GENERAL RELEASE ANDSEPARATION AGREEMENT

This General Release and Separation Agreement (hereafter “Agreement”) is entered into between John Raffle (the “Executive”), and ArthroCare Corporation (the “Company”) (collectively referred to as the “Parties”), effective eight days after the Executive’s signature (the “Effective Date”), unless he revokes his acceptance as provided in Paragraph 8(b), below.  The Company shall have no right to revoke this Agreement.

WHEREAS, the Executive was the Senior Vice President, Strategic Business Units of the Company pursuant to the terms of an Employment Agreement effective as of April 21, 2008 (the “Employment Agreement”);

WHEREAS, the Company reported on December 19, 2008, by press release, that the Executive had tendered his resignation (the “Press Release”);

WHEREAS, the Company and the Executive now wish to document the termination of their employment relationship and fully and finally to resolve all matters between them;

THEREFORE, in exchange for the good and valuable consideration set forth herein, the adequacy of which is specifically acknowledged, the Executive and the Company hereby agree as follows:

1.           Resignation of Employment.  The Parties hereto confirm the termination of Executive’s employment and all positions that the Executive held as an officer of the Company and all subsidiaries of the Company, effective at the close of business on December 18, 2008 (the “Termination Date”).

2.           Payment of Accrued Wages and Expenses.  The Executive has been paid an amount equal to all accrued wages through the Termination Date, including accrued, unused vacation or paid time off, less applicable withholding, and all expenses incurred and submitted for reimbursement for events prior to December 31, 2008.

3.           Bonus for the Calendar Year Ended December 31, 2008.  The Executive agrees that he shall not be eligible for a bonus for the calendar year ended December 31, 2008.

4.           Separation Payment; Benefits.  Within three (3) days of the Effective Date, the Company shall pay the Executive $75,000 (seventy-five thousand dollars) (the “Separation Payment”), less all applicable taxes and other authorized withholding.

 

5.           Consulting Services.  For a period commencing with the Effective Date and continuing thereafter for a period of eleven (11) consecutive months (the “Retained Consultant Period”), the Executive shall provide assistance to the Company at its reasonable request (“Litigation Assistance”) in conjunction with Arthrocare Corporation v. Gyrus Medical, Inc., Gyrus Ent, L.L.C., and Gyrus Acmi, Inc., Case No. 1:07-CV-00729-SLR in the United States District Court for the District of Delaware, and the related arbitration between Gyrus Group, PLC, Ethicon, Inc. and ArthroCare (collectively referred to herein as the “Litigation”).  In providing Litigation Assistance to the Company, the Executive agrees that he shall function as an independent contractor, and not as an employee of the Company.  During the Retained Consultant Period, the Company shall pay the Executive $3,500 (three thousand five hundred dollars) per calendar month (or partial month), in advance (within five (5) days of the Effective Date for the first month and on the first of the month thereafter) for Litigation Assistance hereunder.  The aggregate amount paid for Litigation Assistance shall not exceed $40,000 (forty thousand dollars).  During the Retained Consultant Period, Executive shall not be obligated to devote more than fifteen (15) hours in any calendar month (or any partial calendar month) to the performance of Litigation Assistance.  The Company may terminate Executive’s obligation to provide Litigation Assistance upon the earlier of (a) the settlement, trial, or other resolution of the Litigation, or (b) the Company’s written notification to the Executive of termination of the Litigation Assistance; provided, however, if at the time of such termination, Executive has been paid less than $30,000 (thirty thousand dollars) for Litigation Assistance hereunder, then the Company shall be obligated to pay a termination fee equal to the difference between what the Executive has actually been paid for Litigation Assistance and $30,000 (thirty thousand dollars).  It is further provided that Executive may terminate his obligation to provide Litigation Assistance upon giving thirty (30) days’ advance written notice.

6.           Tax Indemnity.  The Executive acknowledges that he has not received and does not rely upon any tax advice given by the Company or its attorneys or representatives.  The Executive further agrees that he shall be solely responsible for all tax assessments, penalties, and fines levied against the payments made pursuant to this Agreement by any taxing authority, and shall indemnify, defend and hold harmless (all to the maximum extent allowed by law) the Company against all tax assessments, penalties, and fines assessed by any taxing authority against the Company as a result of (a) the Executive’s characterization of the Settlement Payment made pursuant to this Agreement, or (b) any failure by the Executive to pay taxes as required on any and all payments made pursuant to this Agreement.

7.           Equity Awards.  All equity awards granted to the Executive shall be treated in accordance with the terms of the applicable Plan(s), Agreement(s) and Notice(s) of Grant, and such rights shall survive the execution of this Agreement, and are not merged or integrated into this Agreement.

8.           General Release of Claims by the Executive.

(a)           The Executive, on behalf of himself and his executors, heirs, administrators, representatives and assigns, hereby agrees to release and forever discharge the Company and all predecessors, successors and their respective parent corporations, affiliates, related, and/or subsidiary entities, and all of their past and present investors, directors, shareholders, officers, general or limited partners, employees, attorneys, agents and representatives, and employee benefit plans in which the Executive is or has been a participant by virtue of his employment with the Company, from any and all claims, debts, demands, accounts, judgments, rights, causes of action, equitable relief, damages, costs, charges, complaints, obligations, promises, agreements, controversies, suits, expenses, compensation, responsibility and liability of every kind and character whatsoever (including attorneys’ fees and costs), whether in law or equity, known or unknown, asserted or unasserted, suspected or unsuspected (collectively, “Claims”), which the Executive has or may have had against such entities based on any events or circumstances arising or occurring on or prior to the date hereof or on or prior to the Termination Date, arising directly or indirectly out of, relating to, or in any other way involving in any manner whatsoever the Executive's employment by the Company or the separation thereof, and any and all claims arising under federal, state, or local laws relating to employment, including without limitation claims of wrongful discharge, breach of express or implied contract, fraud, misrepresentation, defamation, or liability in tort, claims of any kind that may be brought in any court or administrative agency, any claims arising under Title VII of the Civil Rights Act; the Civil Rights Act of 1866; the Sarbanes-Oxley Act; the Age Discrimination in Employment Act; the Equal Pay Act; the Fair Labor Standards Act; the Employee Retirement Income Security Act; the Americans with Disabilities Act; the Family Medical Leave Act; and/or any other local, state or federal law governing discrimination in employment and/or the payment of wages and benefits; and claims arising under the Employment Agreement.  Notwithstanding the generality of the foregoing, the Executive does not release the following claims and rights, and same shall survive the execution of this Agreement and are not merged or integrated into this Agreement:

(i)           Claims for unemployment compensation or any state disability insurance benefits pursuant to the terms of applicable state law;

(ii)           Claims to continued participation in certain of the Company's group benefit plans pursuant to the terms and conditions of the federal law known as COBRA;

(iii)          The Executive’s right to bring to the attention of the Equal Employment Opportunity Commission claims of discrimination; provided, however, that the Executive does release his right to secure any damages for alleged discriminatory treatment; and

(iv)          The Executive’s rights under this Agreement, his rights as a shareholder, and his rights to indemnification (and advancement of expenses) from the Company pursuant to the terms of the Indemnification Agreement entered into between the Company and the Executive, common law, statute, charter, bylaws or otherwise, all as they currently exist.

(v)           Coverage pursuant to otherwise applicable D&O or other insurance policies currently or hereafter maintained by the Company.

(b)           In accordance with the Older Workers Benefit Protection Act of 1990, the Executive acknowledges that he is aware of the following:

(i)            This Section 8, and this Agreement are written in a manner calculated to be understood by the Executive.

(ii)           The waiver and release of claims under the Age Discrimination in Employment Act contained in this Agreement does not cover rights or claims that may arise after the date on which the Executive signs this Agreement.

(iii)           This Agreement provides for consideration in addition to anything of value to which the Executive is already entitled.

(iv)           The Executive has been advised to consult an attorney before signing this Agreement.

(v)            The Executive has been granted forty-five (45) days after he is presented with this Agreement to decide whether or not to sign this Agreement.  If the Executive executes this Agreement prior to the expiration of such period, he does so voluntarily and after having had the opportunity to consult with an attorney, and hereby waives the remainder of the consideration period.

(vi)           The Executive has the right to revoke this Agreement within seven (7) days of signing it.  In the event this Agreement is revoked, it will be null and void in its entirety, and the Executive will not receive the benefits of this Agreement.

If the Executive wishes to revoke this Agreement, he must deliver written notice stating that intent to revoke, in accordance with the notice provisions of Section 15, on or before 5:00 p.m. on the seventh (7th) day after the date on which the Executive signs this Agreement.

9.            Nondisparagement.  The Executive agrees that he shall not disparage or otherwise communicate untrue negative statements or opinions about the Company, its Board members, officers, employees or business and the Company agrees that neither its Board members nor officers shall disparage or otherwise communicate untrue negative statements or opinions about the Executive; provided, that nothing herein shall preclude truthful statements made to law enforcement, regulatory or other governmental personnel, or in response to a subpoena, court order, or similar process, or otherwise required by law.  In the event Company is contacted by any person or entity that has or is considering employing or entering into a business relationship with the Executive, the Company shall confirm only the dates of the Executive’s employment and his last job title.

10.           Nonsolicitation Covenants.  For a period of 12 months after the Effective Date, the Executive shall not do any of the following without the prior written consent of the Company’s Board of Directors:

(a)           Solicit Business.  Solicit or influence or attempt to influence any client, customer or other person, either directly or indirectly, to direct his or its purchase of the Company’s products and/or services to any person, firm, corporation, institution or other entity in competition with the business of the Company (which for the avoidance of doubt does not prohibit the solicitation of customers for sales of products that are not the same or similar to those protected by the Company’s or its subsidiaries’ intellectual property rights as set forth in 10(a) above); and

(b)           Solicit Personnel.  Solicit or influence or attempt to influence any person employed by the Company to terminate or otherwise cease his employment with the Company or become an employee of any competitor of the Company.

11.           Executive’s Representations and Warranties.  The Executive represents and warrants that:

(a)           He has been paid all wages owed to him by the Company, including all accrued, unused vacation or paid time off, through the Termination Date;

(b)           During the course of the Executive’s employment, he did not sustain any injuries for which he might be entitled to compensation pursuant to applicable workers compensation law;

(c)           The Executive has not initiated any adversarial proceedings of any kind against the Company or against any other person or entity released herein.

12.           Confidential Information; Return of Company Property.  The Executive hereby expressly confirms his continuing obligations to the Company pursuant to the Employment, Proprietary Information and Invention Assignment Agreement (the “Confidentiality Agreement”) executed by the Executive on November 23, 1999, a copy of which is attached as Exhibit A hereto and incorporated by reference herein.

The Executive shall deliver to the Company within 10 days of the Effective Date all originals and copies of correspondence, drawings, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents, or any other documents concerning the Company’s customers, business plans, marketing strategies, products, processes or business of any kind and/or which contain proprietary information or trade secrets which are in the possession or control of the Executive or his agents or representatives, provided that Executive may retain copies of any documents created or obtained by Executive which relate to the Investigation or the facts or circumstances which form the basis for the Investigation.

It is expressly agreed that Executive shall retain possession and is hereby given ownership of the cell phone (and related telephone number) he used while at the Company.  The Executive represents that, with the exception of said cell phone, he has returned to the Company all equipment issued to him, and has no Company equipment in his possession or control.

13.           In the Event of a Claimed Breach.  All controversies, claims and disputes arising out of or relating to this Agreement, including without limitation any alleged violation of its terms, shall be resolved by final and binding arbitration before a single neutral arbitrator in Austin, Texas in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association (“AAA”). The arbitration shall be commenced by filing a demand for arbitration with the AAA within 14 (fourteen) days after the filing party has given notice of such breach to the other party.  The arbitrator shall award the prevailing party attorneys’ fees and expert fees, if any.  Notwithstanding the foregoing, it is acknowledged that it will be impossible to measure in money the damages that would be suffered if the parties fail to comply with any of the obligations imposed on them under Section 12(a)  and (b) hereof, and that in the event of any such failure, an aggrieved person will be irreparably damaged and will not have an adequate remedy at law.  Any such person shall, therefore, be entitled to injunctive relief, including specific performance, to enforce such obligations, and if any action shall be brought in equity to enforce any of the provisions of Section 12(a) and (b) of this Agreement, none of the parties hereto shall raise the defense that there is an adequate remedy at law.

14.           Choice of Law.  This Agreement shall in all respects be governed and construed in accordance with the laws of the State of Texas, including all matters of construction, validity and performance, without regard to conflicts of law principles.

15.           Notices.  All notices, demands or other communications regarding this Agreement shall be in writing and shall be sufficiently given if either personally delivered or sent by facsimile or overnight courier, addressed as follows:

(a)

If to the Company:

Arthrocare Corporation

7500 Rialto Boulevard

Building Two, Suite 100

Austin, Texas 78735

Attn:  General Counsel

Tel:   ###-###-####

Fax:   ###-###-####

(b)

If to the Executive:

John Raffle

5415 Buckman Mountain Rd

Austin, TX 78746

Tel:    ###-###-####

copy to:

J. David Washburn

Andrews Kurth LLP

1717 Main Street, Suite 3700

Dallas, Texas 75201

15.           Severability.  Except as otherwise specified below, should any portion of this Agreement be found void or unenforceable for any reason by a court of competent jurisdiction, the parties intend that such provision be limited or modified so as to make it enforceable, and if such provision cannot be modified to be enforceable, the unenforceable portion shall be deemed severed from the remaining portions of this Agreement, which shall otherwise remain in full force and effect.  If any portion of this Agreement is so found to be void or unenforceable for any reason in regard to any one or more persons, entities, or subject matters, such portion shall remain in full force and effect with respect to all other persons, entities, and subject matters.  This Section 15 shall not operate, however, to sever from the economic terms of this Agreement the Executive’s obligation to provide the binding release to all entities intended to be released hereunder.

16.           Understanding and Authority.  The Parties understand and agree that all terms of this Agreement are contractual and are not a mere recital, and represent and warrant that they are competent to covenant and agree as herein provided.

17.           Integration Clause.  Except as set forth herein, this Agreement contains the entire agreement of the Parties with regard to the separation of the Executive's employment, and supersedes any prior agreements as to that matter. This Agreement may not be changed or modified, in whole or in part, except by an instrument in writing signed by the Executive and an authorized officer of the Company.

18.           Execution in Counterparts.  This Agreement may be executed in counterparts with the same force and effectiveness as though executed in a single document.

The Parties have carefully read this Agreement in its entirety; fully understand and agree to its terms and provisions; and intend and agree that it is final and binding on all Parties.

IN WITNESS WHEREOF, and intending to be legally bound, the Parties have executed the foregoing on the dates shown below.