CHANGE IN CONTROL AGREEMENT
Exhibit 10.2
TIER 1 — CEO
This Change in Control Agreement (the “Agreement”) is made and entered into on January
6, 2010, to be effective on January 8, 2010, by and between Hill-Rom Holdings, Inc., an
Indiana corporation (the “Company”), and Xxxx X. Xxxxxxx (the “Executive”).
WHEREAS, the Company considers it essential to the best interests of its shareholders to
xxxxxx continuous employment by the Company and its subsidiaries of their key management personnel;
WHEREAS, the Compensation and Management Development Committee (the “Committee”) of the Board
of Directors (the “Board”) of the Company has recommended, and the Board has approved, that the
Company enter into Change in Control Agreements with key executives of the Company and its
subsidiaries who are from time to time designated by the management of the Company and approved by
the Committee;
WHEREAS, the Committee and the Board believe that Executive has made valuable contributions to
the productivity and profitability of the Company and consider it essential to the best interests
of the Company and its shareholders that Executive be encouraged to remain with the Company; and
WHEREAS, the Board believes it is in the best interests of the Company and its shareholders
that Executive continue in employment with the Company in the event of any proposed Change in
Control (as defined below) and be in a position to provide assessment and advice to the Board
regarding any proposed Change in Control without concern that Executive might be unduly distracted
by the personal uncertainties and risks created by any proposed Change in Control:
NOW, THEREFORE, the Company and Executive agree as follows:
1. Termination following a Change in Control. After the occurrence of a Change in Control,
the Company will provide or cause to be provided to Executive the rights and benefits described in
Section 2 hereof in the event that Executive’s employment with the Company and its subsidiaries is
terminated:
(a) by the Company for any reason other than on account of his death, permanent disability,
retirement or for Cause at any time prior to the third anniversary of a Change in Control; or
(b) by Executive for Good Reason at any time prior to the third anniversary of a Change in
Control.
Anything in this Agreement to the contrary notwithstanding, if a Change in Control occurs and
if the Executive’s employment with the Company is terminated by the Company, without
Cause, prior to the date on which the Change in Control occurs, and if it is reasonably
demonstrated by Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change in Control or (ii) otherwise
arose in connection with or anticipation of a Change in Control which subsequently occurs within 3
months of such termination, then for purposes of this Agreement (including Section 3 hereof) a
Change in Control shall be deemed to have occurred on the day immediately prior to such termination
of employment and all references in Section 2 to payments within a specified period as allowed by
law following “Termination” shall instead be references to the specified period following the
Change in Control.
The rights and benefits described in Section 2 and 3 hereof shall be in lieu of any severance
payments otherwise payable to Executive under any employment agreement or severance plan or program
of the Company or any of its subsidiaries but shall not otherwise affect Executive’s rights to
compensation or benefits under the Company’s compensation and benefit programs except to the extent
expressly provided herein.
2. Rights and Benefits Upon Termination.
In the event of the termination of Executive’s employment under any of the circumstances set
forth in Section 1 hereof (“Termination”), the Company shall provide or cause to be provided to
Executive the following rights and benefits provided that Executive executes and delivers to the
Company within 45 days of the Termination a Release in the form attached hereto as Exhibit A
(“Release”):
(a) a lump sum payment in cash in the amount of three times Executive’s Annual Base Salary (as
defined below), payable (i) on the date which is six (6) months following Termination, if the
Executive is a “specified employee” as defined in Code Section 409A(a)(2)(B)(i) of the Internal
Revenue Code of 1986, as amended (“Code”) (Section 409A of the Code is hereunder referred to as
“Section 409A”) and the Treasury Regulations promulgated thereunder, or (ii) on the next regularly
scheduled payroll following the earlier to occur of fifteen (15) days from the Company’s receipt of
an executed Release or the expiration of sixty (60) days after Executive’s Termination, if
Executive is not such a “specified employee” (or such payment is exempt from Section 409A);
provided, however, that if the before-stated sixty (60) day period ends in a calendar year
following the calendar year in which the sixty (60) day period commenced, then any benefits not
subject to clause (i) shall only begin on the next regularly scheduled payroll following the
expiration of sixty (60) days after the Executive’s Termination.
(b) for the 36 months following Termination, continued health and medical insurance coverage
for Executive and his dependents substantially comparable (with regard to both benefits and
employee contributions) to the coverage provided by the Company immediately prior to the Change in
Control for active employees of equivalent rank. From the end of such 36-month period until
Executive attains Social Security Retirement Age, Executive shall have the right to purchase (at
COBRA rates applicable to such coverage) continued coverage for himself and his dependents under
one or more plans maintained by the Company for its active employees, to the extent Executive would
have been eligible to purchase continued coverage under the plan in effect immediately prior to the
Change in Control had his employment terminated 36 months
following Termination.
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The payment of any health or medical claims for the health and medical
coverage provided in this subparagraph (b) shall be made to the Executive as soon as
administratively practicable after the Executive has provided the appropriate claim documentation,
but in no event shall the payment for any such health or medical claim be paid later than the last
day of the calendar year following the calendar year in which the expense was incurred.
Notwithstanding anything herein to the contrary, to the extent required by Section 409A: (1) the
amount of medical claims eligible for reimbursement or to be provided as an in-kind benefit under
this Agreement during a calendar year may not affect the medical claims eligible for reimbursement
or to be provided as an in-kind benefit in any other calendar year, and (2) the right to
reimbursement or in-kind benefits under this Agreement shall not be subject to liquidation or
exchange for another benefit;
(c) continuation for Executive, for a period of three years following Termination, of the
Executive Life Insurance Bonus Plan (if any) provided for Executive by the Company immediately
prior to the Change in Control and the group term life insurance program provided for executive
immediately prior to the Change in Control. The payment of any claim for death benefits provided
under this subparagraph (c) shall be paid in accordance with the appropriate program, provided,
however that if the death benefit is subject to Section 409A, then the death benefit shall be paid,
as determined by the Company in its complete and absolute discretion, no later than the later to
occur of (i) the last day of calendar year in which the death of the Executive occurs or (ii) the
90th day following the Executive’s death;
(d) a lump sum payment in cash, payable within 30 days after Termination, equal to all accrued
and unpaid vacation, reimbursable business expenses, and similar miscellaneous benefits as of the
Termination, provided, however, that to the extent that any such miscellaneous benefits are subject
to Section 409A, such benefits shall be paid in one lump sum (i) on the date which is six months
following Termination, if the Executive is a “specified employee” as defined in Code Section
409A(a)(2)(B)(i) or (ii) on the next regularly scheduled payroll following the earlier to occur of
fifteen (15) days from the Company’s receipt of an executed Release or the expiration of sixty (60)
days after Executive’s Termination, if Executive is not such a “specified employee;” provided,
however, that if the before-stated sixty (60) day period ends in a calendar year following the
calendar year in which the sixty (60) day period commenced, then any benefits not subject to
clause (i) shall only begin on the next regularly scheduled payroll following the expiration of
sixty (60) days after the Executive’s Termination. ; and
(e) a lump sum payment in cash for amounts accrued as of the Termination under the
Supplemental Executive Retirement Plan for the payment of benefits under such plan and an
additional amount equal to the amounts accrued for the last 12 months times three (3) immediately
prior to the Termination Date in any of the Defined Contribution, Matching Account and/or
Supplemental Contribution Account under the Supplemental Executive Retirement Plan, payable (i) on
the date which is six (6) months following Termination, if the Executive is a “specified employee”
as defined in Code Section 409A(a)(2)(B)(i) or (ii) on the next regularly scheduled payroll
following the earlier to occur of fifteen (15) days from the Company’s receipt of an executed
Release or the expiration of sixty (60) days after Executive’s Termination, if Executive is not
such a “specified employee” (or such payment is exempt from Section 409A); provided, however, that
if the before-stated sixty (60) day period ends in a calendar year
following the calendar year in which the sixty (60) day period commenced, then any benefits
not subject to clause (i) shall only begin on the next regularly scheduled payroll following the
expiration of sixty (60) days after the Executive’s Termination.
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3. Additional Benefits Upon A Change in Control.
Upon the occurrence of a Change in Control, so long as Executive is an employee of the Company
at that time, the Company will provide or cause to be provided to Executive the following rights
and benefits whether or not Executive’s employment with the Company or its subsidiaries is later
terminated:
(a) a lump sum payment in cash equal to the amount of Short-Term Incentive Compensation which
would be payable to Executive if the company performance targets (at 100%) with respect to such
incentive compensation in effect for the entire year in which the Change in Control occurred had
been achieved, payable within 30 days of the Change in Control;
(b) the number of shares of common stock of the Company that would be payable to Executive
under the Company’s Stock Incentive Plan provided, however, that if the Change in Control involves
a merger, acquisition or other corporate restructuring where the Company is not the surviving
entity (or survives as a wholly-owned subsidiary of another entity), then, in lieu of such shares
of common stock of the Company, Executive shall be entitled to receive the consideration he would
have received in such transaction in exchange for such shares of common stock; and provided,
further, that the Company shall in any case have the right to substitute cash for such shares of
common stock of the Company or merger consideration in an amount equal to the fair market value of
such shares or merger consideration as determined by the Company including:
| (i) | immediate vesting of all Bonus Stock Awards (as
defined in the Company’s Stock Incentive Plan) held by Executive; |
| (ii) | immediate vesting of all outstanding Stock
Options held by Executive under the Company’s Stock Incentive Plan; |
| (iii) | immediate vesting of all awards of Restricted
Stock held by Executive under any Stock Award Agreements (as defined in
the Company’s Stock Incentive Plan) with Executive and Hill-Rom
Holdings, Inc.; |
| (iv) | immediate vesting of all awards of Deferred
Stock (as defined in the Company’s Stock Incentive Plan) (also known as
Restricted Stock Units) held by Executive under the Company’s Stock
Incentive Plan; and |
| (v) | the exercise of any Stock Appreciation Right
(as defined in the Company’s Stock Incentive Plan) within 60 days of a
Change in Control as provided by section 7.2 of the Stock Incentive
Plan. |
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Any distribution to be made under this Section 3 shall be made no later than the
15th day of the third month following the Company’s first taxable year in which the
Change in Control occurs.
4. Confidentiality; Non-Competition.
(a) Executive shall not at any time without the prior approval of the Company disclose to any
person, firm, corporation or other entity any trade secret, confidential customer information, or
other proprietary information not known within the industry or by the public generally regarding
the business then being conducted by the Company, including, without limitation, financial
information, marketing and sales information and business and strategic plans.
(b) Executive shall not at any time during the term of this Agreement and within three years
following the termination of his employment with the Company, (i) solicit any persons who are
employed by the Company to terminate their employment with the Company, and (ii) directly or
indirectly (either individually or as an agent, employee, director, officer, stockholder, partner
or individual proprietor, consultant or as an investor who has made advances of loan capital or
contributions to equity capital), engage in any activity which he knows (or reasonably should have
known) to be competitive with the business of the Company as then being carried on. Nothing in
this Agreement, however, shall prevent Executive from owning, as an investment, up to two percent
(2%) of the outstanding equity capital of any competitor of the Company, shares of which are
regularly traded on a national securities exchange or in over-the-counter markets. The
restrictions set forth in this Section 5 shall not apply in the event of a termination of
Executive’s employment pursuant to Section 1.
5. Section 409A Acknowledgement.
Executive acknowledges that he has been advised of Section 409A, which has significantly
changed the taxation of nonqualified deferred compensation plans and arrangements. Under proposed
and final regulations as of the date of this Agreement, Executive has been advised that Executive’s
severance pay and other Termination benefits may be treated by the Internal Revenue Service as
“nonqualified deferred compensation,” subject to Section 409A. In that event, several provisions
in Section 409A may affect Executive’s receipt of severance compensation, including the timing
thereof. These include, but are not limited to, a provision which requires that distributions to
“specified employees” (as defined in Section 409A) on account of separation from service may not
be made earlier than six (6) months after the effective date of separation. If applicable, failure
to comply with Section 409A can lead to immediate taxation of such deferrals, with interest
calculated at a penalty rate and a 20% excise tax. As a result of the requirements imposed by the
American Jobs Creation Act of 2004, Executive agrees that if Executive is a “specified employee”
at the time of Executive’s termination and if severance payments are covered as “nonqualified
deferred compensation” or otherwise not exempt, such severance pay (and other benefits to the
extent applicable)
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due Executive at time of termination shall not be paid until a date at least six
(6) months after Executive’s effective termination date.
Executive acknowledges that, notwithstanding anything contained herein to the contrary, both
Executive and the Company shall each be independently responsible for accessing their own risks and
liabilities under Section 409A that may be associated with any payment made under the terms of this
Agreement which may be deemed to trigger Section 409A. To the extent applicable, Executive
understands and agrees that Executive shall have the responsibility for, and Executive agrees to
pay, any and all appropriate income tax or other tax obligations for which Executive is
individually responsible and/or related to receipt of any benefits provided in this Agreement.
Executive agrees to fully indemnify and hold the Company harmless for any taxes, penalties,
interest, cost or attorneys’ fee assessed against or incurred by the Company on account of such
benefits having been provided to Executive or based on any alleged failure to withhold taxes or
satisfy any claimed obligation. Executive understands and acknowledges that neither the Company,
nor any of its employees, attorneys, or other representatives has provided or will provide
Executive with any legal or financial advice concerning taxes or any other matter, and that
Executive has not relied on any such advice in deciding whether to enter into this Agreement.
Notwithstanding any provision of this Agreement to the contrary, to the extent that any payment
under the terms of this Agreement would constitute an impermissible acceleration of payments under
Section 409A or any regulations or Treasury guidance promulgated thereunder, such payments shall be
made no earlier than at such times allowed under Section 409A. If any provision of this Agreement
(or of any award of compensation) would cause Executive to incur any additional tax or interest
under Section 409A or any regulations or Treasury guidance promulgated thereunder, the Company or
its successor may reform such provision; provided that it will (i) maintain, to the maximum extent
practicable, the original intent of the applicable provision without violating the provisions of
Section 409A and (ii) notify and consult with Executive regarding such amendments or modifications
prior to the effective date of any such change.
6. Definitions. As used in this Agreement, the following terms shall have the following
meanings:
| (a) | “Annual Base Salary” means the annualized amount of
Executive’s rate of base salary in effect immediately before the Change in
Control or immediately before the date of Termination, whichever is greater. |
| (b) | “Cause” shall have the same meaning set forth in any
current employment agreement that the Executive has with the Company or any of
its subsidiaries. |
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| (c) | A “Change in Control” shall be deemed to occur on: |
| (i) | the date that any person, corporation,
partnership, syndicate, trust,
estate or other group acting with a view to the acquisition, holding
or disposition of securities of the Company, becomes, directly or
indirectly, the beneficial owner, as defined in Rule 13d-3 under the
Securities Exchange Act of 1934 (“Beneficial Owner”), of securities
of the Company representing 35% or more of the voting power of all securities of the Company having the right under
ordinary circumstances to vote at an election of the Board (“Voting
Securities”), other than by reason of (x) the acquisition of
securities of the Company by the Company or any of its Subsidiaries
or any employee benefit plan of the Company or any of its
Subsidiaries, (y) the acquisition of securities of the Company
directly from the Company, or (z) the acquisition of Company
securities by one or more members of the Xxxxxxxxxxx Family (which
term shall mean descendants of Xxxx X. Xxxxxxxxxxx and their spouses,
trusts primarily for their benefit or entities controlled by them); |
| (ii) | the consummation of a merger or consolidation
of the Company with another corporation unless |
(A) the shareholders of the Company, immediately prior to the merger
or consolidation, beneficially own, immediately after the merger or
consolidation, shares entitling such shareholders to 50% or more of
the voting power of all securities of the corporation surviving the
merger or consolidation having the right under ordinary circumstances
to vote at an election of directors in substantially the same
proportions as their ownership, immediately prior to such merger or
consolidation, of Voting Securities of the Company;
(B) no person, corporation, partnership, syndicate, trust, estate or
other group beneficially owns, directly or indirectly, 35% or more of
the voting power of the outstanding voting securities of the
corporation resulting from such merger or consolidation except to the
extent that such ownership existed prior to such merger or
consolidation; and
(C) the members of the Company’s Board, immediately prior to the
merger or consolidation, constitute, immediately after the merger or
consolidation, a majority of the board of directors of the
corporation issuing cash or securities in the merger;
| (iii) | the date on which a majority of the members of
the Board consist of persons other than Current Directors (which term
shall mean any member of the Board on the date hereof and any member
whose nomination or election has been approved by a majority of Current
Directors then on the Board); |
| (iv) | the consummation of a sale or other disposition
of all or substantially all of the assets of the Company; or |
| (v) | the date of approval by the shareholders of the
Company of a plan of complete liquidation of the Company. |
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| (d) | “Good Reason” shall have the same meaning set forth in
any current employment agreement that the Executive has with the Company or any
of its subsidiaries. |
| (e) | “Normal Retirement Benefit” shall have the meaning set
forth in the Pension Plan. |
| (f) | “Pension Plan” means the Hill-Rom, Inc. Pension Plan as
amended from time to time. |
| (g) | “Section 409A” means Section 409A of the Internal
Revenue Code. |
| (h) | “Short-Term Incentive Compensation” means the Incentive
Compensation payable under the Short-Term Incentive Compensation Program, or
any successor or other short-term incentive plan or program. |
| (i) | “Early Retirement Benefits” early retirement benefits
shall have the meaning set forth in the pension plan which defines the age at
which full, unreduced benefits are available without any early retirement
reduction being applied |
| (j) | “Executive Life Insurance Bonus Program” shall mean a
program under which the Company pays the annual premium for a whole life
insurance policy on the life of Executive. |
| (k) | “Supplemental Pension Plan” means the SERP or any
successor long-term supplemental pension plan or program or any other
commitment made by the company to provide retirement benefits in addition to
those provided by the pension plan trust. |
| (l) | “Defined Contribution Accounts”, “Matching Accounts”, and
“Supplemental Contribution Accounts” shall have the meanings set forth in
the Company’s Supplemental Executive Retirement Program (“SERP”). |
7. Notice.
(a) Any discharge or termination of Executive’s employment pursuant to Section 1 shall be
communicated in a written notice to the other party hereto setting forth the effective date of such
discharge or termination (which date shall not be more than 30 days after the date such notice is
delivered) and, in the case of a discharge for Cause or a termination for Good Reason the basis for
such discharge or termination.
(b) For purposes of this Agreement, notices and all other communications provided for in this
Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed to 0000 Xxxxxxx 00 Xxxx, Xxxxxxxxxx, Xxxxxxx 00000 provided
that all notices to the Company shall be directed to the attention of the Board with a copy to Vice
President and General Counsel, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address shall be effective
only upon receipt.
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8. No Duty to Mitigate. Executive is not required to seek other employment or otherwise
mitigate the amount of any payments to be made by the Company pursuant to this Agreement.
9. Assignment.
(a) This Agreement is personal to Executive and shall not be assignable by Executive other
than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of
and be enforceable by Executive’s legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the Company and its
successors. The Company shall require any successor to all or substantially all of the business
and/or assets of the Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise, to expressly assume and agree to perform this Agreement in the
same manner and to the same extent as the Company would be required to perform it if no such
succession had taken place.
10. Arbitration. Any dispute or controversy arising under, related to or in connection with
this Agreement shall be settled exclusively by arbitration before a single arbitrator in
Cincinnati, Ohio, in accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrator’s award shall be final and binding on all parties to this Agreement.
Judgment may be entered on an arbitrator’s award in any court having competent jurisdiction.
11. Integration. This Agreement supersedes and replaces any prior oral or written agreements
or understandings in respect of the matters addressed hereby.
12. Amendment. This Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and legal representatives.
13. Severability. The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this Agreement.
14. Withholding. The Company may withhold from any amounts payable under this Agreement such
federal, state, local or foreign taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
15. Governing Law. This Agreement shall be governed by and construed in accordance with the
law of the State of Indiana without reference to principles of conflict of laws.
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16. Attorney’s Fees. If any legal proceeding (whether in arbitration, at trial or on appeal)
is brought under or in connection with this Agreement, each party shall pay its own expenses,
including attorneys’ fees.
17. Term of Agreement. The term of this Agreement shall be one (1) year commencing on the date
hereof; provided however, that this Agreement shall be automatically renewed for successive
one-year terms commencing on each anniversary of the date of this Agreement unless the Company
shall have given notice of non-renewal to Executive at least 30 days prior to the scheduled
termination date; and further provided that notwithstanding the foregoing, this Agreement shall not
terminate (i) within three years after a Change in Control or (ii) during any period of time when a
transaction which would result in a Change in Control is pending or under consideration by the
Board. The termination of this Agreement shall not adversely affect any rights to which Executive
has become entitled prior to such termination. In addition, Section 5(a) shall survive the
termination of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered
as of the day and year first above set forth.
| HILL-ROM HOLDINGS, INC. | ||||||
| By | ||||||
| Title | Xxxxxxx xx Xxxxxxxxx | |||||
| Senior Vice President, | ||||||
| General Counsel and Secretary | ||||||
| Executive | ||||||
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