<PAGE> 1
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED October 1, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 0-14980
NELLCOR PURITAN BENNETT INCORPORATED
(Exact name of registrant as specified in its charter)
DELAWARE 94-2789249
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4280 HACIENDA DRIVE
PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices)
(Zip code)
TELEPHONE: (510) 463-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares of Common Stock, $.001 par value, outstanding as of
October 1, 1995 was 28,467,137.
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Page 1
Exhibit Index on Page 19
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
NELLCOR PURITAN BENNETT INCORPORATED CONSOLIDATED BALANCE SHEET
(In thousands, unaudited)
<TABLE>
<CAPTION>
ASSETS October 1, 1995 July 2, 1995
--------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 93,252 $ 78,444
Marketable securities 14,460 65,039
Accounts receivable, net of allowance for doubtful
accounts of $2,418 ($2,610 at July 2, 1995) 114,951 117,650
Inventories 104,588 88,987
Deferred income taxes and other current assets 24,744 26,580
--------- ---------
Total current assets 351,995 376,700
--------- ---------
Property and equipment, at cost 258,075 253,037
Accumulated depreciation (132,137) (124,863)
--------- ---------
Net property and equipment 125,938 128,174
--------- ---------
Intangibles and other assets, net of accumulated amortization 58,728 71,330
--------- ---------
$ 536,661 $ 576,204
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Loans payable 40,434 --
Accounts payable $ 27,529 $ 37,316
Accrued liabilities:
Payroll and payroll related 21,416 25,286
Warranty 6,506 4,195
Merger and related costs 54,436 0
Other 18,804 30,510
Income taxes payable -- 5,727
--------- ---------
Total current liabilities 169,125 103,034
--------- ---------
Deferred compensation and pension 20,233 19,303
Deferred revenue 10,286 10,895
Long-term obligations 12,217 76,367
--------- ---------
Total liabilities 211,861 209,599
--------- ---------
Stockholders' equity:
Common stock, par value 13,236 11,351
Additional paid-in-capital 165,226 148,641
Retained earnings 181,203 241,416
Accumulated translation adjustment (254) (259)
Notes receivable from stockholders (5) (5)
Unrealized loss on available-for-sale securities (67) --
Treasury stock, at cost (1,148,000 shares) (34,539) (34,539)
--------- ---------
Total stockholders' equity 324,800 366,605
--------- ---------
$ 536,661 $ 576,204
========= =========
</TABLE>
See accompanying note
Page 2
<PAGE> 3
NELLCOR PURITAN BENNETT INCORPORATED CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
October 1, 1995 October 2, 1994
--------------- ---------------
<S> <C> <C>
Net revenue $ 156,250 $ 136,122
Cost of goods sold 77,583 69,453
--------- ---------
Gross profit 78,667 66,669
Operating expenses:
Research
and development 12,196 11,245
Selling, general
and administrative 44,607 41,986
Merger and related costs 92,618 --
--------- ---------
149,421 53,231
--------- ---------
Income (loss) from operations (70,754) 13,438
Interest income 1,856 1,025
Interest expense (1,378) (1,216)
Other income (expense), net (690) 857
--------- ---------
Income (loss) before income taxes (70,966) 14,104
Provision for income taxes (11,664) 4,521
--------- ---------
Net Income (loss) $ (59,302) $ 9,583
========= =========
Net income (loss) per common and
common equivalent share $ (2.04) $ 0.35
========= =========
Weighted average common
and common equivalent
shares used in the calculation
of net income (loss) per share 29,048 27,776
========= =========
</TABLE>
See accompanying note
Page 3
<PAGE> 4
NELLCOR PURITAN BENNETT INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-----------------------------------
October 1, 1995 October 2, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $(59,302) $ 9,583
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Depreciation and amortization 7,797 7,443
Merger and related costs 75,602 --
Restructuring charges -- (3,307)
Deferred compensation and pensions 19 (1,031)
Gain on disposition of assets (48) (462)
Deferred income taxes 102 (452)
Increases (decreases) in cash flows, as a
result of changes in:
Accounts receivable 2,169 5,020
Inventories (4,360) (3,762)
Other current assets (15,347) 333
Other assets 2,918 148
Accounts payable (9,856) (4,550)
Accrued liabilities (1,983) (2,599)
Income taxes payable (4,685) 3,834
-------- --------
Cash provided by (used for) operating activities (6,974) 10,198
-------- --------
Cash flows from investing activities:
Capital expenditures (5,165) (6,611)
Cash used to purchase securities held-to-maturity -- (2,002)
Proceeds from sales of available-for-sale securities 31,295 --
Proceeds from maturities of securities held-to-maturity 19,218 20,166
Payments for purchases of companies,
net of cash acquired (4,923) (2,000)
Other -- (15)
-------- --------
Cash provided by investing activities 40,425 9,538
-------- --------
Cash flows from financing activities:
Proceeds from the issuance of common stock under the
Company's stock plans and related tax benefits,
net of notes receivable from stockholders 9,901 6,348
Repayment of long-term obligations (64,700) --
Additions to loans payable 40,000 707
Dividends paid to stockholders -- (372)
Purchase of treasury shares -- (2,292)
-------- --------
Cash provided by (used for) financing activities (14,799) 4,391
-------- --------
Effect of exchange rate changes on cash balances (216) 134
-------- --------
Increase in cash and cash equivalents 18,436 24,261
Cash and cash equivalents at the beginning of the period 74,816 68,876
-------- --------
Cash and cash equivalents at the end of the period $ 93,252 $ 93,137
======== ========
</TABLE>
Page 4
<PAGE> 5
NELLCOR PURITAN BENNETT INCORPORATED NOTE TO CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
General. The consolidated financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations of
Nellcor Puritan Bennett Incorporated (the Company) as of the end of and for the
periods indicated.
On August 25, 1995, the Company consummated its merger with Puritan-Bennett
Corporation (see Merger with Puritan-Bennett below). The merger was intended to
qualify as a tax-free reorganization and was accounted for as a pooling of
interests. Accordingly, the consolidated financial statements present, for all
periods, the combined financial results of Nellcor Incorporated (Nellcor) and
Puritan-Bennett Corporation (Puritan-Bennett).
Comparative historical financial information presented represents the
combination of the historical financial data from Nellcor's fiscal year ended
July 2, 1995, and Puritan-Bennett's fiscal year ended January 31, 1995. Thus,
the Company's consolidated balance sheet as of July 2, 1995 combines Nellcor's
balance sheet as of the end of its fiscal 1995, July 2, 1995, with
Puritan-Bennett's balance sheet as of the end of its fiscal 1995, January 31,
1995. The Company's consolidated balance sheet as of July 2, 1995 also reflects
an adjustment to reduce Puritan-Bennett's valuation allowance provided for its
deferred tax assets based on the combined income from operations of Nellcor and
Puritan-Bennett as required by Statement of Financial Accounting Standard No.
109. The effect of this adjustment was to increase deferred tax assets and
retained earnings, as presented herein, by $8.7 million.
The Company's consolidated statements of income and cash flows for the three
months ended October 2, 1994 combine the financial results of Nellcor's first
quarter of fiscal 1995, the three months ended October 2, 1994, with
Puritan-Bennett's first quarter of fiscal 1995, the three months ended April 30,
1994.
The accompanying interim consolidated financial statements should be read in
conjunction with the financial statements and related notes included in
Nellcor's and Puritan-Bennett's 1995 Annual Reports to Stockholders. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission rules
and regulations. The Company believes the information included in the report on
Form 10-Q, when read in conjunction with the consolidated financial statements
and related notes thereto included in Nellcor's and Puritan-Bennett's 1995
Annual Reports to Stockholders, is not misleading.
The results of operations for the three month period ended October 1, 1995 are
not necessarily indicative of operating results for the full fiscal year.
Inventories. Inventories are stated at the lower of cost or market (net
realizable value). Prior to the merger with Nellcor, Puritan-Bennett recorded
the cost of the majority of its inventory using the Last In, First Out (LIFO)
method of accounting. During the first quarter of fiscal 1996, the Company
changed the accounting for these inventories such that all of the Company's
inventory is now recorded at cost using the First In, First Out method. The
effect of this change in accounting principle was not material to the Company's
financial position or results of operations for any period presented.
Page 5
<PAGE> 6
Interim and year-end inventory balances for the Company were as follows (in
thousands):
<TABLE>
<CAPTION>
October 1, 1995 July 2, 1995
--------------- ------------
<S> <C> <C>
Raw materials $ 56,967 $ 47,518
Work-in process 8,247 10,589
Finished goods 39,374 30,880
-------- --------
$104,588 $ 88,987
</TABLE>
Statement of Cash Flows. The Company paid income taxes of approximately $4.8
million in the three months ended October 1, 1995, and received a refund of $0.3
million in the three months ended October 2, 1994.
Property and equipment. Depreciation expense was approximately $6.0 million in
the first three months of fiscal 1996 and $5.3 million in the first three months
of fiscal 1995.
Marketable securities. As of October 2, 1995, the Company was carrying
available-for-sale marketable securities with a market value of $14.5 million.
Available-for-sale marketable securities are securities which the Company does
not intend to hold to maturity. The Company's marketable securities, generally,
are in high quality government, municipal, and corporate obligations with
original maturities of up to two years.
During the first quarter of fiscal 1996, the Company transferred all marketable
securities which had been classified as held-to-maturity as of July 2, 1995, to
available-for-sale. The marketable securities which were transferred to
available-for-sale were government and corporate issued debt securities with an
amortized cost of $41.4 million, of which $31.2 million of these securities were
subsequently sold during the quarter, generating a realized gain of $80,000. The
Company continues to hold the remainder of these securities. The decision to
classify all of the Company's marketable securities as available-for-sale was
due entirely to the Company's merger with Puritan-Bennett during the quarter and
the significant cash outlays which are expected to be made as part of effecting
the combination of these two companies.
The market value, amortized cost, and gross unrealized gains and losses of the
Company's marketable securities at October 2, 1995, are summarized below (in
thousands). The market value of marketable securities is based upon quoted
market prices.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Marketable Securities Cost Gains Losses Value
--------------------- --------- ---------- ---------- ------
<S> <C> <C> <C> <C>
AVAILABLE-FOR-SALE:
Debt securities issued by the U.S.
Treasury and other U.S. government
corporations and agencies $10,166 $ 7 $ (7) $10,166
Mortgage backed securities $ 4,361 14 (81) 4,294
------- ------- ------- -------
Marketable securities $14,527 $ 21 $ (88) $14,460
------- ------- ------- -------
</TABLE>
Page 6
<PAGE> 7
The difference between the amortized cost and market value of the Company's
marketable securities at October 2, 1995, a net unrealized loss of $67,000, is
carried as a separate component of stockholders' equity under the caption
"Unrealized loss on available-for-sale securities."
Merger with Puritan-Bennett. On August 24, 1995, the merger of Nellcor and
Puritan-Bennett was approved by stockholders of both companies. On August 25,
the merger was consummated, and the newly combined company was renamed Nellcor
Puritan Bennett. Under the terms of the merger agreement, Puritan-Bennett
shareholders received .88 of a share of the Company's common stock for each
Puritan-Bennett share, resulting in the Company issuing approximately 11.5
million shares, valued at approximately $600 million based upon the closing
price of the Company's common stock on August 25, 1995. Additionally,
outstanding options to acquire Puritan-Bennett common stock were converted to
options to acquire approximately 500,000 shares of the Company's common stock.
Puritan-Bennett develops, manufactures, and markets ventilators, oxygen delivery
systems, home sleep diagnostic and therapeutic equipment, and certain
complementary products such as medical gases, gas-related equipment, and
spirometers. Puritan-Bennett reported revenue of $336.0 million and net income
of $8.4 million for its fiscal 1995 ended January 31, 1995.
The merger was intended to qualify as a tax-free reorganization and was
accounted for as a pooling of interests. Accordingly, the consolidated financial
statements present, for all periods, the combined financial results of Nellcor
and Puritan-Bennett. The consolidated statement of income for the three months
ended October 2, 1994, combines the financial results of Nellcor's first quarter
of fiscal 1995, the three months ended October 2, 1994, with Puritan-Bennett's
financial results for its first quarter of fiscal 1995, the three months ended
April 30, 1994. Adjustments made to conform the accounting policies of Nellcor
and Puritan-Bennett were immaterial. Separate results for each of Nellcor's and
Puritan-Bennett's first quarter of fiscal 1995, and combined results for the
three months ended October 2, 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
Nellcor Puritan-Bennett Combined
Three months ended: October 2, 1994 April 30, 1994 October 2, 1994
- ------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Revenue $ 55,714 $ 80,408 $136,122
- -------------------------------------------------------------------------------------
Net Income $ 5,859 $ 3,724 $ 9,583
- -------------------------------------------------------------------------------------
</TABLE>
In connection with the merger, the Company recorded one-time merger and related
costs during the quarter of $92.6 million. Included in this charge were
provisions for merger transaction costs ($13.7 million), costs to combine and
integrate operations ($53.8 million), certain intangible asset write-downs
($19.6 million), and other merger related costs ($5.5 million). The merger
transaction costs include expenses for investment banker and professional fees,
and other costs associated with completing the transaction. The costs to combine
and integrate operations include provisions for severance and severance-related
costs, facilities consolidations and other integration costs. The write-down of
certain intangible assets, primarily goodwill associated with prior acquisitions
made by both companies, results from the effect that certain integration
decisions have had upon the future realization of these assets.
Of the $92.6 million in merger and related costs which were accrued,
approximately $38.2 million was utilized during the first quarter of fiscal
1996, primarily associated with the write-down of certain intangible assets to
their net realizable value ($19.6 million) and the payment of merger transaction
costs ($11.8 million). The remaining merger and related costs accrued liability
balance at October 2, 1995, of $54.4 million, is expected to be substantially
utilized by the end of 1996.
Page 7
<PAGE> 8
Acquisition of Melville Software Ltd. On August 23, 1995, Nellcor Puritan
Bennett's EdenTec subsidiary acquired for $4.9 million in cash, Melville
Software Ltd. (Melville), a privately held Canadian company that manufactures
and markets sleep diagnostic products used primarily in sleep labs. In the event
that certain profitability levels are achieved over the next three fiscal years,
additional compensation totalling $1.0 million would be payable to the former
principal stockholders of Melville who continue to manage the company. Such
amounts will be expensed when, and if, earned.
The acquisition of Melville has been accounted for as a purchase and,
accordingly, Melville's results are included in the Company's financial
statements subsequent to the acquisition date. The pro forma effect of Melville
upon the Company's results of operations for the quarter is immaterial.
Page 8
<PAGE> 9
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS - QUARTER AND PERIOD ENDED OCTOBER 1, 1995, COMPARED WITH
THE QUARTER AND PERIOD ENDED OCTOBER 2, 1994.
The Company reported a net loss for the first quarter of fiscal 1996 of $59.3
million, or ($2.04) per share. The Company's results for the quarter reflect
one-time merger and related costs of $92.6 million, ($2.55) per share,
associated with the merger of Nellcor and Puritan-Bennett. Excluding the effect
of these nonrecurring charges, net income for the first quarter of fiscal 1996
was $14.7 million, $0.51 per share, a 53 percent increase over combined net
income of $9.6 million, $0.35 per share, for the first quarter of fiscal 1995.
The Company's net revenue for the first quarter of fiscal 1996 increased to
$156.3 million from combined net revenue of $136.1 million for the first quarter
of fiscal 1995. The increase in net revenue principally resulted from higher
sales across the Company's home care and hospital businesses. Sales of the
Company's products into international markets were also particularly strong
during the quarter.
Home care business sales, which include the oxygen therapy, gas products and
spirometry group; the sleep and respiratory support systems group; and the Aero
systems group, increased 21 percent to $63.0 million from $52.2 million for the
same period last year due primarily to higher sales across all the product
groups, and the first full quarter of revenue from the Company's recently
acquired Pierre Medical subsidiary. Revenue increased significantly within the
oxygen therapy, gas products and spirometry group as a result of higher
cryogenic equipment and gas product sales. The increase in cryogenic equipment
sales was due primarily to strong product demand in the quarter as well as
production disruptions in the prior year, which created higher order backlog
levels in the first quarter of fiscal 1995. Gas product sales were higher
principally as a result of the addition of two new gas branches and increased
ethylene oxide sales, which were lower in the first quarter of fiscal 1995, in
part, due to the imposition of a new environmental tax beginning in that
quarter. Sales within the Aero systems group increased significantly due
primarily to higher revenue from the replacement of passenger service units in
existing aircraft and continued growth in sales of the Sweep-on(R) 2000
inflatable harness crew mask.
Hospital business sales, which include the oximetry, ventilator and clinical
information systems product lines, increased 11 percent to $93.3 million from
$83.9 million for the same period last year. The increase in hospital business
revenue was due primarily to higher sales of oximetry products and
CliniVision(R) respiratory care management information systems, which are now
installed in more than 125 U.S. hospitals. Oximetry product revenue increased
due primarily to higher oximetry sensor volumes, partially offset by slightly
lower oximetry sensor pricing.
International revenue increased 26 percent to $49.2 million from $39.0 million
for the first quarter of fiscal 1995. International revenue growth was strongest
in the Company's Asia Pacific and European regions, where growth rates exceeded
20 and 35 percent, respectively. Favorable foreign currency exchange rates
accounted for 7 percentage points of the international revenue growth during the
first quarter.
Page 9
<PAGE> 10
During the quarter, the Company announced its intention to substantially reduce
its future investment in the HealthQuiz(TM) product line. This decision was
reached as a result of the merger of Nellcor and Puritan-Bennett, and the desire
to refocus on the newly combined company's core strategy of providing products
for the respiratory-impaired patient. The Company is continuing to look at
third-party opportunities for this product.
Gross profit as a percentage of net revenue for the first quarter of fiscal 1996
was 50 percent compared to 49 percent for the same period last year due
primarily to the favorable effect which foreign currency exchange rates had upon
revenue, and a slight shift in mix to higher margin oximetry and sleep products.
Operating expenses for the first quarter of fiscal 1996 reflect the effect of
one-time merger and related costs of $92.6 million associated with the merger of
Nellcor and Puritan-Bennett. Included in this charge were provisions for merger
transaction costs ($13.7 million), costs to combine and integrate operations
($53.8 million), certain intangible asset write-downs ($19.6 million), and other
merger related costs ($5.5) million. The merger transaction costs include
expenses for investment banker and professional fees, and other costs associated
with completing the transaction. The costs to combine and integrate operations
include provisions for severance and severance-related costs, facilities
consolidations and other integration costs. The write-down of certain intangible
assets, primarily goodwill associated with prior acquisitions made by both
companies, results from the effect that certain integration decisions have had
upon the future realization of these assets.
Operating expenses for the first quarter of fiscal 1996 decreased to 36 percent
of net revenue from 39 percent for the first quarter last year, exclusive of the
effect of the one-time merger and related charges.
Research and development expenses at 8 percent of net revenue were comparable to
the first quarter of fiscal 1995. Research and development expenses increased in
absolute dollars primarily due to higher monitoring and ventilator systems
development costs. For the first quarter of fiscal 1996, selling, general, and
administrative expenses decreased to 28 percent of net revenue from 31 percent
for the same period in fiscal 1995. Selling, general, and administrative
expenses increased in absolute dollars in the first quarter of fiscal 1995 due
primarily to the unfavorable effect foreign currency exchange rates had upon
international operating expenses as well as increased funding of the Company's
profit sharing and bonus programs, partially offset by the favorable effect
which Puritan-Bennett's fourth quarter fiscal 1995 workforce reduction program
has had upon operating expenses.
Liquidity and Capital Resources
At October 2, 1995, the Company had cash, cash equivalents and marketable
securities of approximately $107.7 million compared to $143.5 million at the end
of fiscal 1995.
Operating activities provided positive cash flows of approximately $10.0 million
during the first three months of fiscal 1996, exclusive of merger related cash
outlays. Of the $92.6 million in merger and related charges which were recorded,
approximately $17.0 million resulted in a cash outlay during the quarter. The
remainder of the merger and related charges of $75.6 million was a significant
non-cash operating activity during the period.
Page 10
<PAGE> 11
Sales and maturities of marketable securities were significant investing
activities during the first three months of fiscal 1996. Additionally, in
August, 1995, Nellcor Puritan Bennett's EdenTec subsidiary acquired for $4.9
million in cash, Melville Software Ltd. (Melville), a privately held Canadian
company that manufactures and markets sleep diagnostic products used primarily
in sleep labs. In the event that certain profitability levels are achieved over
the next three fiscal years, additional compensation totalling $1.0 million
would be payable to the former principal stockholders of Melville who continue
to manage the company. Such amounts will be expensed when, and if, earned.
Shares of Nellcor Puritan Bennett common stock issued under the Company's stock
option plans were significant sources of cash from financing activities for the
first three months of fiscal 1996. Additionally, the Company retired
approximately $64.7 million of the debt that it assumed as part of its merger
with Puritan-Bennett. The debt was retired using $24.7 million of the Company's
cash and $40 million drawn from the Company's credit facility. As of October 2,
1995, the Company was carrying $40.4 million in current loans payable and $12.2
million in long-term obligations.
The Company's inventories have increased to $104.6 million at October 2, 1995,
from $89.0 million at July 2, 1995. Much of the increase in inventory occurred
during the eight month period comprising the Puritan-Bennett portion of this
comparison, the period from February 1, 1995 to October 1, 1995. The increase in
Puritan-Bennett inventory was due primarily to production levels across several
product lines which exceeded customer demands, and, in part, resulted from
inventory build-ups associated with new product introductions within the sleep
and respiratory support systems group.
The Company anticipates that current capital resources combined with cash
generated from operating activities will be sufficient to meet its liquidity and
capital expenditure requirements at least through the end of fiscal 1996. As the
Company continues to combine and integrate operations as part of its merger with
Puritan-Bennett, it is expected that costs associated with the merger, as well
as other merger related cash outlays, will continue to contribute to a net
reduction in the Company's cash and cash equivalents and marketable securities
during fiscal 1996. The Company may continue to use debt to fund certain capital
and other strategic opportunities when deemed necessary and financially
advantageous.
Page 11
<PAGE> 12
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
In July 1995, the U.S. Federal District Court in Delaware issued a decision in
favor of the Company, ruling that four key oximeter and sensor technology
patents are valid and would be infringed by Ohmeda, if Ohmeda sold either its
adult or neonatal OxyTip sensors for use with non-Ohmeda monitors. BOC has filed
notice of its intention to appeal the decision of the court.
The Company filed a motion in July 1995 requesting an amendment to the Court's
judgment to issue an injunction against BOC to enjoin BOC from infringing the
patents. The Court denied the motion in October, 1995.
Except as noted above, neither the Company nor any of its subsidiaries is
involved in any material pending litigation other than ordinary routine
proceedings incident to their business.
ITEM 4. Submission of matters to a Vote of Security Holders.
a) A special meeting of stockholders was held on August 24, 1995. Four items
were the subject of the meeting: (i) approval of the issuance of Company
common stock in connection with the merger of Nellcor and Puritan-Bennett;
(ii) approval of an amendment to Nellcor's Restated Certificate of
Incorporation to change its name to Nellcor Puritan Bennett; (iii)
approval of the Company's 1995 Merger Stock Incentive Plan; and (iv)
approval of amendment to the Company's 1994 Equity Incentive Plan to
increase the number of shares of Company common stock available for
issuance under the plan from 1,500,000 shares to 2,500,000 shares.
(i) Approval of issuance of Company common stock in connection with the
merger of Nellcor and Puritan-Bennett
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
10,821,049 14,960 15,665 2,094,884
</TABLE>
(ii) Approval of Name Change
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
12,874,065 56,951 15,542
</TABLE>
(iii) Approval of 1995 Merger Stock Incentive Plan
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
10,674,447 121,005 56,272 2,094,834
</TABLE>
Page 12
<PAGE> 13
(iv) Approval of Amendment to 1994 Equity Incentive Plan
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
10,243,844 639,483 50,759 2,012,472
</TABLE>
b) The Company's annual meeting of stockholders was held on October 19, 1995.
Three items were the subject of the meeting: (i) the election of
directors; (ii) approval of the 1995 Employee Stock Participation Plan;
and (iii) the ratification of the selection of Price Waterhouse as the
Company's independent public accountants for fiscal year 1996.
The following directors were elected at the meeting for one-year terms:
Burton A. Dole, Jr., Robert J. Glaser, M.D., Frederick M. Grafton, Donald
L. Hammond, C. Raymond Larkin, Jr., Risa J. Lavizzo-Mourey, M.D., Thomas
A. McDonnell, Walter J. McNerney and Edwin E. van Bronkhorst. Messrs.
Glaser, Grafton, Hammond, Larkin, McNerney and van Bronkhorst are
continuing directors. Mr. Dole and Mr. McDonnell were appointed to the
board of directors of the Company in August 1995 and were nominated for
re-election to the board pursuant to the Agreement and Plan of Merger
between Nellcor and Puritan-Bennett. Dr. Lavizzo-Mourey was nominated for
election to the board of directors pursuant to the terms of the Agreement
and Plan of Merger between Nellcor and Puritan-Bennett.
(i) Election of Directors
<TABLE>
<CAPTION>
For Against
--- -------
<S> <C> <C>
Burton A. Dole, Jr 24,999,615 51,119
Robert J. Glaser, M.D 25,026,291 51,119
Frederick M. Grafton 25,033,482 51,119
Donald L. Hammond 25,033,414 51,119
C. Raymond Larkin, Jr 25,029,943 51,119
Risa J. Lavizzo-Mourey, M.D 25,026,249 51,119
Thomas A. McDonnell 25,030,498 51,119
Walter J. McNerney 25,028,415 51,119
Edwin E. van Bronkhorst 25,027,851 51,119
</TABLE>
(ii) Approval of 1995 Employee Stock Participation Plan
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
--- ------- ------- ---------
<S> <C> <C> <C>
24,130,894 624,636 78,220 243,358
</TABLE>
(iii) Ratification of Price Waterhouse as the Company's independent public
accountants for fiscal year 1996.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
25,031,840 16,013 29,255
</TABLE>
Page 13
<PAGE> 14
ITEM 6. Exhibits and Reports on Form 8-K.
a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description of Exhibit
------- ----------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 21, 1995, as
amended, among Registrant, a wholly-owned subsidiary of
Registrant and Puritan-Bennett Corporation (filed as Annex
A to Form S-4 Registration Statement No. 33-61169 and
incorporated herein by reference).
2.2 Amendment No. 1 to Agreement and Plan of Merger, dated as
of June 30, 1995, among Registrant, a wholly-owned
subsidiary of Registrant and Puritan-Bennett Corporation
(filed as Annex B to Form S-4 Registration Statement No.
33-61169 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of Registrant.
3.2 Certificate of Determination of Preferences of Series A
Junior Participating Preferred Stock (filed as Exhibit 3.2
to the Report on Form 10-K for the year ended July 7, 1991
and incorporated herein by reference).
3.3 By-laws of Registrant, as amended (filed as Exhibit 3.3 to
the Report on Form 10-K for the year ended July 3, 1994
and incorporated herein by reference).
4.1 Rights Agreement, dated as of September 1, 1992, between
Registrant and The First National Bank of Boston, as
Rights Agent (incorporated by reference to Exhibit 2.1 of
Amendment No. 1 to the Registrants' Registration Statement
on Form 8-A filed with the Commission on July 13, 1995).
Reference is also made to Exhibits 3.1, 3.2 and 3.3.
4.2 Credit Agreement, dated as of November 16, 1994, entered
into by Registrant, the Banks Named Therein and ABN AMRO
Bank N.V., San Francisco International Branch, as Agent
(filed as Exhibit 10.1 to the Report on Form 10-Q for the
period ended January 1, 1995 and incorporated herein by
reference).
4.3 Long-term debt instruments of the Company in amounts not
exceeding 10% of the total assets of the Company and its
Subsidiaries on a consolidated basis will be furnished to
the Commission upon request.
10.1 Employment Agreement between Puritan-Bennett and Burton A.
Dole, Jr. dated April 25, 1980 (filed as an exhibit to
Puritan-Bennett's annual report on Form 10K for fiscal
year 1994 and incorporated herein by reference).
*10.2 Employment Agreement and Separation Agreement between the
Company and Burton A. Dole, Jr. dated August 18, 1995.
</TABLE>
Page 14
<PAGE> 15
<TABLE>
<S> <C>
*10.3 Employment Agreement between the Company and John H.
Morrow dated August 25, 1995.
*10.4 Puritan-Bennett Restated Deferred Compensation Plan (filed
as an exhibit to Puritan-Bennett's annual report on Form
10K for fiscal year 1994 and incorporated herein by
reference).
*10.5 First Amendment to the Restated Puritan-Bennett Deferred
Compensation Plan (filed as an exhibit to Puritan-
Bennett's quarterly report on Form 10Q for its fiscal
quarter October 31, 1994 and incorporated herein by
reference).
*10.6 Amended and restated Puritan-Bennett Retirement Plan for
Non-Employee Directors (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter September 30, 1991 and incorporated herein
by reference).
*10.7 Amendment to the Puritan-Bennett Retirement Plan for
Non-Employee Directors (filed as an exhibit to Puritan-
Bennett's quarterly report on Form 10Q for its fiscal
quarter October 31, 1994 and incorporated herein by
reference).
*10.8 Promissory note, dated December 19, 1991, between
Puritan-Bennett and Robert L. and Melanie M. Doyle (filed
as an exhibit to Puritan-Bennett's annual report on Form
10K for fiscal year 1991 and incorporated herein by
reference).
*10.9 Form of Indemnification Agreement between Puritan-Bennett
and each of its directors (filed as an exhibit to
Puritan-Bennett's annual report on Form 10K for fiscal
year 1991 and incorporated herein by reference).
*10.10 Pension Benefit Make Up Plan (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter July 31, 1994 and incorporated herein by
reference).
*10.11 First Amendment to the Puritan-Bennett Pension Benefit
Make Up Plan (filed as an exhibit to Puritan-Bennett's
quarterly report on Form 10Q for its fiscal quarter
October 31, 1994 and incorporated herein by reference).
*10.12 Executive Agreement, dated November 7, 1994, between
Robert L. Doyle and Puritan-Bennett (filed as an exhibit
to Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.13 Executive Agreement, dated November 7, 1994, between
Thomas E. Jones and Puritan-Bennett (filed as an exhibit
to Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.14 Executive Agreement, dated November 7, 1994, between
Alexander R. Rankin and Puritan-Bennett (filed as an
exhibit to Puritan-Bennett's quarterly report on Form 10Q
for its fiscal quarter October 31, 1994 and incorporated
herein by reference).
</TABLE>
Page 15
<PAGE> 16
<TABLE>
<S> <C>
*10.15 Executive Agreement, dated November 7, 1994, between David
P. Niles and Puritan-Bennett (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.16 Severance Agreement, dated November 7, 1994, between Lee
A. Robbins and Puritan-Bennett (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.17 Severance Agreement, dated November 7, 1994, between Derl
S. Treff and Puritan-Bennett (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.18 Company's Merger Incentive Plan
*10.19 Company's Retention Compensation Plan
*10.20 Promissory Note secured by Deed of Trust, dated November
16, 1994 made by Kenneth Sumner in favor of the Company.
*10.21 Promissory Note secured by Deed of Trust, dated
October 5, 1995 made by Russell Hays in favor of the
Company.
*10.22 Puritan-Bennett Supplemental Retirement Benefit Plan
(filed as an exhibit to Puritan-Bennett's annual report on
Form 10K for fiscal year 1985 and incorporated herein by
reference).
*10.23 First Amendment to the Puritan-Bennett Supplemental
Retirement Benefit Plan (filed as an exhibit to Puritan-
Bennett's quarterly report on Form 10Q for its fiscal
quarter July 31, 1994 and incorporated herein by
reference).
*10.24 Second Amendment to the Puritan-Bennett Supplemental
Retirement Benefit Plan (filed as an exhibit to Puritan-
Bennett's quarterly report on Form 10Q for its fiscal
quarter July 31, 1994 and incorporated herein by
reference).
*10.25 Third Amendment to the Puritan-Bennett Supplemental
Retirement Benefit Plan (filed as an exhibit to Puritan-
Bennett's quarterly report on Form 10Q for its fiscal
quarter October 31, 1994 and incorporated herein by
reference).
*10.26 SERP Agreement, dated November 7, 1994, between Burton A.
Dole Jr. and Puritan-Bennett (filed as an exhibit to
Puritan-Bennett's quarterly report on Form 10Q for its
fiscal quarter October 31, 1994 and incorporated herein by
reference).
*10.27 SERP Agreement, dated August 25, 1995, for the benefit of
John H. Morrow.
</TABLE>
Page 16
<PAGE> 17
<TABLE>
<S> <C>
11.1 Statement of computation of Net Income per share.
27 Financial Data Schedule
</TABLE>
- ----
* An asterisk next to the number of an exhibit indicates that the exhibit
is a management contract or compensatory plan or arrangement.
b) Reports on Form 8-K.
Form 8-K dated July 11, 1995, filed August 2, 1995, announcing under
Item 5 ("Other Events") that the U.S. Federal District Court in
Delaware had issued a decision in favor of the Company, ruling that
four key oximeter and sensor technology patents are valid and would be
infringed by Ohmeda Inc., a subsidiary of BOC Health Care Inc., if
Ohmeda sold either its adult or neonatal OxyTip sensors for use with
non-Ohmeda monitors. BOC Health Care had filed the suit in December
1992, seeking a declaratory judgment that Nellcor's patents were
invalid and would not be infringed.
Form 8-K dated July 27, 1995, filed August 23, 1995, reporting under
Item 5 ("Other Events") the Company's financial results for its 1995
fiscal year ended July 2, 1995.
Form 8-K dated August 25, 1995, filed September 8, 1995, reporting the
consummation of the merger between Nellcor and Puritan-Bennett pursuant
to Item 2 ("Acquisition or Disposition of Assets").
Page 17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
NELLCOR PURITAN BENNETT INCORPORATED
DATED November 14, 1995 By /s/ Michael P. Downey
-------------------- -------------------------
Michael P. Downey
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Page 18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page
Exhibit No. Description Location in Form 10-Q
----------- ----------- ---------------------
<S> <C> <C>
3.1 Company's Restated Certificate of Incorporation 20
10.2 Employment and Separation between Company and 29
Burton A. Dole, Jr.
10.3 Employment Agreement between the Company and John 53
H. Morrow
10.18 Company's Merger Incentive Plan 73
10.19 Company's Retention Compensation Plan 76
10.20 Promissory Note made by Kenneth Sumner in favor of 79
the Company
10.21 Promissory Note made by Russell Hays in favor of 81
the Company
10.27 SERP Agreement for John H. Morrow 83
11.1 Statement of computation of net income per share 90
27 Financial Date Schedule 91
</TABLE>
Page 19
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
NELLCOR PURITAN BENNETT INCORPORATED
FIRST: The name of the Corporation is Nellcor Puritan Bennett
Incorporated.
SECOND: The address of its registered office in the State of Delaware is
32 Loockerman Square, Suite L-100, City of Dover, County of Kent, State of
Delaware. The name of its registered agent at such address is the UNITED STATES
CORPORATION COMPANY.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: A. The total number of shares of stock which the Corporation shall
have the authority to issue is fifty-five million (55,000,000), of which stock
fifty million (50,000,000) shares, with a par value of one-tenth of one cent
($0.001) each, amounting in the aggregate to fifty thousand dollars ($50,000),
shall be Common Stock, and of which five million (5,000,000) shares, with a par
value of one-tenth of one cent ($0.001) each, amounting in the aggregate to five
thousand dollars ($5,000), shall be Preferred Stock.
B. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the number of shares of
any series of Preferred Stock and to determine the designation of any such
series. The Board of Directors is also authorized to determine or alter the
rights, preferences, privileges and restrictions granted to or imposed upon any
wholly unissued series of Preferred Stock and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of shares of
that series.
FIFTH: The Corporation is to have perpetual existence.
Page 20
<PAGE> 2
SIXTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
SEVENTH: All the powers of the Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of Directors
are hereby conferred upon the Board of Directors, who shall have full control
over the affairs of the Corporation.
In furtherance and not in limitation of the powers conferred by law and by
this Certificate of Incorporation, the Board of Directors is hereby expressly
authorized:
1. To make, amend, repeal or otherwise alter the By-laws of the
Corporation without any action on the part of the stockholders; provided,
however, that any By-laws made by the directors and any and all powers conferred
by any of said By-laws may be amended, altered or repealed by the stockholders.
2. To fix, determine and vary the amount to be reserved or maintained
for any proper purpose and to fix the times for the declaration and payment of
dividends.
3. To transfer all or any part of the assets of the Corporation by
way of mortgage, or in trust or in pledge, to secure indebtedness of the
Corporation, without any vote or consent of the stockholders, and to authorize
and to cause to be executed instruments evidencing any and all such transfers.
4. To sell, lease or exchange any part less than all or substantially
all of the property and assets, including good will and corporate franchises, of
the Corporation upon such terms and conditions as the Board of Directors may
deem expedient
Page 21
<PAGE> 3
for the best interests of the Corporation without any authorization, affirmative
vote or written consent or other action of the stockholders or any class
thereof.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware as the By-laws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation. Elections of directors
need not be by written ballot unless the By-laws of the Corporation shall so
provide.
The holders of any shares of the Corporation's Common Stock and Preferred
Stock entitled to vote shall be entitled at all elections of directors of the
Corporation to as many votes as shall equal the number of votes which (except
for this provision as to cumulative voting) he would be entitled to cast for the
election of directors with respect to his shares of stock multiplied by the
number of directors to be elected by him, and such holder may cast all of such
votes for a single director or may distribute them among the number to be voted
for or for any two or more of them as he may see fit.
NINTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TENTH: The personal liability of the directors of the Corporation is
hereby eliminated to the fullest extent permitted by Paragraph (7) of subsection
(b) of 102 of the General Corporation Law of the State of Delaware, as the same
may be amended and supplemented.
ELEVENTH: CERTAIN BUSINESS COMBINATIONS
(a) Vote Required for Certain Business Combinations.
(1) Higher Vote for Certain Business
Combinations. In addition To-any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
paragraph (b) of this Article Eleventh:
(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Stockholder (as
hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Stockholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Stockholder; or
Page 22
<PAGE> 4
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate or any Interested Stockholder of any
assets of the Corporation or any Subsidiary having an aggregate Fair Market
Value (as hereinafter defined) equal to or greater than 10% of the Corporation's
assets as set forth on the Corporation's most recent audited, consolidated
financial statements filed with the Securities and Exchange Commission; or
(iii) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an Interested
Stockholder or any Affiliate of any Interested Stockholder; or
(iv) any reclassification of securities (including any reverse
stock split) or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any other
transaction (whether or not with or into or otherwise involving an Interested
Stockholder) which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity or
convertible securities of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote generally in the election
of directors (the "Voting Stock"), voting together as a single class. such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
(2) Definition of "Business Combination." The term "Business
Combination" as used in this Article Eleventh shall mean any transaction which
is referred to in any one or more of clauses (i) through (iv) of subparagraph
(1) of this paragraph (a).
(b) When Higher Vote is Not Reguired. The provisions of paragraph (a) of
this Article Eleventh shall not be applicable to any particular Business
Combination, and such Business Combination shall require only such affirmative
vote as is required by law and any other provision of this Certificate of
Incorporation, if all of the conditions specified in either of the following
subparagraphs (a)(1) or (a)(2) are met:
Page 23
<PAGE> 5
(1) Approval bv Disinterested Directors. The Business Combination
shall have been approved by a majority of the Disinterested Directors (as
hereinafter defined).
(2) Price and Procedure Reaquirements. All of the following conditions
shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value
(as hereinafter defined) as of the date of consummation of the Business
Combination of consideration other than cash to be received per share by holders
of Common Stock in such Business Combination shall be at least equal to the
higher of the following:
(A) (if applicable) the highest per share price paid by the
Interested Stockholder for any shares of Common Stock acquired by it (1) within
the two-year period immediately prior to the first public announcement of the
proposal of the Business combination (the "Announcement Date") or (2) in the
transaction in which it became an Interested Stockholder, whichever is higher;
and
(B) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Stockholder became an
Interested Stockholder (such latter date is referred to in this Article Eleventh
as the "Determination Date"), whichever is higher.
(ii) The aggregate amount of the cash and the Fair Market Value as
of the date of consummation of the Business Combination of consideration other
than cash to be received per share by holders of shares of any other class of
outstanding Voting Stock shall be at least equal to the highest of the following
(it being intended that the requirements of this subparagraph (b)(2)(ii) shall
be required to be met with respect to every class of outstanding Voting Stock,
whether or not the Interested Stockholder has previously acquired any shares of
a particular class of Voting Stock):
(A) (if applicable) the highest per share price paid by the
Interested Stockholder for any shares of such class of Voting Stock acquired by
it (1) within the two-year period immediately prior to the Announcement Date or
(2) in the transaction in which it became an Interested Stockholder, whichever
is higher;
(B) (if applicable) the highest preferential amount per share
to which the holders of shares of such class of Voting Stock are entitled in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation; and
Page 24
<PAGE> 6
(C) the Fair Market Value per share of such class of Voting
Stock on the Announcement Date or on the Determination Date, whichever is
higher.
(iii) The consideration to be received by holders of any
particular class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder previously paid for
shares of such class of Voting Stock. If the Interested Stockholder has paid for
shares of any class of Voting Stock with varying forms of consideration, the
form of consideration for such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class of Voting Stock
previously acquired by it. The price determined in accordance with subparagraphs
(b)(2)(i) and (b)(2)(ii) shall be subject to appropriate adjustment in the event
of any stock dividend, stock split, combination of shares or similar event.
(iv) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder (or any subsequent provisions replacing the Exchange Act
or such rules or regulations), shall be mailed to public stockholders of the
Corporation at least 30 days prior to the consummation of such Business
Combination (whether or not such proxy or information statement is required to
be mailed pursuant to the Exchange Act or subsequent provisions).
(c) Certain Definitions. For the purposes of this Article Eleventh:
(1) A "person" shall mean any individual, firm, corporation or other
entity.
(2) "Interested Stockholder" shall mean any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the beneficial owner, directly or indirectly, of more than
20% of the voting power of the outstanding Voting Stock; or
(ii) is an Affiliate of the Corporation and, at any time within
the two-year period immediately prior to the date in question, was the
beneficial owner, directly or indirectly, of 20% or more of the voting power of
the then outstanding Voting Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares
of Voting Stock that were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested Stockholder
if such
Page 25
<PAGE> 7
assignment or succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the meaning of the
Securities Act of 1933.
(3) A person shall be a "beneficial owner" of any Voting Stock:
(i) that such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) that such person or any of its Affiliates or Associates has
(A) the right to acquire (whether such right is exercisable immediately or only
after the passage of time) pursuant to an agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise; provided, however, that a person shall not be
deemed the beneficial owner of securities tendered pursuant to a tender or
exchange offer made by or on behalf of such person or any of such person's
Affiliates or Associates until such tendered securities are accepted for
purchase; or (B) the right to vote pursuant to any agreement, arrangement or
understanding; provided, however, that a person shall not be deemed the
beneficial owner of any security if the agreement, arrangement or understanding
to vote such security (I) arises solely from a revocable proxy or consent given
to such person in response to a public proxy or consent solicitation made
pursuant to, and in accordance with, the Exchange Act and (II) is not also then
reportable on Schedule 13D under the Exchange Act (or a comparable or successor
report); or
(iii) that are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting (except to the extent permitted by the proviso of subparagraph
(c)(3)(ii)(B) above) or disposing of any shares of Voting Stock.
(4) For the purposes of determining whether a person is an Interested
Stockholder pursuant to subparagraph (c)(2), the number of shares of Voting
Stock deemed to be outstanding shall include shares deemed owned through
application of subparagraph (c)(3) but shall not include any other shares of
Voting Stock that may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or options or
otherwise.
(5) "Affiliate" or "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act (or a comparable or successor regulation).
Page 26
<PAGE> 8
(6) "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the Corporation;
provided, however, that for the purposes of the definition of Interested
Stockholder set forth in subparagraph (c)(2), the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
(7) "Disinterested Director" means any member of the Board of
Directors of the Corporation (the "Board") who is unaffiliated with the
Interested Stockholder and was a member of the Board prior to the time that the
Interested Stockholder became an Interested Stockholder and any successor of a
Disinterested Director who is unaffiliated with the Interested Stockholder and
is recommended to succeed a Disinterested Director by a majority of
Disinterested Directors then on the Board.
(8) "Fair Market Value" means: (i) in the case of stock, the average
of the closing sale prices during the lo-day period immediately preceding the
date in question of a share of suchstock on the Composite Tape for New York
Stock Exchange- Listed Stocks; or, if such stock is not quoted on the Composite
Tape, on the New York Stock Exchange; or, if such stock is not listed on such
Exchange, on the principal United States securities exchange registered under
the Exchange Act on which such stock is listed; or, if the stock is not listed
on any such exchange but is listed as a National Market System stock in the
National Association of Securities Dealers, Inc. Automated Quotation System, as
reported in that National Market System; or, if such stock is not listed on any
such exchange or reported in such system, the average of the closing bid
quotations with respect to a share of such stock during the 10-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotation System or any system then in use; or, if no
such quotations are available, the fair market value on the date in question of
a share of such stock as determined by the Board in good faith; and (ii) in the
case of property other than cash or stock, the fair market value of such
property on the date in question as determined by the Board in good faith.
(9) In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used in
subparagraphs (b)(2)(i) and (ii) of this Article Eleventh shall include the
shares of Common Stock and/or of the shares of any other class of outstanding
Voting Stock retained by the holders of such shares.
(d) Powers of the Board of Directors. A majority of the Disinterested
Directors of the Corporation shall have the power and duty to determine for the
purposes of this
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Article Eleventh on the basis of information known to them after reasonable
inquiry (i) whether a person is an Interested Stockholder, (ii) the number of
shares of Voting Stock beneficially owned by any person, (iii) whether a person
is an Affiliate or Associate of another, and (iv) the Fair Market Value of the
assets that are the subject of any Business Combination. A majority of the
Disinterested Directors of the Corporation shall have the further power to
interpret all of the terms and provisions of this Article Eleventh.
(e) No Effect on Fiduciary Obligations of Interested Stockholders. Nothing
contained in this Article Eleventh shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed by law.
(f) Amendment, Repeal, etc. Notwithstanding any other provisions of this
Certificate of Incorporation or the By-laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be specified by law, this
Certificate of Incorporation or the By-laws of the Corporation), the affirmative
vote of the holders of sixty-six and two-thirds percent (66-2/3%) or more of the
outstanding Voting Stock, voting together as a single class, shall be required
to amend or repeal or adopt any provisions inconsistent with the Article
Eleventh.
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EXHIBIT 10.2
EMPLOYMENT AND SEPARATION AGREEMENT
THIS EMPLOYMENT AND SEPARATION AGREEMENT, dated as of August 18, 1995, is
entered into by and among Nellcor Incorporated ("Company" or "Nellcor"),
Puritan-Bennett Corporation ("PB") and Burton A. Dole, Jr. ("Executive").
In consideration of the respective undertakings of Company, PB and Executive
set forth below, Company, PB and Executive agree as follows:
1. Certain Definitions.
1.1 Cause. "Cause" means (i) a material breach of this Agreement by
Executive if Executive fails to make treasonable efforts to correct such breach
within a reasonable time after receipt of written notice from Nellcor, (ii)
conviction of a crime, or entry of a plea of nolo contendere with regard to a
crime, involving an offense against the Company or dishonesty of or by the
Executive, or (iii) drug or alcohol abuse on the premises of Company or any
subsidiary or affiliate of the Company, or at an event sponsored by the Company
or any affiliate or subsidiary of the Company. Failure to provide the
consultation contemplated under Section 3.2 of this Agreement shall not
constitute "Cause" or other grounds for termination of Executive or a basis for
any claim for breach of contract. "Cause" shall not include any matter other
than those specified in the preceding clauses (i) through (iii) above and,
without limiting the generality of the foregoing statement, Cause shall not
include (x) any charge or conviction of a crime, or entry of a plea of nolo
contendere with regard to a crime, under the Federal Food, Drug, and Cosmetic
Act, as amended, or any successor statute thereto (the "Act"), or (y) the
imposition or attempt to impose upon the Executive, or upon any operation,
asset, product or activity of the Company or PB, of any other sanction or remedy
under the Act including, without limitation, civil money penalties, warning
letters, injunctions, repairs, replacements, refunds, recalls or seizures, if in
either such case the Executive acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company.
1.2 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.3 Continued Payment Period. "Continued Payment Period" shall have the
meaning ascribed to it in Section 6.3.
1.4 Effective Time. "Effective Time" means the date on which the
Effective Time of the merger occurs under the Merger Agreement.
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1.5 Employment Termination Date. "Employment Termination Date" means
the date of any termination of Executive's employment by Company and PB after
the Effective Time and prior to March 1, 2005.
1.6 FY 1996 Bonus Payment. "FY 1996 Bonus Payment" means that certain
bonus available to Executive pursuant to PB's Merger Incentive Compensation
Plan, but only to the extent available to Executive by the terms of such plan.
1.7 401(k) Plan. "401(k) Plan" means that certain Restated
Puritan-Bennett Retirement Savings and Stock Ownership Plan, as amended.
1.8 401(k) Benefits. "401(k) Benefits" means those certain benefits
payable to Executive pursuant to the 401(k) Plan, but only to the extent
available to Executive by the terms of such plan.
1.9 Good Reason. "Good Reason" means (1) reduction in Executive's base
salary from that described herein, (2) material reduction in benefits provided
to Executive from those described herein, (3) a material reduction in
Executive's job responsibilities, title or position from those contemplated
herein, if such reduction is not corrected within 30 days after written notice
to Company thereof, (4) Executive is requested to relocate to an office outside
the greater Kansas City metropolitan area, (5) Company or PB materially breaches
any agreement with Executive and such breach is not corrected within ninety (90)
days after written notice to Company of such breach. Executive shall have one
year following the occurrence of (1) or (3) above to terminate his employment
for Good Reason. Executive shall have ninety (90) days following the occurrence
of (2), (4) or (5) above to give notice to Company of such occurrence and shall
have sixty (60) days thereafter (which sixty day period shall commence
immediately after the expiration of any cure period specified in such (5)) to
terminate his employment for Good Reason.
1.10 Merger Agreement. "Merger Agreement" means the Agreement and Plan
of Merger dated as of May 21, 1995, as amended, by and among the Company, Puma
Merger Corporation and PB.
1.11 1980 Employment Agreement. "1980 Employment Agreement" means that
certain Employment Agreement between Executive and PB dated as of April 25,
1980.
1.12 PB Agreements and Benefits. "PB Agreements and Benefits" mean all
written or oral agreements relating to the terms and conditions of Executive's
employment with PB or the provision to Executive of employee benefits.
1.13 PB Deferred Compensation Benefits. "PB Deferred Compensation
Benefits" shall mean the benefits payable to Executive after the Effective Time
as provided in Section 2.6 of this Agreement under the PB Deferred Compensation
Plan.
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1.14 PB Deferred Compensation Plan. "PB Deferred Compensation Plan"
means the Restated Puritan-Bennett Deferred Compensation Plan, as amended.
1.15 PB Make Up Plan. "PB Make Up Plan" means PB's Pension Benefit Make
Up Plan effective as of January 1, 1994, as amended.
1.16 PB Pension and Make Up Benefits. "Pension and Make Up Benefits"
means those certain defined benefit retirement benefits payable to Executive
pursuant to the PB Pension Plan and the PB Make Up Plan from time to time after
the Effective Time.
1.17 PB Pension Plan. "PB Pension Plan" means the Restated
Puritan-Bennett Pension Plan, a defined benefit plan of PB qualified under
Section 401(a) of the Code.
1.18 PB Separation Benefits. "PB Separation Benefits" shall mean (i)
the severance benefits payable to Executive in accordance with Section 2.2 of
the 1980 Employment Agreement as contemplated by Section 2.1 of this Agreement,
(ii) all accrued but unused vacation held by Executive at PB as of the Effective
Time, (iii) the PB SERP Benefits, (iv) the PB Pension and Make Up Benefits, (v)
the PB Deferred Compensation Benefits, (vi) any PB stock options or awards held
by Executive, (vii) the 401(k) Benefits, (viii) the FY 1996 Bonus Payment, and
(ix) the Retention Bonus Payment.
1.19 PB SERP. "PB SERP" means that certain Puritan-Bennett Corporation
Supplemental Retirement Benefit Plan effective as of September 1, 1985 as
amended.
1.20 PB SERP Benefits. "PB SERP Benefits" means those benefits payable
to Executive from and after the Effective Time as contemplated by Sections 2.3,
2.4 and 2.5 of this Agreement pursuant to the PB SERP as supplemented by that
certain letter dated November 7, 1994 between Executive and PB.
1.21 Retention Bonus Payment. "Retention Bonus Payment" means that
certain bonus available to Executive pursuant to PB's Retention Compensation
Plan, but only to the extent available to Executive by the terms of such plan.
1.22 Tax Rate. "Tax Rate" shall have the meaning ascribed to it in
Section 6.4.
2. Employment Separation; PB Separation Benefits.
2.1 Notwithstanding any other provision of this Agreement to the
contrary, including but not limited to Section 3.4, PB and Executive agree that
effective as of the Effective Time, Executive's employment with PB is terminated
by PB without cause as
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contemplated by Section 2.2 of the 1980 Employment Agreement and that from and
after the Effective Time, PB shall pay to Executive the severance payments under
such 1980 Employment Agreement in the amounts and at the times set forth in
Schedule A-1 hereto and subject to the terms and conditions of such 1980
Employment Agreement; provided, that such terms shall be applied as if Executive
has terminated employment with PB, notwithstanding the terms of Section 3.4
hereof.
2.2 Notwithstanding any other provision of this Agreement to the
contrary, including but not limited to Section 3.4, PB shall pay to Executive
within ten (10) days after the Effective Time, an amount equal to all accrued
but unused vacation held by him at PB as of the Effective Time paid at his
current rate of compensation as of May 21, 1995. The amount of such unused
vacation is currently expected to be as listed in Schedule A-2 hereto.
2.3 Notwithstanding any other provision of this Agreement to the
contrary, including but not limited to Section 3.4, PB and Executive agree that
Executive shall receive monthly payments under the PB SERP in the amount of
$23,083 per month (regardless of any occurrence of disability) commencing on the
first of the month after the Effective Time and subject to the terms and
conditions of the PB SERP; provided, that such terms shall be applied as if
Executive has terminated employment with PB, notwithstanding the terms of
Section 3.4 hereof. Such $23,083 per month amount is based on a straight life
annuity, and Executive may elect a different form, as provided in the PB SERP.
2.4 Following termination of employment with Nellcor and its
affiliates, Executive's monthly PB SERP payments shall be reduced by the amount
of monthly payments Executive would have received under the PB Pension and Make
Up Plans (based upon Executive's accrued benefit under such plans as of the
Effective Time) calculated as if the date of termination of employment had been
Executive's benefit commencement date under the PB Pension and Make Up Plans and
the Executive had elected to receive benefits under such plans in the same form
as the form of SERP payment elected (i.e., single life annuity or the particular
form of joint and survivor annuity elected); provided, however, that the
reduction required by this Section 2.4 shall not take effect prior to March 1,
2005.
2.5 If Executive dies before payments under the PB SERP commence, the
50% continuation to Executive's spouse or other designated beneficiary shall be
based upon the amounts set forth in Sections 2.3 and 2.4 above.
2.6 Notwithstanding any other provision of this Agreement to the
contrary, Executive shall be entitled to receive after the Effective Time any
deferred compensation benefits to which he is entitled in accordance with the
terms of the PB Deferred Compensation Plan (but Executive shall not be entitled
to defer additional compensation under such plan from and after the Effective
Time).
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3. Employment After Effective Time.
3.1 The Company shall employ Executive, after the Effective Time, as
Chairman of the Board of the Company for a period of two years from the
Effective Time, and thereafter the Company shall employ Executive as a part-time
employee until March 1, 2005. In consideration of Executive serving as an
employee of Company, Executive shall be entitled to receive a salary payable at
the times and in the amounts set forth in Schedule B-1.
3.2 Executive's duties as Chairman of the Board of Directors will be in
a non-operational capacity with a focus on external communications
responsibilities as agreed to by Company's Chief Executive Officer.
Specifically, Executive will represent Company on the Boards of Directors of the
Health Industry Manufacturers Association (HIMA) and the Anesthesia Patient
Safety Foundation or such other equivalent organizations as Company and
Executive may agree (the "Outside Board(s)"). Executive shall use his best
efforts to attend a majority of the meetings of such Outside Boards. Executive
shall coordinate with Company's Chief Executive Officer regarding issues related
to Company that arise in his representation on such Outside Boards. Executive
shall also perform additional work in connection with HIMA by attending
conferences and engaging in lobbying activities consistent with his past
practice at PB and subject to coordination with Company's Chief Executive
Officer. Executive will also provide consulting services to Company in an amount
equal to up to 8 hours at the time of each Company Board meeting, such
consulting to be solely as and to the extent requested from time to time by
Company's Chief Executive Officer. Executive will also perform additional
consultation with senior management of Company solely as and to the extent
requested by Company's current Chief Executive Officer. Executive will have no
power to execute contracts or bind Company except as expressly authorized by the
Board of Directors. Executive will chair Board of Directors meetings, but the
agenda for, and the conduct of, Board meetings will be set by, and under the
direction of, Company's Chief Executive Officer.
3.3 After Executive's initial two-year period of employment by Company
as Chairman of the Board of Directors, his employment by Company shall become
part-time employment and his obligations to the Company shall be to represent
Company on the Board of Directors of the Anesthesia Patient Safety Foundation or
such other equivalent organization as Company and Executive may agree. Executive
shall use his best efforts to attend a majority of the meetings of such Outside
Boards. If requested by Company's Chief Executive Officer, Executive shall also
continue to represent Company in connection with HIMA, or such other equivalent
organization as Company and Executive may agree, with the scope of such duties
to be mutually agreeable to Executive and Company's Chief Executive Officer.
Executive shall coordinate with Company's Chief Executive Officer regarding
issues related to Company that arise in his representation on such Outside
Board.
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3.4 From and after the Effective Time, Executive shall also be a
part-time employee of PB with limited obligations to PB as follows (the "PB
Part-Time Employment"): Executive shall be a member of the Board of Directors of
PB subject to removal at the discretion of the Company. Executive shall
represent PB on the Board of Directors of the Anesthesia Patient Safety
Foundation or such other equivalent organization as PB and Executive may agree.
Executive shall use his best efforts to attend a majority of the meetings of
such Outside Board. If requested by PB's Board of Directors, Executive shall
also represent PB in connection with HIMA, or such other equivalent organization
as PB and Executive may agree, with the scope of such duties to be mutually
agreeable to Executive and PB's Board of Directors. Executive shall coordinate
with PB's Board of Directors regarding issues related to PB that arise in his
representation on the Boards of Directors of HIMA and the Anesthesia Patient
Safety Foundation or any other Outside Board. In consideration of Executive
serving as a part-time employee of PB, Executive shall be entitled to receive a
salary payable at the times and in the amounts set forth in Schedule B-2.
Executive's employment with PB may be terminated upon mutual agreement of
Company and Executive.
3.5 During his employment by Company, Executive's office shall be in
the greater Kansas City metropolitan area or such other location chosen by
Executive at his sole expense.
4. Other Terms of Employment.
4.1 During his employment as Chairman of the Board of the Company,
Executive agrees to devote such time and effort to the rendition of services to
the Company as may be required to perform his duties hereunder. Executive may
devote a reasonable amount of time to civic and community affairs and his own
personal business activities (which shall mean services rendered with respect to
any business organization a majority of which is owned by Executive), but shall
not perform services for compensation during the term of his employment for any
other business organization in any capacity without the prior consent of the
Chief Executive Officer (except that Executive may be an outside director of
non-competing companies during his term as Chairman or thereafter or a
consultant or part-time employee of non-competing companies after expiration of
his term as Chairman).
4.2 The employment relationship between the parties shall also be
governed by the general employment policies and practices of the Company
including, but not limited to, any rules, regulations and policies now or
hereafter appearing in the Company's Executive Handbook and other policy
statements, except that when the terms of this Agreement differ from or are in
conflict with the Company's employment policies and practices, this Agreement
shall control.
4.3 During his employment by Company, Executive shall receive the
following benefits: (A) during the first two years, while Executive serves as
Chairman of
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Company's Board of Directors, Executive shall receive the same
employee benefits (including, but not limited to, vacation, health and dental,
life, disability, sick leave, retirement, deferred compensation, but not
including any equity based compensation) as are generally made available to
executive officers of Company, and (B) after the first two years while Executive
serves as a part-time employee of Company, Executive shall be entitled to
participate in Company's medical and dental plans, and in Company's life
insurance programs to the same extent and at the same cost to Executive as
generally available to senior officers of Company (the amount of life insurance
available under such plans may be limited to a multiple of his then current rate
of compensation). During his part-time employment by PB, Executive shall not be
entitled to receive any additional employee benefits from PB other than the PB
Separation Benefits provided to Executive under Section 2 hereof.
4.4 Executive shall be immediately eligible for the employee benefits
referred to in clause (A) of Section 4.3. Executive's health and dental benefits
shall not be subject to any pre-existing condition limitation for Executive or
any covered family member. To the extent that an employee's period of service
with the Company is relevant in determining eligibility for or vesting in any
such benefits, Executive shall receive credit for service with PB as service
with the Company. Executive may elect to participate in any health benefits of
PB that are generally available at the time, in lieu of (and to the same extent
as) any health benefits that would otherwise be available to him from Company
under the terms of this Agreement.
4.5 During his employment by Company or PB, Executive shall be entitled
to reimbursement of reasonable travel and other business expenses incurred by
him in relation to Company business in accordance with the Company's standard
policies.
5. Stock Compensation.
5.1 On the Effective Time, the Company shall (A) substitute Company
incentive stock options ("ISOs") and Company non-qualified stock options
("NQSOs") for all outstanding ISOs and NQSOs, respectively, held by Executive
under PB's 1988 Stock Benefit Plan that expired unexercised as of the Effective
Time, and (B) to the extent that any stock options under PB's 1979 Employee
Stock Benefit Plan would terminate as of the Effective Time as a result of the
Merger, substitute equivalent Company stock options in replacement thereof. The
substituted Company options will have the terms provided in the Merger
Agreement.
5.2 Executive shall not be eligible to participate in the Company's equity
incentive compensation plans from and after the Effective Time except to the
extent of previously issued PB stock options which shall become Company options
after the Effective Time as herein provided.
6. Termination of Employment; Gross Up Payments.
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6.1 The Company and PB may not terminate Executive's employment hereunder
except for Cause and Executive may not terminate his employment except for Good
Reason or as contemplated by Sections 6.2 or 7 hereof.
6.2 In the event of Executive's death or disability (as defined in the
Company's long-term disability plan last effective on or before the date of
disability), Executive's employment shall terminate. On termination of
Executive's employment by reason of death or disability, or by the Company for
Cause, or by Executive other than for Good Reason, Executive shall be entitled
to receive, without duplication, (i) the full amount of any accrued but unpaid
salary through the Employment Termination Date at the rate in effect at the time
of the notice of termination, (ii) all other amounts to which Executive is
entitled under any compensation or benefit plan of the Company or PB in which
Executive is then participating to the extent the same continue in accordance
with their respective terms after the particular circumstances of termination,
death or disability, as the case may be, of the Executive at the time and in the
amounts such payments are due in accordance with the terms of such plans, and
(iii) the amounts payable to Executive and Benefits provided to Executive
pursuant to Sections 6.6, 6.7, 11.1 and 11.10 of this Agreement (but again only
to the extent the same are available in accordance with their respective terms
after the particular circumstances of termination, death or disability, as the
case may be, of Executive). Other than the foregoing, Company and PB shall have
no further obligations to Executive.
6.3 If the Company terminates Executive's employment other than for Cause,
or if Executive terminates employment for Good Reason, (i) the vesting of all of
Executive's replacement Company ISOs and NQSOs (as hereinafter defined) shall
accelerate, and (ii) the Company and PB shall have the obligation to continue to
make or provide the various payments and benefits that they would have been
obligated to make or provide by the terms of this Agreement for the balance of
Executive's employment periods under this Agreement as if Executive had not been
so terminated (the "Continued Payment Period"), and in the event of Executive's
death prior to expiration of the Continued Payment Period, such amounts and
benefits shall be paid or provided to Executive's spouse or designated
beneficiary. Such payments shall be made at the rate in effect as of the
termination of Executive and at the same times as they would otherwise have been
payable but for the termination of Executive. For the sake of clarity, the
provisions of Section 6.2 of this Agreement, and not this Section 6.3, shall
apply in the event of termination of Executive's employment due to death or
disability (as defined in the Company's long-term disability plan last effective
on or before the date of disability).
6.4 To the extent that the accelerated vesting of any ISO upon the
termination of Executive as provided in Section 6.3 herein causes the ISO to
become a NQSO (such options are referred to herein as the "Disqualified Options"
and do not include ISOs that were exercised prior to acceleration and hence did
not become NQSOs), the Company will pay to Executive an amount that, after
payment of taxes by Executive, is equal to the "Lost ISO Value," as determined
pursuant to Section 6.5. The after-tax
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amount shall be calculated using the maximum tax rate applicable to such payment
(based upon the combined federal and state and local income, earnings, Medicare
and any other tax rates applicable to Executive, in each case determined without
regard to Executive's actual tax rates) (the "Tax Rate"), for the tax year in
which the payment under this Section 6.4 is made. Payment of the Lost ISO Value
shall be made within 10 days following acceleration.
6.5 The "Lost ISO Value" ("V") shall be determined by the formula V=(S x
T)-PV(S x FT), where: (a) S equals the difference between the per share exercise
price and the fair market value of the Company Stock (ignoring all options which
are "out of the money," in other words any excess of the exercise price over
fair market value shall not reduce S), multiplied by the number of shares
subject to the Disqualified Options; "fair market value," for this purpose,
means the mean of the high and low prices of the Company Stock on the Employment
Termination Date as reported on the principal market or transaction reporting
system through which trading of such securities is then made or reported (or on
the next preceding date on which the stock was traded if no trades are reported
on such principal market or transaction reporting system for the Employment
Termination Date); (b) T equals the Tax Rate for the tax year in which the
Employment Termination Date occurs; (c) FT equals the future income tax that
would have been payable by Executive if (1) the Disqualified Options were
exercised as ISOs on the Employment Termination Date, (2) the Company Stock
received on exercise was held by Executive until attainment of age 68 and then
sold at a price equal to the fair market value of the Company Stock on the
Employment Termination Date, as determined above, and (3) the tax laws and rates
in effect on the Employment Termination Date were effective for the tax year in
which Executive attains age 68; and (d) PV means the present value of (S x FT)
as of the Employment Termination Date discounting at 120% of the "applicable
federal rate" on that date (within the meaning of section 1274(d) of the Code).
Attached hereto as Schedule C is a sample of the computation of "Lost ISO
Value."
6.6 Subject to restrictions under the terms of Company's then existing
health and welfare plans, Company shall continue to make available to Executive
after any termination of employment with Company health and dental coverage to
the same extent as such coverage is generally available to full-time Company
employees with the sole cost of such participation (both the employer and
employee portion of all premiums), to be borne by Executive; provided that
Company's obligation shall be to use reasonable efforts to seek to obtain
coverage the terms of which would cover Executive within the meaning of this
sentence (so long as the inclusion of Executive does not make Company's cost for
the plan uncompetitive with alternative plans or have a material adverse effect
on the taxation of benefits provided to Company's employees under the plan). The
amounts payable to Executive, and benefits receivable by Executive pursuant to
this Section 6.6 and Sections 2, 3.1, 3.4, 6.7, 11.1 and 11.10 shall be
available to Executive whether or not Executive is terminated for Cause or
otherwise terminates employment except that such amounts and benefits shall only
be available to the extent the same continue in accordance with their
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respective terms after the particular circumstances of termination and the
amounts payable under Section 3.1 and 3.4 shall not be payable if Executive
voluntarily quits employment.
6.7 In the event that any payment to Executive from Company or PB, or any
other compensation, benefit or other amount from the Company or PB for the
benefit of Executive ("Parachute Payments"), will be subject to the tax imposed
by section 4999 of the Code (including any applicable interest and penalties,
the "Excise Tax"), no Parachute Payment shall be reduced (except for required
tax withholdings) and the Company shall pay to Executive within 30 days of the
date such Excise Tax becomes payable, an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive, after deduction of any
Excise Tax on the Parachute Payments and taxes based upon the Tax Rate and
Excise Tax upon the payment provided for by this Section 6.7, shall be equal to
the amount the Executive would have received if no Excise Tax had been imposed.
For purposes of determining whether any of the Parachute Payments will be
subject to the Excise Tax and the amount of the Excise Tax, (a) any other
payments, benefits or other amounts received or to be received by Executive at
any time from the Company or any entity at any time affiliated with the Company
(whether pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company or any person affiliated with the Company) shall
be treated as "parachute payments" within the meaning of section 280G(b)(2) of
the Code, and all "excess parachute payments" within the meaning of section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Company and acceptable to Executive such other
payments or benefits (in whole or in part) represent reasonable compensation for
services actually rendered within the meaning of section 280G(b)(4) of the Code,
(b) the amount of the Parachute Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (1) the total amount of the
Parachute Payments or (2) the amount of any excess parachute payments within the
meaning of section 280G(b)(1) and (4) (after applying clause (a), above, and
after deducting any excess parachute payments in respect of which payments have
been made under this Section 6.7), and (c) the value of any non-cash benefits or
any deferred payment or benefit shall be determined by the Company in accordance
with the principles of section 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to pay
taxes at the Tax Rate applicable at the time of the Gross-Up Payment. In the
event that the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder, Executive shall repay to the Company at the time
that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction plus interest on
the amount of such repayment at the rate provided in section 1274(d)(1) of the
Code. In the event that the Excise Tax is determined to exceed the amount taken
into account hereunder (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such
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excess (plus any interest payable in respect of such excess) at the time that
the amount of such excess is finally determined.
6.8 All payments made under this Agreement shall be subject to all
required withholdings.
6.9 The severance benefits provided Executive under this Section 6 shall
be reduced by any severance benefits to which Executive is entitled under the
Company's severance benefits policies for terminated employees generally.
However, it is expressly agreed that PB Separation Benefits shall not be offset
against or reduce in any way any payments or benefits to which Executive is
entitled under this Agreement.
6.10 Notwithstanding anything in this Agreement to the contrary, if any
portion of any payments to Executive by the Company or PB under this Agreement
and any other present or future plan of the Company or PB or other present or
future agreement between Executive and the Company or PB would not be deductible
by the Company for federal income tax purposes by reason of application of
section 162(m) of the Code, then payment of that portion to Executive shall be
deferred until the earliest date upon which payment thereof can be made to
Executive without being non-deductible pursuant to section 162(m) of the Code.
In the event of such deferral, the Company or PB, as the case may be, shall pay
interest to Executive on the deferred amount at 120% of the applicable federal
rate provided for in section 1274(d)(1) of the Code.
7. Non-Competition. During Executive's employment by Company, and for a period
of three years after any cessation of Executive's employment by Company,
Executive agrees that he will not directly or indirectly compete with the
Company or PB, or engage in, or act as an officer, director, employee or agent
of any person or entity that is engaged in (or intends to enter into at such
time), any business in which the Company or PB is engaged as of the date of
Executive's separation from employment. The foregoing shall not prohibit
Executive from investing in any securities of a corporation whose securities,
or any of them, are listed on a national securities exchange or traded in the
over-the-counter market so long as Executive shall own less than 3% of the
outstanding voting securities of such corporation. If Executive wishes to
become a full-time executive of a non-competing company prior to the expiration
of his term as Chairman of the Board of Directors of Company, Executive shall
at the option of Company relinquish his position as Chairman of the Board of
Directors of Company and as a director of PB and terminate his employment with
Company and PB (which would not be deemed termination for "Good Reason").
8. Confidentiality. During Executive's employment and at all times thereafter,
Executive agrees that he will not divulge to anyone or use for Executive's own
benefit or the benefit of any other person or entity any information concerning
the Company or PB, or the businesses, operations, finances, products, plans,
employees, or other aspects of either of them, including, without limitation,
trade secrets and other proprietary information, except for information that
has been published by or with the
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consent of the Company and is as a result thereof generally available to the
public, or information reasonably required by Executive for the preparation of
personal tax returns. The foregoing restrictions shall not be applicable to any
information that is or becomes part of the public domain other than as a result
of disclosure by Executive.
9. No Obligation to Mitigate. Executive shall not be required to mitigate the
damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided under this Agreement be reduced by any compensation earned by Executive
as the result of employment by another employer after any Employment Termination
Date, or otherwise.
10. Release and Termination of Rights.
10.1 As of the Effective Time, all PB Agreements and Benefits shall
terminate except for the PB Separation Benefits and the PB Part Time Employment
provided herein. Executive and his representatives, heirs, successors, and
assigns do hereby completely release and forever discharge Company, PB, any
affiliate of either of them, and the present and former shareholders, officers,
directors, agents, employees, attorneys, successors, and assigns of any of them
(collectively, "Released Parties") from all claims, rights, demands, actions,
obligations, liabilities and causes of action of every kind and character, known
or unknown, mature or unmatured, which Executive may now have or has ever had,
whether based on tort, contract (express or implied including the PB Agreements
and Benefits) or any federal, state or local law, statute or regulation,
relating in any manner whatsoever to the PB Agreements and Benefits, his
employment by PB or the termination of his employment (except for the PB
Separation Benefits and the amounts set forth in Schedule D) (collectively, the
"Released Claims"). By way of example and not in limitation of the foregoing,
Released Claims shall include any claims arising under Title VII of the Civil
Rights Act of 1964, the Age Discrimination in Employment Act, and the Americans
with Disabilities Act, as well as any claims asserting wrongful termination,
breach of contract, breach of the covenant of good faith and fair dealing,
negligent or intentional infliction of emotional distress, negligent or
intentional misrepresentation, negligent or intentional interference with
contract or prospective economic advantage, defamation, invasion of privacy, and
claims related to disability. Released Claims shall also include, but not be
limited to, claims for any severance pay, bonuses, sick leave, vacation pay,
life or health insurance, or any other fringe benefit. Executive likewise
releases the Released Parties from any and all obligations for attorneys' fees
incurred in regard to the above claims or otherwise.
10.2 Notwithstanding the foregoing, Released Claims shall not include (A)
amounts payable to Executive pursuant to PB Agreements and Benefits relating to
(i) reimbursement for out-of-pocket expenses incurred in connection with the
business of PB, (ii) wages and salary earned, and (iii) other items as described
in Schedule D
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hereto, in each case only to the extent that such amounts are accrued but unpaid
prior to the Effective Time, and (B) the PB Separation Benefits described
herein.
10.3 The parties understand and agree that the Released Claims include not
only claims presently known to Executive, but also include all unknown or
unanticipated claims, rights, demands, actions, obligations, liabilities, and
causes of action of every kind and character that would otherwise come within
the scope of the Released Claims as described herein. Executive understands that
he may hereafter discover facts different from what he now believes to be true,
which if known, could have materially affected this Agreement, but he
nevertheless waives any claims or rights based on different or additional facts.
Executive knowingly and voluntarily waives any and all rights or benefits that
he may now have, or in the future may have, under the terms of Section 1542 of
the California Civil Code (or any other similar protection of law), which
provides as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW
OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH
IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
10.4 Executive shall not sue or initiate against any Released Party any
compliance review, action, or proceeding, or participate in the same,
individually or as a member of a class, under any contract (express or implied),
or any federal, state, or local law, statute, or regulation pertaining in any
manner to the Released Claims.
10.5 Executive understands and agrees that, by entering into this Agreement,
(i) he is waiving any rights or claims he might have under the Age
Discrimination in Employment Act, as amended by the Older Workers Benefit
Protection Act; (ii) he has received consideration beyond that to which he was
previously entitled; (iii) he has been advised to consult with an attorney
before signing this Agreement; and (iv) he has been offered the opportunity to
evaluate the terms of this Agreement for not less than twenty-one (21) days
prior to his execution of the Agreement. Executive may revoke this Agreement (by
written notice to Company) for a period of seven (7) days after his execution of
the Agreement, and it shall become enforceable only upon the expiration of this
revocation period without prior revocation by Executive.
11. Miscellaneous.
11.1 Interest. Any amounts owed to Executive by Company or PB from and after
the Effective Time as referred to in this Agreement (other than amounts pursuant
to the 1980 Employment Agreement) and not paid when due shall bear interest at
the rate of one-fortieth of one percent (00.025%) per day until paid in full.
Any partial payment shall first be applied toward interest.
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11.2 No Assignment; Successors. No benefit hereunder shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge, and any attempt to do so shall be void. This Agreement and the rights
and obligations of the parties hereto shall bind and inure to the benefit of any
successor or successors of the Company or PB by way of reorganization, merger,
acquisition or consolidation, and any assignee of all or substantially all of
the business and properties or either of them.
11.3 Notices. All notices hereunder shall be in writing, and shall be
delivered in person, by facsimile or by certified mail-return receipt requested.
Notices shall be delivered as follows:
If to the Company or PB:
c/o Nellcor Incorporated
4280 Hacienda Drive
Pleasanton, CA 94288
Attention: Laureen DeBuono, Esq.
Executive Vice President,
Human Resources, General Counsel
and Corporate Secretary
Tel: (510) 463-4214
Fax: (510) 463-4218
If to the Executive:
Burton A. Dole, Jr.
9605 West 191st Street
Bucyrus, Kansas 66013
Any party may change its address by notice giving notice to the other party of a
new address in accordance with the foregoing provisions.
11.4 Governing Law. This Agreement shall be governed by the laws of the
State where Executive's principal office with PB is located at the time a
dispute hereunder shall arise.
11.5 Arbitration.
(a) All disputes between Executive (and his attorneys, successors and
assigns) and Company or PB (and their affiliates, shareholders, directors,
officers, employees, agents, successors, attorneys and assigns) relating in
any manner whatsoever to the employment or termination of Executive,
including, without limitation, all disputes arising under this Agreement
("Arbitrable Claims") shall be resolved by arbitration. All persons and
entities specified in the
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preceding sentence (other than Company, PB and Executive) shall be
considered third-party beneficiaries of the rights and obligations created
by this Section on Arbitration. Arbitrable Claims shall include, but are not
limited to, contract (express or implied) and tort claims of all kinds, as
well as all claims based on any federal, state or local law, statute or
regulation, excepting only claims under applicable workers' compensation law
and unemployment insurance claims. By way of example and not in limitation
of the foregoing, Arbitrable Claims shall include any claims arising under
Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, as well as any claims
asserting wrongful termination, breach of contract, breach of the covenant
of good faith and fair dealing, negligent or intentional infliction of
emotional distress, negligent or intentional misrepresentation, negligent or
intentional interference with contract or prospective economic advantage,
defamation, invasion of privacy and claims related to disability.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY
RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement.
The burden of proof in any arbitration shall be allocated as provided by
applicable law, unless otherwise specified in this Agreement. Either party
may bring an action in court to compel arbitration under this Agreement and
to enforce an arbitration award. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. All arbitration hearings under this Agreement shall be
conducted in San Francisco, California. The Federal Arbitration Act shall
govern the interpretation and enforcement of this Section 11.5
(c) All disputes involving Arbitrable Claims shall be decided by a
single arbitrator. The arbitrator shall be selected by mutual agreement of
the parties within thirty (30) days of the effective date of the notice
initiating the arbitration. If the parties cannot agree on an arbitrator,
then the complaining party shall notify the AAA and request selection of an
arbitrator in accordance with the AAA Employment Rules. The arbitrator shall
have authority to award equitable relief, damages, costs, and fees to the
same extent as a court would be permitted by law for the particular claim(s)
asserted. The fees of the arbitrator shall be split between both parties
equally. The arbitrator shall have exclusive authority to resolve all
Arbitrable Claims, including, but not limited to, any claim that all or any
part of this Agreement is void or enforceable and any dispute regarding
whether particular claims are arbitrable.
(d) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by
law, the
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subject matter thereof shall not be disclosed to any person other than the
parties to the proceedings, their counsel, witnesses and experts, the
arbitrator, and, if involved, the court and court staff. All documents filed
with the arbitrator or with a court shall be filed under seal. The parties
shall stipulate to all arbitration and court orders necessary to effectuate
fully the provisions of this subsection concerning confidentiality.
(e) The rights and obligations of Executive, PB and Company set forth
in this Section 16.4 on Arbitration shall survive the termination of
Executive's employment and the termination of this Agreement.
11.6 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction, arbitrator or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in force
and effect and shall in no way be affected, impaired or invalidated. It is the
intention of the parties that the provisions of Section 7 of this Agreement
shall be enforced to the greatest extent (but to no greater extent) in time,
area, and degree of participation as is permitted by the law of that
jurisdiction whose law is found to be applicable to any acts allegedly in breach
of Section 7. It being the purpose of this Agreement to govern competition by
Executive anywhere throughout the world, Section 7 shall be governed by and
construed according to that law (from among those jurisdictions whose law is
arguably applicable to this Agreement and those in which a breach of Section 9
is alleged to have occurred or to be threatened) which best gives effect to
Section 7 of this Agreement.
11.7 Consultation with Counsel. Executive acknowledges (a) that he has been
given the opportunity to consult with counsel of his own choice concerning this
Agreement, and (b) that he has read and understands the Agreement, is fully
aware of its legal effect, and has entered into it freely based upon his own
judgment with or without the advice of such counsel
11.8 Descriptive Headings. Descriptive headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
11.9 Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by Executive and by a duly
authorized representative of each of the Company and PB other than Executive. By
an instrument in writing similarly executed, any party may waive compliance by
another party or parties with respect to any provision of this Agreement that
such other party was or is obligated to comply with or perform, provided,
however, that such waiver shall not operate as a waiver of, or estoppel with
respect to, any other or subsequent failure. No failure to exercise and no delay
in exercising any right, remedy or power hereunder shall operate as a waiver
thereof or as a waiver of any other right, remedy or power, nor shall any single
or partial exercise of any right, remedy or power
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hereunder preclude any other or further exercise of any other right,
remedy, or other power provided herein or by law or in equity.
11.10 Attorney's Fees. In the event of a breach by PB or Company, Company
shall pay Executive's attorney's fees and costs.
11.11 Interpretation. This Agreement shall be construed as a whole,
according to its fair meaning, and not in favor of or against any party. By way
of example
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and not in limitation of the foregoing, this Agreement shall not be construed in
favor of the party receiving a benefit nor against the party responsible for
any particular language in this Agreement.
11.12 Integration. The parties understand and agree that the preceding
Sections recite the sole consideration for this Agreement; that no
representation or promise has been made by Company, PB or Executive
concerning the subject matter of this Agreement, except as expressly set
forth in this Agreement; and that all agreements and understandings between
the parties concerning the subject matter of this Agreement are embodied and
expressed in this Agreement. This Agreement shall supersede all prior
agreements and understandings among the parties whether written or oral,
express or implied, with respect to the employment, termination and benefits
of Executive, including without limitation, any employment-related agreement
or benefit plan, except to the extent that the provisions of any such
agreement or plan have been expressly referred to in this Agreement as
having continued effect.
Nellcor Incorporated
By:
Name:
------------------------
Title:
------------------------
Puritan-Bennett Corporation
By:
Name:
------------------------
Title:
------------------------
Executive
---
Burton A. Dole, Jr.
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Schedule A-1
$211,700 per annum for a period of 90 months, such period commencing at the
Effective Time. Such amounts are payable at the times executive payroll is
normally processed by PB.
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Schedule A-2
400 hours of unused vacation at $163.47 per hour equals $65,388.
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Schedule B-1
$230,000 per annum for a period of 24 months, such period commencing at the
Effective Time, and thereafter $24,000 per annum for a period of 90 months, such
period commencing August 25, 1997. In each case, such compensation will be
payable at the times executive payroll is normally processed by Nellcor.
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Schedule B-2
$20,000 per annum payable at the times payroll for executives is otherwise
processed by PB for a period of 114 months, such period commencing at the
Effective Time.
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Schedule C
LOST ISO VALUE SAMPLE CALCULATION
Assume that Executive has 10,000 ISOs with an exercise price of $20 per
share which are accelerated on termination of employment, and that no other ISOs
first become exercisable in the year of termination. Assume, further, that (1)
the fair market value of Nellcor-PB stock on the employment termination date is
$40, (2) Executive has attained age 63 on the Employment Termination Date, (3)
the Tax Rate is 50%, (4) 120% of the applicable federal rate for obligations
with a maturity of 5 years is 7.5%, (5) under the tax law in effect on the
Employment Termination Date, ISO stock held for more than one year and then sold
would qualify for capital gain treatment, with an applicable tax rate of 40%
(rather than 50% applicable to disqualifying dispositions).
As a result of acceleration, options first exercisable in a year in excess
of $100,000 (based upon the stock price at the date of grant) are disqualified.
Thus, 5,000 of Executive's ISOs are "Disqualified Options." The Lost ISO Value
of such options is calculated as follows:
S=$20 ($40-$20)
T=.50
FT=.40
V=5,000[$20 x .5]-5,000PV[$20 x .4]
V=$50,000-5,000PV[$8]
PV$8 receivable in 5 years discounted at 7.5% per annum=$5.57
V=$50,000-(5,000 x $5.57)
V=$50,000-$27,850
V=$22,150
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Schedule D
Claims under medical plans included in PB Agreements and Benefits in which
Executive and his family participate, for services rendered prior to the
Effective Time.
All fringe benefits earned by Executive prior to the Effective Time for
services rendered prior to the Effective Time if such fringe benefits have not
previously been paid or provided for the benefit of Executive.
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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of August 25, 1995, is entered into by and among
Nellcor Incorporated ("Company" or "Nellcor"), Puritan-Bennett Corporation
("PB") and John H. Morrow ("Executive") and supersedes and replaces any prior
employment agreement previously entered into between Company or any subsidiary
thereof, including PB and Employee.
In consideration of the respective undertakings of Company and Executive set
forth below, Company and Executive agree as follows:
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Executive's willful violation of any
reasonable rule or direct order of the Board or the Company Chief Executive
Officer ("CEO"), which, after written notice to do so, the Executive fails to
make reasonable efforts to correct within a reasonable time, or (b) conviction
of a crime, or entry of a plea of nolo contendere with regard to a crime,
involving an offense against the Company or dishonesty of or by the Executive,
or (c) drug or alcohol abuse on the premises of Company or any subsidiary or
affiliate of the Company, or at an event sponsored by the Company or any
affiliate or subsidiary of the Company, or (d) Executive's material violation of
any provision of this Agreement, which, after written notice to do so, the
Executive fails to correct within a reasonable time. "Cause" shall not include
any matter other than those specified in (a) through (d) above and, without
limiting the generality of the foregoing statement, Cause shall not include (x)
any charge or conviction of a crime, or entry of a plea of nolo contendere with
regard to a crime, under the Federal Food, Drug, and Cosmetic Act, as amended,
or any successor statute thereto (the "Act"), or (y) the imposition or attempt
to impose upon the Executive, or upon any operation, asset, product or activity
of the Company, of any other sanction or remedy under the Act including, without
limitation, civil money penalties, warning letters, injunctions, repairs,
replacements, refunds, recalls or seizures, if in either such case the Executive
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company.
1.2 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.3 Continued Payment Period. "Continued Payment Period" shall have the
meaning ascribed to it in Section 7.1.
1.4 Company SERP. "Company SERP" means that certain Supplemental Retirement
Benefit Plan in the form attached hereto as Exhibit A adopted by the
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Company and effective as of the Effective Date providing for certain
supplemental retirement.
1.5 Effective Date. "Effective Date" means the date on which the effective
time of the merger occurs under the Merger Agreement.
1.6 Employment Termination Date. "Employment Termination Date" means the
date specified in any notice of termination provided pursuant to Section 2.2 or
other date of termination of Executive's employment after the Effective Date.
1.7 FY 1996 Bonus Plan. "FY 1996 Bonus Plan" means that certain bonus
available to Executive pursuant to PB's Merger Incentive Compensation Plan, but
only to the extent available to Executive by the terms of such plan.
1.8 401(k) Plan. "401(k) Plan" means that certain Restated Puritan-Bennett
Retirement Savings and Stock Ownership Plan, as amended.
1.9 Good Reason.
(a) "Good Reason" means, on or prior to the first anniversary of the
Effective Date of this Agreement (1) Executive ceases to hold the position
provided to him in Section 2.1, (2) reduction in Executive's total
compensation or in salary from that described in Section 3, (3) requiring
Executive to locate from the greater Kansas City metropolitan area other
than in connection with becoming Chief Operating Officer of the Company; or
(4) failure to afford Executive the employee benefits described in Section
4, if such failure is not corrected within thirty (30) days after written
notice to the Company thereof. Executive shall have one year following the
occurrence of (1) or (2) above to terminate his employment for Good Reason.
Executive shall have ninety (90) days following the occurrence of (3) or (4)
above to give notice to Company of such occurrence and shall have sixty (60)
days (which sixty day period shall commence immediately after the expiration
of any cure period specified in such (3) and (4)) to terminate his
employment for Good Reason.
(b) "Good Reason" means, after the first anniversary of the Effective
Date of this Agreement, (1) any act of the Company constituting "Good
Reason" under Section 1.9(a) above (subject to the last sentence of Section
1.9(a), (2) any material reduction in the nature or scope of the Executive's
authority or duties from those described in Section 2.1 (including if such
reduction occurred prior to the first anniversary of the Effective Date), if
such failure is not corrected within thirty (30) days after written notice
to the Company thereof, or (3) material breach by the Company or any
successor company of any of the provisions of this Agreement not corrected
within ninety (90) days after written notice to the Company thereof.
Executive shall have ninety (90) days following the occurrence of (2) or (3)
above to give notice to Company of such occurrence and
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shall have sixty (60) days (which sixty day period shall commence
immediately after the expiration of any cure period specified in such (2) or
(3)) to terminate his employment for Good Reason.
(c) "Good Reason" means, after the second anniversary of the Effective
Date of this Agreement, (1) any act of the Company constituting "Good
Reason" under Section 1.9(a) (subject to the last sentence of Section
1.9(a)) or Section 1.9(b) above (subject to the last sentence of Section
1.9(b)), or (2) failure of the Company to offer Executive the position of
Chief Operating Officer of the Company (with a commensurate compensation
level). Executive shall have until the third anniversary of the Effective
Date of this Agreement to terminate his employment for "Good Reason" as a
result of the failure of the Company to offer him the position of Chief
Operating Officer of the Company.
1.10 Merger Agreement. "Merger Agreement" means the Agreement and Plan of
Merger dated as of May 21, 1995, as amended by and among the Company, Puma
Merger Corporation and PB.
1.11 PB Agreements and Benefits. "PB Agreements and Benefits" mean all
written or oral agreements relating to the terms and conditions of Executive's
employment with PB, and the provision to Executive of employee benefits,
including, but not limited to (a) the letter agreement dated June 9, 1994,
between PB and Executive, (b) the supplemental letter agreement dated November
7, 1994, between PB and Executive, (c) the PB Supplemental Retirement Benefit
Plan adopted by PB effective as of September 1, 1985 (the "PB SERP"), (d) the
agreement made as of November 7, 1994, between PB and Executive changing the PB
SERP as applicable to Executive, and (e) the PB Pension Benefit Make Up Plan as
applicable to Executive. Notwithstanding the foregoing, "PB Agreements and
Benefits" shall not include benefits and rights under (i) the employee benefit
plans of the Company constituting qualified plans under section 401(a) of the
Code, (ii) any PB stock options or awards held by Executive, (iii) the Restated
PB Deferred Compensation Plan, (iv) the 401(k) Plan, (v) the FY 1996 Bonus Plan,
or (vi) the Retention Bonus Plan.
1.12 Retention Bonus Plan. "Retention Bonus Plan" means that certain bonus
available to Executive pursuant to PB's Retention Compensation Plan, but only to
the extent available to Executive by the terms of such plan.
1.13 Tax Rate. "Tax Rate" shall have the meaning ascribed to it in Section
7.3.
2. Employment.
2.1 The Company shall employ Executive, as of the Effective Date, as
Executive Vice President of the Company and President of the Company's Home
Health Care Business, which will include the PB Puritan Group and Aero Systems
Group, as constituted on the Effective Date, the PB Republic of Ireland
operation, and the
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Company's Edentec and Pierre Medical operation, except to the
extent that for any reason any of such operations are no longer part of the
operations of the Company and its subsidiaries. Executive shall also serve as a
member of the Board of Directors of PB subject to removal at the discretion of
the Company.
2.2 Subject to the foregoing, Executive shall continue in his employment
with the Company until either Company or the Executive gives written notice to
the other of termination of Executive's employment. Such notice shall specify
the date of termination of employment. Subject to making any payments required
to be made under Sections 6 and 7 of this Agreement, the Company may terminate
Executive's employment at any time with or without cause and with or without
advance notice. The Company's right to terminate the Executive shall be governed
solely by the terms of this Agreement and may not be modified by any other
express or implied employment practices, policies or agreements except a
specific written agreement amending this provision signed by Company and
Executive.
2.3 During his employment with the Company, Executive agrees to devote his
full business time and efforts to the rendition of services to the Company
subject, however, to illness and customary vacations. Executive will at all
times be subject to the direction and supervision of the Chief Executive Officer
("CEO") of the Company. Executive may devote a reasonable amount of time to
civic and community affairs but shall not perform services during the term of
his employment for any other business organization in any capacity without the
prior consent of the CEO.
2.4 The employment relationship between the parties shall also be governed
by the general employment policies and practices of the Company including, but
not limited to, any rules, regulations and policies now or hereafter appearing
in the Company's Employee Handbook and other policy statements, except that when
the terms of this Agreement differ from or are in conflict with the Company's
employment policies and practices, this Agreement shall control. Notwithstanding
the foregoing, nothing in this Section 2.4 shall in any way limit the Company's
rights under Section 2.3.
3. Salary and Bonus. Executive's initial base salary shall be $275,000 per
annum, payable at the times payroll for other executives is processed, subject
to required withholdings. Executive shall participate in Company's Short-Term
Cash Incentive Program for Officers and Directors as in effect from time to time
with an initial target bonus of 50% of base salary based on the achievement of
Company and individual objectives. Executive's base salary and bonus will be
reviewed and adjusted at the same time as for other similarly situated
executives.
4. Other Employee Benefits.
4.1 Executive shall be immediately eligible for all employee benefits
generally available to executive officers of the Company including, but not
limited to, vacation,
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sick leave, health insurance, dental insurance, life insurance, disability
insurance and deferred compensation. Executive shall not be entitled to receive,
and hereby waives, any right to benefits under PB's Director's Post-Retirement
Income Plan. Executive's health and dental benefits shall not be subject to any
pre-existing condition limitation for Executive or any covered family member. To
the extent that an employee's period of service with the Company is relevant in
determining eligibility for or vesting in any such benefits, Executive shall
receive credit for service with PB as service with the Company. Notwithstanding
the foregoing, Executive may elect to participate in any health benefits of PB
that are generally available at the time, in lieu of (and to the same extent as)
any health benefits that would otherwise be available to him from Company under
the terms of this Agreement.
4.2 Executive shall be provided a Company automobile, including
reimbursement for reasonable automobile expenses.
4.3 Executive shall be entitled to reimbursement of reasonable travel and
other business expenses incurred by him in relation to Company business in
accordance with the Company's standard policies.
4.4 Executive's membership in Shadow Glen Golf Club shall be continued,
including reimbursement for monthly dues and assessments as well as reasonable
expenses incurred in connection with business usage of the club services and
facilities. If Executive is required to relocate from the Kansas City area, the
Company shall use all reasonable efforts to transfer to Executive ownership of
the Shadow Glen Golf Club membership.
4.5 Executive shall be entitled to an annual allowance of $2,500 which he
may use to obtain income tax, estate planning and other similar services.
4.6 Executive shall be provided with a loan in the amount and containing
the terms provided in Exhibit B so as to enable Executive to pay certain income
taxes arising in connection with the acceleration of restricted stock as a
result of the merger.
4.7 Company shall pay to Executive within 10 days of the Effective Date, an
amount equal to all accrued but unused vacation held by him at PB paid at his
rate of compensation as of the Effective Date of $275,000 per annum. The amount
of such unused vacation is currently expected to be as listed in Exhibit C
hereto.
5. Stock Compensation.
5.1 As of the Effective Date, the Company shall (A) substitute Company
incentive stock options ("ISOs") and Company non-qualified stock options
("NQSOs") for all outstanding ISOs and NQSOs, respectively, under PB's 1988
Stock Benefit Plan expired unexercised as of the Effective Date, and (B) to the
extent that any stock options under PB's 1979 Employee Stock Benefit Plan would
terminate as of the
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Effective Time as a result of the Merger, substitute equivalent Company stock
options in replacement thereof. The substituted Company options will have the
terms provided in the Merger Agreement.
5.2 Executive shall be eligible to participate in the Company's equity
incentive compensation plans to the same extent as are generally made available
to similarly situated executives of the Company. However, to the extent that the
plan in question is a discretionary award plan, the amount of any award to
Executive under the plan shall be in the sole discretion of the Nominating and
Compensation Committee of the Company's Board of Directors, or any successor
thereto.
6. Rights Upon Termination of Employment by Death or Disability or on
Termination of Employment by the Company for Cause, or by Executive other than
for Good Reason; Gross Up Payments. In the event of Executive's death or
disability (as defined in the Company's long-term disability plan last effective
on or before the date of disability), Executive's employment shall terminate. On
termination of Executive's employment by reason of death or disability, or by
the Company for Cause, or by Executive other than for Good Reason, Executive
shall be entitled to receive the full amount of any accrued but unpaid salary
through the Employment Termination Date at the rate in effect at the time of the
notice of termination, plus all other amounts to which Executive is entitled
under any compensation or benefit plan of the Company in which Executive is then
participating, at the time and in the amounts such payments are due in
accordance with the terms of such plans, and the Company shall have no further
obligations to Executive.
7. Rights Upon Termination of Employment By Company other than for Cause,
or by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause, or if Executive terminates employment for Good
Reason, the Company shall have the obligation to make the payments specified in
this Section 7. For sake of clarity, the provisions of Section 6 of this
Agreement, and not this Section 7, shall apply in the event of termination of
Executive's employment on death or disability (as defined in the Company's
long-term disability plan last effective on or before the date of disability).
7.1 Executive shall receive severance pay for a period of three years from
the Employment Termination Date (the "Continued Payment Period"), at an annual
rate equal to the sum of (a) the Executive's highest base salary rate from the
Company in effect prior to the Employment Termination Date, plus (b) the highest
bonus paid to Executive under the Company's Short-Term Cash Incentive Program
for any fiscal year, such severance award to be payable, other than as provided
in the next sentence, in equal installments payable at the times Company's
payroll for executives is processed for a period of three years. If the Company
terminates Executive's employment other than for Cause or if Executive
terminates employment for Good Reason, in each case prior to the end of the
first fiscal year of the Company beginning after the Effective Date, then
Executive's bonus for purposes of calculating severance
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payments under this Section 7.1 shall be deemed to be equal to the bonus
Executive would have earned under the Company's Short-Term Cash Incentive
Program for the first fiscal year ending after the Effective Date had he been
employed for all twelve months of such fiscal year and satisfied his employment
objectives.
The Company shall make a lump-sum payment to Executive of any amount of
severance payments due under this Section 7.1 in connection with the portion of
the severance payments pertaining to Executive's bonus under (b) above, within
10 business days following the determination by the Company after the end of
such fiscal year that the Company has achieved plan performance criteria for the
payment of incentive compensation. For purposes of the calculation of
Executive's base salary and bonus under this Section 7.1, no deduction shall be
made for amounts deferred by Executive under any qualified plan, cafeteria plan
or deferred compensation plan maintained by the Company. In addition, under no
circumstances shall Executive's base salary and bonus for purposes of Section
7.1 include the value of any benefits provided to Executive under this Agreement
or any other plan or agreement other than base salary and bonus determined under
Section 3 hereof.
7.2 The Company shall use all reasonable efforts to transfer to Executive
ownership of the Shadow Glen Golf Club membership.
7.3 Any Company ISOs or NQSOs awarded to Executive pursuant to Section 5.1
of this Agreement that have not previously vested and become exercisable on the
Employment Termination Date shall become fully vested and exercisable on that
date. To the extent that the vesting of any ISO causes the ISO to become a NQSO
(such options are referred to herein as the "Disqualified Options" and do not
include ISOs that were exercised prior to acceleration and hence did not become
NQSOs), the Company will pay to Executive an amount that, after payment of taxes
by Executive, is equal to the "Lost ISO Value," as determined pursuant to
Section 7.4. The after-tax amount shall be calculated using the Executive's
effective tax rate applicable to such payment (based upon the combined federal
and state and local income, earnings, Medicare and any other tax rates
applicable to Executive, net of the reduction in federal income taxes which
could be obtained by deduction of such state and local taxes) (the "Tax Rate")
for the tax year in which payment occurs. Payment of the Lost ISO Value shall be
made within 60 days following acceleration.
7.4 The "Lost ISO Value" ("V") shall be determined by the formula V=(S x
T)-PV(S x FT), where: (a) S equals the difference between the per share exercise
price and the fair market value of the Company Stock (ignoring all options which
are "out of the money," in other words any excess of the exercise price over
fair market value shall not reduce S), multiplied by the number of shares
subject to the Disqualified Options; "fair market value," for this purpose,
means the mean of the high and low prices of the Company Stock on the Employment
Termination Date as reported on the principal market or transaction reporting
system through which trading of such securities is then made or reported (or on
the next preceding date on which the stock
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was traded if no trades are reported on such principal market or transaction
reporting system for the Employment Termination Date); (b) T equals the Tax Rate
for the tax year in which the Employment Termination Date occurs; (c) FT equals
the future income tax that would have been payable by Executive if (1) the
Disqualified Options were exercised as ISOs on the Employment Termination Date,
(2) the Company Stock received on exercise was held by Executive until
attainment of age 65 and then sold at a price equal to the fair market value of
the Company Stock on the Employment Termination Date, as determined above, and
(3) the tax laws and rates in effect on the Employment Termination Date were
effective for the tax year in which Executive attains age 65; and (d) PV means
the present value of (S x FT) as of the Employment Termination Date discounting
at 120% of the "applicable federal rate" on that date (within the meaning of
section 1274(d) of the Code). Attached hereto as Exhibit D is a sample of the
computation of "Lost ISO Value."
7.5 The Company will provide a benefit to Executive under the Consolidated
Omnibus Budget Reconciliation Act of 1986 ("COBRA") and section 4980B of the
Code, as follows: the Company shall pay for the maximum required period of
coverage under section 4980B(f)(2) of the Code the percentage of the cost of
COBRA coverage with respect to Executive's coverage status (e.g., individual or
family) in effect immediately prior to the Employment Termination Date, which
percentage shall be the fraction (expressed as a percentage), the numerator of
which shall be the difference between (a) the monthly cost of COBRA coverage for
Executive's coverage status in effect immediately prior to the Employment
Termination Date and (b) Executive's monthly contribution toward Executive's
coverage in effect immediately prior to your Employment Termination Date, and
the denominator of which shall be the monthly cost of COBRA coverage for
Executive's coverage status in effect immediately prior to Executive's
Employment Termination Date. All such amounts shall be determined as of the day
immediately preceding the termination of Executive's employment. The insurance
continuation benefits paid for hereunder shall be deemed to be part of
Executive's COBRA coverage. Such benefits shall be in addition to any other
benefits relating to health or medical care benefits that are available under
Company's policies to Executive following termination of employment.
Subject to restrictions under the terms of Company's then existing health and
welfare plans, Company shall continue to make available to Executive after
termination of employment with Company, until Executive attains the age of 65,
health and dental coverage to the same extent as such coverage is generally
available to full-time Company employees with the sole cost of such
participation (both the employer and employee portion of all premiums), to be
borne by Executive; provided that Company's obligation shall be to use
reasonable efforts to seek to obtain coverage the terms of which would cover
Executive within the meaning of this sentence (so long as the inclusion of
Executive does not make Company's cost for the plan uncompetitive with
alternative plans or have a material adverse effect on the taxation of benefits
provided to Company's employees under the plan).
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7.6 In the event that Executive becomes entitled to payments under this
Section 7, then if any of such payments or any other compensation, benefit or
other amount from the Company or PB for the benefit of Executive ("Parachute
Payments"), will be subject to the tax imposed by section 4999 of the Code
(including any applicable interest and penalties, the "Excise Tax"), no
Parachute Payment shall be reduced (except for required tax withholdings) and
the Company shall pay to Executive within 30 days of the date such Excise Tax
becomes payable, an additional amount (the "Gross-Up Payment") such that the net
amount retained by Executive, after deduction of any Excise Tax on the Parachute
Payments and taxes based upon the Tax Rate and Excise Tax upon the payment
provided for by this Section 7.6, shall be equal to the amount the Executive
would have received if no Excise Tax had been imposed. For purposes of
determining whether any of the Parachute Payments will be subject to the Excise
Tax and the amount of the Excise Tax, (a) any other payments, benefits or other
amounts received or to be received by Executive in connection with Executive's
termination of employment at any time from the Company or any entity at any time
affiliated with the Company (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company or any person
affiliated with the Company) shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Company and
acceptable to Executive such other payments or benefits (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code, (b) the amount of the Parachute
Payments which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (1) the total amount of the Parachute Payments or (2) the amount
of any excess parachute payments within the meaning of section 280G(b)(1) and
(4) (after applying clause (a), above, and after deducting any excess parachute
payments in respect of which payments have been made under this Section 7.6),
and (c) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company in accordance with the principles of section
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay taxes at the Tax Rate
applicable at the time of the Gross-Up Payment. In the event that the Excise Tax
is subsequently determined to be less than the amount taken into account
hereunder at the time of termination of Executive's employment, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided in
section 1274(d)(1) of the Code. In the event that the Excise Tax is determined
to exceed the amount taken into account hereunder at the time of termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable in respect of such excess) at the time that the
amount of such excess is finally determined.
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7.7 All payments made under this Section 7 shall be subject to all required
withholdings.
7.8 The severance benefits provided Executive under this Section 7 shall be
reduced by any severance benefits to which Executive is entitled under the
Company's severance benefits policies for terminated employees generally.
However, it is expressly agreed that payments or benefits to Executive under the
Company SERP or under any agreement with Executive relating to the Company SERP
or any other retirement, deferred compensation or pension arrangement shall not
be offset against or reduce in any way any payments or benefits to which
Executive is entitled under this Agreement.
7.9 Notwithstanding anything in this Agreement to the contrary, if any
portion of any payments to Executive by the Company under this Agreement and any
other present or future plan of the Company or other present or future agreement
between Executive and the Company would not be deductible by the Company for
federal income tax purposes by reason of application of section 162(m) of the
Code, then payment of that portion to Executive shall be deferred until the
earliest date upon which payment thereof can be made to Executive without being
non-deductible pursuant to section 162(m) of the Code. In the event of such
deferral, the Company shall pay interest to Executive on the deferred amount at
120% of the applicable federal rate provided for in section 1274(d)(1) of the
Code.
7.10 Executive shall be paid within 10 business days of Executive's
Employment Termination Date, a prorated bonus based on the number of days
elapsed in the fiscal year in which his employment terminates and such prorated
bonus shall be calculated assuming that the Company achieved its performance
objectives and the individual achieved his objectives used in calculating the
bonus award for Executive.
8. Death Benefits. If Executive is terminated under circumstances
entitling him to payments under Section 7 of this Agreement and thereafter dies
during the Continued Payment Period, the Company shall be obligated to pay to
Executive's spouse, if surviving, and otherwise to Executive's estate, the
amount to which Executive would have been entitled under Section 7 of this
Agreement had Executive survived.
9. Non-Competition. During Executive's employment and, if applicable,
during the Continued Payment Period, Executive agrees that he will not directly
or indirectly compete with the Company or PB, or engage in, or act as an
officer, director, employee or agent of any person or entity that is engaged in
(or intends to enter into at such time) any business in which the Company or PB
is engaged as of the Employment Termination Date, without the written approval
of the CEO of the Company. The foregoing shall not prohibit Executive from
investing in any securities of a corporation whose securities, or any of them,
are listed on a national securities exchange or traded
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in the over-the-counter market so long as Executive shall own less than 3% of
the outstanding voting securities of such corporation.
10. Confidentiality. During Executive's employment and at all times
thereafter, Executive agrees that he will not divulge to anyone or use for
Executive's own benefit or the benefit of any other person or entity any
information concerning the Company, its businesses, operations, finances,
products, plans, employees, or otherwise, including, without limitation, trade
secrets and other proprietary information, except for information that has been
published by or with the consent of the Company and is as a result thereof
generally available to the public, or information reasonably required by
Executive for the preparation of personal tax returns. The foregoing
restrictions shall not be applicable to any information that is or becomes part
of the public domain other than as a result of disclosure by Executive.
11. No Obligation to Mitigate. Executive shall not be required to mitigate
the damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided under this Agreement be reduced by any compensation earned by Executive
as the result of employment by another employer after the Employment Termination
Date, or otherwise.
12. Other Rights. Except as specifically provided herein, the provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish Executive's existing rights or
rights which would accrue solely as a result of the passage of time, under any
benefit or incentive plan, employment arrangement or other contract, plan or
arrangement of the Company. As soon as practicable following the Employment
Termination Date, Executive shall receive cash payment(s) for: (a) the value of
Executive's earned but unused vacation time as of the Employment Termination
Date in accordance with then current Company policy, and (b) the value of
Executive's deferred compensation account(s) under any Company or PB deferred
compensation plan in accordance with Executive's then current payment election.
13. Release and Termination of Rights. As of the Effective Date, the PB
Agreements and Benefits shall terminate. Executive and his representatives,
heirs, successors, and assigns do hereby completely release and forever
discharge Company, any affiliate, and its and their present and former
shareholders, officers, directors, agents, employees, attorneys, successors, and
assigns (collectively, "Released Parties") from all claims, rights, demands,
actions, obligations, liabilities and causes of action of every kind and
character, known or unknown, mature or unmatured, which Executive may now have
or has ever had, whether based on tort, contract (express or implied) or any
federal, state or local law, statute or regulation, relating in any manner
whatsoever to the PB Agreements and Benefits or his employment by PB
(collectively, the "Released Claims"). Notwithstanding the foregoing, Released
Claims shall not include amounts payable to Executive pursuant to PB Agreements
and Benefits relating to (i) out-of-pocket expenses incurred in connection with
the business
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of PB, (ii) wages and salary earned, and (iii) other items as described in
Exhibit E hereto, in each case only to the extent that such amounts are accrued
but unpaid prior to the Effective Date.
14. Successors. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by way of reorganization, merger, acquisition or
consolidation, and any assignee of all or substantially all of its business and
properties.
15. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by Executive and by a duly
authorized representative of the Company other than Executive. By an instrument
in writing similarly executed, either party may waive compliance by the other
party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall operate as a waiver thereof or as a waiver of any other
right, remedy or power, nor shall any single or partial exercise of any right,
remedy or power hereunder preclude any other or further exercise of any other
right, remedy, or other power provided herein or by law or in equity.
16. Miscellaneous.
16.1 No Assignment. No benefit hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt to do so shall be void.
16.2 Notices. All notices hereunder shall be in writing, and shall be
delivered in person, by facsimile or by certified mail-return receipt requested.
Notices shall be delivered as follows:
If to the Company or PB:
c/o Nellcor Incorporated
4280 Hacienda Drive
Pleasanton, CA 94288
Attention: Laureen DeBuono, Esq.
Executive Vice President
Human Resources, General
Counsel and Corporate
Secretary
Tel: (510) 463-4214
Fax: (510) 463-4218
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If to the Employee:
John H. Morrow
10231 Catalina
Overland Park, Kansas 66207
Any party may change its address by notice giving notice to the other party of
a new address in accordance with the foregoing provisions.
16.3 Governing Law. This Agreement shall be governed by the laws of the
State where Executive's principal office with the Company is located at the time
a dispute hereunder shall arise.
16.4 Arbitration.
(a) All disputes between Executive (and his attorneys, successors and
assigns) and Company (and its affiliates, shareholders, directors, officers,
employees, agents, successors, attorneys and assigns) relating in any manner
whatsoever to the employment or termination of Executive, including, without
limitation, all disputes arising under this Agreement ("Arbitrable Claims")
shall be resolved by arbitration. All persons and entities specified in the
preceding sentence (other than Company and Executive) shall be considered
third-party beneficiaries of the rights and obligations created by this
Section on Arbitration. Arbitrable Claims shall include, but are not limited
to, contract (express or implied) and tort claims of all kinds, as well as
all claims based on any federal, state or local law, statute or regulation,
excepting only claims under applicable workers' compensation law and
unemployment insurance claims. By way of example and not in limitation of
the foregoing, Arbitrable Claims shall include any claims arising under
Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, as well as any claims
asserting wrongful termination, breach of contract, breach of the covenant
of good faith and fair dealing, negligent or intentional infliction of
emotional distress, negligent or intentional misrepresentation, negligent or
intentional interference with contract or prospective economic advantage,
defamation, invasion of privacy and claims related to disability.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY
RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement.
The burden of proof in any arbitration shall be allocated as provided by
applicable law, unless otherwise specified in this Agreement. Either party
may bring an action in court to compel arbitration under this Agreement and
to enforce an
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arbitration award. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. All arbitration hearings under this Agreement shall be
conducted in San Francisco, California. The Federal Arbitration Act shall
govern the interpretation and enforcement of this Section 16.4.
(c) All disputes involving Arbitrable Claims shall be decided by a
single arbitrator. The arbitrator shall be selected by mutual agreement of
the parties within thirty (30) days of the effective date of the notice
initiating the arbitration. If the parties cannot agree on an arbitrator,
then the complaining party shall notify the AAA and request selection of an
arbitrator in accordance with the AAA Employment Rules. The arbitrator shall
have authority to award equitable relief, damages, costs, and fees to the
same extent as a court would be permitted by law for the particular claim(s)
asserted. The fees of the arbitrator shall be split between both parties
equally. The arbitrator shall have exclusive authority to resolve all
Arbitrable Claims, including, but not limited to, any claim that all or any
part of this Agreement is void or enforceable and any dispute regarding
whether particular claims are arbitrable.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by
law, the subject matter thereof shall not be disclosed to any person other
than the parties to the proceedings, their counsel, witnesses and experts,
the arbitrator, and, if involved, the court and court staff. All documents
filed with the arbitrator or with a court shall be filed under seal. The
parties shall stipulate to all arbitration and court orders necessary to
effectuate fully the provisions of this subsection concerning
confidentiality.
(d) The rights and obligations of Executive and Company set forth in
this Section 16.4 on Arbitration shall survive the termination of
Executive's employment and the termination of this Agreement.
16.5 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction, arbitrator or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in force
and effect and shall in no way be affected, impaired or invalidated. It is the
intention of the parties that the provisions of Section 9 of this Agreement
shall be enforced to the greatest extent (but to no greater extent) in time,
area, and degree of participation as is permitted by the law of that
jurisdiction whose law is found to be applicable to any acts allegedly in breach
of Section 9. It being the purpose of this Agreement to govern competition by
Executive anywhere throughout the world, Section 9 shall be governed by and
construed according to that law (from among those jurisdictions whose law is
arguably applicable to this Agreement and those in which a breach of Section 9
is alleged to have occurred or to be threatened) which best gives effect to
Section 9 of this Agreement.
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16.6 Consultation with Counsel. Executive acknowledges (a) that he has been
given the opportunity to consult with counsel of his own choice concerning this
Agreement, and (b) that he has read and understands the Agreement, is fully
aware of its legal effect, and has entered into it freely based upon his own
judgment with or without the advice of such counsel
16.7 Descriptive Headings. Descriptive headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
16.8 Integration. The parties understand and agree that the preceding
Sections recite the sole consideration for this Agreement; that no
representation or promise has been made by Company or Executive concerning the
subject matter of this Agreement, except as expressly set forth in this
Agreement; and that all agreements and understandings between the parties
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concerning the subject matter of this Agreement are embodied and expressed in
this Agreement. This Agreement shall supersede all prior agreements and
understandings among the parties whether written or oral, express or
implied, with respect to the employment, termination and benefits of
Employee, including without limitation, any employment-related agreement or
benefit plan, except to the extent that the provisions of any such agreement
or plan have been expressly referred to in this Agreement as having
continued effect.
16.9 Attorney's Fees. In the event of a breach by PB or Company,
Company shall pay Executive's attorney's fees and costs.
Nellcor Incorporated
By:
Name:
------------------------
Title:
------------------------
Puritan-Bennett Corporation
By:
Name:
------------------------
Title:
------------------------
Executive
---
John H. Morrow
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Exhibit B
The amount of the loan shall be up to that amount required in order for
Executive to pay his state and federal income taxes associated with the
acceleration of his shares of unvested restricted stock less the amount of
accrued vacation (after applicable withholdings) paid to Executive in accordance
with Section 4.7 of his Employment Agreement. The principal loan shall be repaid
by Executive in three equal installments on those dates that his shares of
unvested restricted stock would have vested but for the accelerated vesting that
occurred as a result of the Merger. The loan shall bear interest at the
applicable federal rate (as defined in the Code) for a three year loan and such
interest shall be paid on each principal repayment installment date.
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Exhibit C
Unused Vacation
320.72 hours of unused vacation at $132.22 per hour
equals $42,405.60
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Exhibit D
Lost ISO Value Calculations
Assume that Executive has 10,000 ISOs with an exercise price of $20 per
share which are accelerated on termination of employment, and that no other ISOs
first become exercisable in the year of termination. Assume, further, that (1)
the fair market value of Nellcor-PB stock on the Employment Termination Date is
$40, (2) Executive has attained age 60 on the Employment Termination Date, (3)
the Tax Rate is 50%, (4) 120% of the applicable federal rate for obligations
with a maturity of 5 years is 7.5%, (5) under the tax law in effect on the
Employment Termination Date, ISO stock held for more than one year and then sold
would qualify for capital gain treatment, with an applicable tax rate of 40%
(rather than 50% applicable to disqualifying dispositions).
As a result of acceleration, options first exercisable in a year in
excess of $100,000 (based upon the stock price at the date of grant) are
disqualified. Thus, 5,000 of Executive's ISOs are "Disqualified Options." The
Lost ISO Value of such options is calculated as follows:
S = $20 ($40 - $20)
T = .50
FT = .40
V = 5,000[$20 x .5] - 5,000PV[$20 x .4]
V = $50,000 - 5,000PV[$8]
PV$8 receivable in 5 years discounted at 7.5% per annum = $5.57
V = $50,000 -(5,000 x $5.57)
V = $50,000 - $27,850
V = $22,150
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Exhibit E
Claims under medical plans included in PB Agreements and Benefits in which
Executive and his family participate, for services rendered prior to the
Effective Date.
All fringe benefits earned by Executive prior to the Effective Time for services
rendered prior to the Effective Time if such fringe benefits have not previously
been paid or provided for the benefit of Executive.
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EXHIBIT 10.18
PURITAN-BENNETT CORPORATION
NELLCOR MERGER INCENTIVE PLAN
1. PURPOSE OF THE PLAN
The Puritan-Bennett Corporation Nellcor Merger Incentive Plan (the
"Plan") has been adopted in connection with the merger (the "Merger") of Puma
Merger Corporation ("Sub"), a Delaware corporation and wholly owned subsidiary
of Nellcor Incorporated ("Nellcor"), with and into Puritan-Bennett Corporation,
a Delaware corporation ("P-B"), pursuant to which P-B became a wholly-owned
subsidiary of Nellcor as provided in the Agreement and Plan of Merger among
Nellcor, P-B and Sub dated as of May 21, 1995, as amended (the "Agreement and
Plan of Merger"). The purpose of the Plan is to provide for payment of incentive
compensation payments to certain P-B employees who remain employed by either
Nellcor or P-B after the Merger.
2. ADMINISTRATION OF THE PLAN
A. Board of Directors
The Plan shall be administered by the Board of Directors of P-B under
the supervision of Nellcor with all actions, interpretations under the Plan to
be made by the Board of Directors only with the approval of Nellcor.
B. Authority of the Board of Directors
Subject to the approval rights of Nellcor, the Board of Directors shall
have plenary authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan and to make all other determinations
deemed necessary or advisable in administering the Plan. All decisions,
determinations and interpretations of the Board of Directors that are approved
by Nellcor shall be conclusive and binding on all participants.
3. ELIGIBILITY AND TERMS AND CONDITIONS
A. Eligibility
All persons who were participating in P-B's Management Incentive Compensation
Plan A and Plan B for Fiscal Year 1996 as of April 30, 1995 and who remain
actively employed by P-B as of August 25, 1995 are eligible to participate in
the Plan. A listing of such participants is attached as Annex 1 hereto.
B. Vesting of Incentive Payment Awards
Participants shall be entitled to receive a lump sum payment (the "Incentive
Payment") in the amount determined as hereinafter provided upon the occurrence
of either of the following: (i) if such participant is terminated by P-B or
Nellcor other than for Cause (Cause shall mean
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(A) substantial and material violation by such individual of the policies of
Nellcor or P-B, which violations are not corrected within 30 days after written
notice to the individual, or (B) material misconduct by such individual), on or
prior to February 1, 1996 (the "Vesting Date"), or (ii) if such participant
remains employed by P-B or Nellcor on the Vesting Date.
C. Determination of Incentive Payment Amounts
Unless otherwise agreed to in writing by Nellcor, the Incentive Payment amount
for each participant shall be based upon the performance targets previously used
for such participant under P-B's Management Incentive Compensation Plan A and
Plan B for Fiscal Year 1996, as the case may be, as in effect as of April 30,
1995 except that (i) there shall be no $2.00 per share earnings minimum, and
(ii) Incentive Payments will be based upon P-B's results of operation for P-B's
1996 fiscal year through August 25, 1995 as herein provided.
Incentive Payments will be prorated based upon a partial year as follows: (a)
any award shall be prorated against the amount of full year awards by a factor
of 56.44% which has been calculated based upon the number of days that have
elapsed in P-B's fiscal year prior to the Merger (i.e., 206/365) and (b) the
calculation of ROA under the plan will be based upon P-B's results of operations
for the first six months of operation in fiscal 1996 through July 31, 1995, as
confirmed by Burton A. Dole, Jr. in consultation with Nellcor's CEO.
Accounting changes required under Section 7.13 of the Agreement and Plan of
Merger will not be included in any calculation of ROA under the plan. ROA will
be calculated in accordance with past practices under P-B's Management Incentive
Compensation Plan A and Plan B.
For individuals whose awards depend upon objectives related to quality or
regulatory compliance related business improvement objectives or any other
subjective appraisal under P-B's Management Incentive Compensation Plan A and
Plan B for Fiscal Year 1996, the amount of Incentive Payments will be determined
by Burton A. Dole, Jr. (with input from other officers of P-B in accordance with
past practice under P-B's Management Incentive Compensation) in consultation
with Nellcor's CEO, applying the same principles for prorating the award amount
based upon a partial year as outlined herein. All such awards remain subject to
vesting requirements as provided elsewhere herein.
Subject to the specific terms of the Plan, awards under the Plan will otherwise
be determined on a basis consistent with past practice under P-B's Management
Incentive Compensation Plan A and Plan B.
D. Nontransferability
No Incentive Payment shall be transferable otherwise than by will or
the laws of descent and distribution.
E. Payment
All Incentive Payments shall be paid within 30 days of the Vesting
Date.
F. Tax Withholding
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All Incentive Payments under the Plan shall be subject to reduction for
any applicable withholding.
4. NO EMPLOYMENT RIGHTS
Nothing in the Plan or any action taken pursuant to the Plan shall
confer on any individual any right to be or to continue in the employ of
Nellcor, P-B or any of their respective Affiliates or shall interfere in any way
with the right of Nellcor, P-B or any of their respective Affiliates to
terminate the employment of any individual at any time.
5. AMENDMENT
Upon the approval of Nellcor, the Board of Directors of P-B shall have
complete power and authority to amend the Plan; provided, however, that no
amendment of the Plan may, without the consent of any participant under the
Plan, adversely affect the rights of such participant.
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EXHIBIT 10.19
PURITAN-BENNETT CORPORATION
RETENTION COMPENSATION PLAN
1. PURPOSE OF THE PLAN
The Puritan-Bennett Corporation Retention Compensation Plan (the
"Plan") has been adopted in connection with the merger (the "Merger") of Puma
Merger Corporation, a Delaware corporation and wholly owned subsidiary of
Nellcor Incorporated ("Nellcor"), with and into Puritan-Bennett Corporation, a
Delaware corporation ("P-B"), pursuant to which P-B became a wholly-owned
subsidiary of Nellcor. The purpose of the Plan is to provide for retention
compensation payments to certain P-B employees who remain employed by either
Nellcor or P-B after the Merger.
2. ADMINISTRATION OF THE PLAN
A. Board of Directors
The Plan shall be administered by the Board of Directors of P-B under
the supervision of Nellcor with all actions, interpretations under the Plan to
be made by the Board of Directors only with the approval of Nellcor.
B. Authority of the Board of Directors
Subject to the approval rights of Nellcor, the Board of Directors shall
have plenary authority to interpret the Plan, to prescribe, amend and rescind
rules and regulations relating to the Plan and to make all other determinations
deemed necessary or advisable in administering the Plan. All decisions,
determinations and interpretations of the Board of Directors that are appoved by
Nellcor shall be conclusive and binding on all participants.
3. ELIGIBILITY AND TERMS AND CONDITIONS
A. Eligibility; Payment Conditions
Each of the following individuals shall be entitled to receive a lump sum
payment (the "Retention Payment") in the amount indicated next to his or her
name upon the occurrence of either of the following: (i) if such individual is
terminated by P-B or Nellcor other than for Cause (Cause shall mean (A)
substantial and material violation by such individual of the policies of
Nellcor, which violations are not corrected within 30 days after written notice
to the individual, or (B) material misconduct by such individual), on or prior
to August 26, 1996 (the "Anniversary Date"), or (ii) if such individual remains
employed by P-B or Nellcor on the Anniversary Date.
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B. Nontransferability
No Retention Payment shall be transferable otherwise than by will or
the laws of descent and distribution.
C. Payment
The Retention Payment shall be paid within 10 days of the date on which
the individual becomes entitled to receive it in accordance with Paragraph 3(A)
above.
D. Tax Withholding
All Retention Payments under the Plan shall be subject to reduction for
any applicable withholding.
4. NO EMPLOYMENT RIGHTS
Nothing in the Plan or any action taken pursuant to the Plan shall
confer on any individual any right to be or to continue in the employ of
Nellcor, P-B or any of their respective Affiliates or shall interfere in any way
with the right of Nellcor, P-B or any of their respective Affiliates to
terminate the employment of any individual at any time.
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5. AMENDMENT
Upon the approval of Nellcor, the Board of Directors of P-B shall have
complete power and authority to amend the Plan; provided, however, that no
amendment of the Plan may, without the consent of any participant under the
Plan, adversely affect the rights of such participant.
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EXHIBIT 10.20
PROMISSORY NOTE SECURED BY DEED OF TRUST
FOR VALUE RECEIVED, Kenneth Sumner and Linda Sumner (collectively,
"Maker") promise to pay to Nellcor Incorporated, a Delaware corporation
("Holder"), or order, at 4280 Hacienda Drive Pleasanton, California, or any
other place designated by Holder, the principal sum of ONE HUNDRED TWENTY FIVE
THOUSAND DOLLARS ($125,000) plus interest according to the terms contained in
this Note.
Interest only at the annual rate of 7.55% (the "Note Rate") on the
principal sum of this Note, shall be due and payable in arrears in semi-annual
installments on or before May 16 and November 16 of each year. All payments
shall be applied first to interest on the principal balance of the Note, and any
balance shall be applied to reduction of principal, and interest shall
thereafter cease to accrue on the principal so paid. The entire principal
outstanding together with all accrued and unpaid interest shall be due and
payable on the Maturity Date.
"Maturity Date" shall mean the date on which this Note shall be due and
payable in full, and shall be the earlier of (i) the sale of the residence of
Maker, which property is encumbered by a Deed of Trust securing this Note and is
located at 18 Rima Court, Danville, California 94526 (ii) the resignation or
termination of Maker's employment with Holder, or (iii) November 16, 2004.
MAKER HEREBY ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL BALANCE
OF THIS NOTE MAY BE UNPAID AND SHALL BE DUE AND PAYABLE ON THE MATURITY DATE.
This Note may be prepaid at any time, in whole or in part, without any
prepayment penalty. Maker waives diligence, presentment and demand, notice of
protest, and demand, of nonpayment, of dishonor and of maturity and agrees that
time is of the essence of every provision hereof.
Anything herein to the contrary notwithstanding, the obligations of
Maker under this Note shall be subject to the limitation that payments of
interest shall not be required to the extent that payment hereof would be
contrary to applicable provisions of law limiting rates of interest which may be
charged or collected by Holder.
This Note may not be amended or modified orally in any manner. This
Note may be amended or modified only by a writing duly executed by Maker and
Holder. No provision of this Note may be waived by Holder, except in writing
executed by Holder, and which expressly refers to this Note. No such express
written waiver shall affect any other provision of this Note, or cover any
default or time period or event, other than the matter as to which an express
written waiver has been given hereunder, as specified in such written waiver.
Maker agrees to pay all costs of collection when incurred, including
but not limited to reasonable attorneys' fees. If any suit or action is
instituted to enforce this Note, Maker promises to pay, in addition to the costs
and disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action. Maker agrees to pay any
additional attorneys' fees incurred in enforcing any such judgment, separately
from and in addition to any other attorneys' fees herein.
This Note will be governed by California law.
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This Note is secured by a Deed of Trust of even date herewith, executed
by Maker in favor of Holder.
IN WITNESS WHEREOF, Maker has executed this Note as of November 16,
1994.
-------------------------
Kenneth Sumner
-------------------------
Linda Sumner
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EXHIBIT 10.21
PROMISSORY NOTE SECURED BY DEED OF TRUST
FOR VALUE RECEIVED, Russell D. Hays and Barbara Hays(collectively,
"Maker") promise to pay to Nellcor Puritan Bennett Incorporated, a Delaware
corporation ("Holder"), or order, at 4280 Hacienda Drive Pleasanton, California,
or any other place designated by Holder, the principal sum of THREE HUNDRED AND
FIFTY THOUSAND DOLLARS ($350,000) plus interest according to the terms contained
in this Note.
Interest only at the annual rate of 6.56% (the "Note Rate") on the
principal sum of this Note, shall be due and payable in arrears in semi-annual
installments on or before August __ and February __ of each year. All payments
shall be applied first to interest on the principal balance of the Note, and any
balance shall be applied to reduction of principal, and interest shall
thereafter cease to accrue on the principal so paid. The entire principal
outstanding together with all accrued and unpaid interest shall be due and
payable on the Maturity Date.
"Maturity Date" shall mean the date on which this Note shall be due and
payable in full, and shall be the earlier of (i) the sale of the residence of
Maker, which property is encumbered by a Deed of Trust securing this Note and is
located at _____ [address of property], California [zip] (ii) the resignation or
termination of Maker's employment with Holder, or (iii) August --, 2005.
MAKER HEREBY ACKNOWLEDGES AND AGREES THAT THE ENTIRE PRINCIPAL BALANCE
OF THIS NOTE MAY BE UNPAID AND SHALL BE DUE AND PAYABLE ON THE MATURITY DATE.
This Note may be prepaid at any time, in whole or in part, without any
prepayment penalty. Maker waives diligence, presentment and demand, notice of
protest, and demand, of nonpayment, of dishonor and of maturity and agrees that
time is of the essence of every provision hereof.
Anything herein to the contrary notwithstanding, the obligations of
Maker under this Note shall be subject to the limitation that payments of
interest shall not be required to the extent that payment hereof would be
contrary to applicable provisions of law limiting rates of interest which may be
charged or collected by Holder.
This Note may not be amended or modified orally in any manner. This
Note may be amended or modified only by a writing duly executed by Maker and
Holder. No provision of this Note may be waived by Holder, except in writing
executed by Holder, and which expressly refers to this Note. No such express
written waiver shall affect any other provision of this Note, or cover any
default or time period or event, other than the matter as to which an express
written waiver has been given hereunder, as specified in such written waiver.
Maker agrees to pay all costs of collection when incurred, including
but not limited to reasonable attorneys' fees. If any suit or action is
instituted to enforce this Note, Maker promises to pay, in addition to the costs
and disbursements otherwise allowed by law, such sum as the court may adjudge
reasonable attorneys' fees in such suit or action. Maker agrees to pay any
additional attorneys' fees incurred in enforcing any such judgment, separately
from and in addition to any other attorneys' fees herein.
This Note will be governed by California law.
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This Note is secured by a Deed of Trust of even date herewith, executed
by Maker in favor of Holder.
IN WITNESS WHEREOF, Maker has executed this Note as of October 15,
1995.
-------------------------
Russell D. Hays
-------------------------
Barbara Hays
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EXHIBIT 10.27
JOHN H. MORROW
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
NELLCOR INCORPORATED (the "Corporation") hereby establishes the John H.
Morrow Retirement Benefit Plan (the "Plan") for the benefit of John H. Morrow
(the "Executive").
Section 1. PURPOSE
The purpose of this Plan is to provide, through an unfunded,
nonqualified arrangement, supplemental retirement benefits to the Executive as
an incentive to attract and retain his services.
Section 2. DEFINITIONS
As used herein, the following words and phrases shall have the meanings
specified below unless a different meaning is clearly required by the context:
Section 2.01. Average Monthly Compensation. "Average Monthly Compensation"
means one-sixtieth (1/60) of the Executive's total Compensation for the five (5)
consecutive Plan Years during which he received the largest total amount of
Compensation and which will result in the highest such monthly amount. If the
Executive has been an employee for less than five (5) consecutive Plan Years,
but at least one full Plan Year, "Average Monthly Compensation" means his
Compensation for all full Plan Years, divided by the total number of months
within such full Plan Years. If the Executive has been an employee for less than
one full Plan Year, "Average Monthly Compensation" means his Compensation for
the period of employment divided by the number of full and fraction months of
employment.
Section 2.02. Beneficiary. "Beneficiary" shall have the meaning provided in
the Qualified Plan.
Section 2.03. Board of Directors. "Board of Directors" means the Board of
Directors of the Corporation.
Section 2.04. Committee. "Committee" means the Compensation Committee of the
Board of Directors of the Corporation which shall administer this Plan or such
other committee as may be appointed to administer the Plan.
Section 2.05. Compensation. "Compensation" means, for a Plan Year or other
period, (i) all salary and cash bonuses received by the Executive from the
Employer and (ii) any salary or cash bonuses deferred by the Executive pursuant
to either the Corporation's deferred compensation plan, a qualified cash or
deferred arrangement under Section 401(k) of the Code, or a plan qualified under
Section 125. The term "Compensation" does not include any other form of
compensation, including but not limited to any amounts paid from any severance
pay plan, any deferred compensation plan or any other plan, from the Employer,
whether or not constituting "wages" for purposes of Section 3401(a) of the Code.
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Section 2.06. Death Benefit. "Death Benefit" means any benefit paid to a
Beneficiary upon the death of the Executive as provided under the terms of this
Plan.
Section 2.07. Disability or Disabled. "Disability" or "Disabled" means
eligibility for disability benefits under the terms of the Corporation's
Long-Term Disability Plan in effect at the time the Executive becomes disabled.
In the event such a plan does not exist, disability shall be determined using
the definition under the Corporation's last effective Long-Term Disability Plan.
Section 2.08. Employer. "Employer" means the Corporation, its successors and
assigns, or the subsidiary by which the Executive is employed, and any
organization into which the Employer may be merged or consolidated or to which
substantially all of its assets may be transferred.
Section 2.09. Employment Contract. "Employment Contract" means the
Employment Contract between the Corporation, Puritan-Bennett Corporation ("PB")
and the Executive dated August 25, 1995, and any amendments thereto.
Section 2.10. Plan Year. "Plan Year" means each twelve (12) month period
ending on an anniversary of the Executive's first day of employment with the
Corporation.
Section 2.11. Supplemental Monthly Retirement Benefits. "Supplemental
Monthly Retirement Benefits" means a monthly income due the Executive hereunder.
Section 2.12. Qualified Plan. "Qualified Plan" means the PB Pension Plan
(Restated effective January 1, 1989), as amended from time to time.
Section 2.13. Spouse. "Spouse" means the legal wife of the Executive at the
Executive's date of death.
Section 3. RETIREMENT BENEFITS
Section 3.01. Supplemental Monthly Retirement Benefit. If the Executive
terminates employment with the Employer after attaining age fifty-five (55), he
shall be entitled to a Supplemental Monthly Retirement Benefit. Such
Supplemental Monthly Retirement Benefit, payable in the form of a single life
annuity (the "Normal Form"), shall be an amount equal to sixty percent (60%) of
the Executive's Average Monthly Compensation, reduced by an amount computed
under Section 3.01(a). The amount resulting from the application of Section
3.01(a) shall then be adjusted as provided in Section 3.01(b).
Section 3.01(a). The amount payable shall be reduced by one hundred percent
(100%) of the monthly income or benefit to the extent such income or benefit is
payable or could be payable to the Executive (as if paid in the form of a single
life annuity commencing as of the Executive's Benefit Commencement Date) under
either (A) the Qualified Plan, (B) any annuity contract distributable in
connection with the termination of the Qualified Plan (regardless of the method
of distribution selected by Executive), (C) the PB Supplemental Retirement Plan,
or (D) the PB Make Up Plan.
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Section 3.01(b). The Executive's Supplemental Monthly Retirement Benefit (as
adjusted by Section 3.01(a)) shall be reduced or increased based upon age at
time of termination, in accordance with the following table:
<TABLE>
<CAPTION>
Amount of Supplemental
Monthly Retirement
Benefit (as adjusted by
Age at Termination Sections 3.01(a))
of Employment To Which Executive Entitled
- ------------------ ---------------------------
<S> <C>
Less than 55 0
55 50%
60 75%
65 100%
70 125%
</TABLE>
In the event the Executive's age at termination of employment is within
a five-year bracket, the percentage adjustment to the Supplemental Monthly
Retirement Benefit shall be calculated by interpolation on a straight-line
basis.
Section 3.02. Time of Commencement of Supplemental Monthly Retirement
Benefit. Payment of the Supplemental Monthly Retirement Benefit to which the
Executive is entitled pursuant to Section 3.01 shall commence as of the first
day of the calendar month coinciding with or next following the termination of
the Executive's employment (the "Benefit Commencement Date"). However, actual
payment of such Supplemental Monthly Retirement Benefit, in the Normal Form or
other form provided in Section 3.03, shall be subject to the following. If the
Executive has elected the form of payment of his Supplemental Monthly Retirement
Benefit pursuant to Section 3.03 during a calendar year (a "Preceding Year")
preceding the calendar year during which his termination of employment occurs
(the "Termination Year"), then actual payment of his Supplemental Monthly
Retirement Benefit shall commence on or as soon as practical following his
Benefit Commencement Date. If the Executive did not make an election pursuant to
Section 3.03 during a Preceding Year, but makes such an election during the
Termination Year, actual payment of his Supplemental Monthly Retirement Benefit
shall commence on the first day of the next following calendar year (the
"Succeeding Year"). If the Executive does not make an election pursuant to
Section 3.03 during either a Preceding Year or the Termination Year, then the
Executive shall be deemed to have elected to receive payment in the Normal Form
single life annuity commencing on the first day of the Succeeding Year.
Notwithstanding the foregoing, any time actual payment of the Executive's
Supplemental Monthly Retirement Benefit does not commence on his Benefit
Commencement Date, then the first payment made shall include all payments that
would have been made on or before such actual commencement date if actual
payment had commenced on the Benefit Commencement Date, together with interest
on all deferred payments (from the date when each such payment would have been
made if actual payment had commenced on the Benefit Commencement Date) at the
Most Applicable Treasury Security Rate compounded annually. The "Most Applicable
Treasury Security Rate" shall be the yield-to-maturity of the Treasury Bill with
a remaining term equal to one-half of the
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period beginning on the Benefit Commencement Date and ending on the date when
payments actually commence, as quoted in the edition of the Wall Street Journal
first published after the Benefit Commencement Date.
Section 3.03. Form of Payment of Supplemental Monthly Retirement Benefits.
The "Normal Form" of payment of the Executive's Supplemental Monthly Retirement
Benefit, and the form on which the amount of such Supplemental Monthly
Retirement Benefit is calculated pursuant to Section 3.01, shall be a single
life annuity payable for the Executive's life only commencing as of his Benefit
Commencement Date. The Executive, however, may elect in writing, filed with the
Committee prior to the end of the Termination Year, to receive payment of his
Supplemental Monthly Retirement Benefit in one of the following optional forms,
each of which will be the "Actuarial Equivalent" (which term shall have the
meaning provided in the Qualified Plan as of the Executive's Benefit
Commencement Date, or in the event the Qualified Plan is terminated, as of the
termination of the Qualified Plan) of the Normal Form single life annuity.
(a) Ten-Year Certain and Continuous Option. Pursuant to this option,
the Executive's Supplemental Monthly Retirement Benefit shall be payable during
the Executive's life only; provided that if the Executive dies within ten years
after his Benefit Commencement Date, payments in the same amount will continue
to be made to the Executive's Beneficiary until a total of 120 monthly payments
have been made.
(b) Early Retirement Level Income Option. Pursuant to this option, the
Executive's Supplemental Monthly Retirement Benefit payments will be made during
the Executive's life only. Larger payments shall be made until the first day
when the Executive is eligible to receive Social Security benefits (age 62). At
that time, payments to the Executive shall be reduced by the amount of the
Executive's Social Security benefit that was estimated as part of the
determination of all payments to be made under this Section 3.03(b). No payments
shall be made after the Executive's death.
(c) 50%, 75%, and 100% Contingent Annuitant Option. Pursuant to this
option, the Executive's Supplemental Monthly Retirement Benefit payments shall
be made during the life of the Executive, with payments continuing to the
Executive's designated contingent annuitant ("Contingent Annuitant") for the
life of such Contingent Annuitant following the Executive's death. The
Contingent Annuitant and the percentage to be paid to such Contingent Annuitant
must be designated by the Executive at the time when this payment form is
elected. If the Contingent Annuitant predeceases the Executive, no benefits
shall be paid after the Executive's death. The amount paid to the Executive's
Contingent Annuitant shall be 50%, 75%, or 100% of the amount received by the
Executive during the Executive's life.
Section 3.04. Exceptions for Certain Terminations of Employment.
Notwithstanding the foregoing provisions of this Section 3 or any other
provision(s) of this Plan, in the event of the termination of employment of the
Executive for Good Reason (if initiated by the Executive), and/or other than for
Cause (if initiated by the Corporation), then (a) even if the Executive has not
at the date of termination of employment attained age fifty-five (55), he shall
nevertheless be entitled to the Supplemental Monthly Retirement Benefit provided
under Section 3.01 hereof; (b) the Executive shall be deemed to have been age
sixty-five (65) (unless his actual age shall be greater) at the date of
termination of employment so as to be entitled to 100% of
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the Supplemental Monthly Retirement Benefit (as adjusted by Section 3.01(a))
pursuant to Section 3.01(b); (c) the Benefit Commencement Date under Section
3.02 shall be the first day of the calendar month coinciding with or next
following the later of the date the Executive attains age 55 or the date of his
termination of employment for Good Reason or other than for Cause; provided,
however, that in no event shall the Benefit Commencement Date be prior to the
date all severance payments have been made pursuant to the Employment Contract;
and (d) for purposes of Sections 2.01 and 2.05, the Executive shall be deemed to
be employed for the full Plan Year in which he terminates employment, and the
Executive's Compensation for the year of termination of employment shall be
deemed to be equal to the Compensation the Executive would have earned had he
remained employed for the entire year and met any individual performance goals,
but based on the Company's actual performance.
For the purposes of this Section 3.04, the terms "Cause" and "Good
Reason" shall have the meanings set forth in the Employment Contract.
Section 4. DEATH BENEFITS
Section 4.01. Death Before Commencement of Benefits. In the event the
Executive dies or becomes Disabled prior to his Benefit Commencement Date and
has a surviving Spouse, then his surviving Spouse shall be entitled to a Death
Benefit in the form of a monthly annuity payable for the life of the Spouse
only. The monthly Death Benefit shall be an amount equal to 50% of the annuity
amount that would have been payable to the Executive during his life if he had
survived, terminated employment at the later of age fifty-five (55) or the date
of his death, elected immediate payment in the form of a 50% contingent annuity
pursuant to Section 3.03(c), and designated his Spouse as the Contingent
Annuitant. If the Executive had not attained age fifty-five (55) at the time of
his death, payment of the Death Benefit hereunder to his surviving Spouse will
not commence until the date that the deceased Executive would have attained age
fifty-five (55), and no Death Benefit shall be payable in the event his
surviving Spouse dies before such date. No Death Benefit will be paid hereunder
if the Executive dies before his Benefit Commencement Date and is not then
married.
Section 4.02. Death After Commencement of Benefits. If the Executive dies
after his Benefit Commencement Date, the Executive's Beneficiary shall be
entitled to receive, in a single lump sum, a Special Death Benefit in an amount
equal to twelve (12) times the monthly Supplemental Monthly Retirement Benefit
calculated on the basis of the Normal Form single life annuity (regardless of
the form in which such Executive's Supplemental Monthly Retirement Benefit was
being paid or was payable prior to his death). If the Executive dies following
his Benefit Commencement Date, no other or additional death benefits will be
payable except to the extent provided under any optional form of payment
selected by the Executive
Section 5. DISABILITY
Section 5.01. Disability. If the Executive is Disabled, the Executive shall
commence receiving benefits under this Plan at such time as he commences
receiving benefits under the Corporation's Long-Term Disability Plan, as it may
be amended from time to time, or any successor plan, or, in the absence of such
a plan, at the time benefits would have been payable under the Corporation's
last effective Long-Term Disability Plan. At such time,
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Supplemental Monthly Retirement Benefits shall be paid as determined in Section
3.01 hereunder as though the Executive had retired on the date of his
Disability.
Section 6. PLAN ADMINISTRATION
Section 6.01. Committee. The Committee shall administer the Plan and keep
records of the Executive's benefits.
Section 6.02. Legal Counsel and Advisors. The Committee may employ such
counsel, accountants, actuaries, and other agents as it deems advisable. The
Corporation shall pay the compensation of such counsel, accountants, actuaries,
and other agents and any other expense incurred by the Committee in the
administration of the Plan.
Section 7. MISCELLANEOUS PROVISIONS
Section 7.01. No Guarantee of Employment. Nothing contained in this Plan
shall be deemed to give the Executive the right to be retained in the service of
the Employer or to interfere with the right of the Employer to discharge the
Executive at any time regardless of the effect which such discharge shall have
upon him as a member of this Plan.
Section 7.02. Nature of Employer's Obligations. The benefits provided under
this Plan shall be payable solely from the general assets of the Employer, and
neither the Executive nor the Executive's Spouse or estate shall have any
interest in any assets of the Employer by virtue of this Plan.
Section 7.03. Rights Not Assignable. Except insofar as this provision may be
contrary to applicable law, no sale, transfer, alienation, assignment, pledge,
collateralization, or attachment of any benefits under this Plan shall be valid
or recognized by the Committee.
Section 7.04. Inurements; Successors, Mergers, or Consolidations. This Plan
shall inure to the benefit of and be binding upon (i) the Employer and its
successors and assigns, including, without limitation, any person, organization,
or corporation which may acquire substantially all assets and business of the
Employer, or any corporation with which or into which the Employer may be merged
or consolidated, and (ii) the Executive and his heirs, executors,
administrators, and legal representatives.
Section 7.05. Construction. This Plan shall be governed by, and interpreted
and enforced in accordance with, the laws of the State in which the Executive
resides at the time the dispute arises.
Section 7.06. Plurality Clause. Words in the singular shall be read and
construed as though used in the plural in all cases where they would so apply.
Section 7.07. Benefits Upon Removal from Plan. The Executive shall not be
removed from membership in this Plan unless:
(a) The Executive is convicted for a felonious act against the
Employer; or
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(b) The Executive breaches the terms of the Agreement.
If a Executive is removed from this Plan pursuant to this Section, all
future benefits payable under this Plan to the Executive or Beneficiary shall
cease.
Section 7.08. Conditions to Payment of Benefits. The payment of benefits to
the Executive or Beneficiary under this Plan is conditioned upon and subject to
the following conditions:
(a) Competition Restriction. During the period of employment and during
the period that the Executive is receiving Supplemental Monthly Retirement
Benefits under this Plan, the Executive shall not directly or indirectly become
or serve as an officer, director or employee of, or consultant to, or
independent contractor for any individual, partnership, joint venture or
corporation, nor owner of any business, nor member of any partnership or joint
venture which, in the judgment of the Committee, competes with the Employer,
unless the Executive shall have obtained the prior written consent of the
Committee.
(b) Advisory Services. The Executive agrees that, as long as he is to
receive any payment from the Plan, and as long as he is physically and mentally
able to do so, he will render to the Corporation, as an independent contractor,
such advice, counsel, or other services as the Corporation may reasonably and
from time to time require, at the times and places mutually agreeable to
Executive and Corporation. For such advice, counsel, and other services as the
Executive may render in accordance with the provisions of this Section, the
Executive shall be compensated by the Corporation as an independent contractor
in such amounts as shall be reasonably agreed to between the Executive and the
Corporation. In addition, the Corporation shall reimburse the Executive for
reasonable travel expense from whatever place the Executive may then be living
and for other reasonable expenses incurred by the Executive in rendering such
advisory services.
Section 7.09. Arbitration and Amendment; Waivers. The arbitration and
amendment/waiver provisions set forth in the Employment Contract are hereby
incorporated into this Plan.
IN WITNESS WHEREOF, the Corporation has caused this Plan to be executed
this 25th day of August, 1995, to be effective on such date.
ATTEST: (SEAL) NELLCOR INCORPORATED
By: By:
------------------------ ------------------------
Secretary President
Page 89
<PAGE> 1
EXHIBIT 11.1
NELLCOR PURITAN BENNETT INCORPORATED
STATEMENT OF COMPUTATION OF NET INCOME
PER SHARE
(In thousands, except per share amounts, unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
--------------------------
October 1, October 2,
1995 1994
--------------------------
<S> <C> <C>
Computation of common
and common equivalent
shares outstanding:
Common stock 28,246 27,137
Common stock equivalents 802 639
-------- --------
Common and common
equivalent shares used in the
calculation of net income per share 29,048 27,776
======== ========
Net income (loss) $(59,302) $ 9,583
======== ========
Net income (loss) per common and
common equivalent share $ (2.04) $ 0.35
======== ========
</TABLE>
Page 90
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-07-1996
<PERIOD-START> JUL-03-1995
<PERIOD-END> OCT-01-1995
<CASH> 93,252
<SECURITIES> 14,460
<RECEIVABLES> 114,951
<ALLOWANCES> 2,418
<INVENTORY> 104,588
<CURRENT-ASSETS> 351,995
<PP&E> 125,938
<DEPRECIATION> 132,137
<TOTAL-ASSETS> 536,661
<CURRENT-LIABILITIES> 169,125
<BONDS> 0
<COMMON> 13,236
0
0
<OTHER-SE> 311,564
<TOTAL-LIABILITY-AND-EQUITY> 536,661
<SALES> 156,250
<TOTAL-REVENUES> 156,250
<CGS> 77,583
<TOTAL-COSTS> 77,583
<OTHER-EXPENSES> 149,421
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,378
<INCOME-PRETAX> (70,966)
<INCOME-TAX> (11,664)
<INCOME-CONTINUING> (59,302)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,302)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
