Exhibit 10.38

CHANGE OF CONTROL EMPLOYMENT AGREEMENT

CHANGE OF CONTROL EMPLOYMENT 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 in Section
2) 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)
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 within the
18-months 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
(such a termination of employment, an “Anticipatory Termination”), 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

 

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        (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 shall be considered as though such individual was an
Incumbent Director, 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 by the Company or any of its subsidiaries (each, 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 50% of,
respectively, the then-outstanding shares of common stock (or, for a
non-corporate entity, equivalent securities) and the then-outstanding voting
securities entitled to vote generally in the election of directors (or, for a
non-corporate entity, equivalent governing body), as the case may be, of (A) the
entity resulting from such Business Combination (the “Surviving Corporation”) or
(B) if applicable, the ultimate parent entity 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 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.

        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. The Employment Period shall terminate upon the
Executive’s termination of employment for any reason.

        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 50 miles from such location.

 

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        (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 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”) at an annual 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, 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. The Annual Base Salary
shall be paid at such intervals as the Company pays executive salaries
generally. 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.   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, under the Company’s Executive 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”).
If the Executive has not been eligible to earn, or has not been employed, for
each of the last three fiscal years immediately preceding the fiscal year during
which the Effective Date occurs but has earned a bonus for at least one fiscal
year during the last three fiscal years immediately preceding the fiscal year
during which the Effective Date occurs, the “Three-Year Average Bonus” shall
mean the average of any annual or annualized bonus actually earned over any such
years. If the Executive has not been eligible to earn, or has not received, such
a bonus for any fiscal year prior to the Effective Date, the “Three-Year Average
Bonus” shall mean the Executive’s Target Annual Bonus for the year during which
the Effective Date occurs. Each such Annual Bonus shall be paid no later than
two and a half months after the end of the fiscal year for which the Annual
Bonus is awarded, unless the Executive shall elect to defer the receipt of such
Annual Bonus pursuant to an arrangement that meets the requirements of Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”).

        (iii)  Long-Term Cash and Equity Incentives, Savings Plans and
Retirement Plans.    During the Employment Period, the Executive shall be
entitled to participate in all long-term cash incentive, equity incentive,
savings and retirement plans, practices, policies and programs (any such
arrangement a “Plan”

 

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for purposes of this Agreement) applicable generally to other peer executives of
the Company and the affiliated companies, but in no event shall such Plans
provide the Executive with incentive opportunities (measured with respect to
both regular and special incentive opportunities, to the extent, if any, that
such distinction is applicable), savings opportunities and retirement benefit
opportunities, in each case, 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 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 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

 

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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 unreasonably withheld).

        (b)  Cause.   (i) The Company may terminate the Executive’s employment
during the Employment Period with or without 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 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 (A)
authority given pursuant to a resolution duly adopted by the Board, or if the
Company is not the ultimate parent corporation of the affiliated companies and
is not publicly traded, the board of directors of the Parent Corporation (the
“Applicable Board”), (B) the instructions of the Chief Executive Officer of the
Company or the Parent Corporation or a senior officer of the Company or the
Parent Corporation or (C) the advice of counsel for the Company or the Parent
Corporation 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. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than three-quarters
of the entire membership of the Applicable Board (excluding the Executive, if
the Executive is a member of the Applicable Board) at a meeting of the
Applicable Board called and held for such purpose (after reasonable notice is
provided to the Executive and the Executive is given an opportunity, together
with counsel for the Executive, to be heard before the Applicable Board),
finding that, in the good faith opinion of the Applicable Board, the Executive
is guilty of the conduct described in Section 5(b)(i)(A) of this Agreement, and
specifying the particulars thereof in detail.

        (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;

        (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) of this Agreement 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

 

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        (v)  any failure by the Company to comply with and satisfy Section 11(c)
of this Agreement.

For purposes of this Section 5(c) of this Agreement, any good faith
determination of “Good Reason” made by the Executive shall be conclusive. 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, 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, (iii) if the Executive
resigns without Good Reason, the date on which the Executive notifies the
Company of such termination and (iv) 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. The
Company and the Executive shall take all steps necessary (including with regard
to any post-termination services by the Executive) to ensure that any
termination described in this Section 5 constitutes a “separation from service”
within the meaning of Section 409A of the Code, and, notwithstanding the
foregoing, the date on which such separation from service takes place shall be
the “Date of Termination.”

        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) of this
Agreement 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:

        (A)  the sum of (1) the Executive’s Annual Base Salary through the Date
of Termination, and (2) any accrued vacation pay, in each case, to the extent
not theretofore paid (the sum of the amounts described in subclauses (1) and
(2), the “Accrued Obligations”);

        (B)  an amount equal to the product of (1) the higher of (I) the
Three-Year Average Bonus and (II) the Annual Bonus paid or payable, including
any portion thereof that has been earned but deferred (and annualized for any
fiscal year consisting of less than 12 full months or during 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 (such higher amount, the
“Highest Annual Bonus”), and (2) 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 the Executive Incentive Plan solely with respect to the year in
which the Date of Termination occurs (the “Pro-Rata Incentive Payment”); and

 

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        (C)  the amount equal to the product of (1) three, and (2) the sum of
(x) the Executive’s Annual Base Salary, and (y) the Highest Annual Bonus; and

        (ii)  the Executive’s benefits under the Company’s tax qualified
retirement plan (the “Retirement Plan”) and any excess or supplemental
retirement plan in which the Executive participates as of the Effective Date (or
if more favorable to the Executive, as of the Date of Termination)
(collectively, the “SERP”) shall be calculated assuming that the Executive’s
employment continued for the remainder of the Employment Period and that during
such period the Executive received service credit for all purposes under such
plans and the Executive’s age increased by the number of years that the
Executive is deemed to be so employed; provided, however; that in no event shall
the Executive be entitled to age or service credit, as a result of the
application of this Section 6(a)(ii), beyond the maximum age or maximum number
of years of service credit, as applicable, permitted under the Retirement Plan
or the SERP; and

        (iii)  for the remainder of the Employment Period, or such longer period
as any plan, program, practice or policy may provide (the “Benefit Continuation
Period”), the Company shall provide health care and life insurance benefits to
the Executive and/or the Executive’s family at least equal to, and at the same
after-tax cost to the Executive and/or the Executive’s family (taking into
account any applicable required employee contributions), as those which would
have been provided to them in accordance with the Plans providing health care
and life insurance benefits and at the benefit level described in Section
4(b)(iv) of this Agreement if the Executive’s employment had not been
terminated; provided, however, that the health care benefits provided during the
Benefit Continuation Period shall be provided in such a manner that such
benefits (and the costs and premiums thereof) are excluded from the Executive’s
income for federal income tax purposes and, if the Company reasonably determines
that providing continued coverage under one or more of its health care benefit
plans contemplated herein could be taxable to the Executive, the Company shall
provide such benefits at the level required hereby through the purchase of
individual insurance coverage; provided, further, that if the Executive becomes
re-employed with another employer and is eligible to receive health care and
life insurance benefits under another employer-provided plan, the health care
and life benefits provided hereunder shall be secondary to those provided under
such other plan during such applicable period of eligibility. Following the end
of the Benefit Continuation Period, the Executive shall be eligible for
continued health coverage as required by Section 4980B of the Code or other
applicable law (“COBRA Coverage”), as if the Executive’s employment with the
Company had terminated as of the end of such period, and the Company shall take
such actions as are necessary to cause such COBRA Coverage not to be offset by
the provision of benefits under this Section 6(a)(iii) and to cause the period
of COBRA Coverage to commence at the end of the Benefit Continuation Period. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree welfare benefits pursuant to the retiree
welfare benefit 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 the Company shall cause the Executive to be eligible to
commence in the applicable retiree welfare benefit Plans as of the applicable
benefit commencement date; and

        (iv)  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”).

Notwithstanding the foregoing provisions of Section 6(a)(i) and except as
otherwise provided in Section 12(g) with respect to an Anticipatory Termination,
in the event that the Executive is a “specified employee” within the meaning of
Section 409A of the Code (as determined in accordance with the methodology
established by the Company as in effect on the Date of Termination) (a
“Specified Employee”), amounts that would otherwise be payable under Section
6(a)(i) during the six-month period immediately following the Date of
Termination (other than the Accrued Obligations) shall instead be paid, with
interest on any delayed payment at the applicable federal rate provided for in

 

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Section 7872(f)(2)(A) of the Code (“Interest”), on the first business day after
the date that is six months following the Executive’s “separation from service”
within the meaning of Section 409A of the Code (the “409A Payment Date”).

        (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, the
Pro-Rata Incentive Payment 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 Pro-Rata Incentive
Payment the timely payment or delivery of the Other Benefits in accordance with
the terms of the underlying plans or agreements, and shall have no other
severance obligations under this Agreement. The Accrued Obligations and the
Pro-Rata Incentive Payment shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination, provided, that in the event that the
Executive is a Specified Employee, the Pro-Rata Incentive Payment shall be paid,
with Interest, to the Executive on the 409A Payment Date. 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 Accrued Obligations and (ii) 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 Pro-Rata Incentive Payment and the timely payment or delivery of the Other
Benefits, and shall have no other severance obligations under this Agreement. In
such case, the Accrued Obligations and the Pro-Rata Incentive Payment shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination, provided, that in the event that the Executive is a Specified
Employee, the Pro-Rata Incentive Payment shall be paid, with Interest, to the
Executive on the 409A Payment Date.

        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

 

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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. Without limiting the
generality of the foregoing, the Executive’s resignation under this Agreement
with or without Good Reason, shall in no way affect the Executive’s ability to
terminate employment by reason of the Executive’s “retirement” under any
compensation and benefits plans, programs or arrangements of the affiliated
companies, including without limitation any retirement or pension plans or
arrangements or to be eligible to receive benefits under any compensation or
benefit plans, programs or arrangements of the affiliated companies, including
without limitation any retirement or pension plan or arrangement of the
affiliated companies or substitute plans adopted by the Company or its
successors, and any termination which otherwise qualifies as Good Reason shall
be treated as such even if it is also a “retirement” for purposes of any such
plan. Notwithstanding the foregoing, 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; Legal Fees.   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 incurred (within 10 days following the Company’s
receipt of an invoice from the Executive) at any time from the Effective Date of
this Agreement through the Executive’s remaining lifetime (or, if longer,
through the 20th anniversary of the Effective Date), 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,
provided, that the Executive shall have submitted an invoice for such fees and
expenses at least 10 days before the end of the calendar year next following the
calendar year in which such fees and expenses were incurred. The amount of such
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.

        9.  Certain Additional Payments by the Company.   

        (a)  Anything in this Agreement to the contrary notwithstanding and
except as set forth below, 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, but excluding any income taxes and penalties imposed
pursuant to Section 409A of the Code, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
Notwithstanding the foregoing provisions of this Section 9(a), if it shall be
determined that the Executive is entitled to the Gross-Up Payment, but that the
Parachute Value (as defined below) of all Payments does not exceed 110% of the
Safe Harbor Amount (as defined below), then no Gross-Up Payment shall be made to
the Executive and the amounts payable under this Agreement shall be reduced so
that the Parachute Value of all Payments, in the aggregate, equals the Safe
Harbor Amount. The reduction of

 

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Payments to the Safe Harbor Amount, if applicable, shall be made by reducing the
Payments under the following sections of this Agreement in the following order:
(i) Section 6(a)(1)(C), (ii) Section 6(a)(1)(B), (iii) Section 6(a)(iii) and
(iv) Section 6(a)(ii). For purposes of reducing the Payments to the Safe Harbor
Amount, only amounts payable under this Agreement (and no other Payments) shall
be reduced. If the reduction of the amount payable under this Agreement would
not result in a reduction of the Parachute Value of all Payments to the Safe
Harbor Amount, no amounts payable under the Agreement shall be reduced pursuant
to this Section 9(a). The Company’s obligation to make Gross-Up Payments under
this Section 9 shall not be conditioned upon the Executive’s termination of
employment.
For the purposes of this Section 9, (i) the “Parachute Value” of a Payment shall
mean the present value as of the date of the change of control for purposes of
Section 280G of the Code of the portion of such Payment that constitutes a
“parachute payment” under Section 280G(b)(2) of the Code, as determined by the
Accounting Firm for purposes of determining whether and to what extent the
Excise Tax will apply to such Payment; and (ii) the “Safe Harbor Amount” means
2.99 times the Executive’s “base amount,” within the meaning of Section
280G(b)(3) of the Code.

        (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 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 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;

 

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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
applicable taxing authority in respect of such claim and may, at its sole
option, either pay the tax claimed to the appropriate taxing authority on behalf
of the Executive and direct the Executive to sue 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 pays such claim and directs
the Executive to sue for a refund, the Company shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such payment or with respect to any imputed income in connection with such
payment; 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 a Gross-Up Payment or
payment by the Company of an amount on the Executive’s behalf pursuant to
Section 9(c), the Executive becomes entitled to receive any refund with respect
to the Excise Tax to which such Gross-Up Payment relates or with respect to such
claim, the Executive shall (subject to the Company’s complying with the
requirements of Section 9(c) if applicable) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after payment by the Company of an amount on the
Executive’s behalf 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 the amount of such payment shall offset, to the extent thereof, the amount
of Gross-Up Payment required to be paid.

        (e)  Any Gross-Up Payment, as determined pursuant to this Section 9,
shall be paid by the Company within five days of the receipt of the Accounting
Firm’s determination; provided that, the Gross-Up Payment shall in all events be
paid no later than the end of the Executive’s taxable year next following the
Executive’s taxable year in which the Excise Tax (and any income or other
related taxes or interest or penalties thereon) on a Payment are remitted to the
Internal Revenue Service or any other applicable taxing authority or, in the
case of amounts relating to a claim described in Section 9(c) that does not
result in the remittance of any federal, state, local and foreign income,
excise, social security and other taxes, the calendar year in which the claim is
finally settled or otherwise resolved. The Gross-Up Payment shall be paid to the
Executive; provided that the Company, in its sole discretion, may withhold and
pay over to the Internal Revenue Service or any other applicable taxing
authority, for the benefit of the Executive, all or any portion of any Gross-Up
Payment, and the Executive hereby consents to such withholding.

        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.

 

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        (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 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:

At the most recent address on file at the Company.

If to the Company:

Medtronic, Inc.
Legal Dept. LC400
710 Medtronic Parkway
Minneapolis, MN 55432-5604
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 United States federal, state, or 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 Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof in effect immediately prior to the execution of this Agreement.

 

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        (g)  Notwithstanding any provision in this Agreement to the contrary, in
the event of an Anticipatory Termination, any payments that are deferred
compensation within the meaning of Section 409A of the Code that the Company
shall be required to pay pursuant to Section 6(a)(1) of this Agreement shall be
paid as follows: (i) if such Change of Control is a “change in control event”
within the meaning of Section 409A of the Code, (A) except as provided in clause
(i)(B), on the date of such Change of Control, or (B) if the Executive is a
Specified Employee and the 409A Payment Date is later than the Change of
Control, on the 409A Payment Date, and (ii) if such Change of Control is not a
“change in control event” within the meaning of Section 409A of the Code, (A)
except as provided in clause (ii)(B), on the first business day following the
18-month anniversary of the date of such Anticipatory Termination (the “Payment
Date”), or (B) if the Executive is a Specified Employee and the 409A Payment
Date is later than the date of such Change of Control, on the 409A Payment Date.
In the event of an Anticipatory Termination, any payments or benefits that are
not deferred compensation within the meaning of Section 409A of the Code that
the Company shall be required to pay or provide pursuant to Section 6(a) of this
Agreement shall be paid or shall commence being provided on the date of the
Change of Control. Interest with respect to the period, if any, from the date of
the Change of Control until the actual date of payment shall be paid on any
delayed cash amounts. 

        (h)  Within the time period permitted by the applicable Treasury
Regulations, the Company may, in consultation with the Executive, modify the
Agreement, in the least restrictive manner necessary and without any diminution
in the value of the payments to the Executive, in order to cause the provisions
of the Agreement to comply with the requirements of Section 409A of the Code, so
as to avoid the imposition of taxes and penalties on the Executive pursuant to
Section 409A of the Code.

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