RETENTION AGREEMENT

 

<PAGE>

                                                                   Exhibit 10.36

 

                               RETENTION AGREEMENT

 

     THIS RETENTION AGREEMENT (this "Agreement") is dated as of August 31, 2004,

by and between David L. Schlotterbeck (the "Employee") and ALARIS Medical

Systems, Inc., a Delaware corporation (the "Company").

 

                                    RECITALS

 

     WHEREAS, the Employee and the Company executed a letter agreement on May

10, 2000, (the "Change of Control Agreement") providing the Employee with

certain severance benefits in the event of a "change of control" as defined in

the Change of Control Agreement;

 

     WHEREAS, on July 7, 2004, the Company became a wholly-owned subsidiary of

Cardinal Health, Inc. ("Cardinal"), pursuant to that certain Agreement and Plan

of Merger by and among the Company, Blue Merger Corp. and Cardinal dated as of

May 18, 2004 (the "Merger Agreement");

 

     WHEREAS, the Employee is employed by the Company; and

 

     WHEREAS, the Company values the services of the Employee and desires to

provide an inducement to the Employee to work as an employee of the Company for

a period following the Closing (as such capitalized term is defined in the

Merger Agreement).

 

                                    AGREEMENT

 

     NOW, THEREFORE, in consideration of the foregoing and the mutual covenants,

agreements, representations and warranties herein contained, and for other good

and valuable consideration, the receipt and sufficiency of which is hereby

acknowledged, the parties hereto, intending to be legally bound hereby, do

hereby agree as follows:

 

     1. Retention Program. If the Employee remains employed by the Company,

Cardinal or any other direct or indirect subsidiary of Cardinal (Cardinal and

Cardinal's other subsidiaries are hereinafter referred to as "Affiliated

Companies" and each as an "Affiliated Company") until June 28, 2006 (the "Target

Date"), the Company shall pay to Employee a one-time, lump-sum retention cash

bonus equal to the greater of (a) $2,172,000.00 and (b) the sum of (i) two

hundred percent (200%) of the Employee's base annual pay effective as of the

Target Date and (ii) two hundred percent (200%) of the Employee's target bonus

for the fiscal year ending June 30, 2006 (the "Retention Bonus"). If the

Retention Bonus is earned by the Employee pursuant to this Section 1, the

Retention Bonus will be paid to the Employee within fifteen (15) days following

the Target Date. In addition, if at anytime after June 28, 2006 (the "Target

Date") the Employee voluntarily departs from the Company, the Company shall pay

to the Employee a one time lump sum cash bonus equal to one hundred percent

(100%) of the Employee's base annual pay effective as of the departure date.

 

     2. Change of Control Agreement. The Employee acknowledges and agrees that

by executing this Agreement, the Change of Control Agreement shall be terminated

in its entirety, and the terms and conditions thereof shall be superseded by the

terms and conditions of this Agreement; and that, effective upon the execution

of this Agreement by the Employee, neither the Company nor Cardinal, nor any

other Affiliated Company, shall have any obligation to the Employee, nor shall

the Employee enjoy any rights or privileges, under the Change of Control

Agreement.

 

<PAGE>

 

     3. Termination Prior to the Target Date.

 

          (a) General. Nothing contained in this Agreement shall (i) confer upon

the Employee any right to continue in the employ of the Company, (ii) constitute

any contract or agreement of employment, or (iii) interfere in any way with the

at-will nature of the Employee's employment with the Company. The parties hereto

acknowledge, understand and agree that (so long as it is done in accordance with

applicable law) the Company may terminate the Employee's employment at any time

for any reason or for no reason with or without notice and that the Employee may

terminate the Employee's employment with the Company at anytime for any reason

or for no reason with or without notice, including, without limitation, in each

case, for Disability (as hereinafter defined), but only if that Disability

continues through the Date of Termination (as hereinafter defined). The Employee

shall be entitled to the benefits provided in Section 4 upon a termination of

the Employee's employment if that termination occurs on or prior to the Target

Date, but only if that termination was effected (i) by the Company other than

for Cause (as defined below); (ii) by the Employee for Good Reason (as defined

below); (iii) by the Employee's death; or (iv) by the Company for Disability (as

defined below) (a termination of the Employee's employment under the

circumstances set forth in clause (i), (ii), (iii) or (iv) of this sentence is

hereinafter referred to as a "Payment Termination"). The Employee shall not be

entitled to the benefits provided in Section 4: (i) if the Employee's employment

is terminated for any reason after the Target Date or (ii) the Employee's

employment is terminated on or prior to the Target Date, if such termination is

occasioned: (A) by the Company for Cause or (B) by the Employee for other than

Good Reason. A termination of the Employee's employment under the circumstances

set forth in clause (A) or (B) above is hereinafter referred to as a

"Non-Payment Termination").

 

          (b) Death or Disability. The Employee's employment with the Company

shall terminate, automatically, upon the Employee's death. For purposes hereof

the term "Disability" shall mean the Employee's absence from the full-time

performance of the Employee's duties with the Company for six (6) consecutive

months as set forth in the Company's disability plan, a copy of which is

available to the Employee.

 

          (c) Cause. The Company may terminate the Employee's employment for any

reason or for no reason, including, without limitation, for Cause. For purposes

of this Agreement, "Cause" shall mean (i) any breach by the Employee of any of

the Employee's obligations under this Agreement of a type and kind which is

materially adverse to the Company and which remains uncured by the Employee for

thirty (30) calendar days following the Employee's receipt of Notice of

Termination (as hereinafter defined); (ii) any gross misconduct by the Employee

of a type and kind which is materially adverse to the Company; (iii) any

violation by the Employee of a governmental law, rule or regulation applicable

to the business of the Company of a type and kind which is materially adverse to

the Company; or (iv) the Employee's conviction of, or entry by the Employee of a

guilty, or no contest, plea to, the commission of a felony of a kind that causes

material impairment or injury or substantial embarrassment to the Company.

 

          (d) Good Reason. The Employee may terminate the Employee's employment

for any reason or for no reason, including, without limitation for Good Reason.

For purposes of this Agreement, "Good Reason" shall mean the occurrence after

the Closing occurring on or before the Target Date of any one or more of the

following events without, in each case, the Employee's prior written consent:

 

 

                                        2

 

<PAGE>

 

               i. the assignment to the Employee of any duties (other than

duties constituting reasonable transition services in connection with the

consummation of the transaction anticipated by the Merger Agreement) which are

inconsistent with the position in the Company that the Employee held immediately

prior to the Closing, an alteration in the nature or status of the Employee's

responsibilities or the conditions of the Employee's employment from those in

effect immediately prior to the Closing, or any other action by the Company that

results in a diminution in the position and authority with the Company held by

the Employee prior to the Closing, in each case, under circumstances in which

such assignment, alteration or action is materially adverse to the Employee;

provided, however, that, for purposes of this Section, the fact that the

Employee is no longer an employee of a "publicly-traded" company shall not be

deemed to be an alteration in the Employee's responsibilities or conditions or a

diminution in position or authority;

 

               ii. the Company's reduction of the Employee's annual base salary

or bonus opportunity, each as in effect on the Closing Date or as the same may

be increased from time to time;

 

               iii. the relocation of the Company's offices at which the

Employee is principally employed immediately prior to the Closing (the

Employee's "Principal Location") to a location more than ten (10) miles from the

Principal Location, or the Company's requiring the Employee to be based at a

location more than ten (10) miles from the Employee's Principal Location, except

for required travel on the Company's business to an extent substantially

consistent with the Employee's present business travel obligations;

 

               iv. the Company's failure to pay to the Employee any portion of

the Employee's current compensation or any portion of an installment of deferred

compensation under any deferred compensation program of the Company within seven

(7) days following the later of the date such compensation is due or the date of

written demand by the Employee for the payment of such compensation

(specifically referring to this Section 3(d)(iv));

 

               v. the Company's failure to continue in effect compensation and

benefit plans which provide the Employee with benefits which are substantially

similar, on an aggregate basis, to the benefits provided to the Employee under

the Company's regular compensation and benefit plans and practices immediately

prior to the Closing, unless an equitable arrangement (embodied in ongoing

substitute or alternative plans) has been made with respect to such plans, or

the Company's failure to continue the Employee's participation therein (or in

such substitute or alternative plans) on a basis not materially less favorable

in the aggregate, both in terms of the amount of benefits provided and the level

of the Employee's participation relative to other participants, as existed at

the time of the Closing;

 

               vi. any purported termination of the Employee's employment by the

Company which does not satisfy the requirements of Section 3(e) hereof (such a

purported termination shall not be effective for purposes of this Agreement);

 

               vii. the continuation or repetition, after written notice of

objection from the Employee (specifically referring to this Section 3(d)(vii)),

of harassing or denigrating treatment of the Employee inconsistent with the

Employee's position with the Company, which treatment is materially adverse to

the Employee; or

 

               viii. any breach by the Company of its obligations under this

Agreement which is materially adverse to the Employee and which remains uncured

by the

 

 

                                        3

 

<PAGE>

 

Company for five (5) calendar days following the Company's receipt of notice

thereof (specifically referring to this Section 3(d)(viii)).

 

In addition, in the event that the Employee has become Disabled on or before the

Target Date, the Employee may terminate the Employee's employment on or before

the Target Date and such termination shall be deemed to be for Good Reason.

 

Further, the Employee's continued employment shall not constitute consent to, or

a waiver of right with respect to, any circumstance constituting Good Reason

hereunder.

 

          (e) Notice of Termination. Any purported termination of the Employee's

employment by the Company or by the Employee (other than termination due to the

Employee's death, since the Employee's death terminates the Employee's

employment automatically) occurring on or before the Target Date shall be

communicated by written Notice of Termination to the other party hereto in

accordance with Section 7. For purposes of this Agreement, "Notice of

Termination" means a notice that shall indicate the specific termination

provision in this Agreement relied upon, shall set forth in reasonable detail

the facts and circumstances claimed to provide a basis for termination of the

Employee's employment under the provision so indicated and shall set forth a

date (the "Date of Termination") which follows the date of that notice. If,

notwithstanding the foregoing, the Employee's employment is being terminated by

the Employee for Good Reason, the Date of Termination may not be more than

thirty (30) days from the date of that notice or more than three (3) months from

the date of the events giving rise to that Good Reason, whichever first occurs.

 

          (f) Date of Termination. If the Company seeks to terminate the

Employee's employment for Cause, the date of termination of the Employee's

employment shall be the Date of Termination, except that if the consequences of

the act or omission to act set forth in the pertinent Notice of Termination is

curable (and cure is allowed under such circumstances) then the date of

termination of the Employee's employment shall be the date which is the

thirty-first (31st) day following the Date of Termination, unless the Employee

shall have cured such consequences prior to that date, in which case the

Employee's employment shall not terminate. Subject to a different date set forth

in a Notice of Termination provided under Section 3(e), if the Employee seeks to

terminate the Employee's employment with the Company for Good Reason, the date

of termination of the Employee's employment shall be the Date of Termination.

The date that the Employee's employment actually terminates is hereinafter

referred to herein as the "Final Date".

 

     4. Compensation upon Termination.

 

          (a) Non-Payment Termination. In the event of a Non-Payment

Termination, the Company shall pay to Employee the Employee's full base salary,

when due, through the Final Date at the rate in effect immediately prior to the

delivery of the pertinent Notice of Termination, if a Notice of Termination was

required to have been given, or if it was not, then on the Final Date, plus all

other amounts to which the Employee is entitled under any compensation plan of

the Company at the time such payments are due, and the Company shall have no

further obligations to the Employee under Section 1 or otherwise under this

Agreement.

 

          (b) Payment Termination. In the event of a Payment Termination, then,

subject to Section 4(e) and in lieu of any severance benefits to which the

Employee may otherwise be entitled under any severance plan or program of the

Company, the Employee shall

 

 

                                        4

 

<PAGE>

 

be entitled to the benefits provided below, and the Company shall have no

further obligations to the Employee under Section 1 or otherwise under this

Agreement:

 

               i. the Company shall pay to Employee the Employee's full base

salary, when due, through the Final Date at the rate in effect immediately prior

to the delivery of the pertinent Notice of Termination (or if the Employee's

termination is for Good Reason by reason of a reduction in the Employee's annual

base salary, the rate in effect immediately prior to such reduction), at the

time specified in Section 4(c), plus all other amounts (other than severance

benefits not provided for in this Agreement) to which the Employee is entitled

under any compensation plan of the Company at the time such payments are due;

 

               ii. in lieu of any further salary payments to the Employee for

periods subsequent to the Final Date, the Company shall pay as severance pay to

the Employee, at the time specified in Section 4(c), a one-time, lump-sum

severance payment equal to the greater of (1) $2,172,000.00 and (2) the sum of

(A) two hundred percent (200%) of the Employee's annual base salary as in effect

immediately prior to the delivery of the pertinent Notice of Termination (or if

the Employee's termination is for Good Reason by reason of a reduction in the

Employee's annual base salary, the rate in effect immediately prior to such

reduction) and (B) two hundred percent (200%) of the Employee's targeted annual

aggregate bonus amounts for the fiscal year ending June 30, 2006 (or if the

Employee's termination is for Good Reason by reason of a reduction in the

Employee's bonus opportunity, the bonus opportunity in effect immediately prior

to such reduction). In addition, the Company shall pay to the Employee a one

time lump sum cash bonus equal to one hundred percent (100%) of the Employee's

base annual pay effective as of the Notice of Termination date.

 

               iii. the Company shall, at its sole expense as incurred, provide

the Employee with outplacement services for a period not to exceed nine (9)

consecutive months immediately following the Final Date at an aggregate cost to

the Company not to exceed $12,000, the scope of which shall be selected by the

Employee in the Employee's sole discretion and the provider of which shall be

selected by the Employee from among the providers offered to the Employee by the

Company;

 

               iv. for the period beginning on the Final Date and ending on the

earlier of (A) the date which is twenty-four (24) full months following the

Final Date or (B) the first day of the Employee's eligibility to participate in

another group health plan, the Company shall pay for and provide the Employee

and the Employee's dependents with the same medical benefits coverage to which

the Employee would have been entitled had the Employee remained continuously

employed by the Company during such period. In the event that the Employee is

ineligible under the terms of the Company's benefit plans to continue to be so

covered, the Company shall provide the Employee with substantially equivalent

coverage through other sources or will provide the Employee with a lump sum

payment (determined on a present value basis using the interest rate provided in

Section 1274(b)(2)(B) of the Internal Revenue Code (the "Code") on the Date of

Termination) in such amount that, after all income and employment taxes on that

amount, shall be equal to the cost to the Employee of providing the Employee

such benefit coverage. At the termination of the benefits coverage under the

first sentence of this Section 4(b)(iv), the Employee and the Employee's

dependents shall be entitled to continuation coverage ("COBRA Coverage")

pursuant to Section 4980B of the Code, Sections 601-608 of the Employee

Retirement Income Security Act of 1974, as amended, and under any other

applicable law, to the extent required by such laws, as if the Employee had

terminated employment with the Company on the date such benefits coverage

terminates; provided, however, that the period of the

 

 

                                        5

 

<PAGE>

 

Employee's benefits coverage under the first sentence of this Section 4(b)(iv)

shall be offset against the period during which the Employee would be entitled

to such COBRA Coverage; and

 

               v. the Employee shall be fully vested in the Employee's accrued

benefits under any qualified or nonqualified pension, profit sharing, deferred

compensation or supplemental plans maintained by the Company for the Employee's

benefit; provided, however, that to the extent that the acceleration of vesting

of such benefits would violate any applicable law or require the Company to

accelerate the vesting of the accrued benefits of all participants in such plan

or plans, then, assuming that the Employee obtains the appropriate consents, the

Company shall pay the Employee a lump-sum payment at the time specified in

Section 4(c) in an amount equal to the value of such unvested benefits.

 

          (c) Timing of Payment. The payments provided for in Sections 4(b)(i),

(ii) and (v) (if applicable) shall be made not later than the fifth (5th)

business day following the Final Date; provided, however, that if the amounts of

such payments cannot be finally determined on or before such date, the Company

shall pay to the Employee on such day an estimate, as determined in good faith

by the Company, of the minimum amount of such payments and shall pay the

remainder of such payments (together with interest at the rate provided in

Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be

determined but in no event later than the thirtieth (30th) day after the Final

Date. In the event that the amount of the estimated payments exceeds the amount

subsequently determined to have been due, such excess shall constitute a loan by

the Company to the Employee, payable on the fifth (5th) business day after

demand by the Company (together with interest at the rate provided in Section

1274(b)(2)(B) of the Code).

 

          (d) No Mitigation. The Employee shall not be required to mitigate the

amount of any payment provided for in this Section 4 by seeking other employment

or otherwise nor, except as provided in Section 4(b)(iv), shall the amount of

any payment or benefit provided for in this Section 4 be reduced by any

compensation earned by the Employee as the result of employment by another

employer or self-employment, by retirement benefits, by offset against any

amounts (other than loans or advances to the Employee by the Company) claimed to

be owed by the Employee to the Company, or otherwise.

 

          (e) Treatment of Payment.

 

               i. Notwithstanding anything contained herein, if any payment or

distribution to the Employee or for the Employee's benefit (whether paid or

payable or distributed or distributable) pursuant to the terms of this Section 4

(a "Payment") would constitute a "parachute payment" within the meaning of

Section 280G of the Code, the Payments shall be reduced to the extent necessary

so that no portion of the Payments shall be subject to the excise tax imposed by

Section 4999 of the Code (the "Excise Tax"), but only if, by reason of such

reduction, the net after-tax benefit to the Employee shall exceed the net

after-tax benefit to the Employee if no such reduction was made. For purposes of

this Section 4(e), "net after-tax benefit" shall mean (A) the Payments which the

Employee receives or is then entitled to receive that would constitute

"parachute payments" within the meaning of Section 280G of the Code, less (B)

the amount of all federal, state, local and foreign income and employment taxes

payable with respect to the foregoing calculated at the maximum marginal income

tax rate for each year in which the foregoing shall be paid to the Employee

(based on the rate in effect for such year as set forth in the Code as in effect

at the time of the first payment of the foregoing), less (C) the amount of the

Excise Tax imposed with respect to the Payments. The foregoing determination

will be made by the Accountants (as defined below) in consultation with the

Employee and the Company and in accordance with the analysis, valuations and

calculations prepared by the

 

 

                                        6

 

<PAGE>

 

Accountants in connection with this Agreement. If the Accountants determine that

such reduction is required by this Section 4(e)(i), the Employee, in the

Employee's sole and absolute discretion, may determine which Payments shall be

reduced to the extent necessary so that no portion thereof shall be subject to

the Excise Tax, and the Company shall pay such reduced amount to the Employee.

The Employee and the Company will each provide the Accountants access to and

copies of any books, records, and documents in the possession of the Employee or

the Company, as the case may be, reasonably requested by the Accountants, and

otherwise cooperate with the Accountants in connection with the preparation and

issuance of the determinations and calculations contemplated by this Section

4(e)(i).

 

               ii. All determinations required to be made under this Section

4(e), including the assumptions to be utilized in arriving at such

determinations, shall be made by the Accountants which shall provide the

Employee and the Company with its determinations and detailed supporting

calculations with respect thereto at least fifteen (15) business days prior to

the date on which the Employee would be entitled to receive a Payment (or as

soon as practicable in the event that the Accountants have less than fifteen

(15) business days advance notice that the Employee may receive a Payment) in

order that the Employee may determine whether the Employee concurs with such

determination. For the purposes of this Section 4(e), the "Accountants" shall

mean the Company's independent certified public accountants serving immediately

prior to the Final Date. All fees and expenses of the Accountants shall be borne

solely by the Company. For the purposes of determining whether any of the

Payments will be subject to the Excise Tax and the amount of such Excise Tax,

such Payments will be treated as "parachute payments" within the meaning of

Section 280G of the Code, and all "parachute payments" in excess of the "base

amount" (as defined under Section 280G(b)(3) of the Code) shall be treated as

subject to the Excise Tax, unless and except to the extent that in the opinion

of the Accountants such Payments (in whole or in part) either do not constitute

"parachute payments" or represent reasonable compensation for services actually

rendered (within the meaning of Section 280G(b)(4) of the Code) in excess of the

"base amount," or such "parachute payments" are otherwise not subject to such

Excise Tax. Any determination by the Accountants shall be binding upon the

Company and the Employee. As a result of uncertainty in the application of

Section 4999 of the Code at the time of the initial determination by the

Accountants hereunder, it is possible that the amount of the Payments that the

Accountants determine would constitute a "parachute payment" within the meaning

of Section 280G of the Code will have been less than the amount of the Payments

that the Internal Revenue Service (the "IRS") determines constitutes a

"parachute payment" within the meaning of Section 280G of the Code. In such

event, the Employee shall notify the Company in writing of any such claim by the

IRS. Such notification shall be given as soon as practicable after the Employee

is informed in writing of such claim and shall apprise the Company of the nature

of such claim and the date on which such claim is requested to be paid. In

connection with any contest or potential contest of such claim, the Employee and

the Company will provide each other access to and copies of any books, records,

and documents in the possession of the Employee or the Company, as the case may

be, reasonably requested by the other party, and will otherwise cooperate with

each other in connection with any such contest or potential contest. In the

event that the Employee or the Company contest such claim