Exhibit 10.1

 

SEVERANCE AGREEMENT

 

This agreement (this “Agreement”) is made as of the _____ day of _______, 2008,
between St. Jude Medical, Inc., a Minnesota corporation, with its principal
offices at One Lillehei Plaza, St. Paul, Minnesota 55117 (the “Company”) and
XXXXX (“Executive”), residing at ________________________.

 

WITNESSETH THAT:

 

WHEREAS, this Agreement is intended to specify the financial arrangements that
the Company will provide to Executive upon Executive’s separation from
employment with the Company under any of the circumstances described herein; and

 

WHEREAS, this Agreement is intended to replace and supersede the existing
Severance Agreement between the Company and Executive dated as of
___________________ relating to payments to be made to Executive upon a change
in control of the Company (the “Prior Agreement”); and         

 

WHEREAS, this Agreement is entered into by the Company in the belief that it is
in the best interests of the Company and its shareholders to provide stable
conditions of employment for Executive notwithstanding the possibility, threat
or occurrence of certain types of change in control, thereby enhancing the
Company’s ability to attract and retain highly qualified people.

 

NOW, THEREFORE, to assure the Company that it will have the continued dedication
of Executive notwithstanding the possibility, threat or occurrence of a bid to
take over control of the Company, and to induce Executive to remain in the
employ of the Company, and for other good and valuable consideration, the
Company and Executive agree as follows:

 

1.         Term of Agreement. The term of this Agreement shall commence on the
date hereof as first written above and shall continue through January 1, 2009;
provided that commencing on January 1, 2009 and each January 1st thereafter,
during Executive’s employment by the Company, the term of this Agreement shall
automatically be extended for one additional year unless not later than December
31 of the preceding year, the Company shall have given notice that it does not
wish to extend this Agreement; and provided, further, that notwithstanding any
such notice by the Company not to extend, this Agreement shall continue in
effect for a period of 36 months beyond the term provided herein if a Change in
Control (as defined in Section 3(i) hereof) shall have occurred during such
term.

 

2.         Termination of Employment.

 

(i)        Prior to a Change in Control. Executive’s rights upon termination of
employment prior to a Change in Control (as defined in Section 3(i) hereof)
shall be governed by the Company’s standard employment termination policy
applicable to Executive in effect at the time of termination or, if applicable,
any written employment agreement between the Company and Executive other than
this Agreement in effect at the time of termination.

 

--------------------------------------------------------------------------------

(ii)         After a Change in Control.

 

(a)       From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement, the Company shall not terminate
Executive from employment with the Company except as provided in this Section
2(ii) or as a result of Executive’s Disability (as defined in Section 3(iv)
hereof), Retirement (as defined in Section 3(v) hereof) or death.

 

(b)       From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement, the Company shall have the right
to terminate Executive from employment with the Company at any time during the
term of this Agreement for Cause (as defined in Section 3(iii) hereof), by
written notice to Executive, specifying the particulars of the conduct of
Executive forming the basis for such termination.

 

(c)       From and after the date of a Change in Control (as defined in Section
3(i) hereof) during the term of this Agreement: (x) the Company shall have the
right to terminate Executive’s employment without Cause (as defined in Section
3(iii) hereof), at any time; and (y) Executive shall, upon the occurrence of
such a termination by the Company without Cause, or upon the voluntary
termination of Executive’s employment by Executive for Good Reason (as defined
in Section 3(ii) hereof), be entitled to receive the benefits provided in
Section 4 hereof. Executive shall evidence a voluntary termination for Good
Reason by written notice to the Company given within 60 days after the date of
the occurrence of any event that Executive knows or should reasonably have known
constitutes Good Reason for voluntary termination. Such notice need only
identify Executive and set forth in reasonable detail the facts and
circumstances claimed by Executive to constitute Good Reason. Any notice given
by Executive pursuant to this Section 2 shall be effective five business days
after the date it is given by Executive. For purposes of this Agreement, a
termination of Executive’s employment shall be effective as of the Separation
Date.

 

3.         Definitions.

 

 

(i)

A “Change in Control” shall mean:

 

(a)       a change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or successor provision
thereto, whether or not the Company is then subject to such reporting
requirement;

 

(b)       any “person” (as such term is used in Sections 13(d) of the Exchange
Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated
under the Exchange Act), directly or indirectly, of securities of the Company
representing 35% or more of the combined voting power of the Company’s then
outstanding securities;

 

(c)       the Continuing Directors (as defined in Section 3(vi) hereof) cease to
constitute a majority of the Company’s Board of Directors; provided that such
change is the direct or indirect result of a proxy fight and contested election
or elections for positions on the Board of Directors; or

 

2

--------------------------------------------------------------------------------

(d)       the majority of the Continuing Directors (as defined in Section 3(vi)
hereof), excluding any Continuing Director who has this Severance Agreement,
determine in their sole and absolute discretion that there has been a change in
control of the Company.

 

(ii)       “Good Reason” shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of Executive’s employment by the Company for Cause
(as defined in Section 3(iii) hereof), for Disability (as defined in Section
3(iv) hereof), for Retirement (as defined in Section 3(v) hereof) or for death:

 

(a)       the assignment to Executive of any duties inconsistent with
Executive’s status or position with the Company, or a substantial alteration in
the nature or status of Executive’s responsibilities from those in effect
immediately prior to the Change in Control;

 

(b)       a reduction by the Company in Executive’s annual compensation in
effect immediately prior to the Change in Control;

 

(c)       the Company’s requiring Executive to be based anywhere other than
within 50 miles of Executive’s office location immediately prior to a Change in
Control except for required travel on the Company’s business to an extent
substantially consistent with Executive’s business travel obligations
immediately prior to the Change in Control;

 

(d)       the failure by the Company to continue to provide Executive with
benefits at least as favorable to those enjoyed by Executive under any of the
Company’s pension, life insurance, medical, health and accident, disability,
deferred compensation, incentive, stock, stock purchase, stock option, savings,
perk package or other plans or programs in which Executive participates, or any
action by the Company which would directly or indirectly materially reduce any
of such benefits or deprive Executive of any material fringe benefit enjoyed
immediately prior to the Change in Control, or the failure by the Company to
provide Executive with the number of paid vacation days to which Executive is
entitled immediately prior to the Change in Control; or

 

(e)       the failure of the Company to obtain, as specified in Section 6(i)
hereof, an assumption of the obligations of the Company to perform this
Agreement by any successor to the Company.

 

Notwithstanding anything herein to the contrary, if the Change in Control arises
from a transaction or series of transactions which are not authorized,
recommended or approved by formal action taken by the Continuing Directors (as
defined in Section 3(vi) hereof), Executive may voluntarily terminate his or her
employment for any reason on the 180th day following the Change in Control, and
such termination shall be deemed “Good Reason” for all purposes of this
agreement.

 

(iii)      “Cause” shall mean termination by the Company of Executive’s
employment based upon the conviction of Executive by a court of competent
jurisdiction for felony criminal conduct.

 

3

--------------------------------------------------------------------------------

(iv)      “Disability” shall mean that, as a result of incapacity due to
physical or mental illness, Executive shall have been absent from the full-time
performance of Executive’s duties with the Company for six consecutive months,
and within 30 days after written notice of termination is given, Executive shall
not have returned to the full-time performance of Executive’s duties. Any
question as to the existence of Executive’s Disability upon which Executive and
the Company cannot agree shall be determined by a qualified independent
physician selected by Executive (or, if Executive is unable to make such
selection, it shall be made by any adult member of Executive’s immediately
family), and approved by the Company. The determination of such physician made
in writing to the Company and to Executive shall be final and conclusive for all
purposes of this Agreement.

 

(v)      “Retirement” shall mean termination on or after attaining normal
retirement age in accordance with the Company’s Profit Sharing Employee Savings
Plan and Trust.

 

(vi)     “Continuing Director” shall mean any person who is a member of the
Board of Directors of the Company, while such person is a member of the Board of
Directors, and who (a) was a member of the Board of Directors on the date of
this Agreement as first written above or (b) subsequently becomes a member of
the Board of Directors, if such person’s nomination for election or initial
election to the Board of Directors is recommended or approved by a majority of
the Continuing Directors.

 

(vii)    “Separation Date” shall mean the date on which Executive separates from
service with the Company, within the meaning of Section 409A of the Code.

 

4.         Benefits upon Termination under Section 2(ii)(c).

 

(i)        Upon the termination (voluntary or involuntary) of the employment of
Executive pursuant to Section 2(ii)(c) hereof, Executive shall be entitled to
receive the benefits specified in this Section 4. Subject to the provisions of
Section 4(ii) hereof, all benefits to Executive pursuant to this Section 4(i)
shall be subject to any applicable payroll or other taxes required by law to be
withheld.

 

(a)       The Company shall pay Executive, through the Separation Date,
Executive’s base salary as in effect at the time of the notice of termination is
given and any other form or type of compensation otherwise payable for such
period. Subject to Section 14, such payment shall be made in a lump sum cash
payment on the Separation Date. Executive shall be entitled to receive all
benefits payable to Executive under the Company’s Profit Sharing Employee
Savings Plan and Trust or any successor of such Plan and any other plan or
agreement relating to retirement benefits which shall be in addition to, and not
reduced by, any other amounts payable to Executive under this Section 4.
Executive shall be entitled to exercise all rights and to receive all benefits
accruing to Executive under any and all Company stock purchase plans, stock
option plans and other stock plans or programs, or any successor to any such
plans or programs, which shall be in addition to, and not reduced by, any other
amounts payable to Executive under this Section 4.

 

(b)       In lieu of any further salary payments for periods subsequent to the
Separation Date, the Company shall pay a severance payment in an amount equal to
2.9 times Executive’s Annual Compensation, as defined below. Subject to Section
14, such payment shall be made in a lump sum cash payment on the Separation
Date.

 

4

--------------------------------------------------------------------------------

For purposes of this Section 4, “Annual Compensation” shall mean Executive’s
annual salary (regardless of whether all or any portion of such salary has been
contributed to a deferred compensation plan), the annual amount of Executive’s
perk package, the target bonus for which Executive is eligible upon attainment
of 100% of the target (regardless of whether such target bonus has been achieved
or whether conditions of such target bonus are actually fulfilled), and any
other type or form of compensation paid to Executive by the Company (or any
entity affiliated with the Company (“Affiliate”) within the meaning of Section
1504 of the Internal Revenue Code of 1986, as may be amended from time to time
(the “Code”)) and included in Executive’s gross income for federal tax purposes
during the twelve month period ending immediately prior to the Separation Date
but reduced by: (i) any amount actually paid to Executive as a cash payment of
the target bonus (regardless of whether all or any portion of such target bonus
was contributed to a deferred compensation plan); (ii) compensation income
recognized as a result of the exercise of stock options or sale of the stock so
acquired; and (iii) any payments actually or constructively received from a plan
or arrangement of deferred compensation between the Company and Executive. All
of the factors included in Annual Compensation shall be those in effect on the
Separation Date and shall be calculated without giving effect to any reduction
in such compensation that would constitute a breach of this Agreement.

 

(c)       For a period of 36 months following the Separation Date or until
Executive reaches age 65 or dies, whichever is the shorter period, the Company
shall arrange to provide for Executive, at the Company’s expense, the health,
accident, disability and life insurance benefits substantially similar to those
in effect for Executive immediately prior to the Separation Date.

 

(d)       The Company shall pay to Executive (1) any amount earned by Executive
as a bonus with respect to the fiscal year of the Company preceding the
termination of Executive’s employment if such bonus has not theretofore been
paid to Executive, subject to any applicable deferral election in effect for
Executive, and (2) an amount representing credit for any vacation earned or
accrued by Executive but not taken. Subject to Section 14, such payment shall be
made in a lump sum cash payment on the Separation Date.

 

(e)       The Company shall also pay to Executive all legal fees and expenses
incurred by Executive during his or her lifetime as a result of such termination
of employment (including all fees and expenses, if any, incurred by Executive in
contesting or disputing any such termination or in seeking to obtain or enforce
any right or benefit provided to Executive by this Agreement whether by
arbitration or otherwise). Such payments shall be made within five (5) business
days after delivery of Executive's written requests for payment accompanied with
such evidence of fees and expenses incurred as the Company reasonably may
require. In order to comply with Section 409A of the Code, (i) Executive must
submit an invoice for fees and expenses reimbursable under this Section at least
ten (10) business days before the end of the calendar year next following the
calendar year in which such fees and expenses were incurred; (ii) the amount of
any legal fees and expenses that the Company is obligated to pay in any given
calendar year shall not affect the legal fees and expenses that the Company is
obligated to pay in any other calendar year and (iii) Executive’s right to have
the Company pay such legal fees and expenses may not be liquidated or exchanged
for any other benefit.

 

5

--------------------------------------------------------------------------------

(ii)       In the event that any payment or benefit received or to be received
by Executive in connection with a Change in Control of the Company or
termination of Executive’s employment (whether payable pursuant to the terms of
this Agreement or any other plan, contract, agreement or arrangement with the
Company, with any person whose actions result in a Change in Control of the
Company or with any person constituting a member of an “affiliated group” as
defined in Section 280G(d)(5) of the Code, with the Company or with any person
whose actions result in a Change in Control of the Company (collectively, the
“Total Payments”)) would be subject to the excise tax imposed by Section 4999 of
the Code, or any successor provision thereto, or any interest, penalties or
additions to tax with respect to such excise tax (such excise tax, together with
any such interest, penalties or additions to tax, are collectively referred to
as the “Excise Tax”), then Executive shall be entitled to receive from the
Company an additional cash payment (a “Gross-Up Payment”) which, subject to
Section 14, shall be paid within thirty business days of such determination in
an amount such that after payment by Executive of all taxes (including any
interest, penalties or additions to tax imposed with respect to such taxes),
including any Excise Tax, imposed upon the Gross-Up Payment, Executive retains
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total
Payments. All determinations required to be made under this Section 4(ii),
including whether a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the independent accounting firm retained by the
Company on the date of the Change in Control (the “Accounting Firm”), which
shall provide detailed supporting calculations both to the Company and Executive
within 15 business days of the Separation Date, or such earlier time as is
requested by the Company. If the Accounting Firm determines that no Excise Tax
is payable by Executive, it shall furnish Executive with an opinion that
Executive has substantial authority not to report any Excise Tax on Executive’s
federal income tax return.

 

Any uncertainty in the application of Section 4999 of the Code, or any successor
provision thereto, at the time of the initial determination by the Accounting
Firm hereunder shall be resolved in favor of Executive. As a result of the
uncertainty in the application of Section 4999 of the Code, or any successor
provision thereto, at the time of the initial determination by the Accounting
Firm hereunder, it is possible that at a later time there will be a
determination that the Gross-Up Payments made by the Company were less than the
Gross-Up Payments that should have been made by the Company (“Underpayment”),
consistent with the calculations required to be made hereunder. In the event
that Executive is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment, if any, that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive. As a result of the uncertainty in the application of
Section 4999 of the Code, or any successor provision thereto, at the time of the
initial determination by the Accounting Firm hereunder, it is possible that at a
later time there will be a determination that the Gross-Up Payments made by the
Company were more than the Gross-Up Payments that should have been made by the
Company (“Overpayment”), consistent with the calculations required to be made
hereunder. Executive agrees to refund the Company the amount of any Overpayment
that the Accounting Firm shall determine has occurred hereunder. Any good faith
determination by the Accounting Firm as to the amount of any Gross-Up Payment,
including the amount of any Underpayment or Overpayment, shall be binding upon
the Company and Executive.

 

(iii)      Any payment not made to Executive when due hereunder shall
thereafter, until paid in full, bear interest at the rate of interest equal to
the reference rate announced from time to time by Wells Fargo Bank Minnesota,
National Association, plus two percent, with such interest to be paid to
Executive upon demand or monthly in the absence of a demand.

 

6

--------------------------------------------------------------------------------

(iv)      Executive shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise. The
amount of any payment or benefit provided in this Section 4 shall not be reduced
by any compensation earned by Executive as a result of any employment by another
employer, by any retirement benefits or otherwise.

 

5.         Executive’s Agreements.

 

            Executive agrees that:

 

(i)        Without the consent of the Company, Executive will not terminate
employment with the Company without giving 30 days prior notice to the Company,
and during such 30-day period Executive will assist the Company, as and to the
extent reasonably requested by the Company, in training the successor to
Executive’s position with the Company. The provisions of this Section 5(i) shall
not apply to any termination (voluntary or involuntary) of the employment of
Executive pursuant to Section 2(ii)(c) hereof.

 

(ii)       In the event that Executive has received any benefits from the
Company under Section 4 of this Agreement, then, during the period of 36 months
following the Separation Date, Executive, upon request by the Company:

 

(a)       Will consult with one or more of the executive officers concerning the
business and affairs of the Company for not to exceed four hours in any month at
times and places selected by Executive as being convenient to him, all without
compensation other than what is provided for in Section 4 of this Agreement; and

 

(b)       Will testify as a witness on behalf of the Company in any legal
proceedings involving the Company which arise out of events or circumstances
that occurred or existed prior to the Separation Date (except for any such
proceedings relating to this Agreement), without compensation other than what is
provided for in Section 4 of this Agreement, provided that all out-of-pocket
expenses incurred by Executive in connection with serving as a witness shall be
paid by the Company.

 

Executive shall not be required to perform Executive’s obligations under this
Section 5(ii) if and so long as the Company is in default with respect to
performance of any of its obligations under this Agreement.

 

6.         Successors and Binding Agreement.

 

(i)        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), by agreement in form and substance
satisfactory to Executive, 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 had taken place. Failure of the
Company to obtain such agreement prior to the effectiveness of any such
succession shall be a breach of this Agreement and, if the transaction resulting
in such succession constitutes a “change in control event” within the meaning of
Treasury Regulations under Section 409A of the Code, shall entitle Executive to
compensation from the Company in the same amount and on the same terms as
Executive would be entitled hereunder if Executive terminated employment after a
Change in Control for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Separation Date. As used in this Agreement, “Company” shall mean the
Company and any successor to its business and/or assets which executes and
delivers the agreement provided for in this Section 6(i) or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law.

 

7

--------------------------------------------------------------------------------

(ii)       This Agreement is personal to Executive, and Executive may not assign
or transfer any part of Executive’s rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding the
foregoing, this Agreement shall inure to the benefit of and be enforceable by
Executive’s personal or legal representatives, executors, administrators, heirs,
distributees, devisees, and legatees.

 

7.         Modification; Waiver. No provisions of this Agreement may be
modified, waived, or discharged unless such waiver, modification, or discharge
is agreed to in a writing signed by Executive and such officer as may be
specifically designated by the Board of Directors of the Company. No waiver by
either party hereto at any time of any breach by the other party hereto of, 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.

 

8.         Notice. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment and any
notice of an intention to arbitrate) shall be in writing and shall be deemed to
have been duly given when delivered personally or received by certified or
registered mail, return receipt requested, postage prepaid, at the address of
the other party, as first written above (directed to the attention of the Board
of Directors and Corporate Secretary in the case of the Company). Either party
hereto may change its address for purposes of this Section 8 by giving 15 days
prior notice to the other party hereto.

 

9.         Severability. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be invalid
or unenforceable, the remainder of this Agreement or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforceable to the fullest extent
permitted by law.

 

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

 

11.       Governing Law. This Agreement has been made in the State of Minnesota
and shall, in all respects, be governed by, and construed and enforced in
accordance with, the laws of the State of Minnesota, including all matters of
construction, validity and performance.

 

8

--------------------------------------------------------------------------------

12.       Effect of Agreement; Entire Agreement. The Company and Executive
understand and agree that this Agreement is intended to reflect their agreement
only with respect to payments and benefits upon termination in certain cases and
is not intended to create any obligation on the part of either party to continue
employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof (including,
without limitation, the Prior Agreement) and constitutes the entire agreement of
the parties relating to the subject matter hereof; provided that this Agreement
shall not supersede or limit in any way (i) Executive’s rights under any benefit
plan, program or arrangements in accordance with their terms (other than the
provisions of the Company’s policy HR-1.02.25 entitled “Severance Pay,”
effective January 1, 1994, as amended from time to time, or any successor to
such policy, to the extent that payments are made hereunder) or (ii) Executive’s
obligations under any noncompetition, nonsolicitation, confidentiality or other
restrictive covenant to which Executive is bound.

 

13.       ERISA. For purposes of the Employee Retirement Income Security Act of
1974, this Agreement is intended to be a severance pay employee welfare benefit
plan, and not an employee pension benefit plan, and shall be construed and
administered with that intention.

 

14.       Section 409A. This Agreement is intended to comply with the
requirements of Section 409A of the Code and shall be interpreted and construed
consistently with such intent. The payments to Executive pursuant to this
Agreement are also intended to be exempt from Section 409A of the Code to the
maximum extent possible, under either the separation pay exemption pursuant to
Treasury regulation §1.409A-1(b)(9)(iii) or as short-term deferrals pursuant to
Treasury regulation §1.409A-1(b)(4), and for purposes of such exemptions each
payment under the Agreement shall be considered a separate payment. In the event
the terms of this Agreement would subject Executive to taxes or penalties under
Section 409A of the Code (“409A Penalties”), the Company and Executive shall
cooperate diligently to amend the terms of the Agreement to avoid such 409A
Penalties, to the extent possible. Notwithstanding any other provision in this
Agreement, if Executive is a “specified employee,” as defined in Section 409A of
the Code, as of the date of Executive’s separation from service, then to the
extent any amount payable under this Agreement (i) constitutes the payment of
nonqualified deferred compensation, within the meaning of Section 409A of the
Code, (ii) is payable upon Executive’s separation from service and (iii) under
the terms of this Agreement would be payable prior to the six-month anniversary
of Executive’s separation from service, such payment shall be delayed until the
earlier to occur of (a) the six-month anniversary of the separation from service
or (b) the date of Executive’s death.

 

9

--------------------------------------------------------------------------------

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed in its
name by a duly authorized officer, and Executive has hereunto set his or her
hand, all as of the date first written above.

 

 

ST. JUDE MEDICAL, INC.

 

 

 

 

 

 

 

By

 

 

Its

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

 

10

--------------------------------------------------------------------------------