E XHIBIT 10.42
EXECUTIVE
AGREEMENT
This Executive Agreement (this
“Agreement”) is made effective as of the 9
th day of July 2007 (the “Effective
Date”) between ResMed Inc., a Delaware corporation and its
subsidiaries (collectively, the “Company”) and
(“Executive”).
WHEREAS, the Company currently employs Executive;
and
WHEREAS, the Company believes it to be in the best
interests of its stockholders to attract, retain and motivate key
officers and to ensure continuity of management, and that this will
further those interests; and
WHEREAS, the Company recognizes that the possibility of a
Change of Control of the Company may result in the departure of key
executives to the detriment of the Company and its
stockholders.
In consideration of
Executive’s continued employment as an executive officer with
the Company and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
Company and Executive agree as follows:
|
|
A.
|
This Agreement
shall be for an initial term that continues in effect, through the
third anniversary of the Effective Date. The term of this Agreement
shall automatically be extended for one or more additional terms of
three (3) years each. This Agreement may be terminated
effective as of the last day of any of the initial or extended
term, provided that written notice of such termination is provided
to Executive prior to the date that is 60 days before the last day
of such term.
|
|
|
B.
|
Notwithstanding
the foregoing, the term of this Agreement shall terminate upon the
expiration of the “Restricted Period”, subject to all
rights and benefits hereunder having been paid and satisfied in
full.
|
|
|
A.
|
“
Bonus Amount ” shall mean
% of
Executive’s Termination Base Salary. 1
|
|
1
|
The new
definition of “ Bonus Amount ” replaces the
definition of “ Target Bonus ,” and is used in
determining the severance benefits under Sections 3.B(iii) and
(iv), for the reasons described below.
|
|
|
Section 162(m) of the Internal Revenue Code
of 1986, as amended (the “ Code ”), generally
imposes a $1 million limit on a publicly traded corporation’s
deduction for compensation for a taxable year for the
corporation’s Chief Executive Officer and certain other
executive officers. The $1 million deduction limit does not apply
to “qualified performance-based compensation”
(generally, performance-based bonuses and incentive compensation
granted by the corporation’s Compensation Committee pursuant
to a stockholder approved plan).
|
|
|
(i)
|
Executive’s conviction or plea of guilty
or nolo contendere of a misdemeanor involving moral turpitude,
dishonesty or a breach of trust as regards the Company or any
subsidiary of the Company or Executive’s conviction or plea
of guilty or nolo contendere of a felony; or
|
|
|
(ii)
|
Executive’s commission of any act of
theft, fraud, embezzlement or misappropriation against the Company,
regardless of whether a criminal conviction is obtained;
or
|
|
|
(iii)
|
Executive’s willful and continued failure
to devote substantially all of his or her business time to the
Company’s business affairs, (excluding failures due to
illness, incapacity, vacations, incidental civic activities and
incidental personal time) or Executive’s material breach of
the terms of any employment-related agreement with the Company,
which failure or breach is not remedied within a reasonable time
after written demand is delivered by the Company, which demand
specifically identifies the manner in which the Company believes
that Executive has failed to devote substantially all of his
business time to the Company’s business affairs or has
breached such agreement; or
|
|
|
(iv)
|
Executive’s willful failure to comply with
any corporate policies, which failure results or is likely to
result in substantial injury, financial or otherwise, to the
Company or its reputation;
|
|
|
In order to
satisfy the “qualified performance-based compensation”
exemption, an executive’s bonus must be payable solely upon
the attainment of one or more performance goals.
|
|
|
Earlier this
year, the Internal Revenue Service (“ IRS ”)
issued a ruling regarding the “qualified performance-based
compensation” exemption. In that ruling, the IRS concluded
that the mere fact that an executive is entitled to all or part of
his or her bonus upon voluntary or involuntary termination of
employment, without regard to the attainment of the performance
goals, will cause the bonus to fail to satisfy the exemption.
Consequently, if an executive is entitled to a severance benefit
upon termination of employment, and the severance benefit includes
the payment of all or part of the bonus, the bonus will be subject
to the $1 million limit. Under the ruling, the bonus fails to
satisfy the exemption even if the executive is not
terminated.
|
|
|
The severance
benefits under Sections 3.B(iii) and (iv) are currently
determined based on an executive’s target bonus. However, the
severance benefits are payable only in the event of a “
Change of Control .” If a “ Change of
Control ” occurs, the company may cease to be publicly
traded or may become a subsidiary of a publicly traded corporation,
and the company’s executives may cease to be subject to
Section 162(m). There is some possibility (for example, in the
event of a “merger of equals” transaction) that the
company’s executives will remain subject to
Section 162(m).
|
|
|
The new “
Bonus Amount ” definition is added in order to provide
that the severance benefits under Sections 3.B(iii) and
(iv) will not be determined based on an executive’s
target bonus. The “ Bonus Amount ” will be a
fixed percentage of the executive’s “ Termination
Base Salary ”. This is intended to prevent the
executive’s bonus from failing to satisfy the
“qualified performance-based compensation”
exemption.
|
2
|
|
(v)
|
Executive’s unauthorized disclosure or use
of confidential information of the Company, which results or is
likely to result in substantial injury, financial or otherwise, to
the Company or its reputation; or
|
|
|
(vi)
|
Executive’s willful violation of any rules
or regulations of any governmental or regulatory body, which
violation results or is likely to result in substantial injury,
financial or otherwise, to the Company or its reputation;
or
|
|
|
(vii)
|
Executive’s abuse of drugs, alcohol or
illegal substances (to the extent not inconsistent with the
Americans with Disability Act or similar state law), which results
or is likely to result in substantial injury, financial or
otherwise, to the Company or its reputation.
|
|
|
C.
|
“
Change of Control ” of the Company means the
occurrence of any of the following events for purposes of this
Agreement:
|
|
|
(i)
|
a transaction
or series of transactions whereby any “person” or
related “group” of “persons” (as such terms
are used in Sections 13(d) and 14(d)(2) of the Exchange Act)
directly or indirectly acquires beneficial ownership (within the
meaning of Rule 13d-3 under the Exchange Act) of securities of the
Company possessing more than 50% of the total combined voting power
of the Company’s securities outstanding immediately after
such acquisition, other than:
|
|
|
(a)
|
an acquisition
by an employee benefit plan or any trustee holding securities under
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any person controlled by the Company;
or
|
|
|
(b)
|
an acquisition
by the Company or a “person” that, prior to such
transaction, directly or indirectly controls, is controlled by, or
is under common control with, the Company; or
|
|
|
(c)
|
an acquisition
pursuant to the offering of shares of Common Stock by the Company
to the general public through a registration statement filed with
the Securities and Exchange Commission; or
|
|
|
(d)
|
an acquisition
of voting securities pursuant to a transaction described in clause
(iii) below that would not be a Change of Control under clause
(iii).
|
|
|
(ii)
|
individuals who, as of the date
hereof, constitute the Board (the “ Incumbent Board
”) cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or
nomination for election by the Company’s stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered to be members of
the Incumbent Board, but excluding, for this
|
3
|
|
purpose, any such individual
whose initial assumption of office was a result of an actual or
threatened election contest with respect to the election or removal
of directors; or
|
|
|
(iii)
|
The
consummation by the Company (whether directly involving the Company
or indirectly involving the Company through one or more
intermediaries) of (x) a merger, consolidation,
reorganization, or business combination or (y) a sale or other
disposition of all or substantially all of the Company’s
assets in any single transaction or series of related transactions
or (z) the acquisition of assets or stock of another entity,
in each case other than a transaction:
|
|
|
(a)
|
which results
in the Company’s voting securities outstanding immediately
before the transaction continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
Successor Entity) directly or indirectly, at least a majority of
the combined voting power of the Successor Entity’s
outstanding voting securities immediately after the transaction;
or
|
|
|
(b)
|
after which
more than 50% of the members of the board of directors of the
Successor Entity were members of the Incumbent Board at the time of
the Board’s approval of the transaction or the agreement
providing for the transaction.
|
|
|
(iv)
|
The
Company’s stockholders approve a liquidation or dissolution
of the Company.
|
For purposes of subsection
(i) above, the calculation of voting power shall be made as if
the date of the acquisition were a record date for a vote of the
Company’s stockholders, and for purposes of subsection
(iii) above, the calculation of voting power shall be made as
if the date of the consummation of the transaction or at the
consummation of the last of a series of related transactions were a
record date for a vote of the Company’s stockholders. For
purposes of subsection (iii) “ Successor Entity
” means the Company or the “person” that, as a
result of the transaction, controls, directly or indirectly, the
Company or owns, directly or indirectly, all or substantially all
of the Company’s assets or otherwise succeeds to the business
of the Company.
|
|
D.
|
“
Code ” shall mean the United States Internal Revenue
Code of 1986, as amended from time to time.
|
|
|
E.
|
“ Date
of Termination ” shall mean the date of Executive’s
Separation from Service.
|
|
|
F.
|
“
Disability ” shall mean a physical or mental
incapacity as a result of which Executive becomes unable to
continue the proper performance of Executive’s duties
hereunder for six consecutive calendar months or for shorter
periods aggregating 180 business days in any 12 month period, but
only to the extent that such definition does not violate the
Americans with Disabilities Act.
|
4
|
|
G.
|
“
ERISA ” shall mean the Employee Retirement Income
Security Act of 1974, as amended from time to time.
|
|
|
H.
|
“
Equity Plans ” shall mean the Company’s stock
option plans, restricted stock plans, incentive plans, equity
participation plans, or other similar plans, and any stock option
or restricted stock agreements or other award agreements used in
connection therewith.
|
|
|
I.
|
“
Executive ” shall mean the executive officer of the
Company who is a party to this Agreement. In the event of the
Executive’s death after he becomes entitled to any payment,
benefit or right under Section 3, 4 or 5, but prior to his
receipt of such payment or benefit or exercise of any right, then
the term “Executive” shall include his
estate.
|
|
|
J.
|
“ Good Reason
” 2
shall mean any of the following
material negative circumstances that occurs without the express
written consent of Executive, if Executive has given the Company
written notice (“ Notice of Good Reason ”)
within 90 days of the initial existence of such circumstances and
the Company has failed to cure such circumstances within 30 days of
such notice:
|
|
|
(i)
|
The assignment
to Executive by the Company of duties, responsibilities and
authority that are materially diminished when compared to
Executive’s duties, responsibilities and authority with the
Company immediately prior to the Change of Control, except in
connection with the termination of Executive’s employment for
Cause, death or Disability or by Executive other than for Good
Reason. The fact that the Company becomes a subsidiary of another
entity, or that the Company’s status changes from
publicly-traded to privately-held, as a result of the Change of
Control, shall not, by itself, constitute a material diminution in
the duties, responsibility or authority of Executive; or
|
|
2
|
The definition of “ Good
Reason ” is revised to conform to the definition of
“good reason” set forth in the Treasury Regulations
under Section 409A of the Code, for the reasons described
below.
|
|
|
Section 409A of the Code imposes certain
requirements on nonqualified deferred compensation arrangements.
The severance benefits under Sections 3.B(ii), (iii) and
(iv) are intended to be “short-term deferrals,” as
defined in the Treasury Regulations. Compensation that is a
“short-term deferral” is exempt from
Section 409A.
|
|
|
In order to
exempt, the severance benefits under Sections 3.B(ii),
(iii) and (iv) must be payable only upon an
“involuntary separation from service” (generally, an
involuntary termination of employment). An executive’s
resignation for “good reason,” as defined in the
Treasury Regulations, will be considered to be involuntary for
purposes of Section 409A.
|
|
|
The Treasury
Regulations require that a “good reason” event involve
a “material negative change” in the employment
relationship. The Treasury Regulations also include a “safe
harbor” list of “good reason” events. The
revisions to the “Good Reason” definition incorporate
these concepts. The “ Good Reason definition includes
events that are not “safe harbor” events.
|
5
|
|
(ii)
|
A material
reduction by the Company in Executive’s base salary as in
effect at the time of the Change of Control; or
|
|
|
(iii)
|
Any material
diminution by the Company in the aggregate benefits provided to
Executive under the Company’s benefit plans and arrangements
in which Executive is participating at the time of the Change of
Control, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to such
plan or arrangement; or
|
|
|
(iv)
|
Any failure by
the Company to continue in effect, or any material reduction in
target bonus opportunity or any material increase in target
performance objectives under, any bonus or incentive plan or
arrangement in which Executive is participating at the time of the
Change of Control, which results in a material negative change in
Executive’s bonus or incentive compensation, unless an
equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan or
arrangement with a comparable target bonus opportunity and
comparable target performance objectives; or
|
|
|
(v)
|
Any material
diminution by the Company in the budget over which Executive
retains authority at the time of the Change of Control;
|
|
|
(vi)
|
Any requirement
by the Company that Executive be based anywhere that is at least
fifty (50) miles away from both (i) Executive’s
office location as of the date of the Change of Control and
(ii) Executive’s then primary residence, except for
required travel by Executive on the Company’s business;
or
|
|
|
(vii)
|
Any failure by
the Company to obtain the assumption of this Agreement by any
successor or assign of the Company; or
|
|
|
(viii)
|
Any other
action or inaction by the Company that constitutes a material
breach by the Company of the agreement under which Executive
provides services to the Company at the time of the Change of
Control.
|
For these purposes, a material
reduction of Executive’s base salary or target bonus
opportunity will be deemed to have occurred if the salary or target
bonus opportunity has been reduced by 10% or more from the base
salary or target bonus opportunity, as applicable, in effect at the
time of the Change of Control.
Executive’s voluntary
termination of employment for Good Reason must occur not later than
two years after the initial existence of the circumstances
constituting “Good Reason.”
|
|
K.
|
“ Notice of
Termination ” shall mean a written notice delivered to
the other party indicating the specific termination provision in
this Agreement relied upon for termination of Executive’s
employment and shall set forth in reasonable detail the
|
6
|
|
facts and circumstances claimed
to provide a basis for termination of Executive’s employment
under the provision so indicated. Any purported termination by
either party other than pursuant to a Notice of Termination shall
not be effective.
|
|
|
L.
|
“
Payment Date ” shall mean the later of the Separation
from Service or the date of the Change of Control.
|
|
|
M.
|
“
Restricted Period ” shall mean the period of [two
(2)] 3
[one and a half (1.5)]
4 [one(1)] 5 years following the Date of Termination of
Executive, which termination is covered by Section 3
hereof.
|
|
|
N.
|
“
Separation from Service ” of Executive shall mean
Executive’s termination of employment with the Company and
its subsidiaries and if Executive’s compensation is subject
to taxation under the Code such termination must also qualify as a
“separation from service,” as defined in Treasury
Regulation Section 1.409A-1(h).
|
|
|
O.
|
“
Termination Base Salary ” shall mean the greatest
annual rate of Executive’s base salary in effect during the
three year period ending on the Date of Termination.
|
|
3.
|
Change of
Control Benefits.
|
|
|
(i)
|
Executive
provides Notice of Good Reason at any time during the six month
period prior to the date of a Change of Control, or during the
twelve (12) month period commencing on the date of a Change of
Control, and Executive has a Separation from Service by reason of
Executive’s voluntary termination of employment for Good
Reason, or
|
|
|
(ii)
|
Executive has a
Separation from Service by reason of the Company’s
termination of Executive’s employment other than for Cause
during the six month period prior to the date of the Change of
Control (and such termination is at the request of the successor
entity of such Change of Control, or is otherwise made in
anticipation of the Change of Control), or during the twelve
(12) month period commencing on the date of the Change of
Control,
|
then Executive shall receive the
benefits from the Company as provided under Section 3.B. A
portion of the benefits provided under Section 3.B and 3.C is
deemed consideration for Executive’s covenants under
Section 13.
|
|
B.
|
The benefits to
be provided by the Company in the event of a Separation from
Service covered by Section 3.A shall be as follows:
|
|
3
|
For the agreement of the chief
executive officer
|
|
4
|
For all the
agreements of the executive officers, other than the chief
executive officer
|
|
5
|
For all the
agreements of non-executive key officers
|
7
|
|
(i)
|
The Company
shall pay to Executive when otherwise due Executive’s then
effective base salary through the Date of Termination.
|
|
|
(ii)
|
The Company
shall pay to Executive an amount equal to [two (2)]
6 [one and a half (1.5)] 7 [one(1)] 8 times Executive’s Termination Base Salary,
payable in a lump sum within thirty (30) days following the
Payment Date; provided , that, in no event shall such lump
sum payment be paid after the last day of the applicable two and
one half month period of the “short-term deferral”
exemption under Treasury Regulation
Section 1.409A-1(b)(4).
|
|
|
(iii)
|
The Company
shall pay to Executive an amount equal to [two (2)]
9 [one and a half (1.5)] 10 [one(1)] 11 times the higher of (i) the highest actual
annual bonus received by Executive during the three years prior to
the year in which the Date of Termination occurs, or
(ii) Executive’s Bonus Amount, payable in a lump sum
within thirty (30) days following such Payment Date;
provided , that, in no event shall such lump sum payment be
paid after the last day of the applicable two and one half month
period of the “short-term deferral” exemption under
Treasury Regulation Section 1.409A-1(b)(4).
|
|
|
(iv)
|
In
consideration of service through the Date of Termination, the
Company shall pay to Executive his Bonus Amount, pro-rated through
and including the Date of Termination (on the basis of a 365 day
year), payable in a lump sum within thirty (30) days following
the Payment Date; provided , that, in no event shall such
lump sum payment be paid after the last day of the applicable two
and one half month period of the “short-term deferral”
exemption under Treasury Regulation
Section 1.409A-1(b)(4).
|
|
|
(v)
|
Notwithstanding
any provisions to the contrary in any of the Company’s Equity
Plans, (i) all outstanding unvested stock options of Executive
shall be and become fully vested and exercisable as to all shares
of stock covered thereby, and (ii) all outstanding shares of
restricted stock, all restricted shares, restricted stock units,
performance shares and performance units of Executive shall be and
become 100% vested and all restrictions thereon shall lapse, in
each case as of the Date of Termination.
|
|
|
(vi)
|
The Company
shall pay to executive an amount equal to [two (2)]
12 [one and a half (1.5)] 13 [one(1)] 14 times the annual amount the Company
would
|
|
6
|
For the
agreement of the chief executive officer
|
|
7
|
For all the
agreements of the executive officers, other than the chief
executive officer
|
|
8
|
For all the
agreements of non-executive key officers
|
|
9
|
For the
agreement of the chief executive officer
|
|
10
|
For all the
agreements of the executive officers, other than the chief
executive officer
|
|
11
|
For all the
agreements of non-executive key officers
|
|
12
|
For the
agreement of the chief executive officer
|
|
13
|
For all the
agreements of the executive officers, other than the chief
executive officer
|
|
14
|
For all the
agreements of non-executive key officers
|
8
|
|
be required to contribute on
Executive’s behalf to the 401(k) plan, deferred compensation
plan and any similar plan then in effect, based on
Executive’s Termination Base Salary and the applicable
maximum Company contribution percentages in effect as of the Date
of Termination, payable in a lump sum within thirty (30) days
following the Payment Date; provided , that, in no event
shall such lump sum payment be paid after the last day of the
applicable two and one half month period of the “short-term
deferral” exemption under Treasury Regulation
Section 1.409A-1(b)(4).
|
|
|
(vii)
|
Effective as of
the Payment Date, Executive shall become and be fully vested in
Executive’s accrued benefits under all qualified pension,
nonqualified pension, profit sharing, 401(k), deferred compensation
and supplemental plans maintained by the Company for
Executive’s benefit, except to that the extent 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, in
which case the Company shall pay Executive a lump sum payment,
within thirty (30) days following the Payment Date, in an
amount equal to the present value of such unvested accrued
benefits; provided , that, in no event shall such lump sum
payment be paid after the last day of the applicable two and one
half month period of the “short-term deferral”
exemption under Treasury Regulation Section 1.409A-1(b)(4). In
addition, if such a lump sum payment is payable, the Company shall
make an additional gross-up payment to Executive in an amount such
that the net amount of the lump sum payment and such additional
gross-up payment retained by Executive, after the calculation and
deduction of all federal, foreign, state and local income tax and
employment tax (including any interest or penalties imposed with
respect to such taxes) on such lump sum payment and additional
gross-up payment, and taking into account any lost or reduced tax
deductions on account of such gross-up payment, shall be equal to
such lump sum payment. Such additional gross-up payment shall be
made in a lump sum payment within thirty (30) days following
the Payment Date; provided , that, in no event shall such
lump sum payment be paid after the last day of the applicable two
and one half month period of the “short-term deferral”
exemption under Treasury Regulation
Section 1.409A-1(b)(4).
|
|
|
(viii)
|
The Company
shall provide Executive with additional benefits described in
Section 4 hereof.
|
|
|
C.
|
In the event of a Change of
Control, notwithstanding any provisions to the contrary in any of
the Company’s Equity Plans, (i) all outstanding unvested
stock options of Executive shall be and become fully vested and
exercisable as to all shares of stock covered thereby, and
(ii) all outstanding shares of restricted stock, all
restricted shares, restricted stock units, performance shares and
performance
|
9
|
