Exhibit 10.40





Exhibit 10.40




(Portions of this Exhibit have been omitted

pursuant to a request for confidential treatment)




Dear Earl:



The purpose of this Letter Agreement (“Agreement”) is to retain and maximize your talents
during this critical transition period for Hill-Rom’s North America Acute Care Division (“NAAC
Division”) and this Agreement amends your Employment Agreement dated July 31, 2008 (“Employment
Agreement”) as follows:



1. Performance Bonus. Effective October 1, 2009, Paragraph 4(c) of the Employment
Agreement shall be amended and restated to provide you an opportunity to earn a performance and
bonus of up to Three Hundred Thousand Dollars ($300,000.00) as follows:




Bonus Opportunity. The Employee shall be entitled to a performance
and retention bonus, based on the Company’s attainment of certain
organizational performance criteria, up to a maximum bonus payable of Three
Hundred Thousand Dollars ($300,000.00) (“Maximum Bonus Amount”).




The payment of any bonus hereunder shall be contingent on satisfaction in
full of all of the following: (1) the Employee demonstrating best efforts,
as determined by the Company in its sole discretion, to have a “ready now”
successor for each of the NAAC Division’s heads of sales and
marketing/business unit management reporting to Employee, in each case, by
December 1, 2010; (2) the Company achieving the organizational performance
criteria established hereunder (“Performance Criteria”); (3) achieving and
maintaining the NAAC Division’s fiscal year 2010 business plan’s (as
approved by the Company’s Board of Directors (“Board”)) operating income,
as adjusted, by the Board’s Compensation and Management Development
Committee for extraordinary items (“Adjusted FY 2010 OI”); and (4)
achieving a level of revenue in the NAAC Division for FY2010 as adjusted by
the CMDC (“Adjusted FY2010 Revenue”) equal to or greater than the NAAC
Division’s Adjusted FY2009 Revenue as adjusted by the CMDC; and (5) the
Employee’s continued employment with the Company until January 1, 2011,
except in the event of the Employee’s involuntary termination of employment
without cause or the Employee’s voluntary termination of employment with
Good Reason.




If the level of FY2010 NAAC Division Adjusted Revenue does not exceed the
FY2010 NAAC Division’s business plan targeted revenue (as approved by the
Board) any otherwise eligible bonus payouts under this agreement will be
reduced by 50%.


 


 









 





Mr. Earl DeCarli

October 2009

Page 2





Performance Criteria. The Performance Criteria shall be determined
based on market share [***]. The Company’s market share shall be
determined by [***], as set forth in Exhibit “A” [***].




Subject to the other terms and conditions set forth in this Agreement, for
the performance period beginning October 1, 2009 and ending September 30,
2010 (“Year One”), the Employee shall be entitled to a bonus up to but not
exceeding the Maximum Bonus Amount, with two-thirds of such bonus being
paid in December 2010 (“Initial Amount”) and one third being held back for
potential payment in December 2011, with the amount so held back being
referred to as the “Hold Back Amount”. The Initial Amount plus the Hold
Back Amount equals the “Total Bonus.”




Employee is eligible to earn up to Two Hundred Thousand Dollars
($200,000) of the Maximum Bonus Amount based on [***].




Employee’s actual bonus payment, if any, will be calculated on a pro rata
basis, with a bonus earned or payable only if [***].




[***]




Subject to the other terms and conditions set forth in this Agreement, for
the performance period beginning October 1, 2010 and ending September 30,
2011 (“Year Two”), if [***], then Company shall pay the entire applicable
Hold Back Amount to the Employee in a single lump sum payment in December
2011.




If the Total Bonus as recalculated using Year Two market data as if it were
applied in Year One is less than the Initial Amount, Employee will forfeit
the entire Hold Back Amount. If the Total Bonus as recalculated using Year
Two market data exceeds the Initial Amount, then the Employee shall be
entitled to the portion of the Hold Back Amount equal to such excess.
[***] In the event the entire Hold Back Amount is more than offset by any
adjustment, there will be no forfeiture of the Initial Amount. [***]




Adjustments based on Early Termination. In the event of the
Employee’s involuntary termination of employment without cause or the
Employee’s voluntary termination of employment with Good Reason between
October 1, 2009 and March 31, 2010, then the maximum bonus that may be
earned by the Employee shall be reduced by multiplying Two Hundred Thousand





	 	 	 
	***	 	Certain information on this page has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted
portions.




 


 









 





Mr. Earl DeCarli

October 2009

Page 3





Dollars ($200,000.00) by a fraction, the numerator of which is the total
number of full months of service completed by the Employee and the
denominator of which is six (6). In the event of the Employee’s
involuntary termination of employment without cause or the Employee’s
voluntary termination of employment with Good Reason between April 1, 2010
and October 1, 2010, then the maximum bonus that may be earned by the
Employee shall be determined as provided above but subject to a maximum
bonus of Two Hundred Thousand Dollars ($200,000.00), and no bonus shall be
payable for the period beginning October 1, 2010 and ending September 30,
2011. In the event of the Employee’s involuntary termination of employment
without cause or the Employee’s voluntary termination of employment with
Good Reason between October 1, 2010 and September 30, 2011, then the Hold
Back Amount payable with respect to this performance period shall be paid
to the Employee in full, regardless of whether the Company attains the
organizational Performance Criteria for this performance period.




Notwithstanding the above, the CMDC shall have total discretion regarding
[***] calculations, satisfaction of Performance Criteria, and determination
of any bonus amounts payable hereunder.



2. Forfeiture/Clawback. In the event of the your involuntary termination of employment
with Hill-Rom Holdings, Inc. or any of its subsidiaries (“Company”) for cause (as defined in the
Employment Agreement) or voluntary termination of employment without Good Reason (as defined in the
Employment Agreement) prior to January 1, 2011, you shall forfeit all performance-based
compensation provided under paragraph 3 of this Letter Agreement. In the event of such forfeiture,
you agree to repay to the Company the total value of all performance-based compensation provided
under paragraph 3 of this Letter Agreement plus interest at an annual interest rate of three point
two five percent (3.25%). Moreover, if, within twenty four months of any payment to you of
performance-based compensation under paragraph 3 of this Agreement, it is determined, in the
judgment of the Board’s Compensation and Management Development Committee (“CMDC”), that (i) such
amount(s) exceed(s) the amount(s) that would have been paid to you had the Company’s relative
market share (as calculated under [***]) and/or Adjusted FY 2010 OI been correctly calculated prior
to any payment to you of performance-based compensation under paragraph 3 of this Agreement, and
(ii) the incorrect calculation of the Company’s relative market share (as calculated under [***])
and/or Adjusted FY 2010 OI was, in the judgment of the CMDC, due, in whole or in part, to your
misconduct (including, without limitation, fraud, and violation of law or Company policy), then you
agree to repay to the Company on demand the total value of such excess amount of performance-based
compensation under paragraph 3 of this Agreement plus interest at an annual interest rate of three
point two five percent (3.25%).





	 	 	 
	***	 	Certain information on this page has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted
portions.




 


 









 





Mr. Earl DeCarli

October 2009

Page 4




3. Effect on Employment Agreement. Your Employment Agreement will remain in full force and
effect, except as modified by this Letter Agreement.



4. Counterparts. This Letter Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original but all of which together will constitute one and the
same instrument.



Please indicate your acceptance of these terms by countersigning a copy of this Letter
Agreement and returning it to the undersigned at your earliest convenience.



	 	 	 	 	 
	 	Very truly yours,



HILL-ROM HOLDINGS, INC.

 	 
	 	By:  	 	 
	 	 	Name:  	 	 
	 	 	Its: 	 	 



	 	 	 	 	 
	Accepted and agreed:

	 	 
	 
	 	 	 	 
	By:
	 	 	 	 
	 

	 	 	 	 
	 	 	EARL DECARLI

	 	 
	 
	Date:
	 	 	 	 
	 

	 	 	 	 





 


 









 





Mr. Earl DeCarli

October 2009

Page 5




EXHIBIT A




[***]






	 	 	 
	***	 	Certain information on this page has been omitted and filed separately with the Securities and
Exchange Commission. Confidential treatment has been requested with respect to the omitted
portions.