applicable performance criteria, as set out in the
Performance RSU agreement evidencing the terms of such Performance RSUs.  The remaining amount of such Performance RSUs
shall be cancelled and forfeited on the Termination Date.  Notwithstanding any provision of the
Performance RSU agreement evidencing the terms of such Performance RSUs or
Biovail’s 2007 Equity Compensation Plan (the “2007 Equity Compensation Plan”)
to the contrary, in no event shall Dr. Squires be entitled to dividend
equivalents under Section 5.5 of the 2007 Equity Compensation Plan, nor shall
any of the provisions of Sections 5.7, 5.8 or 5.9 of the 2007 Equity
Compensation Plan apply to the Performance RSUs described in this subparagraph
(d).  


 


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Except as provided in
this subparagraph (d), the Performance RSUs shall remain subject to the terms
of the 2007 Equity Compensation Plan in all respects.


 


(e)           With respect to the RSU grants held
by Dr. Squires immediately prior to the Termination Date that vest based
upon the passage of time as listed on Schedule A (the “Time-Based RSUs”),
in connection with Dr. Squires’ termination of employment, the Board shall
cause all outstanding Time-Based RSUs to become fully vested as of the
Termination Date and such Time-Based RSUs shall be paid within 30 days of the
Termination Date in accordance with the terms of the 2007 Equity Compensation
Plan and the Time-Based RSU agreements evidencing the terms of such Times-Based
RSUs.


 


(f)            All outstanding options held by Dr.
Squires immediately prior to the date of this Agreement as listed on Schedule
A hereto (the “Options”) shall remain outstanding and shall continue to be
governed by the terms of the Option agreements evidencing their terms and the
terms of the Option plan pursuant to which they were granted.  Notwithstanding anything to the contrary in
such Option agreements and such Option plans, in connection with Dr. Squires’
termination of employment, the Board has caused (i) all outstanding Options that
would have vested during the period beginning on the Termination Date through
June 1, 2010 to become fully vested and exercisable as of the Termination Date,
(ii) Dr. Squires to be treated as having “retired” (within the meaning of such
term under the applicable Option plan pursuant to which the Options were
granted) as of the Termination Date and (iii) the post-termination exercise
period under the Options to extend from the Termination Date through June 1,
2010.  Any 


 


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Options that are not vested
as of the Termination Date in accordance with the foregoing provisions of this
paragraph 1(f) shall be forfeited.


 


2.             Except
as set forth in this paragraph 2 and except for payments and benefits to which
he is entitled as set forth in paragraph 1 above, Dr. Squires expressly
agrees that he has been paid all remuneration owed to him as a result of Dr. Squires’
employment with Biovail, or the termination of that employment.  Whether or not Dr. Squires executes this
Agreement, Dr. Squires shall be paid for any accrued but unused vacation
days, and for previously submitted un-reimbursed business expenses (in
accordance with usual Company guidelines and practices), to the extent not
theretofore paid.  In addition, following
the Termination Date, Dr. Squires shall be entitled to receive vested
amounts payable to him under the Company’s 401(k) plan and other
retirement and deferred compensation plans, if any, in accordance with the
terms of such plans and applicable law. 
Except as specifically set forth herein, Dr. Squires’ participation
in all Biovail employee benefit plans and programs shall remain subject to the
terms and conditions of such plans as in effect from time to time and Dr. Squires
agrees that such terms and conditions are binding on himself and Biovail.


 


3.             Dr. Squires,
on behalf of himself, and Dr. Squires’ heirs, executors, administrators,
and/or assigns, does hereby RELEASE AND FOREVER
DISCHARGE Biovail,
together with its parents, subsidiaries, affiliates, predecessors, and
successor corporations and business entities, past, present and future, and its
and their agents, directors, members, officers, employees, shareholders,
insurers and reinsurers, and employee benefit plans (and the trustees,
administrators, fiduciaries, insurers, and reinsurers of such plans) past,
present and future, and their heirs, executors, 


 


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administrators,
predecessors, successors, and assigns (collectively, the “RELEASEES”),
of and from any and all legally waivable claims, causes of actions, suits,
lawsuits, debts, and demands whatsoever in law or in equity, known or unknown,
suspected or unsuspected, which Dr. Squires ever had, now has or which Dr. Squires’
heirs, executors administrators, or assigns hereafter may have from the
beginning of time to the date Dr. Squires executes this Agreement, and
including, without limitation, any claims arising from or relating to Dr. Squires’
employment relationship with Biovail, and the termination of such relationship,
including, without limitation, any claims arising under the Age Discrimination
in Employment Act (“ADEA”), Title VII of the Civil Rights Act of 1964 (“Title
VII”), the Americans with Disabilities Act (“ADA”), the Employee Retirement
Income Security Act (“ERISA”), the Family and Medical Leave Act (“FMLA”), Section 806
of the Sarbanes-Oxley Act (“SOX”), the New Jersey Law Against Discrimination (“NJLAD”),
the Conscientious Employee Protection Act (“CEPA”), the New Jersey Family Leave
Act, the New Jersey Equal Pay Act, the New Jersey Wage and Hour Law, the New
Jersey Wage Payment Act, the New Jersey Constitution, the common law of the
State of New Jersey, and any and all other federal, state, provincial or local
constitutional, statutory, regulatory, or common law causes of action now or
hereafter recognized, and any claims for attorneys’ fees and costs; provided
that the foregoing release shall not apply to any claims Dr. Squires may
have to enforce his rights under this Agreement and may have to indemnification
as an officer, director or employee of Biovail (or any affiliate thereof)
pursuant to the articles of incorporation or by-laws (or other governing
instruments) of Biovail (or any affiliate thereof) or any vested benefits to
which Dr. Squires may be entitled under any employee benefit plan of 


 


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Biovail
(or any affiliate thereof).  Nothing in
this Agreement shall waive rights or claims that may arise after the date this
Agreement is executed by Dr. Squires.


 


4.             Dr. Squires hereby agrees and recognizes that Dr. Squires’
employment relationship with Biovail has been completely severed as of the
Termination Date, and that neither Biovail nor the Releasees has any
obligation, contractual or otherwise, to hire, rehire or re-employ Dr. Squires
in the future.  The parties acknowledge
that the Board has appointed Dr. Squires as Chairman of the Board.


 


5.             Dr. Squires represents that Dr. Squires does
not have any lawsuits, claims, or charges pending against any of the
Releasees.  This Agreement is expressly
conditioned upon and contingent on the truth of Dr. Squires’
representations in this Agreement.


 


6.             Dr. Squires agrees and acknowledges that this
Agreement is not, and shall not be construed to be, an admission of any
violation of any federal, state, provincial or local statute, ordinance or
regulation, or of any duty owed by Releasees to Dr. Squires, or of any
wrongdoing to Dr. Squires by Releasees.


 


7.             Except as set forth herein, Dr. Squires
agrees not to make written or oral statements about Biovail or Releasees that
are negative or disparaging.  Nothing in
this Agreement shall preclude Dr. Squires from communicating or testifying
truthfully (a) to the extent required or protected by law, (b) to any
federal, state, provincial or local governmental agency, (c) in response
to a subpoena to testify issued by a court of competent jurisdiction, or (d) in
any action to challenge or enforce the terms of this Agreement.


 


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8.             Dr. Squires agrees, covenants
and promises that Dr. Squires has not communicated or disclosed, and shall
not hereafter communicate or disclose, the terms of this Agreement, or the
terms of the negotiations leading up to this Agreement, to any persons with the
exception of:  (a) members of Dr. Squires’
immediate family, Dr. Squires’ attorneys, accountants, tax, or financial
advisors, each of whom shall be informed of this confidentiality obligation and
shall agree to be bound by its terms; (b) to the Internal Revenue Service
or state or local taxing authority; (c) as is expressly required or
protected by law; or (d) in any action to challenge or enforce the terms
of this Agreement provided that such disclosure is protected from public
disclosure by an appropriate confidentiality order to the maximum extent
permitted by applicable authority.  Dr. Squires
agrees to be liable for any breach of this Paragraph by the individuals
identified in clause (a) above.  In
the event that Dr. Squires is required to disclose information protected
by this Paragraph pursuant to clause (c) above, Dr. Squires agrees to
notify via facsimile and U.S. Mail, and to provide a copy of any subpoena,
order or written inquiry to, Biovail, 7150 Mississauga Road, Mississauga,
Ontario, L5N 8M5, Attn: General Counsel, within three (3) business days of
becoming aware of the need for such disclosure.


 


9.             This Agreement
constitutes the entire agreement between Dr. Squires and Biovail with
respect to the subject matter hereof and supersedes all prior negotiations and
agreements, whether written or oral, relating to the subject matter hereof
including the Employment Agreement, except for that certain Standards of
Business Conduct Agreement by and between Biovail and Dr. Squires dated December 5,
2007, that certain Confidentiality Agreement by and between Biovail and Dr. Squires
dated December 5, 


 


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2007,
the Chairman Agreement between Biovail and Dr. Squires dated as of May 1,
2008 and Article Four of the Employment Agreement, which Dr. Squires
hereby acknowledges and agrees survive the termination of the Employment
Agreement and his employment with Biovail. 
Dr. Squires acknowledges that neither Biovail, the Releasees, nor
their agents or attorneys have made any promise, representation or warranty
whatsoever, express or implied, written or oral, other than the express written
representations herein.  Dr. Squires
agrees that this Agreement may not be altered, amended, modified, or otherwise
changed in any respect except by another written agreement signed by both Dr. Squires
and Biovail.


 


10.           Dr. Squires
further certifies and acknowledges that:


 


(a)          Dr. Squires has
read the terms of this Agreement and understands its terms and effects,
including the fact that Dr. Squires has agreed to RELEASE AND FOREVER
DISCHARGE the RELEASEES from any and all claims as set forth in Paragraph 3;


 


(b)         Dr. Squires has
signed this Agreement voluntarily and knowingly in exchange for the
consideration described herein, which Dr. Squires acknowledges is adequate
and satisfactory;


 


(c)          the payments, benefits,
promises and undertakings performed, and to be performed, as set forth herein
exceed and are greater than the payments and benefits, if any, to which Dr. Squires
would have been entitled had Dr. Squires not executed this Agreement;


 


(d)         Releasees have advised Dr. Squires,
through this document, to consult with an attorney concerning this Agreement
prior to signing this Agreement;


 


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(e)           Dr. Squires has
the right to consider this Agreement for a period of twenty-one (21) days from
receipt prior to entering into this Agreement and Dr. Squires has signed
on the date indicated below after concluding that the Agreement is satisfactory;
and


 


(f)            Dr. Squires has
the right to revoke this Agreement for a period of seven (7) calendar days
following Dr. Squires’ execution of this Agreement by giving written
notice to Biovail, 7150 Mississauga Road, Mississauga, Ontario, L5N 8M5, Attn:
General Counsel, and that this Agreement shall not be effective or enforceable
until this seven-day period has expired.  
In the event that Dr. Squires revokes this Agreement pursuant to
the terms of this Section 10(f), Dr. Squires shall be required to repay
to Biovail any amounts paid to Dr. Squires pursuant to Sections 1(a) and
(b) within five (5) business days of the date Dr. Squires
revokes this Agreement.


 


11.           This Agreement is intended to comply
with the applicable provisions of section 409A of the Code and shall be
interpreted to avoid any penalty sanctions under section 409A of the Code.  If any payment or benefit cannot be provided
or made at the time specified herein without incurring sanctions under section
409A of the Code, then such benefit or payment shall be provided in full at the
earliest time thereafter when such sanctions shall not be imposed.  For purposes of section 409A of the Code, all
payments to be made upon a termination of employment under this Agreement may
only be made upon a “separation from service” under section 409A of the Code,
each payment made under this Agreement shall be treated as a separate payment
and the right to a series of installment payments under this Agreement shall be
treated as a right to a series of 


 


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separate payments.  In no event shall Dr. Squires, directly
or indirectly, designate the calendar year of payment.


 


Notwithstanding the
provisions of paragraph 1 above, if at the time of the Squires’ “separation
from service” (as such term is defined in section 409A of the Code) the Company
has securities which are publicly-traded on an established securities market
and Dr. Squires is a “specified employee” (as such term is defined in
section 409A of the Code) and it is necessary to postpone the commencement of
any severance payments otherwise payable pursuant to this Agreement as a result
of such separation from service to prevent any accelerated or additional tax
under section 409A of the Code, then the Company shall postpone the
commencement of the payment of any such payments or benefits hereunder (without
any reduction in such payments or benefits ultimately paid or provided to Dr. Squires)
that are not otherwise
paid within the “short-term deferral exception” under Treas. Reg.
section 1.409A-1(b)(4) and/or the “separation pay exception” under Treas.
Reg. section 1.409A-1(b)(9)(iii), until the first payroll date that occurs
after the date that is six (6) months following Dr. Squires’
separation from service with the Company. 
If any payments are postponed due to such requirements, such postponed
amounts shall be paid in a lump sum to Dr. Squires, and any installment
payments due to Dr. Squires shall recommence, on the first payroll date that occurs after the date that
is six (6) months following the Dr. Squires’ “separation from service”
with the Company.  If Dr. Squires
dies during the postponement period prior to the payment of the postponed
amount, the amounts postponed on account of section 409A of the Code shall be
paid to the personal representative of Dr. Squires’ estate within sixty
(60) days after the date of the Dr. Squires’ death.


 


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All reimbursements and in
kind benefits provided under this Agreement shall be made or provided in
accordance with the requirements of section 409A of the Code, including, where
applicable, the requirement that (i) any reimbursement is for expenses
incurred during Dr. Squires’ lifetime (or during a shorter period of time
specified in this Agreement), (ii) the amount of expenses eligible for
reimbursement, or in kind benefits provided, during a calendar year may not
affect the expenses eligible for reimbursement, or in kind benefits to be
provided, in any other calendar year, (iii) the reimbursement of an
eligible expense shall be made on or before the last day of the calendar year
following the year in which the expense is incurred, and (iv) the right to
reimbursement or in kind benefits is not subject to liquidation or exchange for
another benefit.


 


[SIGNATURE
PAGE FOLLOWS]


 


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IN WITNESS WHEREOF, and
intending to be legally bound hereby, Biovail hereby executes the foregoing
Confidential Separation Agreement and General Release.


 


	
  BIOVAIL CORPORATION

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Wendy Kelley

  	
   

  
	
  Name:

  	
  Wendy Kelley

  	
   

  
	
  Title:

  	
  Senior Vice-President,
  General

  	
   

  
	
   

  	
  Counsel and Corporate
  Secretary

  	
   

  
	
   

  	
   

  	
   

  
	
  Date:

  	
  May 6, 2008

  	
   

  



 


IN WITNESS WHEREOF, and
intending to be legally bound hereby, Dr. Squires hereby executes the
foregoing Confidential Separation Agreement and General Release.


 


 


	
   

  	
   

  	
  SIGNED, SEALED AND DELIVERED

  
	
   

  	
   

  	
  in the presence of:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  /s/ Douglas
  John Paul Squires

  	
   

  	
  /s/
  Mark A. Durham

  
	
  Douglas John Paul
  Squires

  	
   

  	
  Witness

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Date: 

  	
  May 6, 2008

  	
   

  	
  Date: 

  	
  May 6, 2008

  
					



 


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SCHEDULE A


 


LIST OF
PERFORMANCE RSUs, TIME-BASED RSUs AND OPTIONS


 


Performance RSUs
– 129,174 outstanding


 


Time-Based RSUs
– 9,688 outstanding


 


Options
– 612,550 outstanding


 


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