Exhibit 10.7

 

SEPARATION AGREEMENT AND RELEASE OF CLAIMS

 

This Separation Agreement and Release of Claims (“Separation Agreement”) is
entered into by and between Electromed, Inc., a Minnesota corporation
(“Electromed”) and Terry Belford (“Belford”).

 

RECITALS

 

A.        Electromed and Belford entered into a Transition Agreement (the
“Transition Agreement”).

 

B.        Pursuant to the Transition Agreement, Belford has voluntarily resigned
his employment and any and all positions with Electromed, including but not
limited to Chief Financial Officer (“CFO”).

 

C.        Belford desires to receive, and Electromed desires to provide in
exchange for a release of claims and other promises, separation pay to assist
Belford with his transition.

 

D.        Electromed and Belford desire to set forth fully their understanding
and agreement with respect to the terms of Belford’s separation from Electromed.

 

NOW, THEREFORE, in consideration of the mutual covenants and promises made by
and between the parties, the receipt and adequacy of which is acknowledged,
Electromed and Belford hereby agree as follows:

 

1.        Separation.

 

a.        The parties agree that Belford has resigned as an employee and CFO of
Electromed effective as of the Separation Date. For purposes of this Separation
Agreement, the “Separation Date” means the earlier of (a) October 31, 2011, or
(b) the date on which Electromed’s new CFO commences employment. Electromed
agrees to provide prompt notice to Belford of the date the new CFO commences
employment if that date is prior to October 31, 2011.

 

b.        Belford acknowledges and agrees that he has received his final
paycheck, which includes payment for services through October 31, 2011, and that
he has received all compensation owed to him through October 31, 2011 by virtue
of his employment with Electromed or separation thereof, including but not
limited to wages for services rendered through October 31, 2011 and bonus
payments for performance during the calendar year ending December 31, 2010.

 

c.        Upon receipt of $27,690.00, less applicable deductions and
withholding, representing payment for accrued and unused vacation through
October 31, 2011, Belford acknowledges and agrees that he has received all
benefits that may be owed to him by virtue of his employment with Electromed or
separation thereof.

 

-1-

 

 

d.        The COBRA period for continuation of Belford’s insurance coverage
under Electromed’s group plans will begin on the first day of the month
immediately following the Separation Date. Information regarding Belford’s right
to elect COBRA coverage will be sent to him via separate letter.

 

e.        Belford is not eligible for any other payments or benefits by virtue
of his employment with Electromed or termination thereof except for those
expressly described in this Separation Agreement. Belford will receive the
Separation Pay described in Section 2 of this Separation Agreement if, and only
if, (i) Belford signs the Transition Agreement, (ii) Belford has not materially
breached terms of the Transition Agreement, and (iii) Belford’s resignation
pursuant to Section 2 of the Transition Agreement has become effective, and (iv)
Belford signs (and does not rescind in whole or in part) this Separation
Agreement on the later of ten (10) calendar days after the Separation Date, or
twenty-one (21) calendar days from the date Belford receives this Separation
Agreement.

 

2.        Separation Pay. Specifically in consideration of Belford’s signing
this Separation Agreement and subject to the limitations, obligations, and other
provisions contained in this Separation Agreement, Electromed agrees as follows:

 

a.        To pay Belford Separation Pay in the amount of $147,310.00 less
applicable deductions and withholding, which the parties acknowledge includes
six months Separation Pay and all bonus payments for performance during the
calendar year ending December 31, 2011 to which Belford may be entitled under
the New Employment Agreement dated effective January 1, 2010 (the “Employment
Agreement”). Payment under this Section 2.a. will be paid in a lump sum on the
first day of the seventh month following Belford’s “separation from service,” as
defined in Code Section 409A.

 

3.        Release of Claims. Specifically in consideration of the Separation Pay
described in Section 2, to which Belford would not otherwise be entitled, by
signing this Separation Agreement Belford, for himself and anyone who has or
obtains legal rights or claims through him, agrees to the following:

 

a.        Belford hereby does release and forever discharge the “Released
Parties” (as defined in Section 3.e. below) of and from any and all manner of
claims, demands, actions, causes of action, administrative claims, liability,
damages, claims for punitive or liquidated damages, claims for attorney’s fees,
costs and disbursements, individual or class action claims, or demands of any
kind whatsoever, Belford has or might have against them or any of them, whether
known or unknown, in law or equity, contract or tort, arising out of or in
connection with his employment with Electromed, or the termination of that
employment, or otherwise, and however originating or existing, from the
beginning of time through the date of his signing this Separation Agreement.

 

b.        This release includes, without limiting the generality of the
foregoing, any claims Belford may have for any of the following:

          ·  wages, compensation, distributions, bonuses, commissions,
penalties, deferred compensation, vacation, sick, and/or PTO pay, separation pay
and/or benefits;

 

-2-

 

 

  ·  defamation of any kind including, but not limited to, libel, slander;
invasion of privacy; negligence; emotional distress; breach of express, implied
or oral contract; estoppel; fraud; intentional or negligent misrepresentation;
breach of any implied covenants; wrongful prosecution; assault or battery;
negligent hiring, supervision or retention;   ·  wrongful discharge (based on
contract, common law, or statute, including any federal, state or local statute
or ordinance prohibiting discrimination or retaliation in employment);   · 
violation of any of the following:     o the United States Constitution,     o
the Minnesota Constitution,     o the Minnesota Human Rights Act, Minn. Stat. §
363A.01 et seq.,     o Minn. Stat. Chapters 177 and 181,     o Title VII of the
Civil Rights Act, 42 U.S.C. § 2000e et seq.,     o the Age Discrimination in
Employment Act, 29 U.S.C. § 621 et seq.,     o the Older Workers Benefit
Protection Act, 29 U.S.C. § 623 et seq.,     o Civil Rights Act of 1866, 42
U.S.C. § 1981,     o Civil Rights Act of 1991, 42 U.S.C. § 1981a,     o the
Americans with Disabilities Act, 42 U.S.C. § 12101 et seq.,     o the Genetic
Information Nondiscrimination Act of 2008,     o the Employee Retirement Income
Security Act of 1976, 29 U.S.C. § 1001 et seq.,     o the Family and Medical
Leave Act, 29 U.S.C. § 2601 et seq.,     o the National Labor Relations Act, 29
U.S.C. § 151 et seq.,     o the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. § 2101 et seq.,     o the Fair Credit Reporting Act, 15 U.S.C. §§
1681 et seq.,     o the Sarbanes-Oxley Act, 15 U.S.C. § 7201 et seq., or     o
any other federal, state or local statute prohibiting discrimination in
employment or granting rights to Belford arising out of the employment
relationship with Electromed or termination thereof;   ·  any claim for
retaliation, including any claim for retaliation under Minn. Stat. Chapter 176;
and   ·  any claim for discrimination or harassment based on sex, race, color,
creed, religion, age, national origin, marital status, sexual orientation,
disability, genetic information, status with regard to public assistance, or any
other legally-protected class.

 

c.        Belford hereby waives any and all relief not provided for in this
Separation Agreement. Belford understands and agrees that, by signing this
Separation Agreement, he waives and releases any claim to employment with
Electromed.

 

d.        Belford is not, by signing this Separation Agreement, releasing or
waiving (i) any vested interest he may have in any 401(k), pension, or profit
sharing plan by virtue of his employment with Electromed, (ii) any rights or
claims that may arise after the Separation Agreement is signed, (iii) the
Separation Pay specifically promised to him in Section 2 of this Separation
Agreement, (iv) the right to institute legal action for the purpose of enforcing
the provisions of this Separation Agreement, (v) the right to file a charge of
discrimination with a governmental agency such as the Equal Employment
Opportunity Commission (although Belford agrees that he will not be able to
recover any award of money or damages if he files such a charge or has a charge
filed on his behalf) or to testify, assist, or participate in an investigation,
hearing, or proceeding conducted by such an agency, (vi) any rights he has under
the Consolidated Omnibus Budget Reconciliation Act (“COBRA”); (vii) any existing
rights pertaining to outstanding warrant agreements; or (viii) the right to
coverage and indemnification under Electromed’s directors’ and officers’
insurance coverage for acts or omissions in the course and scope of his
employment with Electromed as set forth in and governed by Electromed’s D&O
insurance policy.

 

-3-

 

 

e.        The “Released Parties,” as used in this Separation Agreement, means
Electromed, Inc. and any of its subsidiaries, divisions, affiliated entities,
and its and their present and former officers, directors, shareholders,
trustees, employees, agents, attorneys, insurers, representatives and
consultants, and the successors and assigns of each, whether in their individual
or official capacities, and the current and former trustees or administrators of
any pension or other benefit plan applicable to the employees or former
employees of Electromed, in their official and individual capacities.

 

4.        Notice of Right to Consult Attorney and Twenty-One (21) Calendar Day
Consideration Period. By signing this Separation Agreement, Belford acknowledges
and agrees that Electromed has informed him by this Separation Agreement that
(a) he has the right to consult with an attorney of his choice prior to signing
this Separation Agreement and Electromed encourages him to do so, and (b) he is
entitled to twenty-one (21) calendar days from his receipt of this Separation
Agreement to consider whether the terms are acceptable to him. Electromed
encourages Belford to use the full 21-day period to consider this Separation
Agreement but he has the right, if he chooses, to sign this Separation Agreement
prior to the expiration of the twenty-one (21) day period; provided, however,
that Belford may not sign this Separation Agreement until on or after the
Separation Date.

 

5.        Notification of Rights under the Minnesota Human Rights Act (Minn.
Stat. Chapter 363A) and the Federal Age Discrimination in Employment Act (29
U.S.C. § 621 et seq.). Belford is hereby notified of his right to rescind
(revoke) the release of claims contained in Section 3 with regard to claims
arising under the Minnesota Human Rights Act, Minnesota Statutes Chapter 363A,
within fifteen (15) calendar days of his signing this Separation Agreement, and
with regard to claims arising under the federal Age Discrimination in Employment
Act, 29 U.S.C. § 621 et seq., within seven (7) calendar days of his signing this
Separation Agreement. The two rescission periods will run concurrently. In order
to be effective, the rescission must

 

a.        Be in writing; and

 

b.        Delivered to Robert D. Hansen, Chief Executive Officer, Electromed,
Inc., 500 Sixth Avenue NW, New Prague, MN 56071 by hand or mail within the
required period; and

 

c.        If delivered by mail, the rescission must be postmarked within the
required period, properly addressed to Robert Hansen, as set forth above, and
sent by certified mail, return receipt requested.

 

This Separation Agreement will be effective upon the expiration of the 15-day
period. Notwithstanding the foregoing, if Belford rescinds any part of this
Separation Agreement in accordance with this Section 5, Electromed will have the
right to void this Separation Agreement by giving Belford written notice within
ten (10) calendar days after Electromed’s receipt of his rescission notice. If
Electromed exercises its right to void the Separation Agreement, then Belford
will not receive or be entitled to the Separation Pay described in Section 2 of
this Separation Agreement.

 

-4-

 

 

6.        Post-Separation Restrictions and Obligations.

 

a.        Non-Competition. Belford agrees that he will abide by the restrictions
and obligations described in his Non-Competition, Non-Solicitation, and
Confidentiality Agreement dated effective January 1, 2010 (the “Non-Competition
Agreement”).

 

b.        Cooperation. Belford agrees to provide Electromed the following for no
additional payment or compensation other than the compensation and benefits
outlined herein:

 

(i)        For the period from the Separation Date through December 31, 2011,
Belford agrees to provide consulting and transition services to Electromed as
reasonably requested by Electromed. Belford’s status during the above-described
period will be that of an independent contractor and not an employee of
Electromed. Belford will not enter into any agreements or otherwise act on
behalf of Electromed during such period or thereafter.

 

(ii)        At Electromed’s request, Belford will cooperate with Electromed in
any pending or future claims or lawsuits involving Electromed where Belford has
knowledge of the underlying facts. In addition, Belford will not voluntarily
aid, assist, or cooperate with any claimants or plaintiffs or their attorneys or
agents in any claims or lawsuits commenced in the future against Electromed;
provided, however, that nothing in this Separation Agreement will be construed
to prevent Belford from testifying truthfully and completely at an
administrative hearing, a deposition, or in court in response to a lawful
subpoena or as otherwise required by law, in any litigation or proceeding
involving Electromed. Belford agrees to promptly notify Electromed as
immediately as possible if he is subpoenaed or otherwise required or asked to
testify in any proceeding Electromed so it has sufficient time to move to quash
or otherwise lawfully prevent his testimony.

 

7.        Belford’s Representations and Warranties. Belford represents and
warrants that to the best of his knowledge, Belford did not breach any fiduciary
duties owed to Electromed and that he has not taken any action of which he is
aware that could result in criminal liability for Electromed. Belford
acknowledges that these representations and warranties are a material inducement
for Electromed to enter into this Agreement. Electromed is not currently aware
of any instances in which Belford has breached his fiduciary duties owed to
Electromed or any actions he has taken that could result in criminal liability
for Electromed.

 

 

-5-

 

8.        Return of Property. Belford acknowledges and agrees that all documents
and materials relating to the business of, or the services provided by,
Electromed are the sole property of Electromed. Belford agrees and represents
that to the best of his knowledge (a) he has returned to Electromed all of its
property (whether or not confidential or proprietary), including but not limited
to, all client records, and all Electromed documents, materials, emails, and
texts concerning Electromed from any and all personal media (including, but not
limited to, personal computers, Blackberries, PDA’s, cell phones, etc.), whether
on computer disc, hard drive or other form, and all copies thereof, within his
possession or control, and (b) following his returning of all the
above-described property, he then deleted or otherwise destroyed all
Electromed-related information, including deleting such information from all his
personal media. This provision does not relate to publicly available information
about Electromed that may be in Belford’s possession, or to any data relating to
Belford’s ownership of shares in Electromed.

 

9.        Confidentiality and Nondisparagement.

 

a.        Belford promises and agrees not to discuss or disclose, directly or
indirectly, in any manner whatsoever, any information regarding either (i) the
contents and terms of this Separation Agreement, or (ii) the substance and/or
nature of any dispute between Electromed and any employee or former employee,
including himself. Belford agrees that the only people with whom he may discuss
this confidential information are his legal and financial advisors, and his
spouse, if applicable, provided they agree to keep the information confidential,
or as required by law. Notwithstanding the foregoing, Belford acknowledges that
Electromed may disclose either or both of (i) the contents and terms of this
Separation Agreement, and (ii) the substance and/or nature of any dispute
between Electromed and any employee or former employee, including himself, as
necessary or desirable in its sole discretion.

 

b.        Belford promises and agrees not to make or induce any other person to
make derogatory or disparaging statements of any kind, oral or written,
regarding the Released Parties (as defined in Section 3.e.) to any person or
organization whatsoever.

 

c.        Provided, however, that nothing in this Section or elsewhere in this
Separation Agreement will limit (i) Belford’s obligation to give truthful
testimony or information to a court or governmental agency when required to do
so by subpoena, court order, law, or administrative regulation, or (ii)
Belford’s legal right to testify, assist, or participate in an investigation,
hearing or proceeding conducted regarding a charge of discrimination filed with
a governmental agency.

 

10.        Non-Admission. It is expressly understood that this Separation
Agreement does not constitute, nor will it be construed as an admission by
Electromed or Belford of any liability or unlawful conduct whatsoever.
Electromed and Belford specifically deny any liability or unlawful conduct.

 

-6-

 

 

11.        Remedies. If Belford breaches any term of this Separation Agreement,
Electromed will be entitled to its available legal and equitable remedies. If it
is discovered that the representations contained in Section 7 are substantially
untrue as a result of any administrative, civil or criminal complaint or
investigation, Electromed will have the right, in addition to any other rights
Electromed may have in law or equity, to, withhold any future payments owed
under the Separation Agreement, to be offset against any costs or damages
Electromed can prove were caused or incurred as a result of an actual breach by
Belford. Should Electromed not prove an actual breach by Belford, any withheld
amounts under this Separation Agreement shall be released and paid to Belford.

 

12.        Code Section 409A. Notwithstanding any other provision of this
Separation Agreement to the contrary, the parties intend that this Separation
Agreement will satisfy the applicable requirements, if any, of Section 409A of
the Internal Revenue Code of 1986, as amended, and the regulations thereunder
(collectively hereinafter referred to as “409A”) in a manner that will preclude
the imposition of additional taxes and interest imposed under 409A. The parties
agree that the Separation Agreement will be amended (as determined by Electromed
in consultation with Belford) to the extent necessary to comply with 409A, as
amended from time to time, and the notices and other guidance of general
applicability issued thereunder.

 

13.        Governing Law. This Separation Agreement and all questions arising in
connection with it will be governed by the laws of the State of Minnesota.

 

14.        Successors and Assigns. This Separation Agreement is personal to
Belford and may not be assigned by him without the written agreement of
Electromed. The rights and obligations of this Separation Agreement will inure
to the successors and assigns of Electromed.

 

15.        Severability. If a court finds any term of this Separation Agreement
to be invalid, unenforceable, or void, the parties agree that the court will
modify such term to make it enforceable to the maximum extent possible. If the
term cannot be modified, the parties agree that the term will be severed and all
other terms of this Separation Agreement will remain in effect.

 

16.        Entire Agreement. This Separation Agreement contains the sole offer
and full agreement between Belford and Electromed relating to Belford’s
employment with Electromed, the termination of such employment, and his right to
severance/separation pay or benefits, and may not be modified, altered, or
changed in any way except by written agreement signed by both parties. The
parties agree that this Separation Agreement supersedes and terminates any and
all other written and oral agreements and understandings between the parties
relating to Belford’s employment with Electromed and termination thereof,
compensation, benefits, and/or separation/severance payments and/or benefits,
including but not limited to the Transition Agreement, the Employment Agreement
and any other policies, contracts, offers, or plans. Notwithstanding the
foregoing, this Separation Agreement does not supersede or terminate the
Non-Compete Agreement or any separate warrant agreements between Belford and
Electromed.

 

17.        Expiration of Offer. Belford may not sign this Separation Agreement
before the Separation Date. The offer contained in this Separation Agreement
will automatically expire at midnight on the later of (a) the twenty-first
(21st) calendar day after the date of receipt, or (b) ten (10) days after the
Separation Date (the “Expiration Date”). If Belford does not sign this
Separation Agreement by the Expiration Date and promptly return it to
Electromed, then the offer contained in this Separation Agreement will
automatically be revoked and Belford will not receive the Separation Pay
described in Section 2 of this Separation Agreement.

 

-7-

 

 

18.        Acknowledgment of Reading and Understanding. By signing this
Separation Agreement, Belford acknowledges that he has read and obtained legal
advice regarding this Separation Agreement, including the release of claims
contained in Section 3, and that he understands that the release of claims is a
full and final release of all claims Belford may have against Electromed and the
other entities and individuals covered by the release. By signing, Belford also
acknowledges and agrees that he has entered into this Separation Agreement
knowingly and voluntarily.

 

 

[The remainder of this page is intentionally blank. The signature page follows.]

 

 

 

 

 

 

 

 

 

 

 

 

-8-

 

 

IN WITNESS WHEREOF, the parties have executed this Separation Agreement and
Release of Claims in the manner appropriate to each.

 

  TERRY BELFORD         Date: 10/21/2011 /s/ Terry Belford              
ELECTROMED, INC.         Date: 10/25/2011 /s/ Robert D. Hansen   By: Robert D.
Hansen
Its: Chief Executive Officer

 

 

 

 

 

 

 

 

-9-