EXHIBIT 10.5
EMPLOYMENT AGREEMENT
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AGREEMENT by and between Medtronic, Inc., a Minnesota corporation (the
"Company") and ____________________________ (the "Executive"), dated as of the
______ day of ____________________.
The Board of Directors of the Company (the "Board"), has determined
that it is in the best interests of the Company and its shareholders to assure
that the Company will have the continued dedication of the Executive,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company. The Board believes it is imperative to diminish
the inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Executive's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control, and
to provide the Executive with compensation and benefits arrangements upon a
Change of Control which are competitive with those of other corporations and
which ensure that the compensation and benefits expectations of the Executive
will be satisfied. Therefore, in order to accomplish these objectives, the Board
has caused the Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions.
(a) The "Effective Date" shall mean the first date during the Change of
Control Period (as defined in Section l (b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs, and if it is
reasonably demonstrated by the Executive that such termination of employment or
cessation of status as an officer (i) was at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control or (ii)
otherwise arose in connection with or anticipation of the Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment or cessation of
status as an officer.
(b) The "Change of Control Period" shall mean the period commencing on
the date hereof and ending on the third anniversary of such date; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give written notice to the Executive that
the Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) Any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person) becomes the beneficial owner (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 30% or more of either (i) the
then outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however,
that, for purposes of this Section 2(a), the following acquisitions shall not
constitute a Change of Control: (1) any acquisition directly from the Company,
(2) any acquisition by the Company or any of its subsidiaries, (3) any
acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries, (4) any acquisition by an
underwriter temporarily holding securities pursuant to an offering of such
securities or (5) any acquisition pursuant to a transaction that complies with
clauses (i), (ii) and (iii) of Section 2(c); or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Directors") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director subsequent
to the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the Incumbent
Directors then on the Board (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without written objection to such nomination) shall be considered as
though such individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest or other actual or
threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board; or
(c) Consummation of a reorganization, merger, statutory share exchange
or consolidation (or similar corporate transaction) involving the Company or any
of its subsidiaries, a sale or other disposition of all or substantially all of
the assets of the Company, or the acquisition of assets or stock of another
entity (a "Business Combination"), in each case, unless, immediately following
such Business Combination, (i) substantially all of the individuals and entities
who were the beneficial owners, respectively, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 55% of,
respectively, the then outstanding shares of common stock and the total voting
power of (A) the corporation resulting from such Business Combination (the
"Surviving Corporation") or (B) if applicable, the ultimate parent corporation
that directly or indirectly has beneficial ownership of 80% or more of the
voting securities eligible to elect directors of the Surviving Corporation (the
"Parent Corporation"), in substantially the same proportion as their ownership,
immediately prior to the Business Combination, of the Outstanding Company Common
Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no
person (other than any employee benefit plan (or related trust) sponsored or
maintained by the Surviving Corporation or the Parent Corporation), is or
becomes the beneficial owner, directly or indirectly, of 30% or more of the
outstanding shares of common stock and the total voting power of the outstanding
voting
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securities eligible to elect directors of the Parent Corporation (or, if
there is no Parent Corporation, the Surviving Corporation) and (iii) at least a
majority of the members of the board of directors of the Parent Corporation (or,
if there is no Parent Corporation, the Surviving Corporation) following the
consummation of the Business Combination were Incumbent Directors at the time of
the Board's approval of the execution of the initial agreement providing for
such Business Combination; or
(d) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
Notwithstanding the foregoing provisions of this Section 2, a Change of
Control shall not be deemed to occur with respect to the Executive if the
acquisition of the 30% or greater interest referred to in Section 2(a) is by a
group, acting in concert, that includes the Executive or if at least 40% of the
then outstanding common stock or combined voting power of the then outstanding
voting securities (or voting equity interests) of the Surviving Corporation or,
if applicable, the Parent Corporation shall be beneficially owned, directly or
indirectly, immediately after a Business Combination by a group, acting in
concert, that includes the Executive.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the employ
of the Company, for the period commencing on the Effective Date and ending on
the third anniversary of such date (the "Employment Period"), provided that
nothing stated in this Agreement shall restrict the right of the Company or the
Executive at any time to terminate the Executive's employment with the Company,
subject to the obligations of the Company provided for in this Agreement in the
event of such terminations.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (A) the Executive's position
(including status, offices, titles and reporting requirements), authority,
duties and responsibilities shall be at least commensurate in all material
respects with the most significant of those held, exercised and assigned at any
time during the 90-day period immediately preceding the Effective Date and (B)
the Executive's services shall be performed at the location where the Executive
was employed immediately preceding the Effective Date or any office or location
less than 35 miles from such location.
(ii) Except as otherwise expressly provided in this Agreement,
during the Employment Period, and excluding any periods of vacation and sick
leave to which the Executive is entitled, the Executive agrees to devote
reasonable attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge the
responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking
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engagements or teach at educational institutions and (C) manage personal
investments, so long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and agreed that to
the extent that any such activities have been conducted by the Executive prior
to the Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the performance of the
Executive's responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the Executive
shall receive an annual base salary ("Annual Base Salary") which Annual Base
Salary shall be paid at a monthly rate, at least equal to 12 times the highest
monthly base salary paid or payable, including any base salary that has been
earned but deferred, whether in a deferred compensation program, by means of
exchange into stock options, or otherwise, to the Executive by the Company and
the affiliated companies in respect of the 12-month period immediately preceding
the month in which the Effective Date occurs. During the Employment Period, the
Annual Base Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent with
increases in base salary generally awarded in the ordinary course of business to
other peer executives of the Company and its affiliated companies. Any increase
in Annual Base Salary shall not serve to limit or reduce any other obligation to
the Executive under this Agreement. Annual Base Salary shall not be reduced
after any such increase and the term Annual Base Salary as utilized in this
Agreement shall refer to Annual Base Salary as so increased. As used in this
Agreement, the term "affiliated companies" shall include any company controlled
by, controlling or under common control with the Company.
(ii) Annual Incentive Payments. (A) In addition to Annual Base
Salary, the Executive shall be paid, for each fiscal year ending during the
Employment Period, an annual bonus ("Annual Bonus") in cash at least equal to
the Executive's average annual or annualized (for any fiscal year consisting of
less than 12 full months or with respect to which the Executive has been
employed by the Company for less than 12 full months) award earned by the
Executive, including any award earned but deferred, whether in a deferred
compensation program, by means of exchange into stock options, or otherwise,
under the Company's Management Incentive Plan, as amended from time to time
prior to the Effective Date (or under any successor or replacement annual
incentive plan of the Company or any of the affiliated companies), for the last
three fiscal years immediately preceding the fiscal year in which the Effective
Date occurs (the "Three-Year Average Bonus").
(B) For each PSP Award (as defined below) of the Executive
outstanding as of the Effective Date, a pro rata payout shall be made to the
Executive as of the Effective Date, in shares or cash (at the election of the
Company) equal to the number of shares covered by the PSP Award multiplied by
the performance-based accrual percentage pertaining to such PSP Award as of the
Effective Date, multiplied by a fraction the numerator of which is the number of
months elapsed from the date the PSP Award was granted through the Effective
Date and the denominator of which is the number of months from the date the PSP
Award was granted through the PSP Award's scheduled maturity date. For purposes
of this Agreement, a PSP
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Award is "granted" at the time that the Executive is notified that such award
has been reserved for him or her, and "distributed" at the time that it is paid
out to the Executive (e.g., under the Company's current plan, which has a
three-year performance cycle, a PSP Award granted in 2001 will be distributed in
2004).
(C) For each fiscal year during the Employment Period in
which the Company does not grant a PSP Award as part of a program complying with
Section 4(b)(iii) of this Agreement, the Executive shall also be provided an
annual incentive payment (the "Annual Performance Share Equivalent") in cash at
least equal to the average annual or annualized (for any fiscal year consisting
of less than 12 full months or with respect to which the Executive has been
employed by the Company for less than 12 full months) dollar value of awards
distributed to Executive (each such award, a "PSP Award"), including any such
distributions that were earned but deferred, whether in a deferred compensation
program, by means of exchange into stock options, or otherwise, for the three
fiscal years immediately preceding the fiscal year in which the Effective Date
occurs, pursuant to the terms of the Company's performance share or restricted
share plans or programs (or under any successor or replacement plan or program
of the Company or any of the affiliated companies), as amended from time to time
prior to the Effective Date (such three-year average, the "Three-Year Average
PSP Award"); PROVIDED, HOWEVER, that for each such prior year for which a PSP
Award was not distributed to the Executive, the calculation of the Three-Year
Average PSP Award shall include an amount that represents what the Executive's
PSP Award would have been in that year (or, if no PSP Awards were distributed in
such year, in the last preceding year in which PSP Awards were distributed) had
such award had a dollar value equal to the average dollar value of the PSP
Awards distributed to peer executives employed by the Company (who received PSP
Awards pursuant to the same category of benefit applicable to Executive) in that
year. (The Annual Bonus and the Annual Performance Share Equivalent are herein
referred to collectively as the "Annual Incentive Payments".) The Annual
Incentive Payments shall be paid to Executive, unless the Executive shall elect
to defer the receipt of such Annual Incentive Payments, no later than the end of
the third month of the fiscal year following the year for which the Annual
Incentive Payments are paid.
(iii) Stock Programs, Savings Plans and Retirement Plans. During
the Employment Period, the Executive shall be entitled to participate in all
plans, practices, policies and programs ("Plans") applicable generally to peer
executives of the Company and the affiliated companies, including, without
limitation, all such Plans providing for the receipt of common stock, restricted
stock, or stock options, and all such incentive, savings and retirement Plans;
provided, however, that in no event shall such Plans provide the Executive with
savings opportunities, retirement benefit opportunities, or incentive or stock
opportunities (measured with respect to both regular and special incentive or
stock opportunities, to the extent, if any, that such distinction is applicable)
in each case, that are less favorable, in the aggregate, than the most favorable
of those provided by the Company and the affiliated companies for the Executive
under such Plans as in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and the affiliated companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in
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and shall receive all benefits under welfare benefit Plans provided by the
Company and the affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group life,
accidental death and travel accident insurance Plans) to the extent applicable
generally to other peer executives of the Company and the affiliated companies,
but in no event shall such Plans provide the Executive with benefits which are
less favorable, in the aggregate, than the most favorable of such Plans in
effect for the Executive at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, those
provided generally at any time after the Effective Date to other peer executives
of the Company and the affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall
be entitled to receive prompt reimbursement for all reasonable expenses incurred
by the Executive in accordance with the most favorable policies, practices and
procedures of the Company and the affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and the
affiliated companies.
(vi) Business Allowance. During the Employment Period, the
Executive shall be entitled to a business allowance in accordance with the most
favorable Plans of the Company and the affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and the
affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and the affiliated companies at any time during
the 90-day period immediately preceding the Effective Date or, if more favorable
to the Executive, as provided generally at any time thereafter with respect to
other peer executives of the Company and the affiliated companies.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacations in accordance with the most favorable Plans
of the Company and the affiliated companies as in effect for the Executive at
any time during the 90-day period immediately preceding the Effective Date or,
if more favorable to the Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and the
affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If the
Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to
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terminate the Executive's employment. In such event, the Executive's employment
with the Company shall terminate on the 30th day after receipt of such notice by
the Executive (the "Disability Effective Date"), provided that, within the 30
days after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive days as a result of
incapacity due to mental or physical illness which is determined to be total and
permanent by a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such agreement as to
acceptability not to be withheld unreasonably).
(b) Cause. (i) The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean (A) repeated violations by the Executive of the Executive's
obligations under Section 4(a) of this Agreement (other than as a result of
incapacity due to physical or mental illness) which are demonstrably willful and
deliberate on the Executive's part, which are committed in bad faith or without
the belief on the part of the Executive that such violations are in the best
interests of the Company and which are not remedied in a reasonable period of
time after receipt of written notice from the Company specifying such violations
or (B) the conviction of the Executive of a felony involving moral turpitude.
(ii) For purposes of Section 5(b)(i)(A) of this Agreement, no act, or
failure to act, on the part of the Executive shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in bad faith and
without reasonable belief that the Executive's action or omission was in the
best interests of the Company. Any act, or failure to act, based upon authority
given pursuant to a resolution duly adopted by the Board or upon the
instructions of the Chief Executive Officer of the Company or a senior officer
of the Company or based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company.
(c) Good Reason. The Executive's employment may be terminated by the
Executive for Good Reason or by the Executive voluntarily without Good Reason.
For purposes of this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as contemplated
by Section 4(a) of this Agreement, or any diminution in such position,
authority, duties or responsibilities (whether or not occurring solely as a
result of the Company ceasing to be a publicly traded entity or becoming a
subsidiary), excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and that is remedied by the Company
promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 4(b) of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and that is
remedied by the Company promptly after receipt of notice thereof given by the
Executive;
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(iii) the Company's requiring the Executive to be based at any
office or location other than that described in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to be based at a location other than the
principal executive offices of the Company (if the Executive were employed at
such location immediately preceding the Effective Date) or the Company's
requiring the Executive to travel on Company business to a substantially greater
extent than required immediately prior to the Effective Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive during the 30-day
period immediately following the first anniversary of the Effective Date (the
"Window Period") which would not otherwise constitute Good Reason shall be
deemed to be a termination by the Executive for Good Reason for all purposes of
this Agreement. The Executive's mental or physical incapacity following the
occurrence of an event described above in clauses (i) through (v) shall not
affect the Executive's ability to terminate employment for Good Reason.
(d) Notice of Termination. Any termination by the Company for Cause, or
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, 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 and (iii) if the
Date of Termination (as defined herein) is other than the date of receipt of
such notice, specifies the Date of Termination (which Date of Termination shall
be not more than 30 days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason or Cause,
respectively, shall not waive any right of the Executive or the Company,
respectively, hereunder or preclude the Executive or the Company from asserting
such fact or circumstance in enforcing the Executive's or the Company's
respective rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified in the Notice of Termination (which date shall not be
more than 30 days after the giving of such notice), as the case may be, (ii) if
the Executive's employment is terminated by the Company other than for Cause or
Disability or death, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
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6. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause, Death or Disability. If, during
the Employment Period, the Company terminates the Executive's employment other
than for Cause or Disability or the Executive terminates employment for Good
Reason, in lieu of further payments pursuant to Section 4(b) with respect to
periods following the Date of Termination:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts (such aggregate shall be hereinafter referred to as the "Special
Termination Amount"):
(A) the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2) the
product of (x) the sum of the Three-Year Average Bonus (or, if higher, the
Annual Bonus paid or payable, including any portion thereof that has been earned
but deferred, whether in a deferred compensation program, by means of exchange
into stock options, or otherwise (and annualized for any fiscal year consisting
of less than 12 full months or for which the Executive has been employed for
less than 12 full months), for the most recently completed fiscal year during
the Employment Period, if any), and, unless a PSP Award has previously been
granted to the Executive for the fiscal year in which the Date of Termination
occurs, the Annual Performance Share Equivalent, and (y) a fraction, the
numerator of which is the number of days in the current fiscal year through the
Date of Termination, and the denominator of which is 365, in lieu of any amounts
otherwise payable pursuant to an Annual Bonus or Annual Performance Share
Equivalent, in each case solely with respect to the year in which the Date of
Termination occurs, (3) for each PSP Award outstanding as of the Date of
Termination, if any, a pro rata payout, in shares or cash (at the election of
the Company) equal to the number of shares covered by the PSP Award multiplied
by the performance-based accrual percentage pertaining to such PSP Award as of
the Date of Termination, multiplied by a fraction the numerator of which is the
number of months elapsed from the date the PSP Award was granted through the
Date of Termination and the denominator of which is the number of months from
the date the PSP Award was granted through the PSP Award's scheduled maturity
date, (4) any accrued vacation pay, in each case, to the extent not theretofore
paid, and (5) the amount of any compensation previously deferred by the
Executive, whether in a deferred compensation program, by means of exchange into
stock options, or otherwise (the sum of the amounts described in subclauses (1),
(2), (3), (4) and (5), the "Accrued Obligations"); and
(B) the amount equal to the product of (1) three (two, in
the case of a voluntary termination by the Executive during the Window Period
pursuant to the penultimate sentence of Section 5(c)), and (2) the sum of (x)
the Executive's Annual Base Salary, and (y) the higher of (I) the Three-Year
Average Bonus and (II) the Annual Bonus paid or payable to the Executive for the
most recently completed fiscal year during the Employment Period prior to the
Date of Termination;
(C) for the remainder of the Employment Period (or for the
lesser of two years or the remainder of the Employment Period, in the case of a
voluntary termination by the Executive during the Window Period pursuant to the
penultimate sentence of Section 5(c)), or such longer period as any plan,
program, practice or policy may provide, the
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Company shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in accordance
with the Plans described in Section 4(b)(iv) of this Agreement if the
Executive's employment had not been terminated, in accordance with the most
favorable Plans of the Company and the affiliated companies applicable generally
to other peer executives and their families during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer executives of
the Company and the affiliated companies and their families, in either case upon
the same terms and conditions (including any applicable required employee
contributions); provided, however, that if the Executive becomes re-employed
with another employer and is eligible to receive medical, disability or other
welfare benefits under another employer-provided plan, the medical, disability
or other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility. Following
the end of the period during which medical benefits are provided pursuant to
this Section 6(a)(ii), the Executive shall be eligible for continued health
coverage as required by Section 4980B of the Code or other applicable law, as if
the Executive's employment with the Company had terminated as of the end of such
period. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits pursuant to such
Plans, the Executive shall be considered to have remained employed until the end
of the Employment Period and to have retired on the last day of such period; and
(ii) Except as otherwise set forth in the last sentence of
Section 7, to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits that the
Executive is otherwise entitled to receive under any other plan, program,
practice, policy, contract, arrangement or agreement of the Company or the
affiliated companies (such other amounts and benefits, the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
Executive's death during the Employment Period, the Company shall provide the
Executive's estate or beneficiaries with the Accrued Obligations and the timely
payment or delivery of the Other Benefits, and shall have no other severance
obligations under this Agreement. The Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of the Other
Benefits, the term "Other Benefits" as used in this Section 6(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and the affiliated companies to the estates and
beneficiaries of peer executives of the Company and the affiliated companies
under such Plans relating to death benefits, if any, as in effect with respect
to other peer executives and their beneficiaries at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Executive's estate and/or the Executive's beneficiaries, as in effect on the
date of the Executive's death with respect to other peer executives of the
Company and the affiliated companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason
of the Executive's Disability during the Employment Period, the Company shall
provide the Executive with the Accrued Obligations and the timely payment or
delivery of the Other Benefits, and shall have no other severance obligations
under this Agreement. The Accrued Obligations shall be
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paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination. With respect to the provision of the Other Benefits, the term
"Other Benefits" as used in this Section 6(c) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and the affiliated companies to disabled executives and/or their
families in accordance with such Plans relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 90-day period immediately preceding the Effective Date or, if
more favorable to the Executive and/or the Executive's family, as in effect at
any time thereafter generally with respect to other disabled peer executives of
the Company and the affiliated companies and their families.
(d) Cause; Other Than for Good Reason. If the Executive's employment is
terminated for Cause during the Employment Period, the Company shall provide to
the Executive (i) the Executive's Annual Base Salary through the Date of
Termination, (ii) the amount of any compensation previously deferred by the
Executive, whether in a deferred compensation program, by means of exchange into
stock options, or otherwise, and (iii) the Other Benefits, in each case to the
extent theretofore unpaid, and shall have no other severance obligations under
this Agreement. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, the Company shall
provide to the Executive the Accrued Obligations and the timely payment or
delivery of the Other Benefits, and shall have no other severance obligations
under this Agreement. In such case, all of the Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent
or limit the Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of the affiliated
companies (other than participation in any severance plan upon the Executive's
termination of employment during the Employment Period) and for which the
Executive may qualify, nor, subject to Section 12(f) of this Agreement, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of the affiliated
companies. Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of the affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. If the Executive receives payments and benefits
pursuant to Section 6(a) of this Agreement, the Executive shall not be entitled
to any other severance pay or benefits under any severance plan, program or
policy of the Company or the affiliated companies, unless expressly provided
therein in a specific reference to this Agreement.
8. Full Settlement. 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 set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as
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incurred (within 30 days following the Company's receipt of an invoice from the
Executive), to the full extent permitted by law, all legal fees and expenses
which the Executive may reasonably incur as a result of any contest (regardless
of the outcome thereof) by the Company, the Executive or others of the validity
or enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable federal rate
provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event it shall be determined that any payment or distribution by the Company to
or for the benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Executive with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. The Company's obligation to make Gross-Up Payments
under this Section 9 shall not be conditioned upon the Executive's termination
of employment.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by
PricewaterhouseCoopers or such other nationally recognized certified public
accounting firm as may be designated by the Executive (the "Accounting Firm")
which shall provide detailed supporting calculations both to the Company and the
Executive within 15 business days of the receipt of notice from the Executive
that there has been a Payment, or such earlier time as is requested by the
Company. In the event that the Accounting Firm is serving as accountant or
auditor for the individual, entity or group effecting the Change of Control, the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the "Accounting Firm" hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 9, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is
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possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and the Executive shall apprise the Company of the
nature of such claim and the date on which such claim is requested to be paid.
The Executive shall not pay such claim prior to the expiration of the 30-day
period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that the Company desires to
contest such claim, the Executive shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to
effectively contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions of
this Section 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole discretion, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and xxx for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and xxx for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or
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income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income in connection with
such advance; and provided, further, that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which the Gross-Up Payment
would be payable hereunder and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall comply with any and
all confidentiality agreements with the Company to which the Executive is, or
shall be, a party.
11. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive other
than by will or the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns. Except as provided in Section 11(c)
of this Agreement, this Agreement shall not be assignable by the Company.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly 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 had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Minnesota, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This
14
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.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
--------------------
If to the Company:
------------------
Medtronic, Inc.
[LEGAL DEPT. LC300
000 XXXXXXXXX XXXXXXX
XXXXXXXXXXX, XX 00000-0000]
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) 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.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Sections 5(c)(i) through 5(c)(v) of this Agreement, shall not be
deemed to be a waiver of such provision or right or any other provision or right
of this Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company may be
terminated by either the Executive or the Company at any time prior to the
Effective Date or, subject to the obligations of the Company provided for in
this Agreement in the event of a termination after the Effective Date, at any
time on or after the Effective Date. Moreover, if prior to the Effective Date,
(i) the Executive's employment with the Company terminates or (ii) the Executive
ceases to be an officer of the Company, then the Executive shall have no further
rights under this Agreement. From and after the Effective Date, except with
respect to the agreements described in Section 10 hereof, this
15
Agreement shall supersede any other agreement between the parties with respect
to the subject matter hereof, including, without limitation, the Management
Agreement, if any, between the Company and the Executive in effect immediately
prior to the execution of this Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
_________________________________ MEDTRONIC, INC.
By _____________________________
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