Exhibit 10.26
SEVERANCE AND SEPARATION AGREEMENT
This Severance and Separation Agreement ("Agreement") is made
effective as of this 24th day of October, 1996 between Mallinckrodt
Inc.(the "Company") and Paul D. Cottone (the "Executive").
WHEREAS, Executive is currently an executive employee of the
Company's veterinary and animal products operations known as
Mallinckrodt Veterinary, Inc., i.e. hereinafter the "Business", who
is employed as its President and Chief Executive Officer and has
significant management responsibilities in the operation of that
Business;
WHEREAS, the Company has determined to divest itself of the
Business by selling or otherwise disposing of it;
WHEREAS, the Company recognizes that Executive is a valuable
resource, desires that he be able to devote his full energies and
undivided attention to his duties without the attendant distractions
which he may have concerning his financial well being in case of the
Executive's termination of employment as described below:
WHEREAS, the Company desires to assure that when Executive is
involved in deliberations in connection with Divestiture of the
Business, Executive would be in a secure position to participate in
such transactions in the best interests of the Company;
WHEREAS, Executive is willing to continue to serve the Company
but desires assurance that in the event of his separation from
employment with the Company or Successor as described below, he will
have fair and reasonable financial protections;
NOW, THEREFORE, in exchange for the promises and covenants
described below and for other valid consideration, whose receipt and
sufficiency is hereby acknowledged, the Company and the Executive
agree as follows:
1. Payment of Severance Compensation Upon Termination of
Employment Prior to Divestiture of the Business. If the employment
of Executive with the Company or any of its affiliates terminates for
any reason before the Closing Date, excluding termination resulting
from the circumstances described in paragraph 5, the Company shall
provide to the Executive those benefits and compensations described
in paragraph 4 below.
2. Payment of Severance Compensation Upon Termination of
Employment As a Result of or Subsequent to Divestiture of the
Business.
(a) If within 30 days following the Closing Date, or the
closing of any transaction which constitutes Divestiture of all or
part of the Business, Executive is not offered or retained in
Comparable Employment by (i) any Successor to the Business, or (ii)
the Company or any of its affiliates, unless he is not retained in or
offered employment for the reasons described in paragraph 5 below,
the Company shall provide to the Executive those benefits and
compensations described in paragraph 4 below.
(b) If following the Closing Date, Executive is retained
in Comparable Employment with Mallinckrodt Inc. or any of its
affiliates and his employment with them thereafter terminates for any
reason, Executive shall not receive the benefits and compensations
described in paragraph 4 but shall receive such payments and benefits
provided under the compensation and employee benefit plans, programs
and policies then maintained by Mallinckrodt Inc. and its affiliates
for which the Executive is then eligible.
(c) Under no circumstances shall Executive be entitled to
the compensations and benefits described in paragraph 4 if Executive,
within a 30 day period following any Divestiture transaction or the
Closing Date, is offered or retained in Comparable Employment by a
Successor or the Company or any of its affiliates except as described
in paragraph 3.
3. Payment of Severance Compensation Upon Termination
Following Divestiture of the Business. If within 30 days following
the Closing Date or the closing of any transaction which constitutes
Divestiture of all or part of the Business, Executive is retained in
Comparable Employment with any Successor and the Executive's
employment with such entity terminates for any reason, except for
those described in paragraph 5, within twelve (12) months after the
start of his/her employment with the Successor, the Company shall
provide to the Executive those benefits and compensations described
in subparagraphs 4(a) and (b) below.
4. Severance Compensation. Except as otherwise provided in
subparagraph 4(c), the Company will pay and provide the following as
specified to Executive should his employment be terminated under any
of the conditions described in paragraphs 1 through 3 which would
make him eligible to receive them:
(a) Base Severance Pay.
(i) If circumstances exist so that if paragraph 1 or
subparagraph 2(a) is applicable, Executive shall receive a cash
payment equal to one year of Executive's base salary in effect on the
date of this Agreement.
(ii) If circumstances exist so that paragraph 3 is
applicable, Executive shall receive a cash payment equal to the
greater of (a) two weeks of Executive's base salary in effect on the
date of this Agreement, per each full year and any fraction of year
of Executive's combined service with the Company and the Successor
subject to a minimum of twelve (12) weeks and a maximum of fifty-two
(52) weeks of base salary regardless of Executive's actual service or
(b) one year of Executive's base salary in effect on the date of this
Agreement multiplied by a fraction the numerator of which equals the
number of calendar days remaining from the date of Executive's
termination by the Successor to the first calendar year anniversary
of the Closing Date and the denominator equals 365 days.
(b) Benefit Continuation Payment. Executive shall receive
a cash payment equal to the cost which employee would be required to
pay to acquire continuation coverage, pursuant to the provisions of
the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"),
29 U.S.C. Sections 1161-1167, under the medical benefit plan which
covered Executive immediately prior to his termination of employment
for a period equal to the total number of weeks of base salary which
the Executive is entitled to receive under subparagraph 4(a).
(c) Retirement Benefit Improvements. If terminated under
any conditions described in paragraphs 1 and 2, Executive shall
receive the following improvements to the amount of his benefits
determined under the Company's Qualified Retirement Plan (the
"Plan"):
(i) If not already vested, he shall become fully
vested in pensions accrued under the Plan:
(ii) He shall have his pension calculated by adding an
additional two (2) years of Credited Service to his existing
Credited Service under the Plan;
(iii) If Executive is age 55 or older on the date on
which his employment terminates, he will be eligible to receive an
early retirement pension benefit under the Plan calculated without
any reduction in accrued pension because of commencement prior to age
62;
(iv) If Executive is at least age 54 but not age 55 on
the date on which his employment terminates, he will be eligible to
receive an early retirement pension benefit upon attaining age 55
determined as though he had terminated employment at age 55 and had
been on unpaid leave of absence from the date of his actual
termination of employment from the Company and its affiliates until
age 55.
If the value or the effect of any item described in subparagraphs
4(c)(i) through (iv) cannot be paid from or provided through the Plan
for any reason, as determined by the Plan Administrator in his
judgment, then the value of such item(s) will be provided in an
equivalent cash payment to the Executive. This payment shall equal
the actuarial equivalent of the particular value or effect determined
using the assumptions and methods then employed under the Plan to
determine the lump sum equivalent of pensions payable under the Plan.
Such calculations shall be made by the Plan Administrator and shall
be final and conclusive.
(d) Payment for Unvested Options. The Company shall pay
Executive for any unvested options of the Company's shares at the
rate of $6.84 per share for those shares covered by options awarded
before August 1996 and $3.42 per share for those shares covered by
options awarded during or after August 1996.
(e) Executive Out placement Assistance. The Company will make
available to Executive an Out placement assistance program (i.e. "Out
placement") which would be provided through a provider selected by
the Company in accordance with such terms as negotiated by the
Company which terms shall be reasonably consistent with Out placement
previously provided by the Company to former executive employees.
Outplacement shall be provided only if Executive notifies the Company
within thirty (30) days of his termination of employment that he
elects it.
(f) Treatment of Payments for Employee Benefit Plan Purposes.
Executive agrees that the payments described in this paragraph 4
shall not considered to be compensation, base compensation, annual
incentive or bonus payments for purposes of determining Executive's
accrued benefit or any other benefit entitlements under the
Mallinckrodt Inc. Retirement Plan, the Investment Plan for Employees
of Mallinckrodt Inc. or any other employee benefit or compensation
plan or policy of the Company and any of its affiliates.
Any amounts due to Executive under this paragraph 4 shall be paid to
him as soon as practical after his termination of employment. No
combination of circumstances described in paragraphs 1 through 3
shall result in multiple payment of any amount stated in paragraph 3.
5. No Entitlement to Severance Payments. If the employment of
the Executive with the Company or any of its affiliates or a
Successor terminates because of any reason described in (a) through
(d) below, Executive shall not be entitled to any of the payments
described in paragraph 4. In such case, the Executive shall only be
entitled to such compensation and benefits as are available under the
applicable employee benefit plans and other compensation programs of
the Company, if any, or a Successor, if his employment terminates
from a Successor, in accordance with the provisions of such plans and
programs.
(a) Death. The Executive's employment with the Company or
a Successor ends by reason of the Executive's death.
(b) Disability. The Executive becomes incapacitated by
reason of physical or mental disability and is unable to perform the
essential functions of his position, with or without accommodation,
and as a result, the Executive's employment with the Company or
Successor is terminated;
(c) Cause. The employment of the Executive with a
Successor or the Company is terminated for Cause. For purposes of
this Agreement, Cause shall mean:
(i) The Executive's neglect of, or failure to
satisfactorily or substantially perform, any of the duties of his
position and any other duties assigned to him unless such failure is
due to physical or mental incapacity; or
(ii) Any act or omission to act of the Executive which
is determined to be inconsistent with the best interests of the
Company or Successor or which has the effect of embarrassing or
injuring the Company or Successor, their business or business
relationships.
For purposes of this Agreement, whether Executive has been
terminated for Cause shall be determined in the sole and exclusive
judgment of the Chairman of the Board of Mallinckrodt Inc. and that
determination shall be binding and final on all parties. In the
event Executive is terminated for Cause, the Executive shall have an
opportunity to meet with the Chairman of the Board before a final
determination is made.
(d) Voluntary Resignation. The employment of the
Executive with a Successor or the Company is terminated by the
Executive upon his voluntary resignation for any reason. The
resignation of Executive shall be deemed "voluntary" unless it occurs
for any one of the reasons described in (i) or (ii) below in which
case it shall be deemed to be "involuntary" and the Executive shall
be entitled to the benefits described in paragraph 4:
(i) The Executive's resignation or retirement (other
than mandatory retirement pursuant to a written employment agreement
or Company or Successor policy) is requested by a Successor or the
Company other than for Cause; or
(ii) The Executive's resignation or retirement results
from the failure by a Successor or the Company to comply with any of
the provisions of any written employment contract with the Executive.
6. Definitions. For purposes of this Agreement, the terms
used herein shall have the following meaning unless otherwise clearly
provided.
(a) "Closing Date" means the date on which the last of any
and all transactions which constitute the Divestiture of the Business
is closed as such date is determined by the Company in its sole and
exclusive judgment. If such date has not occurred prior to June 30,
1997, or if active negotiation with third parties for divestiture of
the Business is ongoing at June 30, 1997, such later date as the
Company in its sole and exclusive judgment may establish, such date
shall not occur.
(b) "Divestiture" means all transactions for the sale,
disposition, exchange or other transfer of all or substantially all
of the ownership of (i) the Business, or (II) any entities owned
directly or indirectly by, or affiliated with, Mallinckrodt Inc. or
Mallinckrodt Veterinary, Inc. which own the Business, is transferred
to persons or entities other than the Company and its Affiliates.
(c) Comparable Employment means employment which would
compensate Executive with an annual base salary and annual bonus
which in total would be at least 90% of Executive's annual base
salary and normal annual MICP bonus payable to Executive on the date
of this Agreement.
For purposes of this Agreement, whether Executive has been offered
Comparable Employment shall be determined in the sole and exclusive
judgment of the Chairman of the Board of Mallinckrodt Inc. and that
determination shall be binding and final on all parties. In the event
a question arises whether the Executive has been offered Comparable
Employment, the Executive shall have an opportunity to meet with the
Chairman of the Board before a final determination is made.
(d) "Successor" means any person, entity or affiliate of
such person or entity which acquires, succeeds to and/or retains any
portion of the Business as a result of, following, or in connection
with any transaction constituting part of the Divestiture of the
Business.
(e) Use of male gender terms, e.g. "he" or "him" shall be
interpreted to also include the female gender if appropriate.
7. Release. As a condition precedent to the Company having any
obligation to pay the Executive or his Beneficiaries of any of the
amounts described in paragraph 4, the Company may demand that
Executive first execute and shall not revoke an agreement wherein the
Executive releases and waives any and all claims which the Executive
may have against the Company and its affiliates and others as
specified in the waiver and release. The Company may propose any
form of release and waiver agreement which it deems appropriate and
Executive and/or his Beneficiaries shall be obligated to execute it
as a condition precedent to entitlement to any of the payments
described in paragraph 4.
8. Payments Upon Death. Upon the death of the Executive,
amounts due to Executive under paragraph 4, if any, shall be
distributed to his designated Beneficiary upon becoming payable.
Executive may designate one or more Beneficiaries to whom benefits
will be paid prior to distribution of such amounts unless otherwise
payable under the terms of the Mallinckrodt Inc. Retirement Plan.
Each designation shall be in writing as prescribed by the Company and
will become effective only when filed with the Company during the
Executive's lifetime. Any Beneficiary designation may be changed by
filing a new designation and all prior designations shall become
void. If the Executive has made no effective Beneficiary designation
or all designated Beneficiaries have predeceased the Executive, then
payment shall be made to the Executive's estate.
9. Exclusivity of Provisions Regarding Payments Upon
Termination of Employment. The terms of this Agreement shall
specifically supersede, replace and render null and void (a) any
agreement or commitment, or portion thereof, which the Executive may
have with the Company or its affiliates and (b) any portion of any
employee benefit plan, program or other policy of the Company or its
affiliates which may pertain to the Executive, that provides for the
payment of any severance or separation compensation upon termination
of the Executive's employment with the Company, an Affiliate or a
Successor. However, the provisions of the Executive Incentive
Compensation Agreement between the Company and the Executive dated
October 24, 1996, and rights, if any, under any agreement relating to
a Change in Control of the Company shall remain in full force and
effect. Executive shall also be entitled to receive all compensation
and benefits due to him upon termination of employment which he
accumulates through that date pursuant to the Mallinckrodt Inc.
Retirement Plan, the Investment Plan for Employees of Mallinckrodt
Inc., the Mallinckrodt Inc. Management Incentive Compensation Plan
and Long Term Incentive Compensation Plan for Senior Management.
10. General Provisions.
(a) Source of Payments. This Agreement shall not give
Executive or any person, any right to any specific property or assets
of the Company. The Company's obligation hereunder is an unfunded,
unsecured promise to pay money in the future and the Executive's
claim, shall be that of a general, unsecured creditor.
(b) Nonalienation. Except for the Company's right to
offset or forfeit payments stated below, neither Executive nor any
other person, prior to the payment or distribution of amounts
hereunder, may pledge, sell, anticipate, assign or in any way create
a lien upon any amounts payable under this Agreement either by
voluntary or involuntary acts or by operation of law. No amounts
payable may be attached or subject to seizure for the payment of any
debts, judgments, alimony or separate maintenance owed by the
Executive or any other person. However, if the Executive is indebted
to the Company in any manner when payments are due, the Company may
offset the amount of any indebtedness against the payments and
withhold it from any sums due hereunder.
(c) No Contract of Employment. This Agreement is not a
contract of employment for any term and shall not be interpreted as
providing the Executive the right to continue to be retained in the
Company's employ or, upon the Executive's termination of employment,
to have any right to any amount or benefit except as expressly
granted herein. This document shall not be interpreted to imply that
the Executive, while employed by the Company, is anything other than
an employee at will whose employment may be terminated at any time
for any or no reason.
(d) Successors. This Agreement shall be binding upon and
inure to the benefit of the Company and its successors and assigns,
by operation of law or otherwise, including any entity or person
which shall succeed (whether directly or indirectly, by purchase,
merger or otherwise) to all or substantially all of the business
and/or assets of the Company. This Agreement shall be binding upon
and inure to the benefit of Executive and his other legal
representatives, heirs, and assigns.
(e) Amendment and Waiver. This Agreement may not be
amended except in a writing which is signed the by Executive and a
duly authorized officer of Mallinckrodt Inc. No waiver by either
party of any breach or any provision of this Agreement shall be
deemed a waiver of a similar or dissimilar provision nor shall the
failure of or delay by either party in exercising any right or
privilege operate as a waiver to preclude further exercise thereof or
of any other such right.
(f) Withholding. All payments made by the Company
pursuant to this Agreement, shall be subject to withholding of such
amounts of income and other taxes as the Company may reasonably
determine is appropriate.
(g) Entire and Exclusive Agreement. This Agreement
constitutes the entire agreement of the parties in respect of the
subject matter hereof, and supersedes any and all negotiations,
representations and prior agreements by and between the parties with
respect to its subject matter except as stated in paragraph 9 above.
(h) Severability. If any provision of this Agreement is
determined to be invalid or unenforceable for any reason, the
remaining provisions shall be unaffected and shall be construed and
enforced in accordance with the terms of this Agreement.
(i) Governing Law. This Agreement shall be governed by
the law of the State of Missouri.
(j) Notices. Any notice to be given will be in writing
and delivered personally or sent by first class or certified mail,
addressed to the party concerned at the address below or at such
other address as maybe subsequently provided:
If to the Company:
Mr. Roger Keller
Vice President, General Counsel
Mallinckrodt Inc.
7733 Forsyth Boulevard, Suite 2200
St. Louis, Missouri 63105
If to the Executive:
Paul D. Cottone
190 Lancaster Ct.
Lake Bluff, IL 60044
(k) Administration and Interpretation. The Chairman of
the Board of the Company shall have the power to discharge all duties
hereunder except that he may delegate them as he sees fit. The
Chairman shall be allocated complete discretion to interpret this
Agreement and to resolve any and all questions or issues arising
under it. The Chairman's determination shall be final, conclusive
and binding on all parties and shall be accorded the maximum possible
deference by any reviewing court or agency.
(l) Payment to Guardian. If a distribution is payable to
a minor or person declared incompetent or to a person that the
Company concludes is incapable of handling the disposition of
property, the Company may direct payment to the guardian, legal
representative or person having the care and custody of such person.
The Company may require proof of incompetency, minority, incapacity
or guardianship as it may deem appropriate. Such distribution shall
completely discharge the Company from all liability with respect to
such benefit.
11. Breach. If it is determined by the Company, in its sole
determination, that Executive has breached any term of this
Agreement, all amounts which are or may become payable by the Company
under this Agreement will cease, and the Company shall be excused
from performance of any and all other obligations contained in this
Agreement. The election to cease future payments shall not preclude
the Company from requesting all other remedies, either at law or
equity.
12. Termination. This Agreement shall terminate upon the
earliest to occur of:
(a) 30 days following the last date for incentives
established in subparagraph 3(d)(I) of the Executive Incentive
Compensation between the Company and Executive dated October 24,
1996; however, if the Divestiture of the Business has occurred prior
to that date then this expiration date shall be extended to twelve
months and one day after Executive is employed by a Successor, if he
is employed by a Successor within the time described in paragraph 3;
(b) Payment to the Executive or his Beneficiary of amounts
due and payable pursuant to paragraph 4; or
(c) Termination of the Executive from the employment of
the Company for any reason if as result, or at the time, of that
termination of employment, the Executive is not then entitled to
receive any benefits or amounts under paragraph 4.
However, the provisions of paragraphs 7, 8, 9, 10 and 11 shall
survive the termination of the Agreement.
IN WITNESS WHEREOF, the Executive has executed this Agreement
and, pursuant to authorization from its Board of Directors, the
Company has caused this Agreement to be executed on its behalf, all
as of the day and year first shown above.
MALLINCKRODT INC.
By:/s/ C. Ray Holman /s/ Paul D. Cottone
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C. Ray Holman Executive
Chairman of the Board and CEO
ATTEST:
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