exv10w77






Exhibit 10.77




AMENDED AND RESTATED EMPLOYMENT AGREEMENT



AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”), dated as of December 19, 2008 (the
“Effective Date”), between Questcor Pharmaceuticals, Inc., a California corporation (the
“Company”), and Don Bailey (“Executive”).




W I T N E S S E T H:



WHEREAS, Executive has been employed by the Company pursuant to an Employment Agreement dated June
2, 2008 (the “Employment Agreement”), and the Company and Executive desire to amend and restate the
terms of the Employment Agreement in order that the terms of the Employment Agreement comply with
Section 409A of the Internal Revenue Code and the regulations promulgated thereunder.



NOW, THEREFORE, in consideration of the mutual covenants herein contained, the Company and
Executive hereby agree as follows:




     1. Employment.



          (a) Agreement to Employ. Upon the terms and subject to the conditions of this
Agreement, the Company hereby agrees to employ Executive and Executive hereby agrees to be employed
by the Company under the terms of this Agreement, effective as of the Effective Date.




          (b) Term of Employment. Executive’s employment with the Company pursuant to this
Agreement shall commence on the Effective Date and shall continue for an indefinite period of time
until terminated as provided in Section 5 hereof (the “Employment Period”).




     2. Duties and Responsibilities. During the Employment Period, Executive shall serve as
President and Chief Executive Officer of the Company and shall have duties and responsibilities as
may be assigned to him from time to time by the Board of Directors of the Company (the “Board”);
provided, however, that the Board shall delegate to Executive duties and responsibilities
consistent with the duties and responsibilities of a chief executive officer. Executive shall
report directly to the Board and shall comply with directives of the Board and all policies of the
Company. Executive shall devote all of his skill and knowledge and all of his working time (other
than periods of vacation, illness or disability) to the business of the Company. During the
Employment Period, Executive shall not serve as an employee, officer, director, or consultant of,
or otherwise perform services for compensation for, any other entity without the prior written
consent of the Board; provided that Executive may serve as an officer or director
of or otherwise participate in purely not-for-profit educational, welfare, social, religious and
civic organizations so long as such activities do not interfere with Executive’s employment
hereunder. The Company acknowledges that Executive currently serves on the board of directors of
the entities set forth on Schedule 2, and the Board hereby consents to Executive’s continued
service on these boards.



     3. Board Membership; Post-Employment Option Vesting. Upon the termination of
Executive’s employment (including, without limitation, a termination by the Company with or



 









 







Without Cause (as hereinafter defined) or termination by Executive for Good Reason (as
hereinafter defined), if Executive is a member of the Company’s Board at the time of such
termination, he shall immediately tender to the Board his written and signed resignation from the
Board, which resignation shall be effective immediately. If Executive desires to remain on the
Board following the termination of his employment, he shall condition his resignation solely on the
Board’s acceptance thereof and the Board shall in its sole discretion decide whether or not to
accept the resignation. If the Board does not accept the resignation, then Executive shall continue
to serve as a member of the Board and any stock options or restricted shares held by Executive
shall continue to vest in accordance with their terms for so long as Executive remains on the
Board. If Executive fails to tender his resignation from the Board in accordance with this Section
3 or if the Board accepts his resignation, then Executive’s stock options will stop vesting as of
the date Executive’s employment was terminated.



     4. Compensation and Benefits.



          (a) Base Salary. During the Employment Period, the Company shall pay Executive a base
salary at the annual rate of $525,000, subject to review and change by the Board at its discretion,
which will be paid in a manner consistent with the Company’s customary payroll practices.
Executive’s annual base salary payable hereunder is referred to herein as “Base Salary”.



          (b) Annual Bonus. In addition to Base Salary, Executive shall be eligible to receive
a discretionary annual cash bonus (the “Cash Bonus”) in accordance with the Company’s “Incentive
Compensation Policy and Process” (as such may be amended or replaced from time to time), in an
amount up to a target percentage of Base Salary, which target percentage shall be set annually by
the Board. For the year ending December 31, 2008, the target percentage is sixty-five percent
(65%). The actual amount of any year end Cash Bonus will be determined by and within the discretion
of the Board, and the Cash Bonus shall be paid on or before the fifteenth (15th) day after the
completion of the external audit of the Company’s financial statements for the period for which the
Cash Bonus relates, provided, however, it is the Company’s intent that the Board’s determination
shall be completed and, if applicable, the Cash Bonus shall be paid, no later than December 31 of
the calendar year following the calendar year to which such Cash Bonus relates.



          (c) Equity Incentive Compensation. In addition to Base Salary and the discretionary
Cash Bonus, Executive shall be eligible to receive stock option awards and grants of restricted
stock under the Company’s equity incentive plans, as determined from time to time by the Board.



          (d) Employee Benefit/Plan Participation. During the Employment Period, Executive
shall be eligible, but shall not be required, to participate in various employee benefit plans
sponsored or maintained by the Company in accordance with the terms and conditions of such plans,
including those related to medical, dental, disability, and life insurance. Executive recognizes
that the Company has the right, in its sole discretion, to amend, modify or terminate any employee
benefit plans in accordance with their terms.



          (e) Business Expenses. Subject to the Company’s reimbursement policies and procedures,
the Company shall reimburse Executive for all reasonable and necessary expenses incurred in the
performance of Executive’s duties hereunder, upon presentation of expense statements or vouchers,
receipts, and such other information and documentation as the Company may require. Any amounts
payable under this Section 4(e) 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. The amounts



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provided under this Section 4(e) during any taxable year of Executive will not affect such
amounts provided in any other taxable year of Executive, and Executive’s right to reimbursement for
such amounts shall not be subject to liquidation or exchange for any other benefit.



     5. Termination of Employment.



          (a) Termination of the Employment Period. The Employment Period shall end if
Executive’s employment with the Company terminates with or without Cause at the election of either
Executive or the Company, or as a result of Executive’s death or Disability (“Disability” shall
mean a physical or mental impairment that renders Executive unable to perform the essential
functions of his position, with or without reasonable accommodation). In any such event, the
Employment Period shall end and, except as otherwise provided herein, including with respect to the
ongoing post-employment restrictions and covenants contained in Section 12, this Agreement shall
terminate upon the effective date of such termination.




          (b) Termination by the Company With or Without Cause. The Company may terminate
Executive’s employment at any time during the Employment Period with or without Cause effective
immediately upon delivery of a Notice of Termination to Executive. Subject to the immediately
following sentence “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, 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
terms of this Agreement or any 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, whether as an employee, consultant or director, while an
employee of the Company without the prior written consent of the Board (unless permitted by Section
2). Following a Change in Control (as defined in Section 7(c) below), “Cause” shall not include
Executive’s acts or omissions contemplated by clause (i) in the immediately preceding sentence and
shall only include those acts and omissions set forth in (ii) through (vi) above. 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) (but excluding clause (i)
following a Change in Control) above, or for no reason at all but not including a termination of
the Employment Period as a result of death or Disability, shall be deemed a “Termination Without
Cause.”




          (c) Voluntary Termination by Executive. Executive may voluntarily terminate his
employment with the Company upon 30 days written notice to the Company.




          (d) 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 decreases Executive’s Base
Salary below $400,000, (ii) the Company decreases Executive’s Annual Bonus target percentage to
below 50% of Base Salary, (iii) the Company materially decreases Executive’s responsibilities, or
(iv) the Company materially breaches the terms of this Agreement; provided that no such event shall
constitute Good Reason hereunder unless (a) Executive shall have



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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, and (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.




          For purposes of clause (iii) above, a material decrease in Executive’s responsibilities shall
include, without limitation, a situation where Executive was no longer serving as the sole Chief
Executive Officer of the Company’s parent corporation.




          (e) 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. The Company may also communicate its Notice of Termination verbally, in
accordance with Section 14(g). 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 5 under which such termination is being effected.




          (f) 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 business expenses contemplated by
Section 4(e) and other insurance related reimbursable expenses, and (iv) any amounts required under
the Company’s Employee Stock Purchase Plan (or successor plans).




     6. 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 5(f) and subject to Section 8 and
Section 10, provided that Executive has resigned from the Board as contemplated by Section 3 and is
in compliance with his obligations under Section 12, in the event the Employment Period ends by
reason of termination of Executive’s employment by the Company Without Cause or by Executive for
Good Reason, the Company shall (i) in accordance with Section 4(b), 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, (ii) continue to make Base Salary payments for a period 12 months following such termination
of employment (the period of time such payments are provided, the “Severance Period”), payable over
such 12 month period on the regular payroll dates of the Company in accordance with the Company’s
payroll practices as in effect on such 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 10, 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 6(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 8 below), Executive has executed an effective Release Agreement and any applicable
revocation period has expired. Each installment payment made pursuant to this Section 6(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



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Section 1.409A-2(b)(2)(iii)). In the event the Employment Period ends on or prior to December
31, 2009 by reason of termination of Executive’s employment by the Company Without Cause or by
Executive for Good Reason, subject to Section 10, Executive shall receive a pro rata portion (based
upon the number of complete months within the fiscal year that shall have elapsed through the date
of Executive’s termination of employment) of any Annual Bonus that the Board determines Executive
would otherwise have received pursuant to Section 4(b) hereof for that calendar year had Executive
been employed through the end of the year, which will be payable when and if such Annual Bonus
would otherwise have been payable in accordance with Section 4(b) had Executive’s employment not
terminated, provided again that Executive resigned from the Board immediately as contemplated by
Section 3 and has been in compliance with his obligations under Section 12 from the date of
termination through such payment dates. Notwithstanding the foregoing, Executive shall not be
entitled to any pro-rated bonus unless the date of termination is after the first six months of the
fiscal year in which it occurs. During the Severance Period, the Company shall continue to pay
health insurance premiums for continued health insurance coverage for Executive and his currently
insured dependents, provided that Executive makes a timely election to continue such coverage under
COBRA and is not otherwise eligible for health insurance through any subsequent employer. If the
termination is a result of Executive’s death or Disability, then Executive’s currently insured
dependents shall upon their timely election be eligible to receive continued benefits pursuant to
COBRA.




          (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 6 shall be decreased by the amount of
the annual compensation received by Executive from the new employer.




     7. 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 Section 13 of the
Company’s 2006 Equity Incentive Award Plan (the “2006 Plan”), other than Sections 12.2(a) and
12.2(e) of the 2006 Plan, in the event that a Change in Control (as defined in the 2006 Plan)
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. The Company shall cause each option agreement evidencing the grant of stock
options to Executive under the 2006 Plan (and successors to such plan) to reflect the accelerated
vesting provisions set forth in this Agreement.




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          (c) Cash Severance Upon Termination Without Cause or for Good Reason. Subject to
Section 8 below, in the event that a Change in Control 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, Executive will receive severance
compensation equal to the sum of (i) an amount equal to the product of his highest Base Salary in
the calendar year in which the Change in Control occurs (but in no event less than $400,000)
multiplied by the number two (2), plus (ii) an amount equal to the product of 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, but in no event using less than a 50% target percentage to establish the target bonus)
multiplied by the number two (2), payable in accordance with Section 7(d) below.




          For purposes of this Section 7(c), “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:



                    (x) 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;



                    (y) 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



                    (z) 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



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“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, and




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               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) Payment Administration. Subject to Section 8, the severance payment under Section
7(c) shall be made in a single lump sum on the release effective date of the Release Agreement
referenced in Section 10; provided, however, no amount shall be paid pursuant to this Section 7(d)
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 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 7(c) shall be in
addition to the payments under Section 5(f) 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 6
of this Agreement.



          (e) 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 7.



     8. Section 409A Payment Delay.



          (a) Payment Delay. Notwithstanding anything herein to the contrary, to the extent any
payments to Executive pursuant to Sections 6, 7, 9 or 11 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 “Separation from Service”), and (ii) if Executive, at the time of
his Separation from Service, is determined by the Company to be a “specified employee” for purposes
of Section 409A(a)(2)(B)(i) of the Code and the Company determines that delayed commencement of any
portion of the termination benefits payable to Executive pursuant to this Agreement is required in
order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code (any such
delayed commencement, a “Payment Delay”), then such portion of the Executive’s termination benefits
described in Section 6, 7, 9 or 11, as the case may be, shall not be provided to Executive prior to
the earlier of (A) the expiration of the six-month period measured from the date of the Executive’s
Separation from Service, (B) the date of the Executive’s death or (C) such earlier date as is
permitted under Section 409A. Upon the expiration of the applicable Code Section 409A(a)(2)(B)(i)
deferral period, all payments deferred pursuant to a Payment Delay shall be paid in a lump sum to
Executive within 30 days following such expiration, and any remaining payments due under the
Agreement shall be paid as otherwise provided herein. The determination of whether Executive is a
“specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of his
Separation from Service shall made by the Company in accordance with the terms of Section 409A of
the Code and applicable guidance thereunder (including without limitation Treasury Regulation
Section 1.409A-1(i) and any successor provision thereto).



          (b) Exceptions to Payment Delay. Notwithstanding Section 8(a), to the maximum extent
permitted by applicable law, amounts payable to Executive pursuant to Section 6, 7, 9 or 11, as the
case may be, shall be made in reliance upon Treasury Regulation Section 1.409A-1(b)(9) (with



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respect to separation pay plans) or Treasury Regulation Section 1.409A-1(b)(4) (with respect
to short-term deferrals). Accordingly, the severance payments provided for in Section 6, 7, 9 and
11 are not intended to provide for any deferral of compensation subject to Section 409A of the Code
to the extent (i) the severance payments payable pursuant to Section 6, 7, 9 or 11, as the case may
be, by their terms and determined as of the date of Executive’s Separation from Service, may not be
made later than the 15th day of the third calendar month following the later of (A) the end of the
Company’s fiscal year in which Executive’s Separation from Service occurs or (B) the end of the
calendar year in which Executive’s Separation from Service occurs, or (ii) (A) such severance
payments do not exceed an amount equal to two times the lesser of (1) the amount of Executive’s
annualized compensation based upon Executive’s annual rate of pay for the calendar year immediately
preceding the calendar year in which Executive’s Separation from Service occurs (adjusted for any
increase during the calendar year in which such Separation from Service occurs that would be
expected to continue indefinitely had Executive remained employed with the Company) or (2) the
maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17)
for the calendar year in which Executive’s Separation from Service occurs, and (B) such severance
payments shall be completed no later than December 31 of the second calendar year following the
calendar year in which Executive’s Separation from Service occurs.



          (c) Interpretation. To the extent the payments and benefits under this Agreement are
subject to Section 409A of the Code, this Agreement shall be interpreted, construed and
administered in a manner that satisfies the requirements of Sections 409A(a)(2), (3) and (4) of the
Code and the Treasury Regulations thereunder (and any applicable transition relief under Section
409A of the Code).



     9. Excise Tax Gross-Up.



          (a) Definitions. For purposes of this Section 9, the following terms shall have the
meanings set forth below:



               (i) “Excise Tax” shall mean the Excise Tax imposed by Section 4999 of the Code, together with
any interest or penalties imposed with the respect to such Excise Tax.



               (ii) “Parachute Value” of a Payment shall mean the present value as of the date of the Change
of Control for purposes of Section 280G of the Code of the portion of such Payment that constitutes
a “parachute payment” under Section 280G(b)(2), as determined by the Accounting Firm (as defined
below) for purposes of determining whether and to what extent the Excise Tax will apply to such
Payment.



               (iii) A “Payment” shall mean 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 Executive, whether paid or
payable pursuant to this Agreement or otherwise.



               (iv) The “Safe Harbor Amount” means 2.99 times Executive’s “base amount,” within the meaning
of Section 280G(b)(3) of the Code.



               (v) “Value” of a Payment shall mean the economic present value of a Payment as of the date of
the Change of Control for purposes of Section 280G of the Code, as determined by the Accounting
Firm using the discount rate required by Section 280G(d)(4) of the Code.



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          (b) Anything in this Agreement to the contrary notwithstanding and except as set forth below,
in the event it shall be determined that any Payment would be subject to the Excise Tax, then
Executive shall be entitled to receive an additional payment (“Gross-Up Payment”) in an amount such
that, after payment by Executive of all taxes (and any interest or penalty imposed with respect to
such taxes), including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments; provided,
however, that if the aggregate Parachute Value of all Payments does not exceed 125% of the Safe
Harbor Amount, then no Gross-Up Payment shall be made to the Executive and the amounts payable
under this Agreement shall be reduced so that the Parachute Value of all Payments, in the
aggregate, equals the Safe Harbor Amount. The reduction of the amounts payable hereunder, if
applicable, shall be made by first reducing the Payments which are cash and thereafter the noncash
Payments, unless Executive shall elect another method of reduction by written notice to the Company
prior to the Change of Control.



          (c) Subject to the provisions of Section 9(e), all determinations required to be made under
this Section 9, including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be
made by a nationally recognized accounting firm designated by the Company immediately prior to the
Change of Control (the “Accounting Firm”) which shall provide detailed supporting calculations both
to the Company and Executive within fifteen (15) business days of the receipt of notice from
Executive that there has been a Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Company shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). Any determination by the Accounting Firm shall be
binding upon the Company and Executive. All fees and expenses of the Accounting Firm shall be borne
solely by the Company.



          (d) Subject to Section 8 above, any Gross-Up Payment, as determined pursuant to this Section
9, shall be paid by the Company to Executive as and when the Excise Tax is incurred on a Payment,
provided, however, such date shall be no later than the end of Executive’s taxable year following
the taxable year in which the Executive remits payment of the Excise Tax (as provided in Treasury
Regulation Section 1.409A-3(i)(1)(v)). As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company should have been made
(“Underpayment”), consistent with the calculations required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to Section 9(e) and Executive thereafter is required to
make a Payment of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to
or for the benefit of Executive.



          (e) Executive shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the Payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten (10) business days after
Executive is informed in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which Executive gives such
notice to the Company (or such shorter period ending on the date that any Payment of taxes with



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respect to such claim is due). If the Company notifies Executive in writing prior to the
expiration of such period that it desires to contest such claim, Executive shall:



               (i) give the Company any information reasonably requested by the Company relating to such
claim,



               (ii) take such action in connection with contesting such claim as the Company shall reasonably
request in writing from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney reasonably selected by the Company,



               (iii) cooperate with the Company in good faith in order to effectively contest such claim, and



               (iv) permit the Company to participate in any proceedings relating to such claim;



               provided, however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or income or other
tax (including interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(e), the Company shall control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and may, at its sole
option, either direct Executive to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that if the Company directs Executive to
pay such claim and sue for a refund, the Company shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income or other tax (including interest or penalties with
respect thereto) imposed with respect to such payment; and further provided that any extension of
the statute of limitations relating to payment of taxes for the taxable year of Executive with
respect to which such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect
to which a Gross-Up Payment would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.



          (f) Notwithstanding any other provision of this Section 9, the Company may, in its sole
discretion, withhold and pay over to the Internal Revenue Service or any other applicable taxing
authority, for the benefit of Executive, all or any portion of any Gross-Up Payment, and Executive
hereby consents to such withholding.



     10. Release.



          (a) Execution of Release. As a condition of Executive’s right to receive the payments
described in Sections 6(a), 7(c) and 9, Executive shall within 21 days following Executive’s
termination of employment execute and deliver to the Company a full and complete release of all
claims, known and unknown, that Executive may have against the Company and its related past and
present entities, officers, directors, shareholders, agents, representatives, successors and
employees,



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such release to be substantially in the form of the release attached hereto as Exhibit
A (the “Release Agreement”); provided, however, that any conflict between the terms of this
Agreement and such form of release attached as Exhibit A shall be resolved in favor of
this Agreement.



          (b) Effect of Failure. In the event Executive fails to deliver or revokes the release
referred to in Section 10(a) above, Executive shall not be entitled to any of the payments
described in Section 6(a), 7(c) or 10 above. In the event that, prior to the end of the Severance
Period, Executive breaches any of his obligations under this Agreement, including Sections 10 or 12
hereof, the Company’s obligations to provide the payments under Sections 6(a), 7(c) and 9 shall
thereupon cease and the Company shall be entitled to recover from Executive any and all amounts
theretofore paid to Executive pursuant to Section 6(a), 7(c) or 9.



     11. Death and Disability. In the event the Employment Period ends as a result of
Executive’s death, this Agreement shall automatically terminate and Executive’s estate shall be
entitled to receive (i) the amounts described in Section 5(f), (ii) 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, and
(iii) a pro rata portion (based upon the number of complete months within the fiscal year that
shall have elapsed through the date on which the Employment Period ends) of any annual bonus that
the Board determines Executive would otherwise have received pursuant to Section 4(b) for that
calendar year had Executive been employed through the end of the year. The bonus amounts under
clauses (ii) and (iii) will be payable to Executive’s estate when and if such annual bonuses would
otherwise have been payable, in accordance with Section 4(b), had the Employment Period not ended.
Notwithstanding the foregoing, Executive’s estate shall not be entitled to any pro-rated bonus
under clause (iii) unless the date the Employment Period ends is after the first six months of the
fiscal year in which the Employment Period ends. In the event of Executive’s Disability, occurring
during the term of his employment, if such Disability constitutes a “Section 409A Disability”
(defined below), the Company shall, subject to Section 8 above, pay Executive in a lump sum payment
an amount equal to ninety (90) days of Executive’s salary within ten (10) days following the date
that the Company determines (with the consultation of an examining medical professional) that such
Section 409A Disability has occurred. Additionally, Executive shall be entitled to his annual
bonus, or pro rata portion thereof, as applicable, as described under clauses (ii) and (iii) above,
except that the payments shall be to Executive and not his estate.



     For purposes of this Agreement, “Section 409A Disability” shall be defined as the Executive’s
inability to engage in any substantial gainful activity by reason of (i) any medically determinable
physical or mental impairment that can be expected to result in death or last for a continuous
period of not less than 12 months; or (ii) any medically determinable physical or mental impairment
that can be expected to result in death or last for a continuous period of not less than 12 months,
while receiving income replacement benefits for a period of not less than three months under an
accident and health plan otherwise covering the Company’s employees.



     12. Proprietary Information.



          (a) Obligation to Maintain Confidentiality. Executive acknowledges that the continued
success of the Company and its subsidiaries or affiliates depends upon the use and protection of
proprietary information. Executive further acknowledges that the proprietary information obtained
by him during the course of his employment with the Company or any of its subsidiaries or
affiliates concerning the business or affairs of the Company, or any of its subsidiaries





12











 




or affiliates is the property of the Company or such subsidiaries or affiliates, including
information concerning acquisition opportunities in or reasonably related to the Company’s business
or industry. Therefore, Executive agrees that he will not disclose to any unauthorized person or
use for his own account any proprietary information, whether or not such information is developed
by him, without the Board’s written consent, unless and to the extent that the proprietary
information (i) becomes generally known to the public other than as a result of Executive’s acts or
omissions to act or (ii) is required to be disclosed pursuant to any applicable law or court order.
Executive shall take reasonable and appropriate steps to safeguard proprietary information and to
protect it against disclosure, misuse, espionage, loss and theft. Executive shall deliver to the
Company upon his termination of employment, and at any subsequent time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes, printouts and software and other
documents and data (and copies thereof) embodying or relating to the proprietary information, Work
Product (as defined below) or the business of the Company or any of its subsidiaries or affiliates
(including, without limitation, all acquisition prospects, lists and contact information) which he
may then possess or have under his control, and shall destroy any electronic copies of such
materials and confirm such destruction in writing to the Company.




          (b) Ownership of Property. Executive acknowledges that all discoveries, concepts,
ideas, inventions, innovations, improvements, developments, methods, processes, programs, designs,
analyses, drawings, reports, patent applications, copyrightable work and mask work (whether or not
including any confidential information) and all registrations or applications related thereto, all
other proprietary information and all similar or related information (whether or not patentable)
that relate to the Company’s or any of its subsidiaries’ or affiliates’ (including their
predecessors prior to being acquired by the Company) actual or anticipated business, research and
development, or existing or future products or services and that are conceived, developed,
contributed to, made, or reduced to practice by Executive (either solely or jointly with others)
while employed by the Company or any of its subsidiaries or affiliates, including any of the
foregoing that constitutes any proprietary information or records (“ Work Product ”), belong to the
Company or such subsidiary or affiliate, and Executive hereby assigns, and agrees to assign, all of
the above Work Product to the Company or to such subsidiary or affiliate; provided ,
however , that the provisions of this Agreement requiring assignment of Work Product to the
Company do not apply to any invention which qualifies under the provisions of California Labor Code
Section 2870, the text of which is set forth in Exhibit B hereto. Any copyrightable work
prepared in whole or in part by Executive in the course of his work for any of the foregoing
entities shall be deemed a “work made for hire” under the copyright laws, and the Company or such
subsidiary or affiliate shall own all rights therein. To the extent that any such copyrightable
work is not a “work made for hire,” Executive hereby assigns and agrees to assign to the Company or
such subsidiary or affiliate all right, title, and interest, including without limitation,
copyright in and to such copyrightable work. Executive shall perform all actions reasonably
requested by the Board, at the Company’s sole expense, to establish and confirm the Company’s or
such subsidiary’s or affiliate’s ownership (including, without limitation, assignments, consents,
powers of attorney, and other instruments) in Work Product and copyrightable work identified by the
Board.




          (c) Third Party Information. Executive understands that the Company and its
subsidiaries and affiliates will receive from third parties confidential or proprietary information
(“Third Party Information”) subject to a duty on the Company’s and its subsidiaries’ or affiliates’ part to maintain the confidentiality of such information and to
use it only for certain limited purposes. During Executive’s employment with the Company and
thereafter, and without in any way limiting the provisions of Section 7(a) above, Executive will
hold Third Party Information in the strictest




13









 







confidence and will not disclose to anyone (other than personnel and consultants of the Company or its subsidiaries, affiliates, advisors or
financing sources who need to know such information in connection with their work for the Company
or its subsidiaries, affiliates, advisors or financing sources) or use, except in connection with
his work for the Company or its subsidiaries, affiliates, advisors or financing sources, Third
Party Information unless expressly authorized by the Board in writing.




          (d) Use of Information of Prior Employers. During Executive’s employment with the
Company, Executive will not improperly use or disclose any confidential information or trade
secrets, if any, of any former employers or any other person to whom Executive has an obligation of
confidentiality, and will not bring onto the premises of the Company or any of its subsidiaries or
affiliates any confidential information or trade secrets of any former employer or any other person
to whom Executive has an obligation of confidentiality unless consented to in writing by the former
employer or person.




     13. Injunctive Relief with Respect to Covenants. Each party acknowledges and agrees
that the agreements and covenants of such party under Section 12 hereof relate to special, unique
and extraordinary matters and that a violation or threatened violation of any of the terms of such
agreements and covenants will cause the other party irreparable injury for which adequate remedies
are not available at law. Therefore, each party agrees that the other party shall be entitled to an
injunction, restraining order or such other equitable relief (without the requirement to post bond)
restraining the first party from committing any violation of the agreements and covenants contained
in Section 12. These injunctive remedies are cumulative and are in addition to any other rights and
remedies either party may have under this Agreement.



     14. Miscellaneous.



          (a) Survival. To the extent necessary to give effect to such provisions, the
provisions of this Agreement shall survive the termination hereof, whether such termination shall
be by expiration of the Employment Period or otherwise.




          (b) Binding Effect. This Agreement shall be binding on, and shall inure to the benefit
of, the Company and any person or entity that succeeds to the interest of the Company (regardless
of whether such succession occurs by operation of law) by reason of the sale of all or a portion of
the Company’s equity securities, a merger, consolidation or reorganization involving the Company
or, unless the Company otherwise elects in writing, a sale of all or a portion of the assets of the
business of the Company. This Agreement shall also inure to the benefit of Executive’s heirs,
executors, administrators and legal representatives.




          (c) Assignment. Executive may not assign this Agreement. The Company may assign its
rights, together with its obligations, under this Agreement (i) to any affiliate or subsidiary or
(ii) to third parties in connection with any sale, transfer or other disposition of all or
substantially all of its business or assets.




          (d) Entire Agreement. This Agreement constitutes the entire agreement between the
parties hereto with respect to the matters referred to herein and supersedes any and all prior
agreements, whether written or oral. Executive’s Offer Letter dated June 2, 2008 is hereby superseded and of no further force or effect, and no other agreement relating to the
terms of Executive’s employment by the Company, oral or otherwise, shall be binding between the
employee




14









 







and the Company or any other party unless it is in writing and signed by the party against
whom enforcement is sought. There are no promises, representations, inducements or statements
between the parties other than those that are expressly contained herein. Executive acknowledges
that he is entering into this Agreement of his own free will and accord, and with no duress, that
he has read this Agreement and that he understands it and its legal consequences.




          (e) Severability; Reformation. In the event that one or more of the provisions of this
Agreement is or shall become invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein shall not be affected
thereby. In the event any covenant contained herein is not enforceable in accordance with its
terms, including, but not limited to, if found to be excessively broad as to duration, scope,
activity or subject, Executive and the Company agree that such covenant shall be reformed to make
it enforceable in a manner that provides as nearly as possible the result intended by this
Agreement so as to be enforceable to the maximum extent compatible with applicable law.




          (f) Waiver. Waiver by any party hereto of any breach or default by the other party of
any of the terms of this Agreement shall not operate as a waiver of any other breach or default,
whether similar to or different from the breach or default waived. No waiver of any provision of
this Agreement shall be implied from any course of dealing between the parties hereto or from any
failure by either party hereto to assert its or his rights hereunder on any occasion or series of
occasions.




          (g) Notices. Any notice required or desired to be delivered under this Agreement shall
be in writing and shall be delivered personally, by courier service, by registered mail, return
receipt requested, or by email and shall be effective upon actual receipt by the party to which
such notice shall be directed, and shall be addressed as follows (or to such other address as the
party entitled to notice shall hereafter designate in accordance with the terms hereof):




If to the Company:




Questcor Pharmaceuticals, Inc.

Attention: Chairman of the Board of Directors

3260 Whipple Road

Union City, California 94587




If to Executive:



To the most recent address of the Executive set forth in the personnel records of the Company. In
addition to written notice, the Company shall use its commercially reasonable efforts to provide
Executive with email and live (or voice mail) telephonic communication for any notice made
hereunder.




          (h) Amendments. This Agreement may not be altered, modified or amended except by a
written instrument signed by each of the parties hereto.




          (i) Headings. Headings to sections in this Agreement are for the convenience of the
parties only and are not intended to be part of or to affect the meaning or interpretation hereof.




15









 








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




          (k) Withholding. Any payments provided for herein shall be reduced by any amounts
required to be withheld by the Company under applicable Federal, State or local income or
employment tax laws or similar statutes or other provisions of law then in effect.




          (l) Disputes. Any and all disputes connected with, relating to or arising from
Executive’s employment with the Company, this Agreement, or the Release attached as Exhibit A, will
be settled by final and binding arbitration in accordance with the rules of the American
Arbitration Association as presently in force. The only claims not covered by this Agreement are
claims for benefits under the unemployment insurance or workers’ compensation laws. Any such
arbitration will take place in Orange County, California. The parties hereby incorporate into this
agreement all of the arbitration provisions of Section 1283.05 of the California Code of Civil
Procedure. The Company understands and agrees that it will bear the costs of the arbitration filing
and hearing fees and the cost of the arbitrator. Each side will bear his/its own attorneys’ fees,
and the arbitrator will not have authority to award attorneys’ fees unless a statutory section at
issue in the dispute authorizes the award of attorneys’ fees to the prevailing party, in which case
the arbitrator has authority to make such award as permitted by the statute in question. The
arbitration shall be instead of any civil litigation; this means that Executive is waiving any
right to a jury trial, and that the arbitrator’s decision shall be final and binding to the fullest
extent permitted by law and enforceable by any court having jurisdiction thereof. Judgment upon any
award rendered by the arbitrators may be entered in any court having jurisdiction.




          (m) Governing Law. This Agreement shall be governed by the laws of the State of
California, without reference to principles of conflicts or choice of law under which the law of
any other jurisdiction would apply.




          (n) Representation. Executive acknowledges that Stradling Yocca Carlson & Rauth
represents the Company and Executive has neither sought nor received legal advice from Stradling
Yocca Carlson & Rauth in connection with this Agreement.




[SIGNATURE PAGE FOLLOWS]




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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized
officer and Executive has hereunto set his hand as of the day and year first above written.




	 	 	 	 	 	 	 
	 	 	Questcor Pharmaceuticals, Inc.	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Virgil Thompson
 

Name: Virgil Thompson
	 	 
	 

	 	 	 	Title: Chairman of the Board of Directors	 	 
	 
	 	 	 	 	 	 
	 

	 	Executive	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Don Bailey	 	 
	 

	 	 	 	 	 	 
	 

	 	 	 	Don Bailey	 	 







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