Exhibit 10.1

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This Amended and Restated Employment Agreement (“Agreement”) is made effective
as of December 2, 2019 (“Effective Date”) by and between Electromed, Inc., a
Minnesota corporation (the “Corporation”) and Kathleen S. Skarvan, an individual
residing in Minnesota (“Employee”) (collectively “Parties” or individually
“Party”).

 

RECITALS

 

WHEREAS, the Corporation and Employee previously entered into an Employment
Agreement, dated as of December 1, 2012, as amended by the Amended and Restated
Employment Agreement, dated as of July 1, 2014, and as further amended by the
Amended and Restated Employment Agreement, dated as of September 21, 2017 (the
“Original Agreement”); and

 

WHEREAS, the Parties desire to enter into this Agreement, and it is the
intention of the Parties that this Agreement entirely supersedes and replaces
the Original Agreement; and

 

WHEREAS, the Corporation desires to continue to employ Employee pursuant to the
terms of this Agreement and Employee desires to accept such continued
employment; and

 

WHEREAS, during Employee’s employment with the Corporation, Employee has become
acquainted with and will become acquainted with technical and nontechnical
information which the Corporation has developed, acquired and uses, or which the
Corporation will develop, acquire or use, and which is commercially valuable to
the Corporation and which the Corporation desires to protect, and Employee has
contributed and may contribute to such information through inventions,
discoveries, improvements or otherwise.

 

NOW, THEREFORE, in consideration of the continued employment of Employee by the
Corporation, and further in consideration of the salary, wages or other
compensation and benefits to be provided by the Corporation to Employee, and for
additional mutual covenants and conditions, the receipt and sufficiency of which
are hereby acknowledged, the Corporation and Employee, intending legally to be
bound, hereby agree as follows:

 

AGREEMENT

 

In consideration of the above recitals and the mutual promises set forth in this
Agreement, the Parties agree as follows:

 

1.            Nature and Capacity of Employment. 

 

1.1.      Title and Duties.  Effective as of Effective Date, the Corporation
will continue to employ Employee as its President and Chief Executive Officer,
having such duties as are consistent with those of a President and Chief
Executive Officer for similar businesses, and such duties as requested by the
Corporation in connection with the business, affairs and operations of the
Corporation, subject to the direction of the Corporation’s Board of Directors
(the “Board”) and pursuant to the terms and conditions set forth in this
Agreement. The Employee hereby agrees to act in that capacity under the terms
and conditions set forth in this Agreement. Employee shall serve the Corporation
faithfully and to the best of Employee’s ability and shall at all times act in
accordance with the law.  Employee shall devote Employee’s full working time,
attention and efforts to performing Employee’s duties and responsibilities under
this Agreement and advancing the Corporation’s business interests.  Employee
shall follow applicable policies and procedures adopted by the Corporation from
time to time, including without limitation the Corporation’s Confidentiality
Policy and other Corporation policies, including those relating to business
ethics, conflict of interest and non-discrimination.  Employee shall not,
without the prior written consent of the Board, accept other employment or
engage in other business activities during Employee’s employment with the
Corporation that may prevent Employee from fulfilling the duties or
responsibilities as set forth in or contemplated by this Agreement. 
Notwithstanding the above, Employee shall be permitted to continue her current
board positions on the boards of two non-profit organizations and one for-profit
organization, provided such board service does not prevent Employee from
fulfilling the duties or responsibilities as set forth in or contemplated by
this Agreement.

 

 

 

1.2.      Location.  Employee’s employment will be based at the Corporation’s
corporate headquarters.  Employee acknowledges and agrees that Employee’s
position, duties and responsibilities will require regular travel, both in the
U.S. and internationally. 

 

2.           Term.  Unless terminated at an earlier date in accordance with
Section 5, the term of Employee’s employment with the Corporation under the
terms and conditions of this Agreement will be for the period commencing on the
Effective Date and ending on the two (2) year anniversary of the Effective Date
(the “Initial Term”).  On the two (2) year anniversary of the Effective Date,
and on each succeeding one-year anniversary of the Effective Date (each an
“Anniversary Date”), the Term shall be automatically extended until the next
Anniversary Date (each a “Renewal Term”), subject to termination on an earlier
date in accordance with Section 5 or unless either Party gives written notice of
non-renewal to the other Party at least ninety (90) days prior to the
Anniversary Date on which this Agreement would otherwise be automatically
extended that the Party providing such notice elects not to extend the Term;
provided, however, that if a Change in Control (as defined in Section 6.5)
occurs during the Initial Term or during any Renewal Term then the Term will
expire on the one-year anniversary of the date of the Change in Control.  The
Initial Term together with any Renewal Terms is the “Term.”  If Employee remains
employed by the Corporation after the Term ends for any reason, then such
continued employment shall be according to the terms and conditions established
by the Corporation from time to time (provided that any provisions of this
Agreement and the Restrictive Covenants Agreement (as defined in Section 3) that
by their terms survive the termination of the Term shall remain in full force
and effect).

 

3.           Restrictive Covenants Agreement.  Employee acknowledges entering
into a Non-Competition, Non-Solicitation, and Confidentiality Agreement dated
effective December 1, 2012 (the “Restrictive Covenants Agreement”) and hereby
reaffirms Employee’s commitments and obligations under the Restrictive Covenants
Agreement.  Employee further acknowledges that Employee has a copy of the
Restrictive Covenants Agreement, that Employee has read the Restrictive
Covenants Agreement again before signing this Agreement, and that the
consideration Employee received in exchange for signing the Restrictive
Covenants Agreement was adequate and reasonable. Nothing in this Agreement is
intended to modify, amend, cancel or supersede the Restrictive Covenants
Agreement in any manner. 

 

4.            Compensation, Benefits and Business Expenses.

 

4.1.      Base Salary.  As of the Effective Date, the Corporation agrees to pay
Employee an annualized base salary of $410,000.00 (the “Base Salary”), which
Base Salary will be earned by Employee on a pro rata basis as Employee performs
services and which shall be paid according to the Corporation’s normal payroll
practices.  Employee shall be eligible for a merit-based increase of the Base
Salary payable under this Section 4.1 on or about July 1, 2020 and on or about
July 1 of each year during the Term thereafter, with any adjustment to
Employee’s Base Salary subject to approval by the Board. 

 

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4.2.      Annual Incentive Compensation.  For each of the Corporation’s fiscal
years during the Term, Employee will be eligible to earn an annualized cash
bonus as determined by the Board in its discretion and subject to the terms of
any written document addressing such annual cash bonus as the Board may adopt in
its sole discretion.  For the Corporation’s fiscal year ending June 30, 2020,
Employee’s target annualized cash bonus under this Section 4.2 will be fifty
percent (50%) of Employee’s annualized Base Salary for the Corporation’s fiscal
year ending June 30, 2020, subject to the terms and conditions identified in the
Corporation’s Fiscal Year 2020 Officer Bonus Plan.  Future annual cash bonus
opportunities will be determined by the Board in its discretion.  Unless
specified otherwise in a written annual cash bonus document applicable to
Employee, if a bonus is earned in accordance with this Section 4.2, it will be
paid to Employee by the Corporation regardless of whether Employee is employed
by the Corporation on the payment date, with such payment date being no later
than March 15 of the calendar year immediately following the calendar year in
which Employee earns a bonus in accordance with this Section 4.2.

 

4.3.      [RESERVED].  

 

4.4.      Employee Benefits.  While Employee is employed by the Corporation
during the Term, Employee shall be entitled to participate in the retirement
plans, equity compensation plans, health plans, and all other employee benefits
made available by the Corporation, and as they may be changed from time to
time.  Employee acknowledges and agrees that Employee will be subject to all
eligibility requirements and all other provisions of these benefits plans, and
that the Corporation is under no obligation to Employee to establish and
maintain any employee benefit plan in which Employee may participate.  The terms
and provisions of any employee benefit plan of the Corporation are matters
within the exclusive province of the Board, subject to applicable law. 

 

4.5.      Vacation and Sick Leave.  While Employee is employed by the
Corporation during the Term, Employee shall be entitled to vacation leave of up
to twenty (20) days per calendar year during the Term, prorated for any partial
calendar year of employment during the Term.  Employee will use Employee’s
vacation leave at times and in a manner so as to minimize disruption to the
operations of the Corporation.  The Corporation also agrees that Employee shall
be entitled to sick leave of up to five (5) days per calendar year during the
Term, prorated for any partial calendar year of employment during the Term. 
Employee will accrue and be permitted to use vacation and sick leave in
accordance with the Corporation’s vacation and sick leave policies and practices
as in effect from time to time. 

 

4.6.      Business Expenses.  While Employee is employed by the Corporation
during the Term, the Corporation shall reimburse Employee for all reasonable and
necessary out-of-pocket business, travel and entertainment expenses incurred by
Employee in the performance of Employee’s duties and responsibilities hereunder,
subject to the Corporation’s normal policies and procedures for expense
verification and documentation.

 

4.7.      Other Benefits:  During the Term, the Corporation shall directly pay
the cost of a cell phone or wireless handheld device for the Employee’s use.
Additionally, during the Term, the Corporation shall provide Employee a housing
and automobile allowance of up to an aggregate amount of $1,000.00 per month.
The Corporation shall also provide a corporate credit card for approved business
expenses and shall otherwise reimburse the Employee for, or pay directly, all
reasonable business expenses incurred by the Employee in the performance of
Employee’s duties under this Agreement, provided that the Employee incurs and
accounts for such expenses in accordance with all Corporation policies and
directives in effect from time to time.

 

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5.            Termination of Employment. 

 

5.1.        Termination of Employment Events. Employee’s employment with the
Corporation is at-will. Employee’s employment with the Corporation will
terminate as follows:

 

 

(a)

The effective date following written notice from the Corporation of the
termination of Employee’s employment as specified herein;

 

 

(b)

Employee’s abandonment of Employee’s employment or the effective date of
Employee’s resignation for Good Reason (as defined below) or any other reason
(as specified in written notice from Employee);

 

 

(c)

After thirty (30) days’ advance written notice to Employee by the Corporation of
termination of Employee’s employment for Employee’s Disability (as defined
below); or

 

 

(d)

Immediately upon Employee’s death.

 

5.2.        Termination Date.  The date upon which Employee’s termination of
employment with the Corporation is effective is the “Termination Date.”  For
purposes of Sections 6.1,  6.2 and 7 only, with respect to the timing of the
Pre-CIC Severance Payment or the Post-CIC Severance Payment (as applicable) and
the Pre-CIC Benefits Continuation Payments or the Post-CIC Benefits Continuation
Payments (as applicable), and the additional amounts identified in Section 7 (if
applicable), the Termination Date means the date on which a “separation from
service” has occurred for purposes of Section 409A of the Internal Revenue Code,
as amended, and the regulations and guidance thereunder (the “Code”). 

 

6.            Payments Upon Termination of Employment. 

 

6.1.        Termination of Employment Without Cause or by Employee for Good
Reason During the Term and Before the First Change in Control.  If Employee’s
employment with the Corporation is terminated during the Term by the
Corporation, for any reason other than for Cause (as defined in Section 6.4), or
by Employee for Good Reason (as defined in Section 6.6), and the Termination
Date occurs before the date of the first Change in Control (as defined in
Section 6.5) to occur during the Term, then the Corporation shall, in addition
to paying Employee’s Base Salary and other compensation and benefits earned
through the Termination Date, and subject to Section 6.9,

 

 

(a)

pay to Employee as severance pay an amount equal to the sum of (i) one (1) times
Employee’s annualized Base Salary as of the Termination Date, plus (ii) an
amount equal to one hundred percent (100%) of Employee’s target annual bonus
based on Employee’s individual performance for the fiscal year in which the
Termination Date occurs, plus (iii) an amount equal to Employee’s target annual
bonus based on the Corporation’s performance for the fiscal year in which the
Termination Date, multiplied by a fraction, the numerator of which is the number
of days Employee was employed by the Corporation during the fiscal year in which
the Termination Date occurs and the denominator of which is 365, less all
legally required and authorized deductions and withholdings, payable in a lump
sum on the Corporation’s first regular payroll date that is after the expiration
of all rescission periods identified in the Release (as defined in Section 6.9)
but in no event later than seventy-five (75) days after the Termination Date
(the “Pre-CIC Severance Payment”);

 

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(b)

if Employee is eligible for and takes all steps necessary to continue Employee’s
group health insurance coverage with the Corporation following the Termination
Date (including completing and returning the forms necessary to elect COBRA
coverage), pay for the portion of the premium costs for such coverage that the
Corporation would pay if Employee remained employed by the Corporation, at the
same level of coverage that was in effect as of the Termination Date, through
the earliest of: (i) the twelve (12) month anniversary of the Termination Date,
(ii) the date Employee becomes eligible for group health insurance coverage from
any other employer or eligible for Medicare upon reaching age 65, or (iii) the
date Employee is no longer eligible to continue Employee’s group health
insurance coverage with the Corporation under applicable law (“Pre-CIC Benefits
Continuation Payments”).

 

6.2.         Termination of Employment Without Cause or by Employee for Good
Reason  During the Term and Within Twelve (12) Months after the First Change in
Control.  If Employee’s employment with the Corporation is terminated during the
Term by the Corporation for any reason other than for Cause (as defined in
Section 6.4), or by Employee for Good Reason (as defined in Section 6.6), and
the Termination Date occurs on or within twelve (12) months after the date of
the first Change in Control (as defined in Section 6.5) to occur during the
Term, then the Corporation shall, in addition to paying Employee’s Base Salary
and other compensation and benefits earned through the Termination Date, and
subject to Section 6.9,

 

 

(a)

pay to Employee as severance pay an amount equal to the sum of (i) 1.5 times
Employee’s annualized Base Salary as of the Termination Date, plus (ii) an
amount equal to one hundred fifty percent (150%) of  Employee’s target annual
bonus based on Employee’s individual performance for the fiscal year in which
the Termination Date occurs, plus (iii) an amount equal to Employee’s target
annual bonus based on the Corporation’s performance for the fiscal year in which
the Termination Date, multiplied by a fraction, the numerator of which is the
number of days Employee was employed by the Corporation during the fiscal year
in which the Termination Date occurs and the denominator of which is 365, less
all legally required and authorized deductions and withholdings, payable in a
lump sum on the Corporation’s first regular payroll date that is after the
expiration of all rescission periods identified in the Release (as defined in
Section 6.9) but in no event later than seventy-five (75) days after the
Termination Date (the “Post-CIC Severance Payment”); and

 

 

(b)

if Employee is eligible for and takes all steps necessary to continue Employee’s
group health insurance coverage with the Corporation following the Termination
Date (including completing and returning the forms necessary to elect COBRA
coverage), pay for the portion of the premium costs for such coverage that the
Corporation would pay if Employee remained employed by the Corporation, at the
same level of coverage that was in effect as of the Termination Date, through
the earliest of: (i) the eighteen (18) month anniversary of the Termination
Date, (ii) the date Employee becomes eligible for group health insurance
coverage from any other employer or eligible for Medicare upon reaching age 65,
or (iii) the date Employee is no longer eligible to continue Employee’s group
health insurance coverage with the Corporation under applicable law (“Post-CIC
Benefits Continuation Payments”); and

 

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(c)

all outstanding unvested equity-based awards granted to Employee during her
continuous employment with the Company preceding the Termination Date (“Equity
Awards”) will be affected as follows: (i) stock options or stock appreciation
rights will become fully vested and exercisable for the remainder of their full
term (ii) Equity Awards, other than stock options and stock appreciation rights,
that do not vest based on the attainment of performance goals, will become fully
vested and the restrictions thereon will lapse; provided that any delays in the
settlement or payment of such awards that are set forth in the applicable award
agreement and that are required under Section 409A of the Code will remain in
effect, and (iii) all Equity Awards, other than stock options and stock
appreciation rights, that vest based on the attainment of performance goals will
remain outstanding and will vest or be forfeited in accordance with the terms of
the applicable award agreements if and to the extent that the applicable
performance criteria is satisfied.

 

6.3.        Other Termination of Employment Events. If Employee’s employment
with the Corporation is terminated by the Corporation or Employee for any reason
upon or following the expiration of the Term, or if Employee’s employment with
the Corporation is terminated during the Term by reason of:

 

 

(a)

Employee’s abandonment of Employee’s employment or Employee’s resignation for
any reason other than Good Reason;

 

 

(b)

termination of Employee’s employment by the Corporation for Cause; or

 

 

(c)

Employee’s death or Disability,

 

then the Corporation shall pay to Employee or Employee’s beneficiary or
Employee’s estate, as the case may be, Employee’s Base Salary, any earned but
unpaid non-equity incentive compensation and other compensation earned through
the Termination Date, and Employee shall not be eligible or entitled to receive
any severance pay or benefits from the Corporation.

 

6.4.        Cause Defined.  “Cause” hereunder means:

 

 

(a)

Employee’s material failure to perform Employee’s job duties competently as
reasonably determined by the Board;

 

 

(b)

gross misconduct by Employee which the Board determines is (or will be if
continued) demonstrably and materially damaging to the Corporation;

 

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(c)

fraud, misappropriation, or embezzlement by Employee;

 

 

(d)

conviction of a felony crime or a crime of moral turpitude;

 

or

 

 

(e)

the material breach of this Agreement or the Restrictive Covenants Agreement by
Employee.

 

With respect to Section 6.4(a), Section 6.4(b) and Section 6.4(e), the
Corporation shall first provide Employee with written notice and an opportunity
to cure such breach, if curable, in the reasonable discretion of the
Corporation’s Board, and identify with specificity the action needed to cure
within thirty (30) days of Employee’s receipt of written notice from the
Corporation. If the Corporation terminates Employee’s employment for Cause
pursuant to this Section 6.4, then Employee shall not be eligible or entitled to
receive any severance pay or benefits from the Corporation. 

 

6.5.        Change in Control Defined.  “Change in Control” hereunder means: 

 

 

(a)

A “change in ownership,” as described in Section 1.409A-3(i)(5)(v) of the
Treasury Regulations;

 

 

(b)

A “change in effective control,” as described in Section 1.409A-3(i)(5)(vi) of
the Treasury Regulations; or

 

 

(c)

A “change in ownership of a substantial portion of the assets,” as described in
Section 1.409A-3(i)(5)(vii) of the Treasury Regulations. 

 

6.6.        Good Reason Defined.  “Good Reason” hereunder means the initial
occurrence of any of the following events without Employee’s consent:

 

 

(a)

a material diminution in the Employee’s responsibilities, authority or duties;
or

 

 

(b)

a material diminution in the Employee’s salary, other than pursuant to a
reduction in the salary for all executive employees of the Corporation and its
affiliates, applied on a pro rata basis to all salaried executives including
Employee;

 

 

(c)

receipt by Employee of a written non-renewal of this Agreement by the
Corporation in accordance with Section 2; or

 

 

(d)

the material breach of this Agreement by the Corporation.

 

provided, however, that “Good Reason” shall not exist unless Employee has first
provided written notice to the Corporation detailing one or more of the
conditions under clauses (a) through (d) above within ninety (90) days after
Employee’s actual knowledge of the initial occurrence of such alleged Good
Reason event, and such condition is not fully remedied by the Corporation within
thirty (30) days after the Corporation’s receipt of written notice from
Employee, and the Termination Date as a result of such event occurs within
thirty (30) days after the Corporation’s thirty (30) day cure period.   For
purposes of this Section 6.6, a notice shall be sufficient if it is transmitted
by facsimile or email to the Board and if it provides a general indication of
the nature of the asserted acts, omissions, breach or breaches triggering “Good
Reason.”

 

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6.7.      Disability Defined.  “Disability” hereunder means the inability of
Employee to perform, with or without reasonable accommodation, the essential
duties and responsibilities of Employee’s employment with the Corporation by
reason of Employee’s illness or other physical or mental impairment or
condition, if such inability continues for an uninterrupted period of at least
one hundred (100) days or more during any 360-day period.  A period of inability
shall be “uninterrupted” unless and until Employee returns to full-time work for
a continuous period of at least thirty (30) days. This Section 6.7 does not
relieve the Corporation of any duty to reasonably accommodate a qualifying
disability under the Americans with Disabilities Act, the Minnesota Human Rights
Act, any legal duty under the Family Medical Leave Act, or any of its other
duties pursuant to applicable law.

 

6.8.      The Corporation’s Sole Obligation.  In the event of termination of
Employee’s employment, the sole obligation of the Corporation shall be its
obligation to make the payments called for by Section 6.1, Section 6.2 or
Section 6.3, as the case may be, and the Corporation shall have no other
obligation to Employee or to Employee’s beneficiary or Employee’s estate, except
for any amounts due under the terms of any employee benefit plans or programs
then maintained by the Corporation in which Employee participates. 

 

6.9.      Conditions To Receive the Pre-CIC Severance Payment or the Post-CIC
Severance Payment and the Pre-CIC Benefits Continuation Payments or the Post-CIC
Benefits Continuation Payments.  Notwithstanding the foregoing provisions of
this Section 6, the Corporation will not be obligated to make the Pre-CIC
Severance Payment under Section 6.1 or the Post-CIC Severance Payment under
Section 6.2 (as applicable) or the Pre-CIC Benefits Continuation Payments under
Section 6.1 or the Post-CIC Benefits Continuation Payments under Section 6.2 (as
applicable) to or on behalf of Employee unless (a) Employee signs a general
release of claims in favor of the Corporation in a form to be reasonably
prescribed by the Corporation and which shall not release and/or waive
Employee’s right to seek to be defended and indemnified by the Corporation in
accordance with and subject to the Corporation’s Articles of Incorporation and
Minnesota law (the “Release”), (b) all applicable consideration periods and
rescission periods provided by law with respect to the Release have expired
without Employee rescinding the Release, and (c) Employee is in strict
compliance with the terms of this Agreement and the Restrictive Covenants
Agreement and any other written agreement between Employee and the Corporation. 

 

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7.           Anticipatory Termination; Additional Severance.  If a Pre-CIC
Termination Event (as defined below) occurs during the Term, then, subject to
Employee satisfying the same conditions identified in Section 6.9 in exchange
for Employee’s receipt of the additional amounts identified in this Section 7,
the Corporation shall provide to Employee (in addition to making the Pre-CIC
Severance Payment and the Pre-CIC Benefits Continuation Payments under Section
6.1):

 

 

(a)

an amount equal to the sum of (i) fifty percent (50%) of Employee’s annualized
Base Salary as of the Termination Date, plus (ii) fifty percent (50%) of
Employee’s target annual bonus based on Employee’s individual performance for
the fiscal year in which the Termination Date occurs, less all legally required
and authorized deductions and withholdings, payable in a lump sum on the
Corporation’s first regular payroll date that is after the expiration of all
rescission periods identified in the Release (as defined in Section 6.9) but in
no event later than seventy-five (75) days after the date of the Change in
Control; and

 

 

(b)

if Employee is eligible for and takes all steps necessary to continue Employee’s
group health insurance coverage with the Corporation following the Termination
Date (including completing and returning the forms necessary to elect COBRA
coverage), pay for the portion of the premium costs for such coverage that the
Corporation would pay if Employee remained employed by the Corporation, at the
same level of coverage that was in effect as of the Termination Date, from the
end of the payment of the Pre-CIC Benefits Continuation Payments under Section
6.1 through the earliest of: (i) the eighteen (18) month anniversary of the
Termination Date, (ii) the date Employee becomes eligible for group health
insurance coverage from any other employer or eligible for Medicare upon
reaching age 65, or (iii) the date Employee is no longer eligible to continue
Employee’s group health insurance coverage with the Corporation under applicable
law.

 

For purposes of this Section 7, a “Pre-CIC Termination Event” means an
involuntary termination of  Employee’s employment by the Corporation without
Cause, or Nonrenewal of the Term, resulting in a Termination Date that is within
sixty (60) days prior to the Change in Control; provided that Employee
reasonably demonstrates that such termination (i) was requested by a party other
than the Board that has taken other steps reasonably calculated to result in the
Change in Control, or (ii) otherwise arose in connection with or in anticipation
of the Change in Control.

 

8.           Section 409A and Taxes Generally.

 

8.1.        Taxes.  The Corporation shall be entitled to withhold on and report
the making of such payments as may be required by law as determined in the
reasonable discretion of the Corporation.  Except for any tax amounts withheld
by the Corporation from any compensation that Employee may receive in connection
with Employee’s employment with the Corporation and any employer taxes required
to be paid by the Corporation under applicable laws or regulations, Employee is
solely responsible for payment of any and all taxes owed in connection with any
compensation, benefits, reimbursement amounts or other payments Employee
receives from the Corporation under this Agreement or otherwise in connection
with Employee’s employment with the Corporation.  The Corporation does not
guarantee any particular tax consequence or result with respect to any payment
made by the Corporation. 

  

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8.2.        Section 409A.  This Agreement is intended to provide for payments
that satisfy, or are exempt from, the requirements of Section 409A, including
Sections 409A(a)(2), (3) and (4) of the Code and current and future guidance and
regulations interpreting such provisions, and should be interpreted
accordingly.  In furtherance of the foregoing, the provisions set forth below
shall apply notwithstanding any other provision in this Agreement:

 

(a)        all payments to be made to Employee hereunder, to the extent they
constitute a deferral of compensation subject to the requirements of Section
409A (after taking into account all exclusions applicable to such payments under
Section 409A), shall be made no later, and shall not be made any earlier, than
at the time or times specified in this Agreement or in any applicable plan for
such payments to be made, except as otherwise permitted or required under
Section 409A;

 

(b)        the date of Employee’s “separation from service”, as defined in
Section 409A (and as determined by applying the default presumptions in Treas.
Reg. §1.409A-1(h)(1)(ii)), shall be treated as the date of Employee’s
termination of employment for purposes of determining the time of payment of any
amount that becomes payable to Employee related to Employee’s termination of
employment under Section 6.1 or Section 6.2, and any reference to Employee’s
“Termination Date” or “termination” of Employee’s employment in Section 6.1 or
Section 6.2 shall mean the date of Employee’s “separation from service”, as
defined in Section 409A (and as determined by applying the default presumptions
in Treas. Reg. §1.409A-1(h)(1)(ii));

 

(c)        in the case of any amounts payable to Employee under this Agreement
that may be treated as payable in the form of “a series of installment
payments”, as defined in Treas. Reg. §1.409A-2(b)(2)(iii), Employee’s right to
receive such payments shall be treated as a right to receive a series of
separate payments for purposes of Treas. Reg. §1.409A-2(b)(2)(iii);

 

(d)        to the extent that the reimbursement of any expenses eligible for
reimbursement or the provision of any in-kind benefits under any provision of
this Agreement would be considered deferred compensation under Section 409A
(after taking into account all exclusions applicable to such reimbursements and
benefits under Section 409A): (i) reimbursement of any such expense shall be
made by the Corporation as soon as practicable after such expense has been
incurred, but in any event no later than December 31st of the year following the
year in which Employee incurs such expense; (ii) the amount of such expenses
eligible for reimbursement, or in-kind benefits to be provided, during any
calendar year shall not affect the amount of such expenses eligible for
reimbursement, or in-kind benefits to be provided, in any calendar year; and
(iii) Employee’s right to receive such reimbursements or in-kind benefits shall
not be subject to liquidation or exchange for another benefit;

 

 

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(e)       to the extent any payment or delivery otherwise required to be made to
Employee hereunder on account of Employee’s separation from service is properly
treated as a deferral of compensation subject to Section 409A after taking into
account all exclusions applicable to such payment and delivery under Section
409A, and if Employee is a “specified employee” under Section 409A at the time
of Employee’s separation from service, then such payment and delivery shall not
be made prior to the first business day after the earlier of (i) the expiration
of six months from the date of Employee’s separation from service, or (ii) the
date of Employee’s death (such first business day, the “Delayed Payment Date”),
and on the Delayed Payment Date, there shall be paid or delivered to Employee
or, if Employee has died, to Employee’s estate, in a single payment or delivery
(as applicable) all entitlements so delayed, and in the case of cash payments,
in a single cash lump sum, an amount equal to aggregate amount of all payments
delayed pursuant to the preceding sentence.  Except for any tax amounts withheld
by the Corporation from the payments or other consideration hereunder and any
employment taxes required to be paid by the Corporation, Employee shall be
responsible for payment of any and all taxes owed in connection with the
consideration provided for in this Agreement; and

 

(f)        the Parties agree that this Agreement may be amended, as may be
necessary to fully comply with, or to be exempt from, Section 409A and all
related rules and regulations in order to preserve the payments and benefits
provided hereunder without additional cost to either Party.

 

9.           Miscellaneous.

 

9.1.        Integration.  This Agreement and the Restrictive Covenants Agreement
embody the entire agreement and understanding among the Parties relative to
subject matter hereof and combined supersede all prior agreements and
understandings relating to such subject matter, including but not limited to the
Original Agreement and any earlier offers to Employee by the Corporation.

 

9.2.        Applicable Law.  All matters relating to the interpretation,
construction, application, validity and enforcement of this Agreement are
governed by the laws of the State of Minnesota without giving effect to any
choice or conflict of law provision or rule, whether of the State of Minnesota
or any other jurisdiction, that would cause the application of laws of any
jurisdiction other than the State of Minnesota.

 

9.3.        Choice of Jurisdiction.  Employee and the Corporation consent to
jurisdiction of the courts of the State of Minnesota and/or the federal district
courts, District of Minnesota, for the purpose of resolving all issues of law,
equity, or fact, arising out of or in connection with this Agreement or
Employee’s employment with the Corporation or the termination of such
employment.  Any action involving claims for interpretation, breach or
enforcement of this Agreement or related to Employee’s employment with the
Corporation or the termination of such employment shall be brought in such
courts.  Each party consents to personal jurisdiction over such party in the
state and/or federal courts of Minnesota and hereby waives any defense of lack
of personal jurisdiction or inconvenient forum. 

 

9.4.        Employee’s Representations.  Employee represents that Employee is
not subject to any agreement or obligation that would prevent or limit Employee
from entering into this Agreement or that would be breached upon performance of
Employee’s duties under this Agreement, including but not limited to any duties
owed to any former employers not to compete.  If Employee possesses any
information that Employee knows or should know is considered by any third party,
such as a former employer of Employee’s, to be confidential, trade secret, or
otherwise proprietary, Employee shall not disclose such information to the
Corporation or use such information to benefit the Corporation in any way.

 

9.5.        Counterparts.  This Agreement may be executed in several
counterparts and as so executed shall constitute one agreement binding on the
Parties.

 

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9.6.      Assignment and Successors.   The rights and obligations of the
Corporation under this Agreement shall inure to the benefit of and will be
binding upon the successors and assigns of the Corporation, provided any such
successor or assignee assumes all of the Corporation’s obligations under this
Agreement.  Neither party may, without the written consent of the other party,
assign or delegate any of its rights or obligations under this Agreement except
that the Corporation may, without any further consent of Employee, assign or
delegate any of its rights or obligations under this Agreement to any
corporation or other business entity (a) with which the Corporation may merge or
consolidate, (b) to which the Corporation may sell or transfer all or
substantially all of its assets or capital stock or equity, or (c) any affiliate
or subsidiary of the Corporation.  After any such assignment or delegation by
the Corporation, the Corporation will be discharged from all further liability
hereunder and such assignee will thereafter be deemed to be the “Corporation”
for purposes of all terms and conditions of this Agreement, including this
Section 9.6.  Employee may not assign this Agreement or any rights or
obligations hereunder.  Any purported or attempted assignment or transfer by
Employee of this Agreement or any of Employee’s duties, responsibilities, or
obligations hereunder is void.

 

9.7.      Modification.  This Agreement shall not be modified or amended except
by a written instrument signed by the Parties.

 

9.8.      Severability.  The invalidity or partial invalidity of any portion of
this Agreement shall not invalidate the remainder thereof, and said remainder
shall remain in fully force and effect.

 

9.9.      Opportunity to Obtain Advice of Counsel.  Employee acknowledges that
Employee has been advised by the Corporation to obtain legal advice prior to
executing this Agreement, and that Employee had sufficient opportunity to do so
prior to signing this Agreement.

 

9.10.    Indemnification.  As to acts or omissions of Employee which are within
the scope of Employee’s authority as an officer, director, or employee of the
Corporation and/or any affiliate of the Corporation, the Corporation will
indemnify Employee in accordance with and subject to the limitations contained
in its Articles of Incorporation, Bylaws and Section 302A.521 of the Minnesota
Business Corporations Act.  If Employee is made or threatened to be made a party
to any threatened, pending, or completed civil, criminal, administrative,
arbitration, or investigative proceeding, including a proceeding by or in the
right of the corporation, Employee is entitled, upon written request to the
Corporation, to payment or reimbursement by the Corporation of reasonable
expenses, including attorneys’ fees and disbursements, incurred by Employee in
advance of the final disposition of the proceeding, (a) upon receipt by the
Corporation of a written affirmation by Employee of a good faith belief that the
criteria for indemnification set forth in Section 302A.521, subdivision 2 of the
Minnesota Business Corporations Act have been satisfied and a written
undertaking by Employee to repay all amounts so paid or reimbursed by the
Corporation, if it is ultimately determined that the criteria for
indemnification have not been satisfied, and (b) after a determination that the
facts then known to those making the determination would not preclude
indemnification under the Corporation’s Articles of Incorporation and Bylaws and
Section 302A.521 of the Minnesota Business Corporations Act, including but not
limited to whether the alleged misconduct by Employee that is the subject of the
proceeding is within the course and scope of Employee’s employment.

 

9.11.    D&O Insurance. The Corporation shall maintain an insurance policy or
policies providing directors’ and officers’ liability insurance, comprehensive
general liability insurance, and errors and omissions insurance, and the
Employee shall be covered by such policy or policies, in accordance with its or
their terms, to the maximum extent of the coverage available for any officer of
the Corporation.

 

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9.12.    280G Limitations.  In the event that the severance and other benefits
provided for in this Agreement or otherwise payable to Employee (a) constitute
“parachute payments” within the meaning of Section 280G of the Code and (b)
would be subject to the excise tax imposed by Code Section 4999, then such
benefits shall be either be: (i) delivered in full, or (ii) delivered as to such
lesser extent which would result in no portion of such severance benefits being
subject to excise tax under Code Section 4999, whichever of the foregoing
amounts, taking into account the applicable federal, state and local income and
employment taxes and the excise tax imposed by Code Section 4999, results in the
receipt by Employee, on an after-tax basis, of the greatest amount of benefits,
notwithstanding that all or some portion of such benefits may be subject to
excise tax under Code Section 4999. Any determination required under this
Section 9.12 will be made in writing by an accounting firm selected by the
Corporation or such other person or entity to which the parties mutually agree
(the “Accountants”), whose determination will be conclusive and binding upon
Employee and the Corporation for all purposes.  For purposes of making the
calculations required by this Section 9.12, the Accountants may make reasonable
assumptions and approximations concerning applicable taxes and may rely on
reasonable, good faith interpretations concerning the application of Code
Sections 280G and 4999. The Corporation and Employee shall furnish to the
Accountants such information and documents as the Accountants may reasonably
request in order to make a determination under this Section. The Corporation
shall bear all costs the Accountants may reasonably incur in connection with any
calculations contemplated by this Section 9.12.  Any reduction in payments
and/or benefits required by this Section 9.12 shall occur in the following
order: (A) cash payments shall be reduced first and in reverse chronological
order such that the cash payment owed on the latest date following the
occurrence of the event triggering such excise tax will be the first cash
payment to be reduced; (B) accelerated vesting of stock awards, if any, shall be
cancelled/reduced next and in the reverse order of the date of grant for such
stock awards (i.e., the vesting of the most recently granted stock awards will
be reduced first), with full-value awards reversed before any stock option or
stock appreciation rights are reduced; and (C) deferred compensation amounts
subject to Section 409A shall be reduced last.

 

[Signature Page Follows]

 

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THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT was voluntarily and knowingly
executed by the Parties effective as of the Effective Date first set forth
above.

 

 

ELECTROMED, INC.

 

 

Date: December 2, 2019

/s/ Stephen H. Craney

 

By:  Stephen H. Craney

 

Its:  Chairman

 

 

 

EMPLOYEE:

 

 

Date: December 2, 2019

/s/ Kathleen S. Skarvan

 

Kathleen S. Skarvan