Exhibit 10.22
September 5, 1997
Mr. C. Xxxxxxx Xxxxxx
Nellcor Puritan Xxxxxxx Incorporated
0000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Re: Employment Agreement
Dear Xx. Xxxxxx:
This letter confirms our agreement regarding the terms of your
continued employment with Nellcor Puritan Xxxxxxx Incorporated (the
"Company"). As you know, the Company, Mallinckrodt Inc.
("Mallinckrodt") and NPB Acquisition Corp. ("Purchaser") have entered
into an Agreement and Plan of Merger, dated as of July 23, 1997, (the
"Merger Agreement"), which provides that Purchaser will merge (the
"Merger") with and into the Company upon completion of the
contemplated tender offer. Upon consummation of the Merger, the
Company will be a wholly-owned subsidiary of Mallinckrodt. The terms
set forth below will become effective on the closing date of the
Merger ("Effective Date").
You agree to retain your position as President and Chief Executive
Officer of the Company and as Executive Vice President of
Mallinckrodt. During the period of your active employment with the
Company you agree that you will not engage in any other employment,
or business activities directly related to the business in which the
Company is now involved or becomes involved, nor will you engage in
any activity in conflict with your obligations to the Company.
In exchange for your continued services the Company will continue to
pay your salary at its current rate. You also remain eligible to
participate in the Company's 1998 Bonus Plan (attached hereto as
Exhibit A). In addition to the 1998 Bonus Plan you are eligible to
receive the following:
- retention bonus
- if you are actively employed one year from the Effective
Date, or the Company terminates your employment without
Cause (as defined below) prior to the one year anniversary
of the Effective Date, the Company will pay you a lump sum
of $250,000 paid on the earlier of the first anniversary of
the Effective Date or the date of termination;
- individual performance bonus
- if the Company and Mallinckrodt achieve cost reduction
synergies which will be specified in the plan for the
integration of the business of the Company and Mallinckrodt,
the company will pay you, within 30 days of the first
anniversary of the Effective Date, a bonus of $125,000;
- if you succeed in developing the successful strategy,
organization and integration of the global medical products,
the Company will pay you, within 30 days of the first
anniversary of the Effective Date, a bonus of $125,000; and,
- stock appreciation award
- Company will pay you, within 60 days after the first
anniversary of the Effective Date, an amount in cash equal
to the result of multiplying 25,000 by the excess of (i) the
closing price of one share of common stock of Mallinckrodt
on the New York Stock Exchange on the first anniversary of
the Effective Date over (ii) the closing price of one share
of Mallinckrodt's common stock on the New York Stock
Exchange on the Effective Date.
In addition, you will receive all benefits provided pursuant to the
1994 Severance Agreement (the "Severance Agreement," attached hereto
as Exhibit B). The Severance Agreement provides for benefits upon
termination of your employment after a Change of Control by the
Company without Cause or by you for Good Reason. The completion of
the tender offer of the Merger described above will constitute a
Change of Control under the Severance Agreement.
As a result of the change in the nature of your responsibilities and
position that will result from the Merger, your Severance Agreement
is amended, as of the Effective Time of the Merger, to provide that
in the event you terminate your employment for any reason at any time
after the consummation of the Merger and within twenty-four months
following the completion of the tender offer (i) such termination
shall be deemed to be for "Good Reason," as defined in your Severance
Agreement, and (ii) you will be entitled to all benefits arising
under the Severance Agreement applicable to a termination for Good
Reason following a Change in Control.
If you are still actively employed by the Company on the first
anniversary of the Effective Date, the Company will pay you all
benefits provided in the Severance Plan as though you had terminated
your employment for Good Reason. This payment will be made within 15
days of the first anniversary of the Effective Date.
In the event that any payment or benefit received or to be received
by you under this Agreement would result in all or a portion of such
payment to be subject to the excise tax on "golden parachute
payments" under Section 4999 of the Internal Revenue Code of 1986, as
amended, then your payment will be increased by the amount of the
excise tax.
The Company may terminate your employment at any time with or without
Cause. If the Company terminates your employment without Cause prior
to one year from the Effective Date, the Company will pay you, in
addition to all amounts due pursuant to the Severance Plan, a lump
sum amount equal to your salary for the remainder of the one year
period beginning on the Effective Date, the $250,000 retention bonus,
and the Stock Appreciation Award.
If the Company terminates your employment for Cause, the Company will
pay your salary up to the date of termination. The definition of
Cause set forth in Section 2.4 of the Severance Agreement is hereby
incorporated by reference and will apply to the terms of this
Agreement.
By execution of this letter, the Company and Mallinckrodt consent to
the terms set forth in this Agreement including all amendments to the
Severance Plan.
By signing below, you agree to accept the terms set forth in this
Agreement.
Sincerely,
Nellcor Puritan Xxxxxxx Incorporated Mallinckrodt Inc.
By:/s/ X. Xx Xxxxx By:/s/ X. X. Xxxxxx
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I accept and agree to the terms set forth above.
/s/ C. Xxxxxxx Xxxxxx, Xx.
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C. Xxxxxxx Xxxxxx, Xx.
Date: September 5, 1997
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Exhibit A -- 1998 Bonus Plan
Exhibit B -- 1994 Severance Agreement
Exhibit A
NELLCOR PURITAN XXXXXXX
Performance Incentive Plan
Purpose
The purpose of the Performance Incentive Plan (PIP) is to reward
eligible employees for achieving NPB's business plan goals and
provide a means for employees to share in the Company's success.
Eligibility
All NPB positions at the following levels are eligible for
consideration. This includes the following positions:
- Officers
- Senior Directors
- Directors
- Distinguished Engineer/Scientist
- Managers (salary grades E07-E10)
- Individual contributors (salary grades E07-E10)
In addition, employees must be employed by NPB for at least six
months before they are eligible to participate in the plan.
Eligibility to participate does not necessarily guarantee payment,
but it guarantees consideration for payment.
Part-time employees employed by Nellcor Puritan Xxxxxxx for 20 hours
or more per week are eligible to participate in the PIP on a pro-
rated basis.
Employees on a sales or commission plan are not eligible to
participate in PIP.
Definitions
Plan year refers to the Nellcor Puritan Xxxxxxx fiscal year.
Base salary amount is defined as the amount used to calculate
individual PIP awards which will be the participant's annualized base
salary on June 1 of the plan year.
Bonus Payouts
Bonus awards are paid on an annual basis and within 30 days of the
end of the plan year.
Except for death or disability, a participant must be employed by
Nellcor Puritan Xxxxxxx on the last day of the fiscal year to receive
award payments.
All part-time employees, part-year full-time employees, and employees
on leaves of absence for longer than 30 days will receive pro-rated
awards based on their actual time worked. Participants on leaves of
absence of less than 30 days will receive full awards as outlined in
the plan.
Participants who transfer between divisions during the plan year will
receive awards based on the performance results of the division in
which the employee spent the most time (6 months or longer).
Bonus awards under this plan shall be treated as wages and shall be
subject to all applicable withholding taxes at the time received.
Employees outside the United Stated will be paid their award amount
in local currency and are subject to any country specific
regulations.
Performance Measures
Incentive awards will be based on four annual measures:
- NPB profit
- NPB revenue
- Division profit(1)
- Division revenue(1)
Each of the four measures will be weighted according to the following
table.
Corporate Corporate Division Division Division
Executives Staff EVP/SVP VP Manager/IC's
---------- --------- -------- -------- ------------
NPB profit 75% 75% 56.25% 37.5% 30%
NPB revenue 25% 25% 18.75% 12.5% 10%
Division profit 18.75% 37.5% 45%
Division revenue 6.25% 12.5% 15%
100% 100% 100% 100% 100%
Specific performance goals for each corporate and division measure
are established annually. No awards will be paid unless NPB achieves
85% of its annual profit plan.
Award Opportunities
Award opportunities (stated as a percent of base salary) vary by NPB
level as shown in the table below.
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(1) Division refers to a participant's immediate business unit
Threshold Target Maximum
Performance Performance Performance
Award Award Award
----------- ----------- -----------
CEO 30% 60% 120%
EVP/Senior VP 25% 50% 100%
VP 20% 40% 80%
Senior Director 15% 30% 60%
Director and Director-equivalent
Individual Contributors 10% 20% 40%
Manager and Manager-equivalent
Individual Contributors 5% 10% 20%
Actual incentives paid are based on corporate and division
performance results. Individual incentive awards may be adjusted by
up to +/- 25% on individual contributions.
Award Calculation
Individual PIP awards earned are calculated using a four step
process.
Step 1
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Determine the performance adjustment modifier for each measure using
the table below:
Performance Result Achieved Performance Adjustment
(% of Goal Achieved) Modifier
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85-89% 0.50
90-94% 0.65
95-99% 0.80
100-104% 1.00
105-109% 1.25
110-114% 1.50
115-119% 1.75
120+% 2.00
Note: Above table is simplified for illustration purposes. Actual
performance modifiers are calculated on a straight linear basis vs.
the buckets as shown.
Step 2
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Calculate the total performance factor based on results achieved for
each performance measure.
NPB Profit Performance Adjustment Modifier x Weight = NPB Profit Factor
NPB Revenue Performance Adjustment Modifier x Weight = NPB Revenue Factor
Division
Profit Performance Adjustment Modifier x Weight = Division Profit Factor
Division
Revenue Performance Adjustment Modifier x Weight = Division Revenue Factor
Total Performance Factor
Step 3
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Calculate preliminary award amount
Total Performance Factor x Target Award Opportunity x Base Salary
= Preliminary PIP Award Earned
Step 4
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Adjust PIP award based on individual performance.
Preliminary PIP Award Earned x Individual Adjustment* (up to +/-25%) =
Actual PIP Award Earned
*The sum of individual adjustments at an EVP level may not exceed
zero.
Illustrative Example
The following example illustrates the award calculation for a
Division Manager with a base salary of $60,000. Assumed performance
results for purposes of this example are shown in the table below.
Performance Results
(% of goal achieved)
NPB Profit 100%
NPB revenue 105%
Division profit 97%
Division revenue 102%
Individual adjustment +5%
Step 1
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Determine the performance adjustments modifier for each measure.
Measure Performance
NPB Profit 1.00
NPB Profit 1.25
Division Profit 0.80
Division Revenue 1.00
Step 2
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Calculate the total performance factor.
NPB Profit 1.00 x 30% = 30%
NPB Revenue 1.25 x 10% = 12.5%
Division Profit 0.80 x 45% = 36%
Division Revenue 1.00 x 15% = 15%
Total Performance Factor 93.5%
Step 3
--------------------------------------------------------------------
Calculate the preliminary award amount.
93.5% x 10% x $60,000 = $5,610 Preliminary PIP Award
Step 4
--------------------------------------------------------------------
Adjust PIP award based on individual performance.
$5,610 x 1.05 = $5,891 Actual PIP Award Earned
Additional Information
- Promotions that occur during the plan year will result in a change
target. The higher target will be applied in the calculation as
long as the promotion was in effect for 6 or more months during
the fiscal year. Otherwise the award calculation will be pro-
rated utilizing both targets.
- Promotions into this plan from profit sharing eligibility that are
in effect for 6 months or greater will result in a full year
calculation under this plan.
- If a participant is demoted out of the plan during the plan year,
he or she will not be eligible for an award payment from this plan
but will be eligible to receive profit sharing.
- If an employee receives an unsatisfactory performance rating or
has been on a formal disciplinary performance improvement plan at
any time during the plan year, may not receive a payment under
this plan. The decision regarding payment will be made between
management and Human Resources.
- Participation in the PIP is not a contract of employment and does
not alter the employment-at-will status of any participant.
- Participants receiving bonus awards are not eligible to receive
profit sharing.
- Award payments under this plan shall not be considered
compensation for the purposes of determining benefits under
company benefits programs.
- Management reserves the right to make any changes as necessary or
to terminate the plan at any time.
Exhibit B
SEVERANCE AGREEMENT
This Agreement, dated as of December 1, 1994, is entered into
between Nellcor Incorporated, a corporation organized under the laws
of the State of Delaware ("Nellcor"), and C. Xxxxxxx Xxxxxx, Xx. (the
"Executive").
WHEREAS, the Board of Directors of the Company (the "Board")
recognizes that the possibility of a Change in Control (as
hereinafter defined) exists and that the threat or the occurrence of
a Change in Control can result in significant distractions to its key
management personnel because of the uncertainties inherent in such a
situation;
WHEREAS, the Board has determined that it is essential and in
the best interest of the Company and its stockholders to retain the
services of the Executive in the event of a threat or occurrence of a
Change in Control and to ensure the Executive's continued dedication
and efforts in such event without undue concern for the Executive's
personal, financial and employment security; and
WHEREAS, in order to induce the Executive to remain in the
employ of the Company, particularly in the event of a threat or the
occurrence of a Change in Control, the Company desires to enter into
this Agreement with the Executive to provide the Executive with
certain benefits in the event that the Executive's employment is
terminated as a result of, or in connection with, a Change in
Control.
NOW, THEREFORE, in consideration of the respective agreements of
the parties contained herein, it is agreed as follows:
1. Term of Agreement. This Agreement shall commence as of
-----------------
December 1, 1994 and shall continue in effect until December 1, 1996;
provided, however, that commencing on December 1, 1996 and on each
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December 1 thereafter, the term of this Agreement shall automatically
be extended for one (1) year unless the Company or the Executive
shall have given written notice to the other at least ninety (90)
days prior thereto that the term of this Agreement shall not be so
extended; and provided, further, however, that notwithstanding any
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such notice by the Company not to extend, the term of this Agreement
shall not expire prior to the expiration of twenty-four (24) months
after the occurrence of a Change in Control.
2. Definitions.
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2.1 Accrued Compensation. For purposes of this Agreement,
--------------------
"Accrued Compensation" shall mean an amount which shall include all
amounts earned or accrued through the "Termination Date" (as
hereinafter defined) but not paid as of the Termination Date,
including (1) base salary, (ii) reimbursement for reasonable and
necessary expenses incurred by the Executive on behalf of the Company
during the period ending on the Termination Date, (iii) vacation pay
and (iv) bonuses and incentive compensation (other than the "Pro Rata
Bonus" (as hereinafter defined).
2.2 Base Amount. For purposes of this Agreement, "Base
-----------
Amount" shall mean the greater of the Executive's annual base salary
(a) at the rate in effect on the Termination Date or (b) at the
highest rate in effect at any time during the ninety (90) day period
prior to the Change in Control, and shall include all amounts of base
salary that are deferred under the employee benefit plans of the
Company or any other agreement or arrangement.
2.3 Bonus Amount. For purposes of this Agreement, "Bonus
------------
Amount" shall mean the greatest of: (a) 100% of the annual bonus
payable to the Executive under the Company's cash bonus incentive
plan for the fiscal year in which the Termination Date occurs; (b)
the annual bonus paid or payable to the Executive under the Company's
cash bonus incentive plan for the full fiscal year ended prior to the
fiscal year during which the Termination Date occurred; (c) the
annual bonus paid or payable to the Executive under the Company's
cash bonus incentive plan for the full fiscal year ended prior to the
fiscal year during which a Change in Control occurred; (d) the
average of the annual bonuses paid or payable to the Executive under
the Company's cash bonus incentive plan during the three full fiscal
years ended prior to the fiscal year during which the Termination
Date occurred; or (e) the average of the annual bonuses paid or
payable to the Executive under the Company's cash bonus incentive
plan during the three full fiscal years ended prior to the fiscal
year during which the Change in Control occurred.
2.4 Cause. For purposes of this Agreement, a termination
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of employment is for "Cause" if the basis of the termination is
fraud, misappropriation, embezzlement or willful engagement by the
Executive in misconduct which is demonstrably and materially
injurious to the Company and its subsidiaries taken as a whole (no
act, or failure to act, on the part of the Executive shall be
considered "willful" unless done, or omitted to be done, by the
Executive not in good faith and without a reasonable belief that the
action or omission was in the best interests of the Company and it
subsidiaries); provided, however, that the Executive shall not be
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deemed to have been terminated for Cause unless and until there shall
have been delivered to the Executive a Notice of Termination (as
hereinafter defined) and copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of those members of
the Company's Board of Directors who are not then employees of the
Company at a meeting of the Board called and held for the purpose
(after reasonable notice to the Executive and an opportunity for the
executive, together with the Executive's counsel, to be heard before
the Board), finding that, in the good faith opinion of the Board, the
Executive was guilty of the conduct set forth in the first sentence
of this Section 2.4 and specifying the particulars thereof in detail.
2.5 Change in Control. For purposes of this Agreement, a
-----------------
"Change in Control" shall mean any of the following events:
(a) An acquisition (other than directly from the Company)
of any voting securities of the Company (the "Voting Securities") by
any "Person" (as the term is used for purposes of Section 13(d) or
14(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act")) immediately after which such Person has "Beneficial Ownership"
(within the meaning of Rule 13d-3 promulgated under the 0000 Xxx) of
twenty five percent (25%) or more of the combined voting power of the
Company's then outstanding Voting Securities; provided, however, that
in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) shall not constitute an acquisition which would
cause a Change in Control. A "Non-Control Acquisition" shall mean an
acquisition by (1) an employee benefit plan (or a trust forming a
part thereof) maintained by (A) the Company or (B) any corporation or
other Person of which a majority of its voting power or its equity
securities or equity interest is owned directly or indirectly by the
Company (a "Subsidiary"), (2) the Company or any Subsidiary, (3) any
Person in connection with a "Non-Control Transaction" (as hereinafter
defined);
(b) The individuals who are members of the Board as of the
date this Agreement is approved by the Board (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board;
provided, however, that if the appointment, election or nomination
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for election by the Company's stockholders, of any new director is
approved by a vote of at least two-thirds of the Incumbent Board,
such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; provided, further,
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however, that no individual shall be considered a member of the
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Incumbent Board if such individual initially assumed office as a
result of either an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the 0000 Xxx) or actual or
threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board (a "Proxy Contest") including by reason
of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(c) Approval by stockholders of the Company of:
(1) A merger, consolidation or reorganization involving the
Company, unless such merger, consolidation or reorganization
satisfies the conditions set forth in (A) or (B) below:
(A) (i) the stockholders of the Company immediately
before such merger, consolidation or reorganization, own immediately
following such merger, consolidation or reorganization, directly or
indirectly, at least fifty-one percent (51%) of the combined voting
power of the outstanding voting securities of the corporation
resulting from such merger or consolidation or reorganization (the
"Surviving Corporation") in substantially the same proportion as
their ownership of the Voting Securities immediately before such
merger, consolidation or reorganization;
(ii) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for such merger, consolidation or reorganization constitute
at least a majority of the members of the board of directors of the
Surviving Corporation; and
(iii) no Person (other than the Company, any
Subsidiary, any employee benefit plan (or any trust forming a part
thereof) maintained by the Company, the Surviving Corporation or any
Subsidiary, or any Person who, immediately prior to such merger,
consolidation or reorganization, had Beneficial Ownership of twenty
five percent (25%) or more of the then outstanding voting Securities)
has Beneficial Ownership of twenty five percent (25%) or more of the
combined voting power of the Surviving Corporation's then outstanding
voting securities; or
(B) the entering into of any such transaction shall have
been approved by the Incumbent Board prior to or on the date that is
270 calendar days from the effective date of this Agreement and shall
have been intended by the Incumbent Board to be accounted for using
the "pooling of interests" method of accounting, such intent to be
evidenced in the resolutions of the Incumbent Board approving the
transaction;
A transaction described in subsections (A) and (B) above
shall herein be referred to as a "Non-Control Transaction";
(2) A complete liquidation or dissolution of the Company; or
(3) An agreement for the sale or other disposition of all or
substantially all of the assets of the Company to any Person (other
than a transfer to a Subsidiary).
Notwithstanding the foregoing, a Change in Control shall not be
deemed to occur solely because any Person (the "Subject Person")
acquired Beneficial Ownership of more than the permitted amount of
the outstanding Voting Securities as a result of the acquisition of
Voting Securities by the Company which, by reducing the number of
Voting Securities outstanding, increases the proportional number of
shares Beneficially Owned by the Subject Person, provided, however,
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that, if a Change in Control would occur (but for the operation of
this sentence) as a result of the acquisition of Voting Securities by
the Company, and after such share acquisition by the Company the
Subject Person becomes the Beneficial Owner of any additional voting
Securities which increases the percentage of the then outstanding
Voting Securities Beneficially Owned by the Subject Person, then a
Change in Control shall occur.
2.6 Company. For purposes of this Agreement, the "Company"
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shall mean Nellcor Incorporated and its Subsidiaries and shall
include Nellcor's "Successors and Assigns" (as hereinafter defined).
2.7 Disability. For purposes of this Agreement, "Disability"
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shall mean a physical or mental infirmity which impairs the
Executive's ability to substantially perform the Executive's duties
with the Company for a period of one hundred eighty (180) consecutive
days and the Executive has not returned to full time employment prior
to the Termination Date as stated in the "Notice of Termination".
2.8 Good Reason.
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(a) For purposes of this Agreement, "Good Reason" shall mean
the occurrence after a Change in Control of any of the events or
conditions described in subsections (1) through (8) hereof.
(1) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents an adverse change from
the Executive's status, title, position or responsibilities as in
effect at any time within ninety (90) days preceding the date of a
Change in Control or at any time thereafter; the assignment to the
Executive of any duties or responsibilities which, in the Executive's
reasonable judgment, are inconsistent with the Executive's status,
title, position or responsibilities as in effect at any time within
ninety (90) days preceding the date of a Change in Control or at any
time thereafter; or any removal of the Executive from or failure to
reappoint or reelect the Executive to any of such offices or
positions, except in connection with the termination of the
Executive's employment for Disability, Cause, as a result of the
Executive's death or by the Executive other than for Good Reason;
(2) A reduction in the Executive's base salary or any failure
to pay the Executive any compensation or benefits to which the
Executive is entitled within five (5) days of the date due;
(3) the Company's requiring the Executive to be based at any
place outside a 00-xxxx xxxxxx xxxx Xxxxxxxxxx, Xxxxxxxxxx, except
for reasonably required travel on the Company's business which is not
materially greater than such travel requirements prior to the Change
in Control;
(4) the failure by the Company to (A) continue in effect
(without reduction in benefit level and/or reward opportunities) any
material compensation or employee benefit plan in which the Executive
was participating at any time within ninety (90) days preceding the
date of a Change in Control or at any time thereafter, including, but
not limited to, the plans listed on Appendix A, unless such plan is
replaced with a plan that provides substantially equivalent
compensation or benefits to the Executive, or (B) provide the
Executive with compensation and benefits, in the aggregate, at least
equal (in terms of benefit levels and/or reward opportunities) to
those provided for under each other employee benefit plan, program
and practice in which the Executive was participating at any time
within ninety (90) days preceding the date of a Change in Control or
at any time thereafter;
(5) the insolvency or the filing (by any party, including the
Company) of a petition for bankruptcy of the Company, which petition
is not dismissed within sixty (60) days;
(6) any material breach by the Company of any provision of this
Agreement;
(7) any purported termination of the Executive's employment for
Cause by the Company which does not comply with the terms of Section
2, 4: or
(8) the failure of the Company to obtain an agreement,
satisfactory to the Executive, from any Successors and Assigns to
assume and agree to perform this Agreement, as contemplated in
Section 6 hereof.
(b) The Executive's right to terminate the Executive's
employment pursuant to this Section 2.8 shall not be affected by the
Executive's incapacity due to physical or mental illness.
2.9 Notice of Termination. For the purposes of this Agreement,
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following a Change in Control, "Notice of Termination" shall mean a
written notice of termination of the Executive's employment from the
Company, which notice indicates the specific termination provision in
this Agreement relied upon and which sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated.
2.10. Pro Rata Bonus. For purposes of this Agreement, "Pro
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Rata Bonus" shall mean an amount equal to the Bonus Amount multiplied
by a fraction the numerator of which is the number of days in the
fiscal year through the Termination Date and the denominator of which
is 365.
2.11. Successors and Assigns. For purposes of this Agreement,
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"Successors and Assigns" shall mean a corporation or other entity
acquiring all or substantially all of the assets and business of the
Company (including this Agreement) whether by operation of law or
otherwise.
2.12. Termination Date. For purposes of this Agreement,
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"Termination Date" shall mean in, the case of the Executive's death,
the Executive's date of death, in the case of Good Reason, the last
day of the Executive's employment and, in all other cases, the date
specified in the Notice of Termination; provided, however, that if
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the Executive's employment is terminated by the Company for Cause or
due to Disability, the date specified in the Notice of Termination
shall be at least 30 days from the date the Notice of Termination is
given to the Executive, provided that, in the case of Disability, the
Executive shall not have returned to the full-time performance of the
Executive's duties during such period of at least 30 days.
3. Termination of Employment.
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3.1 If, during the term of this Agreement, the Executive's
employment with the Company shall be terminated within twenty-four
(24) months following a Change in Control, the Executive shall be
entitled to the following compensation and benefits:
(a) If the Executive's employment with the Company shall be
terminated (1) by the Company for Cause or Disability, (2) by reason
of the Executive's death or (3) by the Executive other than for Good
Reason, the Company shall pay to the Executive the Accrued
Compensation and, if such termination is other than by the Company
for Cause, the Company shall also pay the Executive a Pro Rata Bonus.
(b) If the Executive's employment with the Company shall be
terminated for any reason other than as specified in Section 3.1(a),
the Executive shall be entitled to the following:
(i) the Company shall pay the Executive all Accrued
Compensation and a Pro Rata Bonus;
(ii) the Company shall pay the Executive as severance
pay and in lieu of any further compensation for periods
subsequent to the Termination Date, in a single
payment, an amount in cash equal to three times the sum
of (A) the Base Amount and (B) the Bonus Amount;
(iii) for a number of months equal to thirty six (36)
(the "Continuation Period"), the Company shall, at its
expense, continue on behalf of the Executive and the
Executive's dependents and beneficiaries the life
insurance, disability, medical, dental and
hospitalization benefits provided (A) to the Executive
at any time during the 90-day period prior to the
Change in Control or at any time thereafter or (B) to
other similarly situated executives who continue in the
employ of the Company during the Continuation Period.
The coverage and benefits (including deductibles and
costs) provided in this Section 3.1(b) (iii) during the
Continuation Period shall be no less favorable to the
Executive and the Executive's dependents and
beneficiaries, than the most favorable of such
coverages and benefits during any of the periods
referred to in clauses (A) and (B) above. The
Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that
the Executive obtains any such benefits pursuant to a
subsequent employer's benefits plans, in which case the
Company may reduce the coverage of any benefits it is
required to provide the Executive hereunder as long as
the aggregate coverages and benefits of the combined
benefit plans are no less favorable to the Executive
than the coverages and benefits required to be provided
hereunder. This subsection (iii) shall not be
interpreted so as to limit any benefits to which the
Executive or the Executive's dependents or
beneficiaries may be entitled under any of the
Company's employee benefit plans, programs or practices
following the Executive's termination of employment,
including without limitation, retiree medical and life
insurance benefits;
(iv) the restrictions on any outstanding equity
incentive awards, including stock options and
restricted stock, granted to the Executive under the
Company's 1991 Equity Incentive Plan (or any
predecessor plans thereto), the Company's 1994 Equity
Incentive Plan or under any other incentive plan or
arrangement shall lapse end such incentive award shall
become 100% vested and, in the case of stock options,
immediately exercisable;
(v) for the duration of the Continuation Period, the
Company shall, at its expense, provide the Executive
with out placement and career counseling services of
the Executive's choice, provided, however, that the
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Company's obligation to pay for such services shall in
no event exceed an aggregate amount equal to 25% of the
Base Amount.
(c) The amounts provided for in Sections 3.1(a) and
3.1(b)(i) and (ii) shall be paid in a single lump sum cash payment
within forty five (45) days after the Executive's Termination Date
(or earlier, if required by applicable law).
(d) The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment or otherwise, and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the
Executive in any subsequent employment except as provided in Section
3.1(b) (iii).
3.2 (a) The severance pay and benefits provided for in this
Section 3 shall be in lieu of any other severance or termination pay
to which the Executive may be entitled under any Company severance or
termination plan, program, practice or arrangement.
(b) The Executive's entitlement to any other compensation
or benefits shall be determined in accordance with the Company's
employee benefit plans (including, the plans listed on Appendix A)
and other applicable programs, policies and practices then in effect,
4. Notice of Termination. Following a Change in Control,
---------------------
any purported termination of the Executive's employment shall be
communicated by Notice of Termination to the Executive. For purposes
of this Agreement, no such purported termination shall be effective
without such Notice of Termination.
5. Excise Tax Limitation.
---------------------
(a) Notwithstanding anything contained in this Agreement,
in the event that any payment or benefit (within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended
(the "Code")), to the Executive or for the Executive's benefit paid
or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise in connection with, or arising out of,
the Executive's employment with the Company or a Change in Control (a
"Payment" or "Payments") would be subject to the excise tax imposed
by Section 4999 of the Code (the "Excise Tax"), the Payments shall be
reduced (but not below zero) if and to the extent necessary so that
no Payment to be made or benefit to be provided to the Executive
shall be subject to the Excise Tax (such reduced Payments being
hereinafter referred to as the "Limited Payment Amount"). Unless the
Executive shall have given prior written notice specifying a
different order to the Company to effectuate the Limited Payment
Amount, the Company shall reduce or eliminate the Payments by first
reducing or eliminating cash payments and then by reducing those
payments or benefits which are not payable in cash, in each case in
reverse order beginning with payments or benefits which are to be
paid the farthest in time from the Determination (as hereinafter
defined). Any notice given by the Executive pursuant to the
preceding sentence shall take precedence over the provisions of any
other plan, arrangement or agreement governing the Executive's rights
and entitlements to any benefits or compensation.
(b) An initial determination as to whether the Payments
shall be reduced to the Limited Payment Amount and the amount of such
Limited Payment Amount shall be made, at the Company's expense, by
the accounting firm that is the Company's independent accounting firm
as of the date of the Change in Control (the "Accounting Firm"). The
Accounting Firm shall provide its determination (the
"Determination"), together with detailed supporting calculations and
documentation, to the Company and the Executive within twenty (20)
days of the Termination Date if applicable, or such other time as
requested by the Company or by the Executive (provided the Executive
reasonably believes that any of the Payments may be subject to the
Excise Tax), and if the Accounting Firm determines that there is
substantial authority (within the meaning of Section 6662 of the
Code) that no Excise Tax is payable by the Executive with respect to
a Payment or Payments, it shall furnish the Executive with an opinion
reasonably acceptable to the Executive that no Excise Tax will be
imposed with respect to any such Payment or Payments. Within ten
(10) days of the delivery of the Determination to the Executive, the
Executive shall have the right to dispute the Determination (the
"Dispute"). If there is no Dispute, the Determination shall be
binding, final and conclusive upon the Company and the Executive
subject to the application of Section 5(c) below.
(c) As a result of the uncertainty in the application of
Sections 4999 and 280G of the Code, it is possible that the Payments
to be made to, or provided for the benefit of, the Executive either
will be greater (an "Excess Payment") or less (an "Underpayment")
than the amounts provided for by the limitations contained in Section
5(a). If it is established pursuant to a final determination of a
court or an Internal Revenue Service (the "IRS") proceeding which has
been finally and conclusively resolved that an Excess Payment has
been made, such Excess Payment shall be deemed for all purposes to be
a loan to the Executive made on the date the Executive received the
Excess Payment and the Executive shall repay the Excess Payment to
the Company on demand (but not less than ten (10) days after written
notice is received by the Executive) together with interest on the
Excess Payment at the "Applicable Federal Rate" (as defined in
Section 1274(d) of the Code) from the date of the Executive's receipt
of such Excess Payment until the date of such repayment. In the
event that it is determined by (i) the Accounting Firm, the Company
(which shall include the position taken by the Company, or together
with its consolidated group, on its federal income tax return) or the
IRS, (ii) pursuant to a determination by a court, or (iii) upon the
resolution to the Executive's satisfaction of the Dispute that an
Underpayment has occurred, the Company shall pay an amount equal to
the Underpayment to the Executive within ten (10) days of such
determination or resolution, together with interest on such amount at
the Applicable Federal Rate from the date such amount would have been
paid to the Executive until the date of payment.
6. Successors: Binding Agreement.
-----------------------------
(a) This Agreement shall be binding upon and shall inure to
the benefit of the Company, its Successors and Assigns and the
Company shall require any Successors and Assigns to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no
such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest
hereunder shall be assignable or transferable by the Executive or the
Executive's beneficiaries or legal representatives, except by will or
by the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
personal representative.
7. Fees and Expenses. The Company shall pay all legal fees
-----------------
and related expenses (including the costs of experts, evidence and
counsel) incurred by the Executive as they become due as a result of
(a) the Executive's termination of employment (including all such
fees and expenses, if any, incurred in contesting or disputing any
such termination of employment), (b) the Executive seeking to obtain
or enforce any right or benefit provided by this Agreement
(including, but not limited to, any such fees and expenses incurred
in connection with the Dispute whether as a result of any applicable
government taxing authority proceeding, audit or otherwise) or by any
other plan or arrangement maintained by the Company under which the
Executive is or may be entitled to receive benefits, and (c) the
Executive's hearing before the Board as contemplated in Section 2.4
of this Agreement; provided, however, that the circumstances set
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forth in clauses (a) and (b) occurred on or after a Change in
Control.
8. Notice. For the purposes of this Agreement, notices and
------
all other communications provided for in the Agreement (including the
Notice of Termination) shall be in writing and shall be deemed to
have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, addressed to the
respective addresses last given by each party to the other, provided
that all notices to the Company shall be directed to the attention of
the Board with a copy to the Secretary of the Company. All notices
and communications shall be denied to have been received on the date
of delivery thereof or on the third business day after the mailing
thereof, except that notice of change of address shall be effective
only upon receipt.
9. Non-exclusivity of Rights. Nothing in this Agreement shall
-------------------------
prevent or limit the Executive's continuing or future participation
in any benefit, bonus, incentive or other plan or program provided by
the Company (except for any severance or termination policies, plans,
programs or practices) and for which the Executive may qualify, nor
shall anything herein limit or reduce such rights as the Executive
may have under any other agreements with the Company (except for any
severance or termination agreement). Amounts which are vested
benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company shall be payable in
accordance with such plan or program, except as explicitly modified
by this Agreement.
10. Settlement of Claims. The Company's obligation to make the
--------------------
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances,
including, without limitation, any set-off, counterclaim, recoupment,
defense or other right which the Company may have against an
Executive or others.
11. Miscellaneous. No provision of this Agreement may be
-------------
modified, waived or discharged, unless such waiver, modification or
discharge is agreed to in writing and signed by the Executive and the
Company. No waiver by either party hereto at any time of any breach
by the other party hereto, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall
be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time. No agreement or
representation, oral or otherwise, express or implied, with respect
to the subject matter hereof have been made by either party which are
not expressly set forth in this Agreement.
12. Governing Law. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of
California without giving effect to the conflict of laws principles
thereof. Any action brought by any party to this Agreement shall be
brought and maintained in a court of competent jurisdiction in
Alameda County in the State of California.
13. Severability. The provisions of this Agreement shall be
------------
deemed severable and the invalidity or unenforceability of any
provision shall not affect the validity or enforceability of the
other provisions hereof.
14. Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties hereto and supersedes all prior
agreements, if any, understandings and arrangements, oral or written,
between the parties hereto with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Executive has
executed this Agreement as of the day and year first above written.
NELLCOR INCORPORATED EXECUTIVE
By: /s/ X. Xx Xxxxx /s/ C. Xxxxxxx Xxxxxx, Xx.
------------------------------- --------------------------
C. Xxxxxxx Xxxxxx, Xx.
President and Chief
Executive Officer
Vice-President, Human Resources,
Its: General Counsel and Secretary
-----------------------------
ATTEST:
By: /s/ X. Xxxxxx
----------------------------
Its: ----------------------------
