<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended October 31, 1994
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 0-3717
PURITAN-BENNETT CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 44-0399150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9401 Indian Creek Parkway
Building #40, Suite 300
P.O. Box 25905
Overland Park, Kansas 66225
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code 913-661-0444
</TABLE>
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 and 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
As of December 9, 1994, there were 12,556,811 shares of the Company's $1.00
par value common stock outstanding.
<PAGE> 2
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited condensed consolidated financial statements incorporated by
reference to the Puritan-Bennett Corporation Third Quarter Report, 1995, have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended October 31, 1994 are not necessarily indicative of the results
that may be expected for the year ended January 31, 1995. For further
information refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
January 31, 1994.
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements.
Company or group of companies for which report is filed:
PURITAN-BENNETT CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited) - Three months
ended October 31, 1994 and 1993; and nine months ended October 31, 1994 and
1993 (incorporated herein by reference to the Puritan-Bennett Corporation
Third Quarter Report, 1995).
Condensed Consolidated Balance Sheets (Unaudited) - October 31, 1994 and
January 31, 1994 (incorporated herein by reference to the Puritan-Bennett
Corporation Third Quarter Report, 1995).
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine months ended
October 31, 1994 and 1993 (incorporated herein by reference to the
Puritan-Bennett Corporation Third Quarter Report, 1995).
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
The condensed consolidated financial statements at October 31, 1994, and for
the three month and nine month periods then ended have been reviewed, prior to
filing, by Ernst & Young LLP, the Company's independent auditors, and their
report is included herein.
<PAGE> 4
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 1: Cost Associated with Unsolicited Offers to Acquire Company's Stock
The Company recorded charges of $4.6 million for obligations associated with
Thermo Electron Corporation's unsolicited tender offer. These obligations
include investment banking fees, public relations expenses and legal fees. This
accrual resulted in a loss of $.05 per share for the third quarter ending
October 31, 1994. Without these charges, earnings per share for the quarter
would have been $.31 per share.
The estimated investment banking fees ($4.1 million) were derived by a formula
set forth in the contract between the Company and the investment banking firm.
Components of this formula include the number of shares outstanding and the
stock price at the time such fees become payable in full. The Company estimated
the fee using the closing stock price as of October 31, 1994, which was $26.13
per share and is considered to be the best estimate at that time. Until such
fees become payable in full, the Company will revise its estimate of such fees
quarterly based upon the closing stock price and any other circumstances
relevant to the contract as of the close of the reporting period. Legal fees
and public relations expenses will continue to be based upon the costs of
services actually rendered during the period.
<PAGE> 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Three and Nine Months Ended October
31, 1994, Compared to the Three and Nine Months Ended October 31,
1993
RESULTS OF OPERATIONS
(All dollars in thousands except where noted)
NET SALES
Net sales volume for the quarter ended October 31, 1994, increased 10.8%
compared to the quarter ended October 31, 1993, and 8.4% on a year-to-date
basis. The following tables reflect sales volume for the markets in which the
Company operates:
<TABLE>
<CAPTION>
PERCENT
Q3 1995 Q3 1994 CHANGE
------------------------------------------------------------
<S> <C> <C> <C>
Home Care Markets $ 32,017 $ 26,552 20.6%
Hospital/Physician Markets 42,943 42,984 (0.1)%
Aviation Markets 8,452 5,741 47.2%
----------- ------------
Total Net Sales $ 83,412 $ 75,277 10.8%
=========== ============
</TABLE>
<TABLE>
<CAPTION>
PERCENT
YTD 1995 YTD 1994 CHANGE
------------------------------------------------------------
<S> <C> <C> <C>
Home Care Markets $ 92,799 $ 80,189 15.7%
Hospital/Physician Markets 133,022 130,676 1.8%
Aviation Markets 21,992 17,717 24.1%
----------- ------------
Total Net Sales $ 247,813 $ 228,582 8.4%
=========== ============
</TABLE>
Sales growth in the home care markets continues with revenues and orders up
20.6% and 15.6%, respectively, from Q3 last year and 15.7% and 19.2%,
respectively on a year-to-date basis. Two major clinical areas - home oxygen
therapy and the diagnosis and treatment of adult sleep disorders - contributed
to this growth. With respect to the first major clinical area, the Company
believes it is already the worldwide leader. Moreover, the Company has been
told by Homedco Group, Inc., one of the nation's leading providers of home
respiratory services, that Puritan-Bennett will be selected as one of its
endorsed vendors for home oxygen equipment. Homedco is in the process of
upgrading its oxygen therapy technology to achieve significantly greater
operational efficiencies. (While Homedco is one of the first to recognize and
act upon this opportunity, the same opportunity is available to virtually all
home oxygen therapy providers. A key element of the Company's homecare strategy
is to help all home oxygen suppliers recognize and act upon such opportunity.)
The Company also believes its home oxygen therapy product line is unusually
well suited to help home oxygen suppliers benefit from such opportunity.
This announcement is the result of Homedco's formal bid process, and will be
one of the largest
<PAGE> 6
purchases of oxygen therapy equipment in Homedco's history. The selection of
Puritan-Bennett as an endorsed vendor is expected to have a significant impact
on the home oxygen therapy portion of the Company's business over the next two
years. In addition, Homedco said it would work with the Company to adapt
Puritan-Bennett's CliniVision(R) Respiratory Care Management Information System
to its needs for managing its home care patients services. Heretofore,
CliniVision has been almost entirely a hospital market product.
With respect to the second major clinical area of its homecare product lines,
the Company expects its relatively young business of diagnosing and treating
adult sleep disorders to continue growing also. Recently published research
clearly indicates that millions of adults in the U.S. suffer chronically from
debilitating but treatable breathing disorders during sleep. The Company
believes the prevalence of such disorders is also widespread in most developed
nations. These disorders are only beginning to be recognized and understood by
the medical community and the general population. Consequently, only a small
fraction of people suffering from sleep disorders have been diagnosed and are
being treated today. Therefore, while the market for such sleep products has
grown rapidly in recent years, the Company believes that most of the market
growth lies ahead. With the late January 1994 acquisition of SEFAM S.A., the
Company believes it is among the top three in terms of worldwide market share.
While the Company believes it remains the worldwide leader in critical care
ventilation, hospital/physician sales have flattened as the U.S. hospital
market for the 7200(R) Series ventilator has declined; international demand
has continued to grow, however. The level of interest in CliniVision continues
to expand and revenues are growing as hospitals increasingly focus on this
system as a valuable solution to their cost-containment challenge and as the
Company continues to enhance the CliniVision system. More than 100 systems have
now been installed. In total, the Company expects hospital/physician market
revenues to be flat in FY 1995 and for moderate growth to resume in FY 1996 due
to CliniVision and five ventilator system-related new products/product
enhancements recently cleared by FDA for marketing in the U.S. and recently
introduced internationally.
The aviation portion of the Company's business is experiencing growth in
revenues and orders, up 24.1% and 26.6%, respectively, on a year-to-date basis.
Revenues were up 47.2% from third quarter levels last year and orders were up
60.5%. The overall increase in the Company's aviation business is due in large
part, although not entirely, to a growing interest in the offerings of Airborne
Closed Circuit Television (ACCTV (TM)). These closed circuit television systems
use video cameras to detect problems. Conditions such as fire, smoke and cargo
movement can be detected in all lighting conditions. Additionally, exterior
security as well as passenger entertainment systems are offered. Aside from
ACCTV, the overall tone of the aviation industry market is showing signs of
improvement from the depressed conditions of recent years.
<PAGE> 7
INTERNATIONAL SALES GROWTH
The following tables reflect the amount of sales and operating profits from the
United States and foreign geographic segments:
<TABLE>
<CAPTION>
NET SALES PERCENT
Q3 1995 Q3 1994 CHANGE
----------------------------------------------
<S> <C> <C> <C>
U.S. Operations $66,978 $ 62,877 6.5%
Foreign Operations 16,434 12,400 32.5%
------- --------
Total Net Sales $83,412 $ 75,277 10.8%
======= ========
</TABLE>
<TABLE>
<CAPTION>
NET SALES PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
U.S. Operations $ 193,645 $ 192,556 0.6%
Foreign Operations 54,168 36,026 50.4%
--------- ---------
Total Net Sales $ 247,813 $ 228,582 8.4%
========= =========
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT PERCENT
Q3 1995 Q3 1994 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
U.S. Operations $ 3,009 $ 3,333 (9.7)%
Foreign Operations 2,721 (1,840) __
------- -------
Total Net Operating Profit $ 5,730 $ 1,493 284.0%
======= =======
</TABLE>
<TABLE>
<CAPTION>
OPERATING PROFIT PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
U.S. Operations $ 6,697 $ (1,420) __
Foreign Operations 10,410 (494) __
-------- --------
Total Net Operating Profit $ 17,107 $ (1,914) __
======== ========
</TABLE>
The increase in foreign operations net sales and operating profit from Q3 1994
was primarily due to the addition of the SEFAM S.A. product line and a large
increase in sales in Germany. The German operation was in a start-up
environment during the comparable period of FY 1994. This explanation as well
as a Q2 FY 1994 restructuring charge of $9.0 million accounts for the dramatic
increase in the year-to-date FY 1995 net operating profit.
<PAGE> 8
The following tables reflect sales by customer location:
<TABLE>
<CAPTION>
Q3 1995 Q3 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Customers Within the U.S. $ 56,517 67.8% $ 53,337 70.9%
Customers Outside the U.S. 26,895 32.2% 21,940 29.1%
-------- ----- -------- -----
Total Net Sales $ 83,412 100.0% $ 75,277 100.0%
======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
YTD 1995 YTD 1994
----------------------------------------------------------
<S> <C> <C> <C> <C>
Customers Within the U.S. $164,023 66.2% $164,670 72.0%
Customers Outside the U.S. 83,790 33.8% 63,912 28.0%
-------- ----- -------- -----
Total Net Sales $247,813 100.0% $228,582 100.0%
======== ===== ======== =====
</TABLE>
During the past decade, the Company's business profile has changed
substantially from being predominantly a supplier of life-support capital
equipment to the United States hospital market to becoming a major supplier to
the homecare market. Homecare has been, and is expected to continue to be, the
fastest growing part of the Company's business. Life-support products sold in
the U.S. market will likely represent a smaller share of the Company's business
in the future, a trend that may help lower the Company's risks.
In late January 1994, the Company finalized the previously announced
acquisition of SEFAM S.A., the leading European supplier of diagnostic and
therapeutic sleep disorder products, and its 80% owned Lit Dupont S.A.
subsidiary, which manufactures wheelchair products. Over the past five years,
the Company's home care business, which reached nearly $110 million in revenues
in FY 1994 has achieved a compound annual revenue growth rate of over 22%
worldwide - 31% internationally. The Company believes that the acquisition of
SEFAM will help such growth trends continue.
<PAGE> 9
GROSS PROFIT
The gross profit percentage for Q3 1995 decreased 0.6% from Q3 1994 and 1.0% on
a year-to-date basis. Gross profit was adversely affected by the higher costs
associated with FDA Good Manufacturing Practice (GMP) compliance activities and
by the continued weakness of the U.S. hospital market. These effects were
partially offset by the results of operations of SEFAM, acquired late in FY94,
as well as the results of restructuring actions taken late in FY 1994.
<TABLE>
<CAPTION>
PERCENT
Q3 1995 Q3 1994 CHANGE
---------------------------------------------
<S> <C> <C> <C>
Gross Profit $34,284 $31,367 9.3%
Gross Profit Percentage 41.1% 41.7%
</TABLE>
<TABLE>
<CAPTION>
PERCENT
YTD 1995 YTD 1994 CHANGE
---------------------------------------------
<S> <C> <C> <C>
Gross Profit $103,722 $97,980 5.9%
Gross Profit Percentage 41.9% 42.9%
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSES
Selling and administrative expenses for Q3 1995 remained relatively stable from
Q3 1994. An increase in such expenses resulting from the acquisition of SEFAM
S.A. and its 80% owned Lit Dupont S.A. subsidiary, in late FY 1994, and
increased GMP related compliance activities were offset by the results of
restructuring actions taken in late FY 1994.
<TABLE>
<CAPTION>
PERCENT
Q3 1995 Q3 1994 CHANGE
---------------------------------------------
<S> <C> <C> <C>
Selling and Administrative Exp. $23,508 $23,721 (0.9)%
</TABLE>
<TABLE>
<CAPTION>
PERCENT
YTD 1995 YTD 1994 CHANGE
---------------------------------------------
<S> <C> <C> <C>
Selling and Administrative Exp. $71,790 $71,474 0.4%
</TABLE>
<PAGE> 10
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the quarter and year-to-date have
decreased approximately 18% and 24%, respectively, over the prior comparable
periods. The decreases resulted entirely from the elimination of the
Intra-Arterial Blood Gas Monitoring product line. Research and development
continues across all remaining product lines at levels the Company considers
appropriate to provide long-term growth.
<TABLE>
<CAPTION> PERCENT
Q3 1995 Q3 1994 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
Research and Development Exp. $5,046 $ 6,153 (18.0)%
</TABLE>
<TABLE>
<CAPTION>
PERCENT
YTD 1995 YTD 1994 CHANGE
-----------------------------------------------
<S> <C> <C> <C>
Research and Development Exp. $14,825 $19,406 (23.6)%
</TABLE>
OTHER (INCOME) EXPENSE
Other income in the first nine months of FY 1995 increased over the comparable
period of FY 1994 by $1,654. The increase is entirely attributable to foreign
currency transaction gains in FY95 versus losses in FY94. These gains arose
from the weakening of the U.S. Dollar, the Company's functional currency, in
the markets in which the Company is doing business. Since October 31, 1994, the
U.S. dollar has strengthened considerably. If the U.S. dollar remains at
current levels, most of the foreign currency transaction gains realized in the
first nine months are expected to reverse in the fourth quarter.
<TABLE>
<CAPTION>
Q3 1995 Q3 1994
--------------------------
<S> <C> <C>
Other (Income) Expense $ (768) $ (773)
</TABLE>
<TABLE>
<CAPTION>
YTD 1995 YTD 1994
--------------------------
<S> <C> <C>
Other (Income) Expense $(1,949) $ (304)
</TABLE>
INTEREST EXPENSE
Interest expense increased from Q3 1994 and YTD 1994 by $560 and $759,
respectively. The increase is due to higher levels of debt in FY 1995 as well
as an overall increase in the Company's average interest rate.
UNSOLICITED TAKEOVER OFFER
The Company recorded charges of $4.6 million for obligations associated with
Thermo Electron Corporation's unsolicited tender offer. These obligations
include investment banking fees, public
<PAGE> 11
relations expenses and legal fees. This accrual resulted in a loss of $.05 per
share for the third quarter ending October 31, 1994. Without the charge,
earnings per share for the quarter would have been $.31 per share. See Note 1
to the Condensed Consolidated Financial Statements.
RESTRUCTURING CHARGES
A number of market and regulatory developments converged to make FY 1994 a
particularly challenging one for the Company as a whole. As a result, the
Company took a number of major actions in FY 1994 to reposition itself for the
future including:
restructuring the hospital ventilator portion of its business;
consolidating its aviation business to three facilities from four;
closing its Boulder, Colorado facility and transferring the
manufacture of the portable ventilators made there to its ISO
(International Standards Organization) 9002 - certified facility in
the Republic of Ireland and
planning the shutdown of the FOxS operation and offering it for sale.
As of October 31, 1994, approximately $3.9 million remained in accrued
liabilities representing expected severance, cancellation penalties, remaining
facility lease payments, FOxS customer refunds and other costs necessary to
complete the restructuring plan in an orderly and effective manner. This amount
is expected to be disbursed primarily in the fourth quarter of FY 1995 with
some carryover to the first and second quarters of FY 1996. No buyer was found
for the FOxS operation and the shutdown was completed in the third quarter.
PROVISION FOR INCOME TAXES
The Q3 1995 tax provision was affected by a year to date increase in the
annualized tax rate from 20% to 28% due to the interaction of the tax valuation
allowance discussed below and the shift, caused by the $4.6 million charge for
obligations associated with Thermo Electron Corporation's unsolicited tender
offer, in the proportion of earnings generated domestically, which are normally
taxed at the U.S. statutory rate of 35%, versus earnings generated
internationally, which are normally taxed at the lower foreign statutory rates
averaging 10%. The Q3 1994 tax rate was 32%. The year-to-date FY 1994 tax
benefit was 54% due primarily to a $9.0 million U.S. restructuring charge.
The Company has a net deferred tax benefit of $27.8 million partially offset by
a valuation allowance of $17.1 million as required by SFAS No. 109. The
realization of the deferred tax benefit depends on the Company's ability to
generate sufficient taxable income in the future. Approximately 80% of the
Company's total temporary differences are expected to reverse in the next two
years. As a result of the restructuring actions taken during FY 1994 and the
expected continuing growth in future profitability, the Company believes it is
well positioned to take advantage of this tax benefit in the future.
<PAGE> 12
If the Company achieves sufficient profitability to use all of the deferred tax
benefit, the valuation allowance will be reduced through a credit to expense.
If the Company is unable to generate taxable income in the future, increases in
the valuation allowance relative to the deferred tax benefit currently existing
will be required through a charge to expense.
FINANCIAL CONDITION
WORKING CAPITAL
The ratio of current assets to current liabilities was 2.2 at October 31, 1994,
up from 1.6 at January 31, 1994. Working capital increased, from $51.9 million
to $76.7 million. The primary reasons for the increase include a $12.1 million
decrease in notes payable as a result of the issuance of new long-term notes
late in Q2 1995 and an approximate $10.4 million decrease in other accrued
expenses, primarily accrued restructuring expenses that were paid in Q1, Q2 and
Q3 1995, offset by a $4.6 million accrual for expenses associated with an
unsolicited offer to acquire the Company's stock. In addition the Company's
investment in accounts receivable and inventory grew $9.3 million.
LIQUIDITY AND CAPITAL RESOURCES
Net cash and cash equivalents provided by operating activities decreased from
October 31, 1993 due to several factors. Net income of $7,328 for year-to-date
FY95 increased by approximately $12.4 million over the year-to-date loss for
FY94. There was a $9.0 million increase in year-to-date FY 1994 for accrued
restructuring charges versus no accrual in FY95. There was a $1.7 million
payout from the deferred compensation plan in Q1 1995 for which there was no
comparable event in FY 1994. The change in prepaid expenses and other current
assets reflects a sale of marketable equity securities ($2.2 million) for which
there was no comparable sale in FY 1994. The increase in accounts receivable is
a reflection of higher sales volume as well as an increase in the proportion of
non U.S. sales, which have a longer collection period than U.S. sales, to total
sales (28.0% as of year-to-date FY 1994 versus 33.8% as of year-to-date FY
1995).
Net cash and cash equivalents used in investing activities have decreased when
compared to year-to-date 1994. This decrease is due primarily to the
acquisition of Hoyer Medizintechnik; $6.6 million was paid in Q1 1994 and a
final payment of $2 million was paid in Q1 1995. An increase in proceeds from
the sale of capital assets was offset by an increase in capital expenditures.
Net cash and cash equivalents provided by financing activities have increased
when compared to year-to-date 1994. Short term notes payable have been reduced
by $12.1 million in year-to-date 1995 versus an $8.3 million increase in the
comparable FY 1994 period. This reduction was offset by a $20 million increase
in long-term debt in year-to-date 1995. These events, combined with minimal
stock repurchases in year-to-date 1995 resulted in a generation of $2.8 million
from financing activities in year-to-date 1995 versus $.3 million in the same
period of the prior fiscal year.
<PAGE> 13
Long-term debt, excluding current maturities represents 33.9% of total capital
(long-term debt plus stockholder's equity) at October 31, 1994, and 26.4% at
January 31, 1994. At October 31, 1994, the Company had $35 million of unsecured
bank lines-of-credit available, $15.5 million of which was used.
U.S. HEALTH CARE SYSTEM CHANGES
While broad-scale health care system reform was a major initiative of the
Clinton Administration during its first two years, such broad reform does not
now appear imminent. At the same time, the U.S. health care system is
undergoing significant change in response to market forces. The principal
change involves increasing utilization of various forms of managed care.
Managed care trends are, in turn, causing hospitals to consolidate,
restructure, and otherwise slow their rate of spending growth. The Company
believes it is seeing the effects of such spending curtailment in its hospital
capital equipment products - principally the 7200 Series Ventilatory System.
The Company has not seen any significant adverse effects of managed care trends
on its homecare business and homecare may, in fact, be benefiting from such
trends due to its inherent cost-effectiveness relative to institutional care.
However, the new Congress, with its Republican majority, is likely to emphasize
further deficit reduction and there can be no assurance that homecare will not
be adversely affected by deficit reduction-driven legislative changes to the
Medicare and Medicaid programs.
SUPPLEMENTAL INFORMATION
In order to help stockholders better understand the economic dynamics and
potential of the Company's business, the Company decided to begin providing
supplemental information that sets forth its earnings before interest, taxes
and other unusual charges (EBITOC) and revenues in its two principal components
- - Puritan and Bennett. Unusual charges include any historical restructuring or
current Thermo Electron-related charges. The supplemental information also
excludes discontinued product lines. Supplemental pro-forma information dollars
are reported in thousands.
Puritan - Puritan includes the rapidly growing homecare product lines and
certain hospital/physician products such as medical gases and gas-related
equipment and spirometry. Aero Systems is also included because it shares one
of the larger manufacturing facilities with the Puritan Group and is relatively
small.
Puritan revenues for the first nine months grew to $159,391 from $136,263 on a
FY95 to FY94 comparison, up 17%. Third quarter FY95 revenues were up 23% to
$56,187 compared to $45,751 for third quarter of FY94. Puritan now accounts for
about two-thirds of the Company's total revenues. Puritan revenues for FY94
were also up from FY93, $184,239 versus $167,763. The average annual growth for
the five years ended January 31, 1994 was 15%. Within Puritan, homecare
products have grown at rates considerably above the overall Puritan average.
Puritan EBITOC was $16,306 (10% of revenue) and $18,493 (14% of revenue) for
the first nine months of FY95 and FY94, respectively. For the third quarter of
this year, EBITOC was $5,995 (11% of revenue) versus $6,251 (14% of revenue) in
the third quarter FY94. EBITOC was $22,939 (12% of revenue) and $24,740 (15%
of revenue) in FY94 and FY93, respectively.
<PAGE> 14
EBITOC has been higher in the recent past and, with continued revenue growth,
is expected to return to higher levels next fiscal year. The Company undertook
several major regulatory control and compliance initiatives in the latter part
of FY94 and during FY95. These initiatives required considerable staffing and
other resource additions as well as manufacturing process modifications, which
temporarily increased costs faster than revenue growth. Puritan also
experienced some resulting short-run operating disruptions and inefficiencies,
which further increased costs. These operating disruptions have begun to
diminish, and the adverse profitability effects of the costs associated with
the considerable staffing and other resource additions in late FY94 and FY95
are expected to be covered by continuing rapid growth in Puritan revenues next
fiscal year coupled with much slower cost growth. This combination of revenue
growth and EBITOC growth as a percentage of Puritan revenues represents most of
the Company's expected profitability growth next fiscal year.
Bennett - Bennett includes the Company's critical care ventilator business - a
business that continues to represent an exceptional and long-standing customer
franchise on a global basis - as well as the CliniVision product line in the
U.S., and holter monitoring and portable ventilator product lines.
Since FY93, Bennett revenues have declined for several reasons including
difficult market conditions, particularly in the U.S. hospital market,
discontinuance of certain older products and accessories as a result of
evolving regulatory standards, and the Company's withdrawal from the U.S.
portable ventilator market. In addition, Bennett has also undertaken major
regulatory control and compliance and new product development initiatives at
significant cost. Third quarter FY95 and FY94 revenues were $27,225 and
$28,838, respectively. For the first nine months of FY95 and FY94, revenues
were $88,422 and $90,361, respectively. FY94 revenues were $122,751 and FY93
revenues were $131,279.
On a quarter-to-quarter comparison, Bennett EBITOC was $456 for the third
quarter of FY95 versus a loss of $793 for the same period of FY94. EBITOC was
$2,620 and $2,718 for the first nine months of FY95 and FY94, respectively (3%
of revenues for both periods). For the twelve month periods, FY94 EBITOC was
$14 compared to FY93 EBITOC of $11,803 (9% of revenue). Current and recent
EBITOC is not close to where the Company believes it should and will be. The
Company believes the recent poor profitability of Bennett will begin to reverse
itself and revenues and margins will increase as a result of continued cost
reductions as well as the continued growth of CliniVision and service revenue
and several other positive developments. These developments include five new
products/product enhancements recently cleared by FDA for marketing in the U.S.
and recently introduced internationally. In addition, other important new
products are being developed for introduction a little over a year from now.
Because of U.S. market conditions and these important new product development
initiatives, the Company's expectations for Bennett growth in revenues and
improvement in EBITOC as a percentage of revenues for next fiscal year (FY96)
are less than for Puritan. Bennett revenue and profitability growth
expectations are much higher after FY96, however.
The Company is encouraged by the continued strong growth of Puritan and
believes both Puritan and Bennett are well positioned to begin returning to
higher levels of profitability. Puritan is growing
<PAGE> 15
rapidly and does not have so far to go to return to historical profitability
levels. Consequently, the Company expects Puritan's return to historical
profitability as a percentage of revenues to occur largely next fiscal year.
Bennett, on the other hand, has not been growing rapidly and has farther to go
to return to desired profitability levels. Key to doing so are additional new
products under development coupled with maintaining the Company's strong direct
sales and service distribution channels in North America and Europe, which are
capable of handling more volume. Such distribution channels enable these and
other new products to reach their full revenue and profitability potential.
Therefore, the Company expects it may take somewhat longer for Bennett
profitability as a percentage of revenues to reach desired levels.
The significant profitability growth expected next year from Puritan, the more
moderate but still important profitability growth expected next year from
Bennett, and the somewhat reduced interest expenses the Company expects to
result from gradually lower borrowing levels all combine to give the Company
confidence that its profitability for the fiscal year ending January 31, 1996,
will grow significantly from current fiscal year levels, which profitability
is, in turn, significantly higher than prior fiscal year levels. This does not
include unusual charges such as the change in control-type charges recently
incurred. The balance between revenue-led and cost reduction-led profitability
growth plans for fiscal year 1996 will be determined more precisely by the end
of this fiscal year.
<PAGE> 16
(Letterhead of Ernst & Young LLP)
Independent Accountants' Review Report
The Board of Directors
Puritan-Bennett Corporation
We have reviewed the condensed consolidated balance sheet of Puritan-Bennett
Corporation and subsidiaries as of October 31, 1994, the related condensed
consolidated statements of operations for the three-month and nine-month
periods ended October 31, 1994 and 1993, and the condensed consolidated
statements of cash flows for the nine-month periods ended October 31, 1994 and
1993 as presented in the accompanying exhibit. These financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expression of an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Puritan-Bennett Corporation and
subsidiaries as of January 31, 1994, and the related consolidated statement of
operations, stockholders' equity and cash flows for the year then ended, not
presented herein, and in our report dated March 7, 1994, we expressed an
unqualified opinion on those consolidated financial statements. During the year
ended January 31, 1994, the Company changed its method of accounting for income
taxes, postretirement benefits and postemployment benefits. In our opinion, the
information set forth in the condensed consolidated balance sheet as of January
31, 1994, as presented in the accompanying exhibit, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
/s/ Ernst & Young
Ernst & Young LLP
December 14, 1994
<PAGE> 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On October 7, 1994, a purported class action complaint entitled Kenneth Steiner
v. Puritan-Bennett Corp., Burton A. Dole, Jr., C. Phillip Larson, Jr., Andre
F. Marion, Thomas A. McDonnell, Daniel C. Weary, Frank P. Wilton, C.A. No.
13790 (the "Steiner Complaint"), was filed against the Company and its
directors in the Court of Chancery of the State of Delaware in and for New
Castle County (the "Chancery Court"), alleging, among other things, that the
defendants have breached their fiduciary duties to the Company's stockholders
as a result of the defendants' adoption of a Rights Agreement dated on or about
May 17, 1989 and the directors' refusal to properly consider Thermo Electron
Corporation's initial proposal to acquire all outstanding shares at a price of
$21 per share (see Item 5. for additional information regarding the tender
offer). Among other things, the Steiner Complaint seeks an order directing the
Company's directors to carry out their fiduciary duties to the Company's
stockholders by cooperating fully with Thermo Electron Corporation or any
other entity or person having a bona fide interest in proposing any
extraordinary transactions with the Company, including a merger or acquisition
of the Company, as well as damages and costs. On October 24 and 28, 1994,
respectively, two purported class action complaints entitled Louise Kovacs v.
Puritan-Bennett Corp., et al., C.A. No. 13828 (the "Kovacs Complaint"), and
Charles Miller v. Puritan-Bennett Corporation, et al., C.A. No. 13839 (the
"Miller Complaint"), were filed against the Company and its directors in the
Chancery Court, alleging, among other things, that the defendants have breached
their fiduciary duties to the Company's stockholders as a result of the
defendants' refusal to properly consider Thermo Electron Corporation's
proposals to acquire all outstanding Shares. The material allegations and
prayers for relief contained in each of these complaints are substantially
similar to those contained in the Steiner Complaint filed earlier against the
Company and its directors.
The director defendants believe that they have fulfilled their fiduciary duties
to the Company and its shareholders and intend to continue to do so. The
Company and the director defendants intend to defend these actions vigorously.
On November 28, 1994, counsel to plaintiffs in each of the Steiner, Kovacs and
Miller actions filed an application in the Chancery Court requesting, among
other things, that the court schedule a hearing on plaintiffs' motion for a
preliminary injunction, which motion was filed on November 29, 1994.
Plaintiffs' motion for a preliminary injunction seeks an order (i) compelling
the defendants to meet with representatives of Thermo Electron Corporation to
discuss the terms of the tender offer and (ii) declaring null and void certain
provisions of the Executive Agreements, the Severance Agreements, the
Indemnification Agreements and the Company's employee benefit plans and
arrangements. On December 6, 1994, the Chancery Court issued a letter opinion
in which the Chancery Court declined to schedule a hearing on plaintiff's
motion. Citing the "substantial costs and disruption" to the defendants and the
public of an expedited preliminary injunction proceeding, the Chancery Court
found that the threatened "injury" alleged by the plaintiffs "is too
speculative to warrant intervention at this time."
<PAGE> 18
Item 5. Other Information.
On October 6, 1994, the Company received an unsolicited letter from Thermo
Electron Corporation proposing to acquire all of the outstanding common stock
of the Company in a merger transaction for $21 per share in cash. After
receiving an opinion from its financial advisor, Smith Barney Inc., on October
10, 1994, the Company rejected Thermo Electron Corporation's unsolicited
proposal to acquire the Company for $21 per share in cash as grossly inadequate
and not in the best interests of the Company and its shareholders other than
Thermo Electron Corporation. On October 12, 1994, Thermo Electron Corporation
raised its bid to $24 per share in cash. On October 25, 1994, Thermo Electron
Corporation launched a tender offer to acquire all of the outstanding shares of
the Company's common stock for $24.50 per share in cash expiring on November
22, 1994, subject to a number of conditions. On November 7, 1994, after
receiving an opinion from Smith Barney Inc., the Board of Directors of the
Company unanimously determined that the unsolicited tender offer from Thermo
Electron Corporation to acquire the Company for $24.50 per share in cash was
not in the best interests of the Company and its stockholders. Accordingly, the
Board recommended that stockholders reject the offer and not tender their
shares to Thermo Electron Corporation. On November 23, 1994, Thermo Electron
Corporation extended the tender offer to November 28, 1994 and then again to
December 8, 1994. On December 9, 1994, Thermo Electron Corporation terminated
its tender offer without purchasing any shares.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibits required by Item 601 of Regulation S-K are listed
in the Exhibit Index which is incorporated herein by
reference.
b. Reports on Form 8-K
A Current Report on Form 8-K dated October 28, 1994, with
respect to Item 5 relating to the Amendment Agreement
amending the Company's Rights Agreement dated as of May 2,
1989, was filed with the Securities and Exchange
Commission ("SEC") by the Company.
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PURITAN-BENNETT CORPORATION
Registrant
December 14, 1994 /s/Lee A. Robbins
Lee A. Robbins, Vice President,
Controller-Chief Financial Officer
(Principal Financial Officer,
Chief Accounting Officer and
duly authorized Officer to execute
on behalf of registrant)
<PAGE> 20
EXHIBIT INDEX
Exhibits filed with Securities and Exchange Commission:
(Number and description of exhibit)
(4) Amendment Agreement dated as of October 27, 1994, between the
Company and UMB Bank, N.A., amending the Rights Agreement dated as
of May 2,1989 included as Exhibit 4.1 in Form 8-K dated October 28,
1994 and incorporated herein by reference.
(10.1) Supplemental Agreement, dated November 7, 1994, between John H.
Morrow and the Company.
(10.2) Executive Agreement, dated November 7, 1994, between Robert L.
Doyle and the Company.
(10.3) Executive Agreement, dated November 7, 1994, between Thomas E.
Jones and the Company.
(10.4) Executive Agreement, dated November 7, 1994, between Alexander R.
Rankin and the Company.
(10.5) Executive Agreement, dated November 7, 1994, between David P.
Niles and the Company.
(10.6) Severance Agreement, dated November 7, 1994, between Lee A.
Robbins and the Company.
(10.7) Severance Agreement, dated November 7, 1994, between Derl S. Treff
and the Company.
(10.8) First Amendment to Puritan-Bennett Corporation Management
Incentive Bonus Plan A.
(10.9) First Amendment to Puritan-Bennett Corporation Management
Incentive Bonus Plan B.
(10.10) First Amendment to the Restated Puritan-Bennett Deferred
Compensation Plan.
(10.11) First Amendment to the Puritan-Bennett Supplemental Retirement
Benefit Plan.
(10.12) Third Amendment to the Puritan-Bennett Supplemental Retirement
Benefit Plan.
(10.13) First Amendment to the Puritan-Bennett Corporation Pension Benefit
Make Up Plan.
(10.14) Amendment Adopted on November 6, 1994 to Puritan-Bennett 1988
Employee Stock Benefit Plan.
<PAGE> 21
(10.15) Amendment Adopted on November 6, 1994 to the Puritan-Bennett
Corporation Retirement Plan for Non-Employee Directors.
(10.16) SERP Agreement dated November 7, 1994, between Burton A. Dole, Jr.
and the Company.
(10.17) SERP Agreement dated November 7, 1994, between John H. Morrow and
the Company.
(11) Statement re: Computation of Per Share Earnings.
(15) Letter re: Unaudited Interim Financial Information.
(19) Puritan-Bennett Corporation Third Quarter Report, 1995.
(27) Financial Data Schedules.
<PAGE> 1
EXHIBIT 10.1
SUPPLEMENTAL AGREEMENT
November 7, 1994
Mr. John H. Morrow
Executive Vice President
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
Dear Mr. Morrow:
This supplemental letter agreement ("Supplemental Agreement") amends
and supplements the letter agreement dated June 9, 1994 (the "Agreement")
between you and Puritan-Bennett Corporation. All definitions of terms in the
Agreement shall apply in this Supplemental Agreement. As amended and
supplemented by this Supplemental Agreement, the Agreement shall remain in full
force and effect.
1. The benefits payable to you under Sections 3.1(a) and (b) of
the Agreement are hereby modified by replacing Sections 3.1(a) and (b) in their
entirety with the following:
3.1 Rights upon Termination by Company other than for Cause, or by
Employee for Good Reason. If the Company terminates your
employment other than for Cause prior to your Normal
Retirement Date, or if you terminate your employment for Good
Reason prior to your Normal Retirement Date, then the Company
shall have the following obligations to you:
(a) During the applicable Continued Payment Period, the
Company shall make semi-monthly payments to you equal
to your semi-monthly base salary in effect
immediately prior to the Employment Termination Date
plus one twenty-fourth of the annual average of your
incentive bonus payments under the MIB Plan or any
successor thereto with respect to the three full (12
months) fiscal years immediately preceding the
Employment Termination Date (such annual average
being referred to herein as the "Average Annual
Incentive Payment"), such amounts to be computed
without regard to any reductions which may have
occurred in breach of this Agreement or following a
Change in Control. Such payments shall be subject to
all required withholdings. The Continued Payment
Period shall commence on the Employment Termination
Date and shall be a number of weeks determined by
adding (a) the greater of (i) four or (ii) two times
the number of years Employee has been an employee of
the Company (rounding up to the next full year and
excluding any intervening periods during which
Employee was not an employee of the Company), plus
(b) two times the number of $5,000 increments
(rounded up to the next whole $5,000 increment)
contained in the Employee's Annual Compensation (as
defined below); provided, that the Continued Payment
Period shall not
<PAGE> 2
Mr. John H. Morrow
November 7, 1994
Page 2
exceed three years. "Annual Compensation" shall mean
the sum of (x) your annual base salary in effect
immediately prior to the Employment Termination
Date, plus (y) the Average Annual Incentive Payment.
(b) Any outstanding unvested options held by you to
purchase stock of the Company that have not otherwise
become exercisable under the terms of the Company's
stock option plans shall become fully vested and
exercisable.
2. If your employment is terminated under circumstances in which
you are entitled to receive payments under Section 3.1 of the
Agreement, and if you are not otherwise entitled to a bonus
payment with respect to the fiscal year in which your
employment is terminated, the Company will pay to you within
30 days after the Employment Termination Date, and subject to
required withholdings, a one-time bonus equal to the product
of (i) the fraction of a full year represented by the period
from the beginning of the fiscal year to the Employment
Termination Date, and (ii) the Average Annual Incentive
Payment.
3. If your employment is terminated under circumstances in which
you are entitled to receive payments under Section 3.1 of the
Agreement, then the Company will provide a benefit under the
Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") and Section 4980B of the Internal Revenue Code of
1986, as amended (the "Code"), as follows: the Company shall
pay the percentage of the cost of COBRA coverage with respect
to your 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 (i) the
monthly cost of COBRA coverage for your coverage status in
effect immediately prior to the Employment Termination Date
and (ii) your monthly contribution toward your coverage in
effect immediately prior to the Employment Termination Date,
and the denominator of which shall be the monthly cost of
COBRA coverage for your coverage status in effect immediately
prior to the Employment Termination Date. All of such amounts
shall be determined as of the day immediately preceding the
termination of Employee's employment. The insurance
continuation benefits paid for hereunder shall be deemed to be
part of your COBRA coverage. Such benefits shall be in
addition to any other benefits relating to health or medical
care benefits that are available under the Company's policies
to you following termination of employment.
4. The severance benefits provided under the Agreement and this
Supplemental Agreement will be reduced by any severance
benefits to which you are entitled under the Company's
Severance Benefits policy for terminated employees, or any
other agreement between you and the Company for severance
benefits. Except as provided in the immediately preceding
sentence, all of your rights and benefits, including those
under the Agreement and this Letter Agreement, shall remain in
full force and effect. It is expressly agreed that payments
or benefits to you under the
<PAGE> 3
Mr. John H. Morrow
November 7, 1994
Page 3
Company's SERP or under any agreement with you relating to the
Company's SERP or any other retirement or pension arrangement
shall not be offset against or reduce in any way any payments
or benefits to which you are entitled under the Agreement or
under this Supplemental Agreement.
5. Section 5 of the Agreement is hereby replaced with the
following:
Non-Competition. During your employment, you agree that you
will not directly or indirectly compete with the Company, or
engage in, or act as an officer, director, employee, or agent
of any person or entity that is engaged in, any business in
which the Company is engaged, without the written approval of
the CEO. The foregoing shall not prohibit you 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 you shall own less
than 3% of the outstanding voting stock of such corporation.
If you are entitled to receive payments under Section 3.1(a),
then, as to any business in which the Company is engaged as of
the Employment Termination Date, you shall continue to be
bound by the provisions of this Section 5 during the
applicable Continued Payment Period. If you violate the
provisions of this Section 5, then, in addition to any other
rights at law or in equity, the Company shall be entitled to
discontinue any payments otherwise due to you hereunder.
6. (a) Anything in the Agreement or this Supplemental
Agreement to the contrary notwithstanding, in the event it
shall be determined that any payment or distribution by the
Company to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Company for Federal income tax purposes
because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable as severance
benefits hereunder shall be reduced to the Reduced Amount.
The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of such
severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G of the
Code. Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further that any
Payment which is not part of the severance benefits payable
hereunder would nevertheless be nondeductible by the Company
for Federal income tax purposes because of Section 280G of the
Code, then the aggregate present value of Payments which are
not severance benefits under this Agreement shall also be
reduced (but not below zero) to an amount expressed in present
value which maximizes the aggregate present value of Payments
without causing any payment to be nondeductible by the Company
because of Section 280G of the Code. For purposes of this
paragraph 6, present value shall be determined in accordance
with Section 280G(d)(4) of the Code.
<PAGE> 4
Mr. John H. Morrow
November 7, 1994
Page 4
(b) All determinations required to be made under this
paragraph 6 shall be made by an accounting firm jointly
selected by you and the Company (the "Accounting Firm") and
paid by the Company, and which may be the Company's
independent auditors. The Accounting Firm shall provide
detailed supporting calculations both to the Company and
Employee within 15 business days of the Date of Termination or
such earlier time as is requested by the Company and an
opinion to Employee that he or she has substantial authority
not to report any excise tax on his Federal income tax return
with respect to any Payments. Any such determination by the
Accounting Firm shall be binding upon the Company and
Employee. Employee shall determine which and how much of the
Payments, shall be eliminated or reduced consistent with the
requirements of this paragraph 6, provided that, if Employee
does not make such determination within ten business days of
the receipt of the calculations made by the Accounting Firm,
the Company shall elect which and how much of the Payments
shall be eliminated or reduced consistent with the
requirements of this paragraph 6 and shall notify Employee
promptly of such election; and provided further that any
Payments which do not constitute gross income to Employee
shall not be reduced or eliminated unless all other Payments
have first been eliminated. Within five business days
thereafter, the Company shall pay to or distribute to or for
the benefit of Employee such amounts as are then due to
Employee under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial
determination by the Accounting Firm hereunder, it is possible
that Payments will have been made by the Company which should
not have been made ("Overpayment") or that Payments will not
have been made by the Company which could have been made
("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the event that
the Accounting Firm, based upon the assertion of a deficiency
by the Internal Revenue Service against Employee or the
Company which the Accounting Firm believes has a high
probability of success, determines that an Overpayment has
been made, any such Overpayment paid or distributed by the
Company to or for the benefit of Employee shall be treated for
all purposes as a loan ab initio to Employee which Employee
shall repay to the Company together with interest at the
applicable federal rate provided for in Section 7872(f)(2) of
the Code; provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable to the
Company if and to the extent such deemed loan and payment
would not either reduce the amount on which Employee is
subject to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the
Accounting Firm, based upon controlling precedent or other
substantial authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the
Company to or for the benefit of Employee together with
interest at 120% of the applicable federal rate provided for
in Section 7872(f)(2) of the Code, compounded semiannually.
7. Notwithstanding anything in the Agreement or this Supplemental
Agreement to the contrary, if after giving effect to the provisions of Section
6 of this Supplemental Agreement any
<PAGE> 5
Mr. John H. Morrow
November 7, 1994
Page 5
portion of any payments to you by the Company under the Agreement, this
Supplemental Agreement and any other present or future plan or program of the
Company or other present or future agreement between you 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 you
shall be deferred until the earliest date upon which payment thereof can be
made to you without being non-deductible pursuant to Section 162(m) of the
Code. In the event of such a deferral, the Company shall pay interest to you
on the amount deferred at 120% of the applicable federal rate provided for in
Section 7872(f)(2) of the Code, compounded semi-annually.
8. Miscellaneous.
8.1. No Assignment. No benefit hereunder shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrances or
charge, and any attempt to do so shall be void.
8.2 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:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
If to the Employee:
Mr. John H. Morrow
10231 Catalina
Overland Park, Kansas 66207
Either party may change its address for notice by giving notice to the other
party of a new address in accordance with the foregoing provisions.
8.3 Governing Law. This Agreement shall be governed by the laws
of the State of Kansas.
8.4 Disputes. In the event of any dispute between the Company and
Employee arising out of this Agreement, the Company's then current Alternative
Dispute Resolution Procedure will be followed (a copy of the current procedure
is attached hereto) and the prevailing party shall be entitled to recover its
reasonable attorneys' fees and expenses incurred in connection with the
enforcement of its rights hereunder.
<PAGE> 6
Mr. John H. Morrow
November 7, 1994
Page 6
8.5 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in full
force and effect and shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
Please acknowledge your agreement to the foregoing Letter Agreement by
signing the enclosed counterpart of this letter and returning it to the
Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
By: /s/ Lee A. Robbins
Vice President
Agreed to and accepted:
/s/ John H. Morrow
JOHN H. MORROW
<PAGE> 1
EXHIBIT 10.2
EXECUTIVE AGREEMENT
November 7, 1994
Mr. Robert L. Doyle
Senior Vice President, Marketing
Puritan-Bennett Corporation
9401 Indian Creek Parkway
P.O. Box 25905
Overland Park, KS 66225
Dear Mr. Doyle:
This letter agreement restates and supersedes in its entirety the
letter agreement dated August 31, 1994 between you and Puritan-Bennett
Corporation (the "Company"). In view of your position as Senior Vice
President, Marketing of the Company and in consideration of your agreement to
continue serving in this or some other mutually agreeable capacity, the Board
of Directors (the "Board") of the Company has approved the commitment by the
Company to provide you ("Employee") with certain benefits during your
employment and in the event of termination of your employment for Good Reason,
if by you, and other than for Cause, if by the Company. This letter agreement
(the "Agreement") establishes the terms and conditions of your continued
employment by the Company, including your rights to receive certain payments
and benefits during and after your employment by the Company.
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Employee's willful
violation of any reasonable rule or direct order of
the Board or the Company's Chief Executive Officer
("CEO"), which, after written notice to do so, the
Employee 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 actual moral turpitude
or dishonesty of or by the Employee, or (c) drug or
alcohol abuse on Company premises or at a Company
sponsored event, or (d) the Employee's material
violation of any provision of this Agreement, which,
after written notice to do so, the Employee fails to
make reasonable efforts 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 Employee, or
upon any operation, asset, product or activity of the
Company, of any other sanction or remedy under the
Act, including without limitation civil
<PAGE> 2
Mr. Robert L. Doyle
November 7, 1994
Page 2
money penalties, warning letters, injunctions,
repairs, replacements, refunds, recalls or seizures,
if the Employee 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 Good Reason. "Good Reason" means (a) 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, or (b) any of the following if the same
shall occur within two years after a Change of
Control: (i) reduction of the Employee's base salary,
management bonus percentage or other compensation, as
in effect immediately prior to the Change of Control,
(ii) failure to continue in effect any medical,
dental, accident, or disability plan in which the
Employee is entitled to participate immediately prior
to the Change of Control and failure to provide plans
with substantially similar benefits (except that
employee contributions may be raised to the extent of
any cost increases imposed by third parties) or any
action by the Company which would adversely affect
the Employee's participation or reduce the Employee's
benefits under any of such plans, (iii) material
reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position,
(v) Employee shall be requested to relocate to an
office outside of the greater Atlanta or Kansas City
metropolitan area, or (vi) failure or refusal of any
successor company to assume the Company's obligations
under this Agreement.
1.3 Change of Control. A "Change of Control" shall be
deemed to have occurred at any of the following times:
1.3.1 Upon the acquisition (other than
from the Company) by any person,
entity or "group," within the
meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the
Company or its affiliates, or any
employee benefit plan of the Company
or its affiliates which acquires
beneficial ownership of voting
securities of the Company) of
beneficial ownership (within the
meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or
more of either the then outstanding
shares of common stock of the
Company or the Combined Voting Power
of the Company's then outstanding
voting securities. "Combined Voting
Power" means the combined voting
<PAGE> 3
Mr. Robert L. Doyle
November 7, 1994
Page 3
power of the Company's then
outstanding voting securities
generally entitled to vote in the
election of directors.
1.3.2 At the time individuals who, as of
the date hereof, constitute the
Board (as of the date hereof, the
"Incumbent Board") cease for any
reason to constitute at least a
majority of the Board, provided that
any person becoming a director
subsequent to the date hereof whose
election, or nomination for election
by the Company's shareholders, was
approved by a vote of at least a
majority of the directors then
comprising the Incumbent Board
(other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or
threatened election contest relating
to the election of the directors of
the Company, as such terms are used
in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act)
shall be, for purposes of this
subsection 1.3.2, considered as
though such person were a member of
the Incumbent Board; or
1.3.3 Upon the approval by the
Shareholders of the Company of a
reorganization, merger,
consolidation (in each case, with
respect to which persons who were
the shareholders of the Company
immediately prior to such
reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of
the assets of the Company; or
1.3.4 The occurrence of any other event
which the Incumbent Board in its
sole discretion determines
constitutes a Change of Control.
1.4 Normal Retirement Date. "Normal Retirement
Date" shall mean the earliest date
(currently, the Employee's 65th birthday)
upon which the Employee is eligible to retire
from the Company and commence receiving full
retirement benefits under the Company's then
applicable retirement plan.
<PAGE> 4
Mr. Robert L. Doyle
November 7, 1994
Page 4
1.5 Employment Termination Date. The date of
delivery of any notice of termination
pursuant to Section 2.5 shall be the
"Employment Termination Date."
1.6 Continued Payment Period. "Continued Payment
Period" shall have the meaning set forth in
Section 3.1(a)(i).
2. Benefits and Duties During Employment; Termination of
Employment.
2.1 Base Salary. Your current annual base salary is
$195,000, payable in 24 equal semi-monthly amounts,
subject to required withholdings. Your base salary
will be reviewed and may be adjusted annually. Your
base salary will not be reduced from the current
level or from any future, higher levels without your
written concurrence, unless such reduction is in
connection with your disability and in accordance
with the Company's established disability income
protection plan.
2.2 Management Bonus. For the fiscal year ending January
31, 1995, your target bonus is 35% of your annual
base salary under the Company's Management Incentive
Bonus Plan ("MIB Plan"). Your target bonus
percentage under the MIB Plan will not be reduced
from the current level or from any future, higher
levels without your written concurrence, unless such
reduction is in connection with your disability and
in accordance with the Company's established
disability income protection plan. The Company may
modify the MIB Plan in the future; provided that in
the event of any such modification, the Company will
use reasonable efforts to provide you with a bonus
opportunity under the modified plan that is
equivalent to your opportunity under the current MIB
Plan.
2.3 Other Employee Benefits. You will continue to be
eligible for all employee benefits generally
available to employees of the Company, and to the
special benefit programs in which you are currently
participating, or in which you are hereafter eligible
to participate. These special benefits include but
are not limited to:
2.3.1 Company Automobile, including
reimbursement for automobile expenses.
2.3.2 Life insurance and income tax and estate
planning services, subject to currently
established annual limits.
<PAGE> 5
Mr. Robert L. Doyle
November 7, 1994
Page 5
2.4 Limitation on Outside Activities. You agree to
devote your full business time and efforts to the
rendition of such services to the Company as may be
designated by the Company, subject, however, to
temporary illness and customary vacations. You will
at all times be subject to the direction and
supervision of the CEO. You may devote a reasonable
amount of time to civic and community affairs but
shall not perform services during the term of your
employment for any other business organization in any
capacity without the prior consent of the CEO.
2.5 Employment Termination. Your employment with the
Company shall continue until either you or the
Company give written notice to the other of
termination of your employment.
3. Rights upon Termination of Employment.
3.1 Rights upon Termination by Company other than for
Cause, or by Employee for Good Reason. If the
Company terminates your employment other than for
Cause prior to your Normal Retirement Date, or if you
terminate your employment for Good Reason prior to
your Normal Retirement Date, then the Company shall
have the following obligations to you:
(a) (i) If such termination occurs within two
years after a Change of Control, then within 30 days
following the Employment Termination Date, the
Company shall pay to you in a lump sum the present
value, determined as of the Employment Termination
Date, of the amounts that you would have been paid by
the Company if, during the applicable Continued
Payment Period, the Company were to make equal
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the annual average of your incentive
bonus payments under the MIB Plan or any successor
thereto with respect to the three full (12 months)
fiscal years immediately preceding the Employment
Termination Date (such annual average being referred
to herein as the "Average Annual Incentive Payment"),
such amounts to be computed without regard to any
reductions which may have occurred in breach of this
Agreement or following a Change in Control. Such
payment shall be subject to all required
withholdings. The Continued Payment Period shall
commence on the Employment Termination Date, and
shall be a number of weeks determined by adding (a)
the greater of (i) four or (ii) two times the number
of years Employee has been an employee of the Company
(rounding up to the next full year and excluding any
<PAGE> 6
Mr. Robert L. Doyle
November 7, 1994
Page 6
intervening periods during which Employee was not an
employee of the Company), plus (b) two times the
number of $5,000 increments (rounded up to the next
whole $5,000 increment) contained in the Employee's
Annual Compensation (as defined below), provided,
that the Continued Payment Period shall not exceed 3
years. "Annual Compensation" shall mean the sum of
(x) your annual base salary in the effect immediately
prior to the Employment Termination Date, plus (y)
the Average Annual Incentive Payment. Present value
shall be determined using a discount rate equal to
the Most Applicable Treasury Security Rate compounded
annually, if the Applicable Treasury Security is a
Treasury Bill, and semiannually, if the Applicable
Treasury Security is a Treasury Note. The "Most
Applicable Treasury Security Rate" shall be the
yield-to- maturity of the Applicable Treasury
Security with a remaining term equal to one-half of
the Continued Payment Period, as quoted in the
edition of the Wall Street Journal first published
after the Employment Termination Date. The
"Applicable Treasury Security" shall mean a Treasury
Bill if the Continued Payment Period is two years or
less; and shall mean a Treasury Note if the Continued
Payment Period is greater than two years.
(ii) If such termination occurs
at any time other than within two years after a
Change of Control, then, during the applicable
Continued Payment Period, the Company shall make
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the Average Annual Incentive
Payment, such amounts to be computed without regard
to any reductions which may have occurred in breach
of this Agreement. Such payments shall be subject to
all required withholdings.
(b) Any outstanding unvested options held by you
to purchase stock of the Company which have not
otherwise become exercisable under the terms of the
Company's stock option plans, shall become fully
vested and exercisable.
(c) If your employment is terminated under
circumstances in which you are entitled to receive
payments under Section 3.1(a) above, and if you are
not otherwise entitled to a bonus payment with
respect to the fiscal year in which your employment
is terminated, the Company will pay to you within 30
days after the Employment Termination Date, and
subject to required withholdings, a one-time bonus
equal to the product
<PAGE> 7
Mr. Robert L. Doyle
November 7, 1994
Page 7
of (i) the fraction of a full year represented by the
period from the beginning of the fiscal year to the
Employment Termination Date, and (ii) the Average
Annual Incentive Payment.
(d) As soon as practical following the Employment
Termination Date, the Company shall pay to you the
market value, as of close of business on the
Employment Termination Date, of any unvested
restricted stock awarded to you, subject to required
withholdings.
3.2 Death Benefits. If you are terminated by the Company
other than for Cause or terminate your employment for
Good Reason, and thereafter you die during the
applicable Continued Payment Period, the Company
shall be obligated to pay to your spouse, if
surviving, and otherwise to your estate, the amounts
to which you would have been entitled under Section
3.1 had you survived.
3.3 No Obligation To Mitigate. You shall not be required
to mitigate 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 for under this Agreement be reduced
by any compensation earned by you as the result of
employment by another employer after the Employment
Termination Date, or otherwise.
3.4 COBRA Benefits. If your employment is terminated
without cause by the Company, or for Good Reason by
you, then the Company will provide a benefit under
the Consolidated Omnibus Budget Reconciliation Act of
1986 ("COBRA") and Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), as
follows: the Company shall pay the percentage of the
cost of COBRA coverage with respect to your coverage
status (e.g., individual or family coverage) 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 (i) the
monthly cost of COBRA coverage for your coverage
status in effect immediately prior to the Employment
Termination Date and (ii) your monthly contribution
toward your coverage in effect immediately prior to
the Employment Termination Date, and the denominator
of which shall be the monthly cost of COBRA coverage
for your coverage status in effect immediately prior
to the Employment Termination Date. All of such
amounts shall be determined as of the day immediately
preceding the termination of Employee's employment.
The insurance continuation benefits paid for
hereunder shall be deemed to be part of Employee's
COBRA coverage.
<PAGE> 8
Mr. Robert L. Doyle
November 7, 1994
Page 8
Such benefits shall be in addition to any other
benefits relating to health or medical care benefits
that are available under the Company's policies to
Employee following termination of employment.
3.5 Other Rights. The severance benefits provided
hereunder will be reduced by any severance benefits
to which you are entitled under the Company's
Severance Benefits policy for terminated employees,
or any other agreement between you and the Company
for severance benefits. Except as provided in the
immediately preceding sentence, the provisions of
this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise
payable, or in any way diminish your existing rights
or rights which would accrue solely as a result of
the passage of time, under any benefit or incentive
plan, employment agreement or other contract, plan or
arrangement. As soon as practical following the
Employment Termination Date, you will receive a cash
payment for the value of your earned but unused
vacation time as of the Employment Termination Date
in accordance with then current Company Policy.
4. Successor To Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise to all or substantially all the
business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to
the same extent that the Company would be required to perform
if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Agreement, shall
mean the Company and any successor or assignee to the business
or assets which by reason hereof becomes bound by the terms
and provisions of this Agreement.
5. Non-Competition. During your employment, you agree that you
will not directly or indirectly compete with the Company, or
engage in, or act as an officer, director, employee, or agent
of any person or entity that is engaged in, any business in
which the Company is engaged, without the written approval of
the CEO. The foregoing shall not prohibit you 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 you shall own less
than 3% of the outstanding voting stock of such corporation.
If you are receiving payments under Section 3.1(a)(ii), then,
as to any business in which the Company is engaged as of the
Employment Termination Date, you shall continue to be bound by
the provisions of this Section 5 during the applicable
Continued Payment Period.
<PAGE> 9
Mr. Robert L. Doyle
November 7, 1994
Page 9
6. Confidentiality. During your employment and at all times
thereafter, you will not divulge to anyone or use for your own
benefit or the benefit of any other person or entity any
information concerning the Company, its businesses,
operations, 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 you for the preparation of
personal tax returns.
7. Reduction of Payments.
7.1 (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or
for the benefit of Employee (whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would
be nondeductible by the Company for Federal income
tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable
or distributable as severance benefits hereunder
shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of such
severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G
of the Code. Anything to the contrary
notwithstanding, if the Reduced Amount is zero and it
is determined further that any Payment which is not
part of the severance benefits payable hereunder
would nevertheless be nondeductible by the Company
for Federal income tax purposes because of Section
280G of the Code, then the aggregate present value of
Payments which are not severance benefits under this
Agreement shall also be reduced (but not below zero)
to an amount expressed in present value which
maximizes the aggregate present value of Payments
without causing any payment to be nondeductible by
the Company because of Section 280G of the Code. For
purposes of this paragraph 7.1, present value shall
be determined in accordance with Section 280G(d)(4)
of the Code.
(b) All determinations required to be made under
this paragraph 7.1 shall be made by an accounting
firm jointly selected by you and the Company (the
"Accounting Firm") and paid by the Company, and which
may be the Company's independent auditors. The
Accounting Firm shall provide detailed supporting
calculations both to the Company and Employee within
15 business days of the Date of Termination or such
earlier time as is requested by the Company and an
opinion to Employee
<PAGE> 10
Mr. Robert L. Doyle
November 7, 1994
Page 10
that he or she has substantial authority not to
report any excise tax on his Federal income tax
return with respect to any Payments. Any such
determination by the Accounting Firm shall be binding
upon the Company and Employee. Employee shall
determine which and how much of the Payments, shall
be eliminated or reduced consistent with the
requirements of this paragraph 7.1, provided that, if
Employee does not make such determination within ten
business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which
and how much of the Payments shall be eliminated or
reduced consistent with the requirements of this
paragraph 7.1 and shall notify Employee promptly of
such election; and provided further that any Payments
which do not constitute gross income to Employee
shall not be reduced or eliminated unless all other
Payments have first been eliminated. Within five
business days thereafter, the Company shall pay to or
distribute to or for the benefit of Employee such
amounts as are then due to Employee under this
Agreement.
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time
of the initial determination by the Accounting Firm
hereunder, it is possible that Payments will have
been made by the Company which should not have been
made ("Overpayment") or that Payments will not have
been made by the Company which could have been made
("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the
event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue
Service against Employee or the Company which the
Accounting Firm believes has a high probability of
success, determines that an Overpayment has been
made, any such Overpayment paid or distributed by the
Company to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio to
Employee which Employee shall repay to the Company
together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which
Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial
authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of Employee
together with interest at 120% of the applicable
<PAGE> 11
Mr. Robert L. Doyle
November 7, 1994
Page 11
federal rate provided for in Section 7872(f)(2) of
the Code, compounded semiannually.
7.2 Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of
Section 7.1 any portion of any payments to you by the
Company hereunder and any other present or future
plan or program of the Company or other present or
future agreement between you 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
you shall be deferred until the earliest date upon
which payment thereof can be made to you without
being non-deductible pursuant to Section 162(m) of
the Code. In the event of such a deferral, the
Company shall pay interest to you on the amount
deferred at 120% of the applicable federal rate
provided for in Section 7872(f)(2) of the Code,
compounded semi-annually.
8. Miscellaneous.
8.1. No Assignment. No benefit hereunder shall be subject
to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrances or charge, and any
attempt to do so shall be void.
8.2 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:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
If to the Employee:
Mr. Robert L. Doyle
1104 Summit Tree
Duluth, Georgia 30136
<PAGE> 12
Mr. Robert L. Doyle
November 7, 1994
Page 12
Either party may change its address for notice by
giving notice to the other party of a new address in
accordance with the foregoing provisions.
8.3 Governing Law. This Agreement shall be governed by
the laws of the State of Kansas.
8.4 Disputes. In the event of any dispute between the
Company and Employee arising out of this Agreement,
the Company's then current Alternative Dispute
Resolution Procedure will be followed (a copy of the
current procedure is attached hereto) and the
prevailing party shall be entitled to recover its
reasonable attorneys' fees and expenses incurred in
connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for
convenience only and shall not control or affect the
meaning or construction of any of the provisions
hereof.
Please acknowledge your agreement to the foregoing Agreement by
signing the enclosed counterpart of this letter and returning it to the
Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
Agreed to and accepted:
/s/ Robert L. Doyle
ROBERT L. DOYLE
<PAGE> 1
EXHIBIT 10.3
EXECUTIVE AGREEMENT
November 7, 1994
Mr. Thomas E. Jones
Senior Vice President, General Manager
Puritan Group
Puritan-Bennett Corporation
10800 Pflumm Road
Lenexa, KS 66215
Dear Mr. Jones:
In view of your position as Senior Vice President, General Manager
Puritan Group of Puritan-Bennett Corporation (the "Company") and in
consideration of your agreement to continue serving in this or some other
mutually agreeable capacity, the Board of Directors (the "Board") of the
Company has approved the commitment by the Company to provide you ("Employee")
with certain benefits during your employment and in the event of termination of
your employment for Good Reason, if by you, and other than for Cause, if by the
Company. This letter agreement (the "Agreement") establishes the terms and
conditions of your continued employment by the Company, including your rights
to receive certain payments and benefits during and after your employment by
the Company.
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Employee's willful
violation of any reasonable rule or direct order of
the Board or the Company's Chief Executive Officer
("CEO"), which, after written notice to do so, the
Employee 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 actual moral turpitude
or dishonesty of or by the Employee, or (c) drug or
alcohol abuse on Company premises or at a Company
sponsored event, or (d) the Employee's material
violation of any provision of this Agreement, which,
after written notice to do so, the Employee fails to
make reasonable efforts 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 Employee, 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,
<PAGE> 2
Mr. Thomas E. Jones
November 7, 1994
Page 2
refunds, recalls or seizures, if the Employee 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 Good Reason. "Good Reason" means (a) 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, or (b) any of the following if the same
shall occur within two years after a Change of
Control: (i) reduction of the Employee's base salary,
management bonus percentage or other compensation, as
in effect immediately prior to the Change of Control,
(ii) failure to continue in effect any medical,
dental, accident, or disability plan in which the
Employee is entitled to participate immediately prior
to the Change of Control and failure to provide plans
with substantially similar benefits (except that
employee contributions may be raised to the extent of
any cost increases imposed by third parties) or any
action by the Company which would adversely affect
the Employee's participation or reduce the Employee's
benefits under any of such plans, (iii) material
reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position,
(v) Employee shall be requested to relocate to an
office outside of the greater Kansas City
metropolitan area, or (vi) failure or refusal of any
successor company to assume the Company's obligations
under this Agreement.
1.3 Change of Control. A "Change of Control" shall be
deemed to have occurred at any of the following times:
1.3.1 Upon the acquisition (other than
from the Company) by any person,
entity or "group," within the
meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the
Company or its affiliates, or any
employee benefit plan of the Company
or its affiliates which acquires
beneficial ownership of voting
securities of the Company) of
beneficial ownership (within the
meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or
more of either the then outstanding
shares of common stock of the
Company or the Combined Voting Power
of the Company's then outstanding
voting securities. "Combined Voting
Power" means the combined voting
<PAGE> 3
Mr. Thomas E. Jones
November 7, 1994
Page 3
power of the Company's then
outstanding voting securities
generally entitled to vote in the
election of directors.
1.3.2 At the time individuals who, as of
the date hereof, constitute the
Board (as of the date hereof, the
"Incumbent Board") cease for any
reason to constitute at least a
majority of the Board, provided that
any person becoming a director
subsequent to the date hereof whose
election, or nomination for election
by the Company's shareholders, was
approved by a vote of at least a
majority of the directors then
comprising the Incumbent Board
(other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or
threatened election contest relating
to the election of the directors of
the Company, as such terms are used
in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act)
shall be, for purposes of this
subsection 1.3.2, considered as
though such person were a member of
the Incumbent Board; or
1.3.3 Upon the approval by the
Shareholders of the Company of a
reorganization, merger,
consolidation (in each case, with
respect to which persons who were
the shareholders of the Company
immediately prior to such
reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of
the assets of the Company; or
1.3.4 The occurrence of any other event
which the Incumbent Board in its
sole discretion determines
constitutes a Change of Control.
1.4 Normal Retirement Date. "Normal Retirement
Date" shall mean the earliest date
(currently, the Employee's 65th birthday)
upon which the Employee is eligible to retire
from the Company, and commence receiving full
retirement benefits under the Company's then
applicable retirement plan.
<PAGE> 4
Mr. Thomas E. Jones
November 7, 1994
Page 4
1.5 Employment Termination Date. The date of
delivery of any notice of termination
pursuant to Section 2.5 shall be the
"Employment Termination Date."
1.6 Continued Payment Period. "Continued Payment
Period" shall have the meaning set forth in
Section 3.1(a)(i).
2. Benefits and Duties During Employment; Termination of
Employment.
2.1 Base Salary. Your current annual base salary is
$185,000, payable in 24 equal semi-monthly amounts,
subject to required withholdings. Your base salary
will be reviewed and may be adjusted annually. Your
base salary will not be reduced from the current
level or from any future, higher levels without your
written concurrence, unless such reduction is in
connection with your disability and in accordance
with the Company's established disability income
protection plan.
2.2 Management Bonus. For the fiscal year ending January
31, 1995, your target bonus is 35% of your annual
base salary under the Company's Management Incentive
Bonus Plan ("MIB Plan"). Your target bonus
percentage under the MIB Plan will not be reduced
from the current level or from any future, higher
levels without your written concurrence, unless such
reduction is in connection with your disability and
in accordance with the Company's established
disability income protection plan. The Company may
modify the MIB Plan in the future; provided that in
the event of any such modification, the Company will
use reasonable efforts to provide you with a bonus
opportunity under the modified plan that is
equivalent to your opportunity under the current MIB
Plan.
2.3 Other Employee Benefits. You will continue to be
eligible for all employee benefits generally
available to employees of the Company, and to the
special benefit programs in which you are currently
participating, or in which you are hereafter eligible
to participate. These special benefits include but
are not limited to:
2.3.1 Company Automobile, including
reimbursement for automobile expenses.
2.3.2 Life insurance and income tax and estate
planning services, subject to currently
established annual limits.
<PAGE> 5
Mr. Thomas E. Jones
November 7, 1994
Page 5
2.3.3 Shadow Glen Golf Club Membership,
including reimbursement for monthly
dues, special assessments and expenses
incurred in connection with business
usage of dub services and facilities.
You may direct the Company to transfer
ownership of this membership to you, or
to pay you an amount equal to the
original acquisition cost of such
membership, by giving notice to the
Company at any time within three months
after the Employment Termination Date.
2.4 Limitation on Outside Activities. You agree to
devote your full business time and efforts to the
rendition of such services to the Company as may be
designated by the Company, subject, however, to
temporary illness and customary vacations. You will
at all times be subject to the direction and
supervision of the CEO. You may devote a reasonable
amount of time to civic and community affairs but
shall not perform services during the term of your
employment for any other business organization in any
capacity without the prior consent of the CEO.
2.5 Employment Termination. Your employment with the
Company shall continue until either you or the
Company give written notice to the other of
termination of your employment.
3. Rights upon Termination of Employment.
3.1 Rights upon Termination by Company other than for
Cause, or by Employee for Good Reason. If the
Company terminates your employment other than for
Cause prior to your Normal Retirement Date, or if you
terminate your employment for Good Reason prior to
your Normal Retirement Date, then the Company shall
have the following obligations to you:
(a) (i) If such termination occurs within two
years after a Change of Control, then within 30 days
following the Employment Termination Date, the
Company shall pay to you in a lump sum the present
value, determined as of the Employment Termination
Date, of the amounts that you would have been paid by
the Company if, during the applicable Continued
Payment Period, the Company were to make equal
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the annual average of your incentive
bonus payments
<PAGE> 6
Mr. Thomas E. Jones
November 7, 1994
Page 6
under the MIB Plan or any successor thereto with
respect to the three full (12 months) fiscal years
immediately preceding the Employment Termination Date
(such annual average being referred to herein as the
"Average Annual Incentive Payment"), such amounts to
be computed without regard to any reductions which
may have occurred in breach of this Agreement or
following a Change in Control. Such payment shall be
subject to all required withholdings. The Continued
Payment Period shall commence on the Employment
Termination Date, and shall be a number of weeks
determined by adding (a) the greater of (i) four or
(ii) two times the number of years Employee has been
an employee of the Company (rounding up to the next
full year and excluding any intervening periods
during which Employee was not an employee of the
Company), plus (b) two times the number of $5,000
increments (rounded up to the next whole $5,000
increment) contained in the Employee's Annual
Compensation (as defined below), provided, that the
Continued Payment Period shall not exceed 3 years.
"Annual Compensation" shall mean the sum of (x) your
annual base salary in the effect immediately prior to
the Employment Termination Date, plus (y) the Average
Annual Incentive Payment. Present value shall be
determined using a discount rate equal to the Most
Applicable Treasury Security Rate compounded
annually, if the Applicable Treasury Security is a
Treasury Bill, and semiannually, if the Applicable
Treasury Security is a Treasury Note. The "Most
Applicable Treasury Security Rate" shall be the
yield-to-maturity of the Applicable Treasury Security
with a remaining term equal to one-half of the
Continued Payment Period, as quoted in the edition of
the Wall Street Journal first published after the
Employment Termination Date. The "Applicable
Treasury Security" shall mean a Treasury Bill if the
Continued Payment Period is two years or less; and
shall mean a Treasury note if the Continued Payment
Period is greater than two years.
(ii) If such termination occurs
at any time other than within two years after a
Change of Control, then, during the applicable
Continued Payment Period, the Company shall make
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the Average Annual Incentive
Payment, such amounts to be computed without regard
to any reductions which may have occurred in breach
of this Agreement. Such payments shall be subject to
all required withholdings.
(b) Any outstanding unvested options held by you
to purchase stock of the Company which have not
otherwise become exercisable under the
<PAGE> 7
Mr. Thomas E. Jones
November 7, 1994
Page 7
terms of the Company's stock option plans, shall
become fully vested and exercisable.
(c) If your employment is terminated under
circumstances in which you are entitled to receive
payments under Section 3.1(a) above, and if you are
not otherwise entitled to a bonus payment with
respect to the fiscal year in which your employment
is terminated, the Company will pay to you within 30
days after the Employment Termination Date, and
subject to required withholdings, a one-time bonus
equal to the product of (i) the fraction of a full
year represented by the period from the beginning of
the fiscal year to the Employment Termination Date,
and (ii) the Average Annual Incentive Payment.
(d) As soon as practical following the Employment
Termination Date, the Company shall pay to you the
market value, as of close of business on the
Employment Termination Date, of any unvested
restricted stock awarded to you, subject to required
withholdings.
3.2 Death Benefits. If you are terminated by the Company
other than for Cause or terminate your employment for
Good Reason, and thereafter you die during the
applicable Continued Payment Period, the Company
shall be obligated to pay to your spouse, if
surviving, and otherwise to your estate, the amounts
to which you would have been entitled under Section
3.1 had you survived.
3.3 No Obligation To Mitigate. You shall not be required
to mitigate 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 for under this Agreement be reduced
by any compensation earned by you as the result of
employment by another employer after the Employment
Termination Date, or otherwise.
3.4 COBRA Benefits. If your employment is terminated
without cause by the Company, or for Good Reason by
you, then the Company will provide a benefit under
the Consolidated Omnibus Budget Reconciliation Act of
1986 ("COBRA") and Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), as
follows: the Company shall pay the percentage of the
cost of COBRA coverage with respect to your coverage
status (e.g., individual or family coverage) 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 (i) the
monthly cost
<PAGE> 8
Mr. Thomas E. Jones
November 7, 1994
Page 8
of COBRA coverage for your coverage status in effect
immediately prior to the Employment Termination Date
and (ii) your monthly contribution toward your
coverage in effect immediately prior to the
Employment Termination Date, and the denominator of
which shall be the monthly cost of COBRA coverage for
your coverage status in effect immediately prior to
the Employment Termination Date. All of such amounts
shall be determined as of the day immediately
preceding the termination of Employee's employment.
The insurance continuation benefits paid for
hereunder shall be deemed to be part of Employee's
COBRA coverage. Such benefits shall be in addition
to any other benefits relating to health or medical
care benefits that are available under the Company's
policies to Employee following termination of
employment.
3.5 Other Rights. The severance benefits provided
hereunder will be reduced by any severance benefits
to which you are entitled under the Company's
Severance Benefits policy for terminated employees,
or any other agreement between you and the Company
for severance benefits. Except as provided in the
immediately preceding sentence, the provisions of
this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise
payable, or in any way diminish your existing rights
or rights which would accrue solely as a result of
the passage of time, under any benefit or incentive
plan, employment agreement or other contract, plan or
arrangement. As soon as practical following the
Employment Termination Date, you will receive a cash
payment for the value of your earned but unused
vacation time as of the Employment Termination Date
in accordance with then current Company Policy.
4. Successor To Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise to all or substantially all the
business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to
the same extent that the Company would be required to perform
if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Agreement, shall
mean the Company and any successor or assignee to the business
or assets which by reason hereof becomes bound by the terms
and provisions of this Agreement.
5. Non-Competition. During your employment, you agree that you
will not directly or indirectly compete with the Company, or
engage in, or act as an officer, director, employee, or agent
of any person or entity that is engaged in, any
<PAGE> 9
Mr. Thomas E. Jones
November 7, 1994
Page 9
business in which the Company is engaged, without the written
approval of the CEO. The foregoing shall not prohibit you
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 you shall own less than 3% of the outstanding
voting stock of such corporation. If you are receiving
payments under Section 3.1(a)(ii), then, as to any business in
which the Company is engaged as of the Employment Termination
Date, you shall continue to be bound by the provisions of this
Section 5 during the applicable Continued Payment Period.
6. Confidentiality. During your employment and at all times
thereafter, you will not divulge to anyone or use for your own
benefit or the benefit of any other person or entity any
information concerning the Company, its businesses,
operations, 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 you for the preparation of
personal tax returns.
7. Reduction of Payments.
7.1 (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or
for the benefit of Employee (whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would
be nondeductible by the Company for Federal income
tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable
or distributable as severance benefits hereunder
shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of such
severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G
of the Code. Anything to the contrary
notwithstanding, if the Reduced Amount is zero and it
is determined further that any Payment which is not
part of the severance benefits payable hereunder
would nevertheless be nondeductible by the Company
for Federal income tax purposes because of Section
280G of the Code, then the aggregate present value of
Payments which are not severance benefits under this
Agreement shall also be reduced (but not below zero)
to an amount expressed in present value which
maximizes the aggregate present value of Payments
without causing any payment to be nondeductible by
the Company because of Section 280G of the Code.
<PAGE> 10
Mr. Thomas E. Jones
November 7, 1994
Page 10
For purposes of this paragraph 7.1, present value
shall be determined in accordance with Section
280G(d)(4) of the Code.
(b) All determinations required to be made under
this paragraph 7.1 shall be made by an accounting
firm jointly selected by you and the Company (the
"Accounting Firm") and paid by the Company, and which
may be the Company's independent auditors. The
Accounting Firm shall provide detailed supporting
calculations both to the Company and Employee within
15 business days of the Date of Termination or such
earlier time as is requested by the Company and an
opinion to Employee that he or she has substantial
authority not to report any excise tax on his Federal
income tax return with respect to any Payments. Any
such determination by the Accounting Firm shall be
binding upon the Company and Employee. Employee
shall determine which and how much of the Payments,
shall be eliminated or reduced consistent with the
requirements of this paragraph 7.1, provided that, if
Employee does not make such determination within ten
business days of the receipt of the calculations made
by the Accounting Firm, the Company shall elect which
and how much of the Payments shall be eliminated or
reduced consistent with the requirements of this
paragraph 7.1 and shall notify Employee promptly of
such election; and provided further that any Payments
which do not constitute gross income to Employee
shall not be reduced or eliminated unless all other
Payments have first been eliminated. Within five
business days thereafter, the Company shall pay to or
distribute to or for the benefit of Employee such
amounts as are then due to Employee under this
Agreement.
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time
of the initial determination by the Company's
independent auditors hereunder, it is possible that
Payments will have been made by the Company which
should not have been made ("Overpayment") or that
Payments will not have been made by the Company which
could have been made ("Underpayment"), in each case,
consistent with the calculations required to be made
hereunder. In the event that the Accounting Firm,
based upon the assertion of a deficiency by the
Internal Revenue Service against Employee or the
Company which the Accounting Firm believes has a high
probability of success, determines that an
Overpayment has been made, any such Overpayment paid
or distributed by the Company to or for the benefit
of Employee shall be treated for all purposes as a
loan ab initio to Employee which Employee shall repay
to the Company together with interest at the
applicable federal rate provided for in Section
7872(f)(2) of the Code;
<PAGE> 11
Mr. Thomas E. Jones
November 7, 1994
Page 11
provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which
Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based
upon controlling precedent or other substantial
authority, determines that an Underpayment has
occurred, any such Underpayment shall be promptly
paid by the Company to or for the benefit of Employee
together with interest at 120% of the applicable
federal rate provided for in Section 7872(f)(2) of
the Code, compounded semiannually.
7.2 Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of
Section 7.1 any portion of any payments to you by the
Company hereunder and any other present or future
plan or program of the Company or other present or
future agreement between you 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
you shall be deferred until the earliest date upon
which payment thereof can be made to you without
being non-deductible pursuant to Section 162(m) of
the Code. In the event of such a deferral, the
Company shall pay interest to you on the amount
deferred at 120% of the applicable federal rate
provided for in Section 7872(f)(2) of the Code,
compounded semi-annually.
8. Miscellaneous.
8.1. No Assignment. No benefit hereunder shall be subject
to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrances or charge, and any
attempt to do so shall be void.
8.2 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:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
<PAGE> 12
Mr. Thomas E. Jones
November 7, 1994
Page 12
If to the Employee:
Mr. Thomas E. Jones
8206 Maple Lane
Prairie Village, KS 66207
Either party may change its address for notice by
giving notice to the other party of a new address in
accordance with the foregoing provisions.
8.3 Governing Law. This Agreement shall be governed by
the laws of the State of Kansas.
8.4 Disputes. In the event of any dispute between the
Company and Employee arising out of this Agreement,
the Company's then current Alternative Dispute
Resolution Procedure will be followed (a copy of the
current procedure is attached hereto) and the
prevailing party shall be entitled to recover its
reasonable attorneys' fees and expenses incurred in
connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for
convenience only and shall not control or affect the
meaning or construction of any of the provisions
hereof.
<PAGE> 13
Mr. Thomas E. Jones
November 7, 1994
Page 13
Please acknowledge your agreement to the foregoing Agreement by
signing the enclosed counterpart of this letter and returning it to the
Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
Agreed to and accepted:
/s/ Thomas E. Jones
THOMAS E. JONES
<PAGE> 1
EXHIBIT 10.4
EXECUTIVE AGREEMENT
November 7, 1994
Mr. Alexander R. Rankin
Senior Vice President, General Manager
Bennett Group
Puritan-Bennett Corporation
2200 Faraday
Carlsbad, CA 92008
Dear Mr. Rankin:
This letter agreement restates and supersedes in its entirety the
letter agreement dated August 31, 1994 between you and Puritan-Bennett
Corporation (the "Company"). In view of your position as Senior Vice
President, General Manager Bennett Group of the Company and in consideration of
your agreement to continue serving in this or some other mutually agreeable
capacity, the Board of Directors (the "Board") of the Company has approved the
commitment by the Company to provide you ("Employee") with certain benefits
during your employment and in the event of termination of your employment for
Good Reason, if by you, and other than for Cause, if by the Company. This
letter agreement (the "Agreement") establishes the terms and conditions of your
continued employment by the Company, including your rights to receive certain
payments and benefits during and after your employment by the Company.
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Employee's willful
violation of any reasonable rule or direct order of
the Board or the Company's Chief Executive Officer
("CEO"), which, after written notice to do so, the
Employee 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 actual moral turpitude
or dishonesty of or by the Employee, or (c) drug or
alcohol abuse on Company premises or at a Company
sponsored event, or (d) the Employee's material
violation of any provision of this Agreement, which,
after written notice to do so, the Employee fails to
make reasonable efforts 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 Employee, 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,
<PAGE> 2
Mr. Alexander R. Rankin
November 7, 1994
Page 2
refunds, recalls or seizures, if the Employee 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 Good Reason. "Good Reason" means (a) 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, or (b) any of the following if the same
shall occur within two years after a Change of
Control: (i) reduction of the Employee's base salary,
management bonus percentage or other compensation, as
in effect immediately prior to the Change of Control,
(ii) failure to continue in effect any medical,
dental, accident, or disability plan in which the
Employee is entitled to participate immediately prior
to the Change of Control and failure to provide plans
with substantially similar benefits (except that
employee contributions may be raised to the extent of
any cost increases imposed by third parties) or any
action by the Company which would adversely affect
the Employee's participation or reduce the Employee's
benefits under any of such plans, (iii) material
reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position,
(v) Employee shall be requested to relocate to an
office outside of the greater San Diego metropolitan
area, or (vi) failure or refusal of any successor
company to assume the Company's obligations under
this Agreement.
1.3 Change of Control. A "Change of Control" shall be
deemed to have occurred at any of the following times:
1.3.1 Upon the acquisition (other than
from the Company) by any person,
entity or "group," within the
meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange
Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the
Company or its affiliates, or any
employee benefit plan of the Company
or its affiliates which acquires
beneficial ownership of voting
securities of the Company) of
beneficial ownership (within the
meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or
more of either the then outstanding
shares of common stock of the
Company or the Combined Voting Power
of the Company's then outstanding
voting securities. "Combined Voting
Power" means the combined voting
<PAGE> 3
Mr. Alexander R. Rankin
November 7, 1994
Page 3
power of the Company's then
outstanding voting securities
generally entitled to vote in the
election of directors.
1.3.2 At the time individuals who, as of
the date hereof, constitute the
Board (as of the date hereof, the
"Incumbent Board") cease for any
reason to constitute at least a
majority of the Board, provided that
any person becoming a director
subsequent to the date hereof whose
election, or nomination for election
by the Company's shareholders, was
approved by a vote of at least a
majority of the directors then
comprising the Incumbent Board
(other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or
threatened election contest relating
to the election of the directors of
the Company, as such terms are used
in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act)
shall be, for purposes of this
subsection 1.3.2, considered as
though such person were a member of
the Incumbent Board; or
1.3.3 Upon the approval by the
Shareholders of the Company of a
reorganization, merger,
consolidation (in each case, with
respect to which persons who were
the shareholders of the Company
immediately prior to such
reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of
the assets of the Company; or
1.3.4 The occurrence of any other event
which the Incumbent Board in its
sole discretion determines
constitutes a Change of Control.
1.4 Normal Retirement Date. "Normal Retirement
Date" shall mean the earliest date
(currently, the Employee's 65th birthday)
upon which the Employee is eligible to retire
from the Company and commence receiving full
retirement benefits under the Company's then
applicable retirement plan.
<PAGE> 4
Mr. Alexander R. Rankin
November 7, 1994
Page 4
1.5 Employment Termination Date. The date of
delivery of any notice of termination
pursuant to Section 2.5 shall be the
"Employment Termination Date."
1.6 Continued Payment Period. "Continued Payment
Period" shall have the meaning set forth in
Section 3.1(a)(i).
2. Benefits and Duties During Employment; Termination of
Employment.
2.1 Base Salary. Your current annual base salary is
$173,000, payable in 24 equal semi-monthly amounts,
subject to required withholdings. Your base salary
will be reviewed and may be adjusted annually. Your
base salary will not be reduced from the current
level or from any future, higher levels without your
written concurrence, unless such reduction is in
connection with your disability and in accordance
with the Company's established disability income
protection plan.
2.2 Management Bonus. For the fiscal year ending January
31, 1995, your target bonus is 35% of your annual
base salary under the Company's Management Incentive
Bonus Plan ("MIB Plan"). Your target bonus
percentage under the MIB Plan will not be reduced
from the current level or from any future, higher
levels without your written concurrence, unless such
reduction is in connection with your disability and
in accordance with the Company's established
disability income protection plan. The Company may
modify the MIB Plan in the future; provided that in
the event of any such modification, the Company will
use reasonable efforts to provide you with a bonus
opportunity under the modified plan that is
equivalent to your opportunity under the current MIB
Plan.
2.3 Other Employee Benefits. You will continue to be
eligible for all employee benefits generally
available to employees of the Company, and to the
special benefit programs in which you are currently
participating, or in which you are hereafter eligible
to participate. These special benefits include but
are not limited to:
2.3.1 Company Automobile, including
reimbursement for automobile expenses.
2.3.2 Life insurance and income tax and estate
planning services, subject to currently
established annual limits.
<PAGE> 5
Mr. Alexander R. Rankin
November 7, 1994
Page 5
2.4 Limitation on Outside Activities. You agree to
devote your full business time and efforts to the
rendition of such services to the Company as may be
designated by the Company, subject, however, to
temporary illness and customary vacations. You will
at all times be subject to the direction and
supervision of the CEO. You may devote a reasonable
amount of time to civic and community affairs but
shall not perform services during the term of your
employment for any other business organization in any
capacity without the prior consent of the CEO.
2.5 Employment Termination. Your employment with the
Company shall continue until either you or the
Company give written notice to the other of
termination of your employment.
3. Rights upon Termination of Employment.
3.1 Rights upon Termination by Company other than for
Cause, or by Employee for Good Reason. If the
Company terminates your employment other than for
Cause prior to your Normal Retirement Date, or if you
terminate your employment for Good Reason prior to
your Normal Retirement Date, then the Company shall
have the following obligations to you:
(a) (i) If such termination occurs within two
years after a Change of Control, then within 30 days
following the Employment Termination Date, the
Company shall pay to you in a lump sum the present
value, determined as of the Employment Termination
Date, of the amounts that you would have been paid by
the Company if, during the applicable Continued
Payment Period, the Company were to make equal
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the annual average of your incentive
bonus payments under the MIB Plan or any successor
thereto with respect to the three full (12 months)
fiscal years immediately preceding the Employment
Termination Date (such annual average being referred
to herein as the "Average Annual Incentive Payment"
[provided, if you have not been employed by the
Company during all of the three full fiscal years
immediately preceding the Employment Termination
Date, then "Average Annual Incentive Payment" shall
mean the annualized average of the bonus payments
received by you, computed based on the actual period
of your employment with the Company during any full
fiscal year(s) of the Company with respect to which
you have received a bonus]), such amounts to be
computed without regard to any reductions which may
<PAGE> 6
Mr. Alexander R. Rankin
November 7, 1994
Page 6
have occurred in breach of this Agreement or
following a Change in Control. Such payment shall be
subject to all required withholdings. The Continued
Payment Period shall commence on the Employment
Termination Date, and shall be a number of weeks
determined by adding (a) the greater of (i) four or
(ii) two times the number of years Employee has been
an employee of the Company (rounding up to the next
full year and excluding any intervening periods
during which Employee was not an employee of the
Company), plus (b) two times the number of $5,000
increments (rounded up to the next whole $5,000
increment) contained in the Employee's Annual
Compensation (as defined below), provided, that the
Continued Payment Period shall not exceed 2 years.
"Annual Compensation" shall mean the sum of (x) your
annual base salary in the effect immediately prior to
the Employment Termination Date, plus (y) the Average
Annual Incentive Payment. Present value shall be
determined using a discount rate equal to the Most
Applicable Treasury Security Rate compounded
annually, if the Applicable Treasury Security is a
Treasury Bill, and semiannually, if the Applicable
Treasury Security is a Treasury Note. The "Most
Applicable Treasury Security Rate" shall be the
yield-to-maturity of the Applicable Treasury Security
with a remaining term equal to one-half of the
Continued Payment Period, as quoted in the edition of
the Wall Street Journal first published after the
Employment Termination Date. The "Applicable
Treasury Security" shall mean a Treasury Bill if the
Continued Payment Period is two years or less; and
shall mean a Treasury Note if the Continued Payment
Period is greater than two years.
(ii) If such termination occurs
at any time other than within two years after a
Change of Control, then, during the applicable
Continued Payment Period, the Company shall make
semi-monthly payments to you equal to your
semi-monthly base salary in effect immediately prior
to the Employment Termination Date plus one
twenty-fourth of the Average Annual Incentive
Payment, such amounts to be computed without regard
to any reductions which may have occurred in breach
of this Agreement. Such payments shall be subject to
all required withholdings.
(b) Any outstanding unvested options held by you
to purchase stock of the Company which have not
otherwise become exercisable under the terms of the
Company's stock option plans, shall become fully
vested and exercisable.
(c) If your employment is terminated under
circumstances in which you are entitled to receive
payments under Section 3.1(a) above, and if
<PAGE> 7
Mr. Alexander R. Rankin
November 7, 1994
Page 7
you are not otherwise entitled to a bonus payment
with respect to the fiscal year in which your
employment is terminated, the Company will pay to you
within 30 days after the Employment Termination Date,
and subject to required withholdings, a one-time
bonus equal to the product of (i) the fraction of a
full year represented by the period from the
beginning of the fiscal year to the Employment
Termination Date, and (ii) the Average Annual
Incentive Payment.
(d) As soon as practical following the Employment
Termination Date, the Company shall pay to you the
market value, as of close of business on the
Employment Termination Date, of any unvested
restricted stock awarded to you, subject to required
withholdings.
3.2 Death Benefits. If you are terminated by the Company
other than for Cause or terminate your employment for
Good Reason, and thereafter you die during the
applicable Continued Payment Period, the Company
shall be obligated to pay to your spouse, if
surviving, and otherwise to your estate, the amounts
to which you would have been entitled under Section
3.1 had you survived.
3.3 No Obligation To Mitigate. You shall not be required
to mitigate 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 for under this Agreement be reduced
by any compensation earned by you as the result of
employment by another employer after the Employment
Termination Date, or otherwise.
3.4 COBRA Benefits. If your employment is terminated
without cause by the Company, or for Good Reason by
you, then the Company will provide a benefit under
the Consolidated Omnibus Budget Reconciliation Act of
1986 ("COBRA") and Section 4980B of the Internal
Revenue Code of 1986, as amended (the "Code"), as
follows: the Company shall pay the percentage of the
cost of COBRA coverage with respect to your coverage
status (e.g., individual or family coverage) 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 (i) the
monthly cost of COBRA coverage for your coverage
status in effect immediately prior to the Employment
Termination Date and (ii) your monthly contribution
toward your coverage in effect immediately prior to
the Employment Termination Date, and the denominator
of which shall be the monthly cost of COBRA coverage
for your coverage status in effect immediately
<PAGE> 8
Mr. Alexander R. Rankin
November 7, 1994
Page 8
prior to the Employment Termination Date. All of
such amounts shall be determined as of the day
immediately preceding the termination of Employee's
employment. The insurance continuation benefits paid
for hereunder shall be deemed to be part of
Employee's COBRA coverage. Such benefits shall be in
addition to any other benefits relating to health or
medical care benefits that are available under the
Company's policies to Employee following termination
of employment.
3.5 Other Rights. The severance benefits provided
hereunder will be reduced by any severance benefits
to which you are entitled under the Company's
Severance Benefits policy for terminated employees,
or any other agreement between you and the Company
for severance benefits. Except as provided in the
immediately preceding sentence, the provisions of
this Agreement, and any payment provided for
hereunder, shall not reduce any amounts otherwise
payable, or in any way diminish your existing rights
or rights which would accrue solely as a result of
the passage of time, under any benefit or incentive
plan, employment agreement or other contract, plan or
arrangement. As soon as practical following the
Employment Termination Date, you will receive a cash
payment for the value of your earned but unused
vacation time as of the Employment Termination Date
in accordance with then current Company Policy.
4. Successor To Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise to all or substantially all the
business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to
the same extent that the Company would be required to perform
if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Agreement, shall
mean the Company and any successor or assignee to the business
or assets which by reason hereof becomes bound by the terms
and provisions of this Agreement.
5. Non-Competition. During your employment, you agree that you
will not directly or indirectly compete with the Company, or
engage in, or act as an officer, director, employee, or agent
of any person or entity that is engaged in, any business in
which the Company is engaged, without the written approval of
the CEO. The foregoing shall not prohibit you 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 you shall own less
than 3% of the outstanding voting stock of such corporation.
If you are
<PAGE> 9
Mr. Alexander R. Rankin
November 7, 1994
Page 9
receiving payments under Section 3.1(a)(ii), then, as to any
business in which the Company is engaged as of the Employment
Termination Date, you shall continue to be bound by the
provisions of this Section 5 during the applicable Continued
Payment Period.
6. Confidentiality. During your employment and at all times
thereafter, you will not divulge to anyone or use for your own
benefit or the benefit of any other person or entity any
information concerning the Company, its businesses,
operations, 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 you for the preparation of
personal tax returns.
7. Reduction of Payments.
7.1 (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or
for the benefit of Employee (whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would
be nondeductible by the Company for Federal income
tax purposes because of Section 280G of the Code,
then the aggregate present value of amounts payable
or distributable as severance benefits hereunder
shall be reduced to the Reduced Amount. The "Reduced
Amount" shall be an amount expressed in present value
which maximizes the aggregate present value of such
severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G
of the Code. Anything to the contrary
notwithstanding, if the Reduced Amount is zero and it
is determined further that any Payment which is not
part of the severance benefits payable hereunder
would nevertheless be nondeductible by the Company
for Federal income tax purposes because of Section
280G of the Code, then the aggregate present value of
Payments which are not severance benefits under this
Agreement shall also be reduced (but not below zero)
to an amount expressed in present value which
maximizes the aggregate present value of Payments
without causing any payment to be nondeductible by
the Company because of Section 280G of the Code. For
purposes of this paragraph 7.1, present value shall
be determined in accordance with Section 280G(d)(4)
of the Code.
(b) All determinations required to be made under
this paragraph 7.1 shall be made by an accounting
firm jointly selected by you and the
<PAGE> 10
Mr. Alexander R. Rankin
November 7, 1994
Page 10
Company (the "Accounting Firm") and paid by the
Company, and which may be the Company's independent
auditors. The Accounting Firm shall provide detailed
supporting calculations both to the Company and
Employee within 15 business days of the Date of
Termination or such earlier time as is requested by
the Company and an opinion to Employee that he or she
has substantial authority not to report any excise
tax on his Federal income tax return with respect to
any Payments. Any such determination by the
Accounting Firm shall be binding upon the Company and
Employee. Employee shall determine which and how
much of the Payments, shall be eliminated or reduced
consistent with the requirements of this paragraph
7.1, provided that, if Employee does not make such
determination within ten business days of the receipt
of the calculations made by the Accounting Firm, the
Company shall elect which and how much of the
Payments shall be eliminated or reduced consistent
with the requirements of this paragraph 7.1 and shall
notify Employee promptly of such election; and
provided further that any Payments which do not
constitute gross income to Employee shall not be
reduced or eliminated unless all other Payments have
first been eliminated. Within five business days
thereafter, the Company shall pay to or distribute to
or for the benefit of Employee such amounts as are
then due to Employee under this Agreement.
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time
of the initial determination by the Accounting Firm
hereunder, it is possible that Payments will have
been made by the Company which should not have been
made ("Overpayment") or that Payments will not have
been made by the Company which could have been made
("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the
event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue
Service against Employee or the Company which the
Accounting Firm believes has a high probability of
success, determines that an Overpayment has been
made, any such Overpayment paid or distributed by the
Company to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio to
Employee which Employee shall repay to the Company
together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which
Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such
taxes. In the event that the
<PAGE> 11
Mr. Alexander R. Rankin
November 7, 1994
Page 11
Accounting Firm, based upon controlling precedent or
other substantial authority, determines that an
Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the
benefit of Employee together with interest at 120% of
the applicable federal rate provided for in Section
7872(f)(2) of the Code, compounded semiannually.
7.2 Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of
Section 7.1 any portion of any payments to you by the
Company hereunder and any other present or future
plan or program of the Company or other present or
future agreement between you 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
you shall be deferred until the earliest date upon
which payment thereof can be made to you without
being non-deductible pursuant to Section 162(m) of
the Code. In the event of such a deferral, the
Company shall pay interest to you on the amount
deferred at 120% of the applicable federal rate
provided for in Section 7872(f)(2) of the Code,
compounded semi-annually.
8. Miscellaneous.
8.1. No Assignment. No benefit hereunder shall be subject
to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrances or charge, and any
attempt to do so shall be void.
8.2 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:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
<PAGE> 12
Mr. Alexander R. Rankin
November 7, 1994
Page 12
If to the Employee:
Mr. Alexander R. Rankin
P.O. Box 746
Rancho Sante Fe, CA 92067-0746
Either party may change its address for notice by
giving notice to the other party of a new address in
accordance with the foregoing provisions.
8.3 Governing Law. This Agreement shall be governed by
the laws of the State of Kansas.
8.4 Disputes. In the event of any dispute between the
Company and Employee arising out of this Agreement,
the Company's then current Alternative Dispute
Resolution Procedure will be followed (a copy of the
current procedure is attached hereto) and the
prevailing party shall be entitled to recover its
reasonable attorneys' fees and expenses incurred in
connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for
convenience only and shall not control or affect the
meaning or construction of any of the provisions
hereof.
<PAGE> 13
Mr. Alexander R. Rankin
November 7, 1994
Page 13
Please acknowledge your agreement to the foregoing Agreement by
signing the enclosed counterpart of this letter and returning it to the
Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
Agreed to and accepted:
/s/ Alexander R. Rankin
ALEXANDER R. RANKIN
<PAGE> 1
EXHIBIT 10.5
EXECUTIVE AGREEMENT
November 7, 1994
Mr. David P. Niles
Vice President, Quality and Regulatory Affairs
Puritan-Bennett Corporation
9401 Indian Creek Parkway
P.O. Box 25905
Overland Park, KS 66225
Dear Mr. Niles:
This letter agreement restates and supersedes in its entirety the
letter agreement dated August 31, 1994 between you and Puritan-Bennett
Corporation (the "Company"). In view of your position as Vice President,
Quality and Regulatory Affairs of the Company and in consideration of your
agreement to continue serving in this or some other mutually agreeable
capacity, the Board of Directors (the "Board") of the Company has approved the
commitment by the Company to provide you ("Employee") with certain benefits
during your employment and in the event of termination of your employment for
Good Reason, if by you, and other than for Cause, if by the Company. This
letter agreement (the "Agreement") establishes the terms and conditions of your
continued employment by the Company, including your rights to receive certain
payments and benefits during and after your employment by the Company.
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Employee's willful
violation of any reasonable rule or direct order of
the Board or the Company's Chief Executive Officer
("CEO"), which, after written notice to do so, the
Employee 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 actual moral turpitude or
dishonesty of or by the Employee, or (c) drug or
alcohol abuse on Company premises or at a Company
sponsored event, or (d) the Employee's material
violation of any provision of this Agreement, which,
after written notice to do so, the Employee fails to
make reasonable efforts 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 Employee, 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,
<PAGE> 2
Mr. David P. Niles
November 7, 1994
Page 2
refunds, recalls or seizures, if the Employee 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 Good Reason. "Good Reason" means (a) 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, or (b) any of the following if the same shall
occur within two years after a Change of Control: (i)
reduction of the Employee's base salary, management
bonus percentage or other compensation, as in effect
immediately prior to the Change of Control, (ii)
failure to continue in effect any medical, dental,
accident, or disability plan in which the Employee is
entitled to participate immediately prior to the
Change of Control and failure to provide plans with
substantially similar benefits (except that employee
contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by
the Company which would adversely affect the
Employee's participation or reduce the Employee's
benefits under any of such plans, (iii) material
reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position,
(v) Employee shall be requested to relocate to an
office outside of the greater Kansas City or
Minneapolis metropolitan area, or (vi) failure or
refusal of any successor company to assume the
Company's obligations under this Agreement.
1.3 Change of Control. A "Change of Control" shall be
deemed to have occurred at any of the following times:
1.3.1 Upon the acquisition (other than from
the Company) by any person, entity or
"group," within the meaning of
Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934 (the
"Exchange Act") (excluding, for this
purpose, the Company or its
affiliates, or any employee benefit
plan of the Company or its affiliates
which acquires beneficial ownership
of voting securities of the Company)
of beneficial ownership (within the
meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or
more of either the then outstanding
shares of common stock of the Company
or the Combined Voting Power of the
Company's then outstanding voting
securities. "Combined Voting Power"
means the combined voting
<PAGE> 3
Mr. David P. Niles
November 7, 1994
Page 3
power of the Company's then
outstanding voting securities
generally entitled to vote in the
election of directors.
1.3.2 At the time individuals who, as of
the date hereof, constitute the Board
(as of the date hereof, the
"Incumbent Board") cease for any
reason to constitute at least a
majority of the Board, provided that
any person becoming a director
subsequent to the date hereof whose
election, or nomination for election
by the Company's shareholders, was
approved by a vote of at least a
majority of the directors then
comprising the Incumbent Board (other
than an election or nomination of an
individual whose initial assumption
of office is in connection with an
actual or threatened election contest
relating to the election of the
directors of the Company, as such
terms are used in Rule 14a-11 of
Regulation 14A promulgated under the
Exchange Act) shall be, for purposes
of this subsection 1.3.2, considered
as though such person were a member
of the Incumbent Board; or
1.3.3 Upon the approval by the Shareholders
of the Company of a reorganization,
merger, consolidation (in each case,
with respect to which persons who
were the shareholders of the Company
immediately prior to such
reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of
the assets of the Company; or
1.3.4 The occurrence of any other event
which the Incumbent Board in its sole
discretion determines constitutes a
Change of Control.
1.4 Normal Retirement Date. "Normal Retirement
Date" shall mean the earliest date
(currently, the Employee's 65th birthday)
upon which the Employee is eligible to retire
from the Company and commence receiving full
retirement benefits under the Company's then
applicable retirement plan.
<PAGE> 4
Mr. David P. Niles
November 7, 1994
Page 4
1.5 Employment Termination Date. The date of
delivery of any notice of termination
pursuant to Section 2.5 shall be the
"Employment Termination Date."
1.6 Continued Payment Period. "Continued Payment
Period" shall have the meaning set forth in
Section 3.1(a)(i).
2. Benefits and Duties During Employment; Termination of
Employment.
2.1 Base Salary. Your current annual base salary is
$168,000, payable in 24 equal semi-monthly amounts,
subject to required withholdings. Your base salary
will be reviewed and may be adjusted annually. Your
base salary will not be reduced from the current level
or from any future, higher levels without your written
concurrence, unless such reduction is in connection
with your disability and in accordance with the
Company's established disability income protection
plan.
2.2 Management Bonus. For the fiscal year ending January
31, 1995, your target bonus is 25% of your annual base
salary under the Company's Management Incentive Bonus
Plan ("MIB Plan"). Your target bonus percentage under
the MIB Plan will not be reduced from the current
level or from any future, higher levels without your
written concurrence, unless such reduction is in
connection with your disability and in accordance with
the Company's established disability income protection
plan. The Company may modify the MIB Plan in the
future; provided that in the event of any such
modification, the Company will use reasonable efforts
to provide you with a bonus opportunity under the
modified plan that is equivalent to your opportunity
under the current MIB Plan.
2.3 Other Employee Benefits. You will continue to be
eligible for all employee benefits generally available
to employees of the Company, and to the special
benefit programs in which you are currently
participating, or in which you are hereafter eligible
to participate. These special benefits include but
are not limited to:
2.3.1 Company Automobile, including
reimbursement for automobile expenses.
2.3.2 Life insurance and income tax and estate
planning services, subject to currently
established annual limits.
<PAGE> 5
Mr. David P. Niles
November 7, 1994
Page 5
2.4 Limitation on Outside Activities. You agree to devote
your full business time and efforts to the rendition
of such services to the Company as may be designated
by the Company, subject, however, to temporary illness
and customary vacations. You will at all times be
subject to the direction and supervision of the CEO.
You may devote a reasonable amount of time to civic
and community affairs but shall not perform services
during the term of your employment for any other
business organization in any capacity without the
prior consent of the CEO.
2.5 Employment Termination. Your employment with the
Company shall continue until either you or the Company
give written notice to the other of termination of
your employment.
3. Rights upon Termination of Employment.
3.1 Rights upon Termination by Company other than for
Cause, or by Employee for Good Reason. If the Company
terminates your employment other than for Cause prior
to your Normal Retirement Date, or if you terminate
your employment for Good Reason prior to your Normal
Retirement Date, then the Company shall have the
following obligations to you:
(a) (i) If such termination occurs within two
years after a Change of Control, then within 30 days
following the Employment Termination Date, the Company
shall pay to you in a lump sum the present value,
determined as of the Employment Termination Date, of
the amounts that you would have been paid by the
Company if, during the applicable Continued Payment
Period, the Company were to make equal semi-monthly
payments to you equal to your semi-monthly base salary
in effect immediately prior to the Employment
Termination Date plus one twenty-fourth of the annual
average of your incentive bonus payments under the MIB
Plan or any successor thereto with respect to the
three full (12 months) fiscal years immediately
preceding the Employment Termination Date (such annual
average being referred to herein as the "Average
Annual Incentive Payment"), such amounts to be
computed without regard to any reductions which may
have occurred in breach of this Agreement or following
a Change in Control. Such payment shall be subject to
all required withholdings. The Continued Payment
Period shall commence on the Employment Termination
Date, and shall be a number of weeks determined by
adding (a) the greater of (i) four or (ii) two times
the number of years Employee has been an employee of
the Company (rounding up to the next full year and
excluding any
<PAGE> 6
Mr. David P. Niles
November 7, 1994
Page 6
intervening periods during which Employee was not an
employee of the Company), plus (b) two times the
number of $5,000 increments (rounded up to the next
whole $5,000 increment) contained in the Employee's
Annual Compensation (as defined below), provided, that
the Continued Payment Period shall not exceed 2 years.
"Annual Compensation" shall mean the sum of (x) your
annual base salary in the effect immediately prior to
the Employment Termination Date, plus (y) the Average
Annual Incentive Payment. Present value shall be
determined using a discount rate equal to the Most
Applicable Treasury Security Rate compounded annually,
if the Applicable Treasury Security is a Treasury
Bill, and semiannually, if the Applicable Treasury
Security is a Treasury Note. The "Most Applicable
Treasury Security Rate" shall be the yield-to-maturity
of the Applicable Treasury Security with a remaining
term equal to one-half of the Continued Payment
Period, as quoted in the edition of the Wall Street
Journal first published after the Employment
Termination Date. The "Applicable Treasury Security"
shall mean a Treasury Bill if the Continued Payment
Period is two years or less; and shall mean a Treasury
Note if the Continued Payment Period is greater than
two years.
(ii) If such termination occurs
at any time other than within two years after a Change
of Control, then, during the applicable Continued
Payment Period, the Company shall make semi-monthly
payments to you equal to your semi-monthly base salary
in effect immediately prior to the Employment
Termination Date plus one twenty-fourth of the Average
Annual Incentive Payment, such amounts to be computed
without regard to any reductions which may have
occurred in breach of this Agreement. Such payments
shall be subject to all required withholdings.
(b) Any outstanding unvested options held by you
to purchase stock of the Company which have not
otherwise become exercisable under the terms of the
Company's stock option plans, shall become fully
vested and exercisable.
(c) If your employment is terminated under
circumstances in which you are entitled to receive
payments under Section 3.1(a) above, and if you are
not otherwise entitled to a bonus payment with respect
to the fiscal year in which your employment is
terminated, the Company will pay to you within 30 days
after the Employment Termination Date, and subject to
required withholdings, a one-time bonus equal to the
product
<PAGE> 7
Mr. David P. Niles
November 7, 1994
Page 7
of (i) the fraction of a full year represented by the
period from the beginning of the fiscal year to the
Employment Termination Date, and (ii) the Average
Annual Incentive Payment.
(d) As soon as practical following the Employment
Termination Date, the Company shall pay to you the
market value, as of close of business on the
Employment Termination Date, of any unvested
restricted stock awarded to you, subject to required
withholdings.
3.2 Death Benefits. If you are terminated by the Company
other than for Cause or terminate your employment for
Good Reason, and thereafter you die during the
applicable Continued Payment Period, the Company shall
be obligated to pay to your spouse, if surviving, and
otherwise to your estate, the amounts to which you
would have been entitled under Section 3.1 had you
survived.
3.3 No Obligation To Mitigate. You shall not be required
to mitigate 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 for under this Agreement be reduced
by any compensation earned by you as the result of
employment by another employer after the Employment
Termination Date, or otherwise.
3.4 COBRA Benefits. If your employment is terminated
without cause by the Company, or for Good Reason by
you, then the Company will provide a benefit under the
Consolidated Omnibus Budget Reconciliation Act of 1986
("COBRA") and Section 4980B of the Internal Revenue
Code of 1986, as amended (the "Code"), as follows:
the Company shall pay the percentage of the cost of
COBRA coverage with respect to your coverage status
(e.g., individual or family coverage) 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 (i) the monthly cost of COBRA
coverage for your coverage status in effect
immediately prior to the Employment Termination Date
and (ii) your monthly contribution toward your
coverage in effect immediately prior to the Employment
Termination Date, and the denominator of which shall
be the monthly cost of COBRA coverage for your
coverage status in effect immediately prior to the
Employment Termination Date. All of such amounts
shall be determined as of the day immediately
preceding the termination of Employee's employment.
The insurance continuation benefits paid for hereunder
shall be deemed to be part of Employee's COBRA
coverage.
<PAGE> 8
Mr. David P. Niles
November 7, 1994
Page 8
Such benefits shall be in addition to any other
benefits relating to health or medical care benefits
that are available under the Company's policies to
Employee following termination of employment.
3.5 Other Rights. The severance benefits provided
hereunder will be reduced by any severance benefits to
which you are entitled under the Company's Severance
Benefits policy for terminated employees, or any other
agreement between you and the Company for severance
benefits. Except as provided in the immediately
preceding sentence, the provisions of this Agreement,
and any payment provided for hereunder, shall not
reduce any amounts otherwise payable, or in any way
diminish your existing rights or rights which would
accrue solely as a result of the passage of time,
under any benefit or incentive plan, employment
agreement or other contract, plan or arrangement. As
soon as practical following the Employment Termination
Date, you will receive a cash payment for the value of
your earned but unused vacation time as of the
Employment Termination Date in accordance with then
current Company Policy.
4. Successor To Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger,
consolidation or otherwise to all or substantially all the
business or assets of the Company, expressly and
unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to
the same extent that the Company would be required to perform
if no such succession or assignment had taken place. In such
event, the term "Company," as used in this Agreement, shall
mean the Company and any successor or assignee to the business
or assets which by reason hereof becomes bound by the terms
and provisions of this Agreement.
5. Non-Competition. During your employment, you agree that you
will not directly or indirectly compete with the Company, or
engage in, or act as an officer, director, employee, or agent
of any person or entity that is engaged in, any business in
which the Company is engaged, without the written approval of
the CEO. The foregoing shall not prohibit you 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 you shall own less
than 3% of the outstanding voting stock of such corporation.
If you are receiving payments under Section 3.1(a)(ii), then,
as to any business in which the Company is engaged as of the
Employment Termination Date, you shall continue to be bound by
the provisions of this Section 5 during the applicable
Continued Payment Period.
<PAGE> 9
Mr. David P. Niles
November 7, 1994
Page 9
6. Confidentiality. During your employment and at all times
thereafter, you will not divulge to anyone or use for your own
benefit or the benefit of any other person or entity any
information concerning the Company, its businesses,
operations, 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 you for the preparation of
personal tax returns.
7. Reduction of Payments.
7.1 (a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by the Company to or
for the benefit of Employee (whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Company for Federal income tax
purposes because of Section 280G of the Code, then the
aggregate present value of amounts payable or
distributable as severance benefits hereunder shall be
reduced to the Reduced Amount. The "Reduced Amount"
shall be an amount expressed in present value which
maximizes the aggregate present value of such
severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G
of the Code. Anything to the contrary
notwithstanding, if the Reduced Amount is zero and it
is determined further that any Payment which is not
part of the severance benefits payable hereunder would
nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of
the Code, then the aggregate present value of Payments
which are not severance benefits under this Agreement
shall also be reduced (but not below zero) to an
amount expressed in present value which maximizes the
aggregate present value of Payments without causing
any payment to be nondeductible by the Company because
of Section 280G of the Code. For purposes of this
paragraph 7.1, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under
this paragraph 7.1 shall be made by an accounting firm
jointly selected by you and the Company (the
"Accounting Firm") and paid by the Company, and which
may be the Company's independent auditors. The
Accounting Firm shall provide detailed supporting
calculations both to the Company and Employee within
15 business days of the Date of Termination or such
earlier time as is requested by the Company and an
opinion to Employee
<PAGE> 10
Mr. David P. Niles
November 7, 1994
Page 10
that he or she has substantial authority not to report
any excise tax on his Federal income tax return with
respect to any Payments. Any such determination by
the Accounting Firm shall be binding upon the Company
and Employee. Employee shall determine which and how
much of the Payments, shall be eliminated or reduced
consistent with the requirements of this paragraph
7.1, provided that, if Employee does not make such
determination within ten business days of the receipt
of the calculations made by the Accounting Firm, the
Company shall elect which and how much of the Payments
shall be eliminated or reduced consistent with the
requirements of this paragraph 7.1 and shall notify
Employee promptly of such election; and provided
further that any Payments which do not constitute
gross income to Employee shall not be reduced or
eliminated unless all other Payments have first been
eliminated. Within five business days thereafter, the
Company shall pay to or distribute to or for the
benefit of Employee such amounts as are then due to
Employee under this Agreement.
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time of
the initial determination by the Accounting Firm
hereunder, it is possible that Payments will have been
made by the Company which should not have been made
("Overpayment") or that Payments will not have been
made by the Company which could have been made
("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the
event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue
Service against Employee or the Company which the
Accounting Firm believes has a high probability of
success, determines that an Overpayment has been made,
any such Overpayment paid or distributed by the
Company to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio to
Employee which Employee shall repay to the Company
together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code;
provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable to
the Company if and to the extent such deemed loan and
payment would not either reduce the amount on which
Employee is subject to tax under Section 1 and Section
4999 of the Code or generate a refund of such taxes.
In the event that the Accounting Firm, based upon
controlling precedent or other substantial authority,
determines that an Underpayment has occurred, any such
Underpayment shall be promptly paid by the Company to
or for the benefit of Employee together with interest
at 120% of the applicable
<PAGE> 11
Mr. David P. Niles
November 7, 1994
Page 11
federal rate provided for in Section 7872(f)(2) of
the Code, compounded semiannually.
7.2 Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of
Section 7.1 any portion of any payments to you by the
Company hereunder and any other present or future plan
or program of the Company or other present or future
agreement between you 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 you shall be
deferred until the earliest date upon which payment
thereof can be made to you without being
non-deductible pursuant to Section 162(m) of the Code.
In the event of such a deferral, the Company shall pay
interest to you on the amount deferred at 120% of the
applicable federal rate provided for in Section
7872(f)(2) of the Code, compounded semi-annually.
8. Miscellaneous.
8.1. No Assignment. No benefit hereunder shall be subject
to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrances or charge, and any
attempt to do so shall be void.
8.2 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:
Chief Executive Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
Overland Park, Kansas 66225
If to the Employee:
Mr. David P. Niles
9663 Juniper St.
Coon Rapids, Minnesota 55433
<PAGE> 12
Mr. David P. Niles
November 7, 1994
Page 12
Either party may change its address for notice by
giving notice to the other party of a new address in
accordance with the foregoing provisions.
8.3 Governing Law. This Agreement shall be governed by
the laws of the State of Kansas.
8.4 Disputes. In the event of any dispute between the
Company and Employee arising out of this Agreement,
the Company's then current Alternative Dispute
Resolution Procedure will be followed (a copy of the
current procedure is attached hereto) and the
prevailing party shall be entitled to recover its
reasonable attorneys' fees and expenses incurred in
connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of
competent jurisdiction or other authority to be
invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for
convenience only and shall not control or affect the
meaning or construction of any of the provisions
hereof.
Please acknowledge your agreement to the foregoing Agreement by signing
the enclosed counterpart of this letter and returning it to the Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
Agreed to and accepted:
/s/ David P. Niles
DAVID P. NILES
<PAGE> 1
EXHIBIT 10.6
SEVERANCE AGREEMENT
November 7, 1994
Mr. Lee A. Robbins
Vice President and Chief Financial Officer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
P.O. Box 25905
Overland Park, KS 66225-5905
Dear Mr. Robbins:
In view of your position as Vice President, Chief Financial Officer and
Controller at Puritan-Bennett Corporation (the "Company"), and in consideration
of your services in such capacity, the Board of Directors (the "Board") has
approved the commitment by the Company to you ("Employee") to provide you with
certain benefits in the event your employment is terminated for specified
reasons within two years after a Change of Control. The purpose of this letter
agreement (the "Agreement") is to set forth the terms and conditions of the
Company's agreement with you concerning such benefits.
1. Termination Benefits. If, within two years after the date of
a Change of Control, Employee's employment is terminated (a) by the Company for
any reason other than for Cause or Employee's death or Disability or (b) by
Employee for Good Reason, Employee will be entitled to receive the following
benefits:
1.1 Within 30 days following the Date of Termination, the
Company shall pay to you in a lump sum the present value, determined as of the
Date of Termination, of the amounts that you would have been paid by the
Company if, during the Continued Payment Period, the Company were to make
weekly payments to you each equal to one fifty-second of your Annual
Compensation. Such payment shall be subject to all required withholdings. The
Continued Payment Period shall commence on the Date of Termination, and shall
be a number of weeks determined by adding (a) the greater of (i) four or (ii)
two times the number of years Employee has been an employee of the Company
(rounding up to the next full year and excluding any intervening periods during
which Employee was not an employee of the Company), plus (b) two times the
number of $5,000 increments (rounded up to the next whole $5,000 increment)
contained in the Employee's Annual Compensation; provided, that the Continued
Payment Period shall not exceed two years. Present value shall be determined
using a discount rate, compounded annually, equal to the yield- to-maturity of
a U.S. Treasury Bill with a remaining term equal to one-half of the Continued
Payment Period, as quoted in the edition of the Wall Street Journal first
published after the Date of Termination. If Employee should die before
receiving all amounts payable to Employee hereunder, any unpaid amounts will be
paid to Employee's spouse, if living, and otherwise to Employee's estate.
Employee shall be entitled to receive interest on any amount payable hereunder
from the date payment was due to the date actually paid at the rate of the
lesser of 12% or the highest rate legally
<PAGE> 2
Mr. Lee A. Robbins
November 7, 1994
Page 2
permissible. Employee will not be required to mitigate the amount of the
payments due to Employee hereunder by seeking other employment or otherwise.
Any amount earned by Employee as the result of employment by another employer
or otherwise after the Date of Termination shall not reduce the Company's
obligation to Employee hereunder.
1.2 Any outstanding unvested options held by Employee to
purchase stock of the Company that have not otherwise become exercisable under
the terms of the Company's stock option plans shall become fully vested and
exercisable.
1.3 COBRA Benefits. The Company will provide a benefit under
the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and
Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), as
follows: the Company shall pay the percentage of the cost of COBRA coverage
with respect to your coverage status (e.g., individual or family) in effect
immediately prior to the Date of Termination, which percentage shall be the
fraction (expressed as a percentage), the numerator of which shall be the
difference between (i) the monthly cost of COBRA coverage for your coverage
status in effect immediately prior to the Date of Termination and (ii) your
monthly contribution toward your coverage in effect immediately prior to the
Date of Termination, and the denominator of which shall be the monthly cost of
COBRA coverage for your coverage status in effect immediately prior to the Date
of Termination. All of such amounts shall be determined as of the day
immediately preceding the termination of Employee's employment. The insurance
continuation benefits paid for hereunder shall be deemed to be part of
Employee's COBRA coverage. Such benefits shall be in addition to any other
benefits relating to health or medical care benefits that are available under
the Company's policies to Employee following termination of employment.
1.4 Offset for Other Arrangements. The severance benefits
provided hereunder will be reduced by the amount of any severance benefits to
which Employee is entitled under the Company's Severance Benefits policy for
terminated employees, or any other agreement between Employee and the Company
for severance benefits.
2. Notice of Termination. Any termination by the Company for
Cause or by Employee for Good Reason shall be communicated by written notice to
the other party given by hand delivery or by registered or certified mail,
return receipt requested, postage prepaid, if to Employee, then to Employee at
his or her address as set forth in the Company's records, and, if to the
Company, to Puritan-Bennett Corporation, Human Relations Division, 9401 Indian
Creek Parkway, Overland Park, Kansas 66207. Any notices given pursuant to this
paragraph 2 shall be effective the earlier of when such notice is actually
received by the addressee or three days after such notice is delivered or sent.
<PAGE> 3
Mr. Lee A. Robbins
November 7, 1994
Page 3
3. Definitions.
3.1 "Annual Compensation" means the greater of (a) the sum
of (i) the Employee's annual base salary ("Base Salary") in effect on the Date
of Termination, plus (ii) the annual average of the Employee's incentive bonus
payments under the Company's Management Incentive Bonus Plan or any successor
thereto with respect to the three full (12 months) fiscal years ("Average
Bonus") immediately preceding the Date of Termination; or (b) the sum of (x)
the Employee's Base Salary in effect on the date of the Change of Control, plus
(y) the Employee's Average Bonus computed with respect to the three full (12
months) fiscal years immediately preceding the date of the Change of Control
(provided, if Employee has not been employed by the Company during all of the
three full fiscal years immediately preceding the Date of Termination or the
date of the Change of Control, as the case may be, then "Average Bonus" shall
mean the annualized average of the bonus payments received by the Employee,
computed based on the actual period of Employee's employment with the Company
during any full fiscal year(s) of the Company with respect to which Employee
has received a bonus).
3.2 "Cause" means (a) the Employee's willful violation of
any reasonable rule or direct order of the Board, the Company's Chief Executive
Officer ("CEO") or other elected officer, where such officer is Employee's
direct supervisor, which, after written notice to do so, the Employee 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 actual moral turpitude or dishonesty of or by the Employee, or (c)
drug or alcohol abuse on Company premises or at a Company sponsored event, or
(d) the Employee's material violation of any provision of this Agreement,
which, after written notice to do so, the Employee fails to make reasonable
efforts 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 Employee, 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 the Employee 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.
3.3 Change of Control. A "Change of Control" shall be deemed
to have occurred at any of the following times:
3.3.1 Upon the acquisition (other than from
the Company) by any person, entity or
"group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange
Act") (excluding, for this purpose, the
Company or its affiliates, or any
employee
<PAGE> 4
Mr. Lee A. Robbins
November 7, 1994
Page 4
benefit plan of the Company or its
affiliates which acquires beneficial
ownership of voting securities of the
Company) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more
of either the then outstanding shares of
common stock of the Company or the
Combined Voting Power of the Company's
then outstanding voting securities.
"Combined Voting Power" means the
combined voting power of the Company's
then outstanding voting securities
generally entitled to vote in the
election of directors.
3.3.2 At the time individuals who, as of the
date hereof, constitute the Board (as of
the date hereof, the "Incumbent Board")
cease for any reason to constitute at
least a majority of the Board, provided
that any person becoming a director
subsequent to the date hereof whose
election, or nomination for election by
the Company's shareholders, was approved
by a vote of at least a majority of the
directors then comprising the Incumbent
Board (other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or threatened
election contest relating to the
election of the directors of the
Company, as such terms are used in Rule
14a- 11 of Regulation 14A promulgated
under the Exchange Act) shall be, for
purposes of this subsection 3.3.2,
considered as though such person were a
member of the Incumbent Board; or
3.3.3 Upon the approval by the Shareholders of
the Company of a reorganization, merger,
consolidation (in each case, with
respect to which persons who were the
shareholders of the Company immediately
prior to such reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of the
assets of the Company; or
3.3.4 The occurrence of any other event which
the Incumbent Board in its sole
discretion determines constitutes a
Change of Control.
<PAGE> 5
Mr. Lee A. Robbins
November 7, 1994
Page 5
3.4 "Date of Termination" means the date of receipt of the
written notice of termination pursuant to paragraph 2 or any later date
specified therein, as the case may be; provided, however, that (a) if
Employee's employment is terminated by the Company other than for Cause or by
reason of death or Disability, the Date of Termination shall be the date on
which the Company notifies Employee of such termination and (b) if Employee's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death or determination of Disability pursuant
to paragraph 3.5, as the case may be.
3.5 "Disability" means disability that, at least 26 weeks
after its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to Employee or
Employee's legal representative (such acceptance not to be unreasonably
withheld).
3.6 "Good Reason" means (i) reduction of the Employee's base
salary, management bonus percentage or other compensation, as in effect
immediately prior to the Change of Control, (ii) failure to continue in effect
any medical, dental, accident, or disability plan in which the Employee is
entitled to participate immediately prior to the Change of Control and failure
to provide plans with substantially similar benefits (except that employee
contributions may be raised to the extent of any cost increases imposed by
third parties) or any action by the Company which would adversely affect the
Employee's participation or reduce the Employee's benefits under any of such
plans, (iii) material reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position, (v) Employee shall be
requested to relocate to an office outside of the greater Kansas City
metropolitan area, or (vi) failure or refusal of any successor company to
assume the Company's obligations under this Agreement.
4. Nonexclusivity. Nothing in this Agreement shall prevent or
limit Employee's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which Employee may otherwise qualify, nor shall anything herein
limit or otherwise affect such rights as any Employee may have under any stock
option or other agreements with the Company. Except as otherwise expressly
provided herein, amounts which are vested benefits or which Employee is
otherwise entitled to receive under any plan, policy, practice or program of
the Company at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program.
5. Successor to Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company," as used in
<PAGE> 6
Mr. Lee A. Robbins
November 7, 1994
Page 6
this Agreement, shall mean the Company as hereinafter defined and any successor
or assignee to the business or assets which by reason hereof becomes bound by
the terms and provisions of this Agreement.
6. Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise) (a "Payment") would be nondeductible by the Company for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable as severance benefits
hereunder shall be reduced to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of such severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. Anything to
the contrary notwithstanding, if the Reduced Amount is zero and it is
determined further that any Payment which is not part of the severance benefits
payable hereunder would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not severance benefits under this
Agreement shall also be reduced (but not below zero) to an amount expressed in
present value which maximizes the aggregate present value of Payments without
causing any payment to be nondeductible by the Company because of Section 280G
of the Code. For purposes of this paragraph 6, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this
paragraph 6 shall be made by an accounting firm jointly selected by you and the
Company (the "Accounting Firm") and paid by the Company, and which may be the
Company's independent auditors. The Accounting Firm shall provide detailed
supporting calculations both to the Company and Employee within 15 business
days of the Date of Termination or such earlier time as is requested by the
Company and an opinion to Employee that he or she has substantial authority not
to report any excise tax on his Federal income tax return with respect to any
Payments. Any such determination by the Accounting Firm shall be binding upon
the Company and Employee. Employee shall determine which and how much of the
Payments shall be eliminated or reduced consistent with the requirements of
this paragraph 6; provided that, if Employee does not make such determination
within ten business days of the receipt of the calculations made by the
Accounting Firm, the Company shall elect which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this
paragraph 6 and shall notify Employee promptly of such election; and provided
further that any Payments which do not constitute gross income to Employee
shall not be reduced or eliminated unless all other Payments have first been
eliminated. Within five business days thereafter, the Company shall pay to or
distribute to or for the benefit of Employee such amounts as are then due to
Employee under this Agreement.
<PAGE> 7
Mr. Lee A. Robbins
November 7, 1994
Page 7
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Payments will have been made by
the Company which should not have been made ("Overpayment") or that Payments
will not have been made by the Company which could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against Employee or
the Company which the Accounting Firm believes has a high probability of
success, determines that an Overpayment has been made, any such Overpayment
paid or distributed by the Company to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio to Employee which Employee shall
repay to the Company together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
the Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of Employee
together with interest at 120% of the applicable federal rate provided for in
Section 7872(f)(2) of the Code, compounded semiannually.
(d) Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of paragraphs 6(a)-(c) any
portion of any payments to Employee by the Company hereunder 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
Employee shall be deferred until the earliest date upon which payment thereof
can be made to Employee without being non-deductible pursuant to Section 162(m)
of the Code. In the event of such a deferral, the Company shall pay interest
to you on the amount deferred at 120% of the applicable federal rate provided
for in Section 7872(f)(2) of the Code, compounded semiannually.
7. Amendments and Termination. The Incumbent Board may from time
to time supplement, amend or terminate this Agreement or make any other
provisions which the Company may deem necessary or desirable, without the
approval of Employee; provided, however, that from and after such time there
has been a Change of Control, this Agreement shall not be amended in any manner
which would adversely affect the interests of Employee without the written
consent of Employee. Subject to the foregoing, this Agreement establishes and
vests in Employee a contractual right to the benefits to which Employee is
entitled hereunder, enforceable by Employee against the Company. The form of
any proper amendment or termination of this Agreement shall be a written
instrument signed by a duly authorized officer or officers of the Company
certifying that the amendment or termination has been approved by the Incumbent
Board.
<PAGE> 8
Mr. Lee A. Robbins
November 7, 1994
Page 8
8. Miscellaneous.
8.1 Employment Status. This Agreement does not constitute a
contract of employment or impose on Employee or the Company any obligation to
retain Employee as an employee, to change the status of Employee's employment,
or to change the Company's policies regarding termination of employment.
8.2 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.
8.3 Governing Law. This Agreement shall be governed by the
laws of the State of Kansas.
8.4 Expenses of Suit. In the event of any dispute or
litigation between the Company and Employee arising out of this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees
and expenses incurred in connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenants or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
Please acknowledge your agreement to the foregoing agreement by signing
the enclosed counterpart of this letter and returning it to the Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
By: /s/ Derl S. Treff
Derl S. Treff, Treasurer
Agreed to and Accepted:
/s/ Lee A. Robbins
LEE A. ROBBINS
<PAGE> 1
EXHIBIT 10.7
SEVERANCE AGREEMENT
November 7, 1994
Mr. Derl S. Treff
Treasurer
Puritan-Bennett Corporation
9401 Indian Creek Parkway
P.O. Box 25905
Overland Park, KS 66225-5905
Dear Mr. Treff:
In view of your position as Treasurer for Puritan-Bennett Corporation
(the "Company"), and in consideration of your services in such capacity, the
Board of Directors (the "Board") has approved the commitment by the Company to
you ("Employee") to provide you with certain benefits in the event your
employment is terminated for specified reasons within two years after a Change
of Control. The purpose of this letter agreement (the "Agreement") is to set
forth the terms and conditions of the Company's agreement with you concerning
such benefits.
1. Termination Benefits. If, within two years after the date of
a Change of Control, Employee's employment is terminated (a) by the Company for
any reason other than for Cause or Employee's death or Disability or (b) by
Employee for Good Reason, Employee will be entitled to receive the following
benefits:
1.1 Within 30 days following the Date of Termination, the
Company shall pay to you in a lump sum the present value, determined as of the
Date of Termination, of the amounts that you would have been paid by the
Company if, during the Continued Payment Period, the Company were to make
weekly payments to you each equal to one fifty-second of your Annual
Compensation. Such payment shall be subject to all required withholdings. The
Continued Payment Period shall commence on the Date of Termination, and shall
be a number of weeks determined by adding (a) the greater of (i) four or (ii)
two times the number of years Employee has been an employee of the Company
(rounding up to the next full year and excluding any intervening periods during
which Employee was not an employee of the Company), plus (b) two times the
number of $5,000 increments (rounded up to the next whole $5,000 increment)
contained in the Employee's Annual Compensation; provided, that the Continued
Payment Period shall not exceed two years. Present value shall be determined
using a discount rate, compounded annually, equal to the yield- to-maturity of
a U.S. Treasury Bill with a remaining term equal to one-half of the Continued
Payment Period, as quoted in the edition of the Wall Street Journal first
published after the Date of Termination. If Employee should die before
receiving all amounts payable to Employee hereunder, any unpaid amounts will be
paid to Employee's spouse, if living, and otherwise to Employee's estate.
Employee shall be entitled to receive interest on any amount payable hereunder
from the date payment was due to the date actually paid at the rate of the
lesser of 12% or the highest rate legally permissible. Employee will not be
required to mitigate the amount of the payments due to Employee hereunder by
seeking other employment or otherwise. Any amount earned by
<PAGE> 2
Mr. Derl S. Treff
November 7, 1994
Page 2
Employee as the result of employment by another employer or otherwise after the
Date of Termination shall not reduce the Company's obligation to Employee
hereunder.
1.2 Any outstanding unvested options held by Employee to
purchase stock of the Company that have not otherwise become exercisable under
the terms of the Company's stock option plans shall become fully vested and
exercisable.
1.3 COBRA Benefits. The Company will provide a benefit under
the Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and
Section 4980B of the Internal Revenue Code of 1986, as amended (the "Code"), as
follows: the Company shall pay the percentage of the cost of COBRA coverage
with respect to your coverage status (e.g., individual or family) in effect
immediately prior to the Date of Termination, which percentage shall be the
fraction (expressed as a percentage), the numerator of which shall be the
difference between (i) the monthly cost of COBRA coverage for your coverage
status in effect immediately prior to the Date of Termination and (ii) your
monthly contribution toward your coverage in effect immediately prior to the
Date of Termination, and the denominator of which shall be the monthly cost of
COBRA coverage for your coverage status in effect immediately prior to the Date
of Termination. All of such amounts shall be determined as of the day
immediately preceding the termination of Employee's employment. The insurance
continuation benefits paid for hereunder shall be deemed to be part of
Employee's COBRA coverage. Such benefits shall be in addition to any other
benefits relating to health or medical care benefits that are available under
the Company's policies to Employee following termination of employment.
1.4 Offset for Other Arrangements. The severance benefits
provided hereunder will be reduced by the amount of any severance benefits to
which Employee is entitled under the Company's Severance Benefits policy for
terminated employees, or any other agreement between Employee and the Company
for severance benefits.
2. Notice of Termination. Any termination by the Company for
Cause or by Employee for Good Reason shall be communicated by written notice to
the other party given by hand delivery or by registered or certified mail,
return receipt requested, postage prepaid, if to Employee, then to Employee at
his or her address as set forth in the Company's records, and, if to the
Company, to Puritan-Bennett Corporation, Human Relations Division, 9401 Indian
Creek Parkway, Overland Park, Kansas 66207. Any notices given pursuant to this
paragraph 2 shall be effective the earlier of when such notice is actually
received by the addressee or three days after such notice is delivered or sent.
3. Definitions.
3.1 "Annual Compensation" means the greater of (a) the sum
of (i) the Employee's annual base salary ("Base Salary") in effect on the Date
of Termination, plus (ii) the annual average of the Employee's incentive bonus
payments under the Company's
2
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Mr. Derl S. Treff
November 7, 1994
Page 3
Management Incentive Bonus Plan or any successor thereto with respect to the
three full (12 months) fiscal years ("Average Bonus") immediately preceding the
Date of Termination; or (b) the sum of (x) the Employee's Base Salary in effect
on the date of the Change of Control, plus (y) the Employee's Average Bonus
computed with respect to the three full (12 months) fiscal years (or applicable
shorter period) immediately preceding the date of the Change of Control
(provided, if Employee has not been employed by the Company during all of the
three full fiscal years immediately preceding the Date of Termination or the
date of the Change of Control, as the case may be, then "Average Bonus" shall
mean the annualized average of the bonus payments received by the Employee,
computed based on the actual period of Employee's employment with the Company
during any full fiscal year(s) of the Company with respect to which Employee
has received a bonus).
3.2 "Cause" means (a) the Employee's willful violation of
any reasonable rule or direct order of the Board, the Company's Chief Executive
Officer ("CEO") or other elected officer, where such officer is Employee's
direct supervisor, which, after written notice to do so, the Employee 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 actual moral turpitude or dishonesty of or by the Employee, or (c)
drug or alcohol abuse on Company premises or at a Company sponsored event, or
(d) the Employee's material violation of any provision of this Agreement,
which, after written notice to do so, the Employee fails to make reasonable
efforts 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 Employee, 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 the Employee 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.
3.3 Change of Control. A "Change of Control" shall be deemed
to have occurred at any of the following times:
3.3.1 Upon the acquisition (other than from
the Company) by any person, entity or
"group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange
Act") (excluding, for this purpose, the
Company or its affiliates, or any
employee benefit plan of the Company or
its affiliates which acquires beneficial
ownership of voting securities of the
Company) of beneficial ownership (within
the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 50% or more
of either the then outstanding shares of
common
3
<PAGE> 4
Mr. Derl S. Treff
November 7, 1994
Page 4
stock of the Company or the Combined
Voting Power of the Company's then
outstanding voting securities.
"Combined Voting Power" means the
combined voting power of the Company's
then outstanding voting securities
generally entitled to vote in the
election of directors.
3.3.2 At the time individuals who, as of the
date hereof, constitute the Board (as of
the date hereof, the "Incumbent Board")
cease for any reason to constitute at
least a majority of the Board, provided
that any person becoming a director
subsequent to the date hereof whose
election, or nomination for election by
the Company's shareholders, was approved
by a vote of at least a majority of the
directors then comprising the Incumbent
Board (other than an election or
nomination of an individual whose
initial assumption of office is in
connection with an actual or threatened
election contest relating to the
election of the directors of the
Company, as such terms are used in Rule
14a- 11 of Regulation 14A promulgated
under the Exchange Act) shall be, for
purposes of this subsection 3.3.2,
considered as though such person were a
member of the Incumbent Board; or
3.3.3 Upon the approval by the Shareholders of
the Company of a reorganization, merger,
consolidation (in each case, with
respect to which persons who were the
shareholders of the Company immediately
prior to such reorganization, merger or
consolidation do not, immediately
thereafter, own more than 50% of the
Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Company or of the
sale of all or substantially all of the
assets of the Company; or
3.3.4 The occurrence of any other event which
the Incumbent Board in its sole
discretion determines constitutes a
Change of Control.
4
<PAGE> 5
Mr. Derl S. Treff
November 7, 1994
Page 5
3.4 "Date of Termination" means the date of receipt of the
written notice of termination pursuant to paragraph 2 or any later date
specified therein, as the case may be; provided, however, that (a) if
Employee's employment is terminated by the Company other than for Cause or by
reason of death or Disability, the Date of Termination shall be the date on
which the Company notifies Employee of such termination and (b) if Employee's
employment is terminated by reason of death or Disability, the Date of
Termination shall be the date of death or determination of Disability pursuant
to paragraph 3.5, as the case may be.
3.5 "Disability" means disability that, at least 26 weeks
after its commencement, is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to Employee or
Employee's legal representative (such acceptance not to be unreasonably
withheld).
3.6 "Good Reason" means (i) reduction of the Employee's base
salary, management bonus percentage or other compensation, as in effect
immediately prior to the Change of Control, (ii) failure to continue in effect
any medical, dental, accident, or disability plan in which the Employee is
entitled to participate immediately prior to the Change of Control and failure
to provide plans with substantially similar benefits (except that employee
contributions may be raised to the extent of any cost increases imposed by
third parties) or any action by the Company which would adversely affect the
Employee's participation or reduce the Employee's benefits under any of such
plans, (iii) material reduction in Employee's job responsibilities, (iv)
material reduction of Employee's title or position, (v) Employee shall be
requested to relocate to an office outside of the greater Kansas City
metropolitan area, or (vi) failure or refusal of any successor company to
assume the Company's obligations under this Agreement.
4. Nonexclusivity. Nothing in this Agreement shall prevent or
limit Employee's continuing or future participation in any benefit, bonus,
incentive or other plans, programs, policies or practices provided by the
Company and for which Employee may otherwise qualify, nor shall anything herein
limit or otherwise affect such rights as any Employee may have under any stock
option or other agreements with the Company. Except as otherwise expressly
provided herein, amounts which are vested benefits or which Employee is
otherwise entitled to receive under any plan, policy, practice or program of
the Company at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program.
5. Successor to Company. The Company shall require any successor
or assignee, whether direct or indirect, by purchase, merger, consolidation or
otherwise, to all or substantially all the business or assets of the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent
that the Company would be required to perform if no such succession or
assignment had taken place. In such event, the term "Company," as used in
5
<PAGE> 6
Mr. Derl S. Treff
November 7, 1994
Page 6
this Agreement, shall mean the Company as hereinafter defined and any successor
or assignee to the business or assets which by reason hereof becomes bound by
the terms and provisions of this Agreement.
6. Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Employee (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise) (a "Payment") would be nondeductible by the Company for Federal
income tax purposes because of Section 280G of the Code, then the aggregate
present value of amounts payable or distributable as severance benefits
hereunder shall be reduced to the Reduced Amount. The "Reduced Amount" shall
be an amount expressed in present value which maximizes the aggregate present
value of such severance benefits without causing any Payment to be
nondeductible by the Company because of Section 280G of the Code. Anything to
the contrary notwithstanding, if the Reduced Amount is zero and it is
determined further that any Payment which is not part of the severance benefits
payable hereunder would nevertheless be nondeductible by the Company for
Federal income tax purposes because of Section 280G of the Code, then the
aggregate present value of Payments which are not severance benefits under this
Agreement shall also be reduced (but not below zero) to an amount expressed in
present value which maximizes the aggregate present value of Payments without
causing any payment to be nondeductible by the Company because of Section 280G
of the Code. For purposes of this paragraph 6, present value shall be
determined in accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made under this
paragraph 6 shall be made by an accounting firm jointly selected by you and the
Company (the "Accounting Firm") and paid by the Company, and which may be the
Company's independent auditors. The Accounting Firm shall provide detailed
supporting calculations both to the Company and Employee within 15 business
days of the Date of Termination or such earlier time as is requested by the
Company and an opinion to Employee that he or she has substantial authority not
to report any excise tax on his Federal income tax return with respect to any
Payments. Any such determination by the Accounting Firm shall be binding upon
the Company and Employee. Employee shall determine which and how much of the
Payments shall be eliminated or reduced consistent with the requirements of
this paragraph 6; provided that, if Employee does not make such determination
within ten business days of the receipt of the calculations made by the
Accounting Firm, the Company shall elect which and how much of the Payments
shall be eliminated or reduced consistent with the requirements of this
paragraph 6 and shall notify Employee promptly of such election; and provided
further that any Payments which do not constitute gross income to Employee
shall not be reduced or eliminated unless all other Payments have first been
eliminated. Within five business days thereafter, the Company shall pay to or
distribute to or for the benefit of Employee such amounts as are then due to
Employee under this Agreement.
6
<PAGE> 7
Mr. Derl S. Treff
November 7, 1994
Page 7
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Payments will have been made by
the Company which should not have been made ("Overpayment") or that Payments
will not have been made by the Company which could have been made
("Underpayment"), in each case, consistent with the calculations required to be
made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against Employee or
the Company which the Accounting Firm believes has a high probability of
success, determines that an Overpayment has been made, any such Overpayment
paid or distributed by the Company to or for the benefit of Employee shall be
treated for all purposes as a loan ab initio to Employee which Employee shall
repay to the Company together with interest at the applicable federal rate
provided for in Section 7872(f)(2) of the Code; provided, however, that no such
loan shall be deemed to have been made and no amount shall be payable to the
Company if and to the extent such deemed loan and payment would not either
reduce the amount on which Employee is subject to tax under Section 1 and
Section 4999 of the Code or generate a refund of such taxes. In the event that
the Accounting Firm, based upon controlling precedent or other substantial
authority, determines that an Underpayment has occurred, any such Underpayment
shall be promptly paid by the Company to or for the benefit of Employee
together with interest at 120% of the applicable federal rate provided for in
Section 7872(f)(2) of the Code, compounded semiannually.
(d) Notwithstanding anything in this Agreement to the
contrary, if after giving effect to the provisions of paragraphs 6(a)-(c) any
portion of any payments to Employee by the Company hereunder 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
Employee shall be deferred until the earliest date upon which payment thereof
can be made to Employee without being non-deductible pursuant to Section 162(m)
of the Code. In the event of such a deferral, the Company shall pay interest
to you on the amount deferred at 120% of the applicable federal rate provided
for in Section 7872(f)(2) of the Code, compounded semiannually.
7. Amendments and Termination. The Incumbent Board may from time
to time supplement, amend or terminate this Agreement or make any other
provisions which the Company may deem necessary or desirable, without the
approval of Employee; provided, however, that from and after such time there
has been a Change of Control, this Agreement shall not be amended in any manner
which would adversely affect the interests of Employee without the written
consent of Employee. Subject to the foregoing, this Agreement establishes and
vests in Employee a contractual right to the benefits to which Employee is
entitled hereunder, enforceable by Employee against the Company. The form of
any proper amendment or termination of this Agreement shall be a written
instrument signed by a duly authorized officer or officers of the Company
certifying that the amendment or termination has been approved by the Incumbent
Board.
7
<PAGE> 8
Mr. Derl S. Treff
November 7, 1994
Page 8
8. Miscellaneous.
8.1 Employment Status. This Agreement does not constitute a
contract of employment or impose on Employee or the Company any obligation to
retain Employee as an employee, to change the status of Employee's employment,
or to change the Company's policies regarding termination of employment.
8.2 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.
8.3 Governing Law. This Agreement shall be governed by the
laws of the State of Kansas.
8.4 Expenses of Suit. In the event of any dispute or
litigation between the Company and Employee arising out of this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys' fees
and expenses incurred in connection with the enforcement of its rights
hereunder.
8.5 Severability. If any term, provision, covenants or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
8.6 Descriptive Headings. Descriptive headings of the
several paragraphs of this Agreement are inserted for convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
Please acknowledge your agreement to the foregoing agreement by signing
the enclosed counterpart of this letter and returning it to the Company.
Very truly yours,
PURITAN-BENNETT CORPORATION
By: /s/ Lee A. Robbins
Vice President
Agreed to and Accepted:
/s/ Derl S. Treff
DERL S. TREFF
8
<PAGE> 1
EXHIBIT 10.8
FIRST AMENDMENT TO PURITAN-BENNETT CORPORATION
MANAGEMENT INCENTIVE BONUS PLAN A
THIS AMENDMENT of the Puritan-Bennett Corporation Management Incentive
Bonus Plan A (the "Plan") is made by the Puritan-Bennett Corporation (which,
together with its subsidiaries and affiliates, shall be referred to herein as
the "Corporation"), effective as of the 7th day of November, 1994.
WHEREAS, as part of the Plan, the Corporation reserved the right, at
any time, by action of its Board of Directors, to modify or amend, in whole or
in part, any or all provisions of the Plan; and
WHEREAS, the Corporation now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section e)1. on page 6 of the Plan is hereby amended by the
addition of the following at the end of such section:
; provided that in the event that a participant is terminated
without Cause (as defined below) or resigns for Good Reason (as defined
below) within two years following a Change in Control (as defined
below), the Company shall pay to the participant as soon as possible
following such termination the maximum bonus amount for which such
participant was eligible with respect to the fiscal year of
termination, prorated to the date of termination. The following
definitions shall apply:
"Cause" means (a) a participant's willful violation of any
reasonable rule or direct order of the Board or the Company's
Chief Executive Officer ("CEO") or other elected officer,
where such officer is the participant's direct supervisor,
which, after written notice to do so, the participant 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 actual moral
turpitude or dishonesty of or by the participant, or (c) drug
or alcohol abuse on Company premises or at a Company sponsored
event, or (d) the participant's material violation of any
provision of this Agreement, which, after written notice to do
so, the participant fails to make reasonable efforts to
correct within a reasonable time. "Cause" shall not include
any matter other than these 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 a
participant, or upon any operation,
<PAGE> 2
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 the participant
acted in good faith and in a manner which the participant
reasonably believed to be in or not opposed to the best
interests of the Company.
"Good Reason" means any of the following: (a) breach by the
Company or any successor company of any of the provisions of
any employment agreement between the participant and the
Company not corrected within ninety (90) days after written
notice to the Company thereof, (b) reduction of a
participant's base salary, management bonus percentage or
other compensation, as in effect immediately prior to the
Change of Control, (c) failure to continue in effect any
medical, dental, accident, or disability plan in which the
participant is entitled to participate immediately prior to
the Change of Control and failure to provide plans with
substantially similar benefits (except that employee
contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the
Company which would adversely affect the participant's
participation or reduce the participant's benefits under any
of such plans, (d) material reduction in the participant's job
responsibilities, (iv) material reduction of participant's
title or position, (v) the participant shall be requested to
relocate to an office outside of the metropolitan area in
which the office to which he was assigned prior to the Change
of Control is located, or (vi) failure or refusal of any
successor company to assume the Company's obligations under
this plan or any employment agreement between the participant
and the Company.
A "Change of Control" shall be deemed to have occurred at any
of the following times:
A. Upon the acquisition (other than from the Company)
by any person, entity or "group," within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act") (excluding,
for this purpose, the Company or its affiliates, or
any employee benefit plan of the Company or its
affiliates which acquires beneficial ownership of
voting securities of the Company) of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of
either the then outstanding shares of common stock of
the Company or the Combined Voting Power of the
Company's then outstanding voting securities.
"Combined Voting
-2-
<PAGE> 3
Power" means the combined voting power of the
Company's then outstanding voting securities generally
entitled to vote in the election of directors.
B. At the time individuals who, as of November 7, 1994,
constitute the Board (as of November 7, 1994, the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board, provided that any person
becoming a director subsequent to November 7, 1994 whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is
in connection with an actual or threatened election
contest relating to the election of the directors of
the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this subparagraph B,
considered as though such person were a member of the
Incumbent Board; or
C. Upon the approval by the shareholders of the
Company of a reorganization, merger, consolidation (in
each case, with respect to which persons who were the
shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the
Combined Voting Power of the reorganized, merged or
consolidated company's then outstanding voting
securities) or a liquidation or dissolution of the
Company or of the sale of all or substantially all of
the assets of the Company; or
D. The occurrence of any other event which the
Incumbent Board in its sole discretion determines
constitutes a Change of Control.
2. Section e)2 is hereby amended by the deletion of the text of
such section and the substitution in lieu thereof of the
following paragraph:
Profit for bonus determination will be inclusive of any
changes in reserves, but will exclude any capital gains or
losses, other unusual gains or losses such as proceeds of fire
or casualty insurance, and extraordinary items. In cases of
uncertainty, the decision of the CEO will be final. In the
event of a Change of Control, the Compensation Committee shall
adjust profit for bonus determination purposes hereunder to
remove distortions in
-3-
<PAGE> 4
the Company's profits, and distortions in the method of
measuring such profits, and distortions in the methods used to
determine and measure the realization of the performance
targets hereunder for bonus calculation purposes, that have
occurred as a result of the Change of Control. In addition,
the Compensation Committee shall have the authority, in its
sole and absolute discretion, to adjust the performance
targets hereunder for bonus calculation purposes to remove
distortions in the realization of such targets and distortions
in the method of measuring such realization and such targets,
caused by actions taken or expenses incurred by the Company in
connection with a proposal for a transaction described in
subparagraphs A or C of the definition of Change of Control
set forth in subsection e)1. above, or any other extraordinary
transaction, whether or not consummated. No changes in
reserves shall be taken into account for purposes of bonus
calculations hereunder with respect to the fiscal year in
which a Change of Control occurs and the immediately following
fiscal year.
IN WITNESS WHEREOF, the Corporation has executed this Amendment to the
Plan, effective as of the date first written above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
-4-
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO PURITAN-BENNETT CORPORATION
MANAGEMENT INCENTIVE BONUS PLAN B
THIS AMENDMENT of the Puritan-Bennett Corporation Management Incentive
Bonus Plan B (the "Plan") is made by the Puritan-Bennett Corporation (which,
together with its subsidiaries and affiliates, shall be referred to herein as
the "Corporation"), effective as of the 7th day of November, 1994.
WHEREAS, as part of the Plan, the Corporation reserved the right, at
any time, by action of its Board of Directors, to modify or amend, in whole or
in part, any or all provisions of the Plan; and
WHEREAS, the Corporation now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended as follows:
1. Section e)1. on page 6 of the Plan is hereby amended by the
addition of the following at the end of such section:
; provided that in the event that a participant is terminated
without Cause (as defined below) or resigns for Good Reason (as defined
below) within two years following a Change in Control (as defined
below), the Company shall pay to the participant as soon as possible
following such termination the maximum bonus amount for which such
participant was eligible with respect to the fiscal year of
termination, prorated to the date of termination. The following
definitions shall apply:
"Cause" means (a) a participant's willful violation of any
reasonable rule or direct order of the Board or the Company's
Chief Executive Officer ("CEO") or other elected officer,
where such officer is participant's direct supervisor, which,
after written notice to do so, the participant 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 actual moral turpitude or
dishonesty of or by the participant, or (c) drug or alcohol
abuse on Company premises or at a Company sponsored event, or
(d) the participant's material violation of any provision of
this Agreement, which, after written notice to do so, the
participant fails to make reasonable efforts to correct within
a reasonable time. "Cause" shall not include any matter other
than these 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 a participant, or upon
any operation,
<PAGE> 2
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 the participant
acted in good faith and in a manner which the participant
reasonably believed to be in or not opposed to the best
interests of the Company.
"Good Reason" means any of the following: (a) breach by the
Company or any successor company of any of the provisions of
any employment agreement between the participant and the
Company not corrected within ninety (90) days after written
notice to the Company thereof, (b) reduction of a
participant's base salary, management bonus percentage or
other compensation, as in effect immediately prior to the
Change of Control, (c) failure to continue in effect any
medical, dental, accident, or disability plan in which the
participant is entitled to participate immediately prior to
the Change of Control and failure to provide plans with
substantially similar benefits (except that employee
contributions may be raised to the extent of any cost
increases imposed by third parties) or any action by the
Company which would adversely affect the participant's
participation or reduce the participant's benefits under any
of such plans, (d) material reduction in the participant's job
responsibilities, (iv) material reduction of participant's
title or position, (v) the participant shall be requested to
relocate to an office outside of the metropolitan area in
which the office to which he was assigned prior to the Change
of Control is located, or (vi) failure or refusal of any
successor company to assume the Company's obligations under
this plan or any employment agreement between the participant
and the Company.
A "Change of Control" shall be deemed to have occurred at any
of the following times:
A. Upon the acquisition (other than from the Company)
by any person, entity or "group," within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act") (excluding,
for this purpose, the Company or its affiliates, or
any employee benefit plan of the Company or its
affiliates which acquires beneficial ownership of
voting securities of the Company) of beneficial
ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 50% or more of
either the then outstanding shares of common stock of
the Company or the Combined Voting Power of the
Company's then outstanding voting securities.
"Combined Voting Power" means the combined voting
power of the Company's then outstanding voting
-2-
<PAGE> 3
securities generally entitled to vote in the election
of directors.
B. At the time individuals who, as of November 7, 1994,
constitute the Board (as of November 7, 1994, the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Board, provided that any person
becoming a director subsequent to November 7, 1994 whose
election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board (other than an election or nomination
of an individual whose initial assumption of office is
in connection with an actual or threatened election
contest relating to the election of the directors of
the Company, as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act)
shall be, for purposes of this subparagraph B,
considered as though such person were a member of the
Incumbent Board; or
C. Upon the approval by the shareholders of the
Company of a reorganization, merger, consolidation (in
each case, with respect to which persons who were the
shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the
Combined Voting Power of the reorganized, merged or
consolidated company's then outstanding voting
securities) or a liquidation or dissolution of the
Company or of the sale of all or substantially all of
the assets of the Company; or
D. The occurrence of any other event which the
Incumbent Board in its sole discretion determines
constitutes a Change of Control.
2. Section e)2 is hereby amended by the deletion of the text of
such section and the substitution in lieu thereof of the
following paragraph:
Profit for bonus determination will be inclusive of any
changes in reserves, but will exclude any capital gains or
losses, other unusual gains or losses such as proceeds of fire
or casualty insurance, and extraordinary items. In cases of
uncertainty, the decision of the CEO will be final. In the
event of a Change of Control, the Compensation Committee shall
adjust profit for bonus determination purposes hereunder to
remove distortions in the Company's profits, and distortions
in the method of measuring such profits, and distortions in
the methods used to
-3-
<PAGE> 4
determine and measure the realization of the performance
targets hereunder for bonus calculation purposes, that have
occurred as a result of the Change of Control. In addition,
the Compensation Committee shall have the authority, in its
sole and absolute discretion, to adjust the performance
targets hereunder for bonus calculation purposes to remove
distortions in the realization of such targets and distortions
in the method of measuring such realization and such targets,
caused by actions taken or expenses incurred by the Company in
connection with a proposal for a transaction described in
subparagraphs A or C of the definition of Change of Control
set forth in subsection e)1. above, or any other extraordinary
transaction, whether or not consummated. No changes in
reserves shall be taken into account for purposes of bonus
calculations hereunder with respect to the fiscal year in
which a Change of Control occurs and the immediately following
fiscal year.
IN WITNESS WHEREOF, the Corporation has executed this Amendment to the
Plan, effective as of the date first written above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
-4-
<PAGE> 1
EXHIBIT 10.10
FIRST AMENDMENT TO THE RESTATED PURITAN-BENNETT
DEFERRED COMPENSATION PLAN
THIS AMENDMENT of the Restated Puritan-Bennett Deferred Compensation
Plan (the "Plan") is made by the Puritan-Bennett Corporation (which, together
with its subsidiaries and affiliates, shall be referred to herein as the
"Corporation"), effective as of the 7th day of November, 1994.
WHEREAS, as part of the Plan, the Corporation reserved the right, at
any time, by action of its Board of Directors, to modify or amend, in whole or
in part, any or all provisions of the Plan, including specifically the right to
make any such amendment effective retroactively; and
WHEREAS, the Corporation now desires to amend the Plan.
NOW, THEREFORE, Article VI of the Plan is hereby amended by the
addition of the following at the end of such article:
Notwithstanding any provision herein to the contrary, no
amendment or termination of this Plan which is made on or
after the occurrence of a "Change in Control," as such term is
defined in Section 1.1 of the Trust Agreement, shall be
effective with respect to any Participant or beneficiary
without the express written consent of such Participant or
beneficiary, except that the Plan may be amended to prohibit
further Contributions by Active Participants after the date
such amendment is adopted by the Corporation, and any other
amendment which does not adversely affect a Participant or
beneficiary.
IN WITNESS WHEREOF, the Corporation has executed this Amendment to the
Plan, effective as of the date first written above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
<PAGE> 1
EXHIBIT 10.11
FIRST AMENDMENT
PURITAN-BENNETT CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
THIS AMENDMENT to the Puritan-Bennett Corporation Supplemental
Retirement Benefit Plan (the "Plan") is made effective as of the 1st day of
September, 1993 by Puritan-Bennett Corporation, a Delaware corporation
(hereinafter referred to as the "Corporation").
WHEREAS, the Corporation has adopted the Plan effective as of September
1, 1985, which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Qualified Plan"); and
WHEREAS, the Corporation and the participants in the Plan have agreed
to amendment of the Plan in the manner set forth below.
NOW, THEREFORE, the Plan is amended effective as of September 1, 1993
as follows:
1. Section 2.02, the definition of "Average Monthly Compensation," is
amended in its entirety to read as follows:
Section 2.02. The term "Average Monthly Compensation" shall
have the meaning provided in the Qualified Plan (currently Section 2.08
thereof), provided that the dollar limitation on Compensation provided
in the Qualified Plan (currently Section 2.14 thereof) shall not be
applicable for purposes of determining Average Monthly Compensation
under this Plan.
2. Section 2.03, the definition of "Beneficiary," is amended in its
entirety to read as follows:
Section 2.03. The term "Beneficiary" shall have the meaning
provided for in the Qualified Plan (currently Section 2.09 thereof).
3. Section 2.13, the definition of "Years of Service," is amended in
its entirety to read as follows:
Section 2.13. The term "Years of Service" shall mean the
number of years for which a Member is given credit for the purpose of
determining eligibility for benefits (vesting) under the Qualified Plan
(as currently defined in Section 2.41 of the Qualified Plan).
4. Section 2, "Definitions," shall be amended by the addition of the
following new Section 2.14:
<PAGE> 2
Section 2.14. The term "Years of Participation" shall mean
the number of years (twelve month periods) of the Member's
participation in this Plan, measured from the date he first became a
Member (as herein defined) to the date of his termination of
employment.
5. The first paragraph of Section 4.01 is amended in its entirety to
read as follows:
Section 4.01-Supplemental Monthly Retirement Benefit. A
Member who has at the date of his termination of employment with an
Employer attained age fifty-five (55) and completed seven (7) Years of
Participation 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 the percentage of the Member's Average Monthly Compensation
specified in such Member's Plan Agreement, reduced by an amount
computed under Section 4.01(a). The amount so reduced shall be further
adjusted based upon the vesting schedule set out in Section 4.01(b).
The amount resulting from the application of Sections 4.01(a) and (b)
shall then be adjusted as provided in Section 4.01(c).
6. Section 4, "Retirement Benefits," shall be amended by the
addition of the following new Section 4.02:
Section 4.02-Time of Commencement of Supplemental Monthly
Retirement Benefit. Payment of the Supplemental Monthly Retirement
Benefit to which a Member is entitled pursuant to Section 4.01 shall
commence as of the first day of the calendar month coinciding with or
next following the termination of the Member's employment (the "Benefit
Commencement Date"). Actual payment of such Supplemental Monthly
Retirement Benefit, in the Normal Form or other form provided in
Section 4.03, shall, however, be subject to the following: if the
Member shall have elected the form of payment of his Supplemental
Monthly Retirement Benefit pursuant to Section 4.03 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 Member did not make an election pursuant to Section 4.03 during a
Preceding Year, but shall make 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 Member does not make an election
pursuant to Section 4.03 during either a Preceding or the Termination
Year, then such Member 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; provided that any time actual payment of a
Member's Supplemental Monthly Retirement Benefit shall 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
-2-
<PAGE> 3
date 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 period beginning on
the Benefit Commencement Date and ending on the date payments actually
commence, as quoted in the edition of the Wall Street Journal first
published after the Benefit Commencement Date.
7. Section 4, "Retirement Benefits," shall be amended by the addition
of the following new Section 4.03:
Section 4.03-Form of Payment of Supplemental Monthly
Retirement Benefits. The "Normal Form" of payment of a Member's
Supplemental Monthly Retirement Benefit, and the form on which the
amount of such Benefit is calculated pursuant to Section 4.01, shall be
a single life annuity payable for the Member's life only commencing as
of his Benefit Commencement Date. A Member may, however, 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 Member's Benefit Commencement Date) of the
Normal Form single life annuity.
(a) Ten Year Certain and Continuous Option. Pursuant
to this option, the Member's Supplemental Monthly Retirement
Benefit shall be payable during the Member's life only;
provided that if the Member dies within ten years of his
Benefit Commencement Date, payments in the same amount will
continue to be made to the Member's Beneficiary until a total
of 120 monthly payments have been made.
(b) Early Retirement Level Income Option. Pursuant
to this option, the Member's Supplemental Monthly Retirement
Benefit payments will be made during the Member's life only.
Larger payments shall be made until the first day the Member
is eligible to receive social security benefits (age 62). At
that time payments to the Member shall be reduced by the
amount of the Member's social security benefit that was
estimated as part of the determination of all payments to be
made under this Section 4.03(c). No payments shall be made
after the Member's death.
(c) 50%, 75% and 100% Contingent Annuitant Option.
Pursuant to this option, the Member's Supplemental Monthly
Retirement Benefit payments shall be made during the life of
the Member, with payments continuing to the Member's
designated contingent annuitant ("Contingent Annuitant") for
the life of such Contingent Annuitant following the Member's
death. The Contingent Annuitant and the percentage to be paid
to such Contingent Annuitant must be designated by the Member
at the time this payment form is elected. If the Contingent
Annuitant predeceases the Member, no benefits shall be paid
after the Member's death. The amount
-3-
<PAGE> 4
paid to the Member's Contingent Annuitant shall be either 50%,
75% or 100% of the amount received by the Member during the
Member's life.
8. Section 5, "Death Benefits", is amended in its entirety to
read as follows:
Section 5-Death Benefits.
Section 5.01-Death Before Commencement of Benefits. In the
event of the death of a Member or a Disabled Member prior to his
Benefit Commencement Date, leaving a surviving Spouse, then if such
Member had prior to his death completed seven (7) Years of
Participation, 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 which would have been payable to the Member
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
4.03(c) and designated his Spouse as the contingent annuitant. If the
Member 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 Member would have attained
age fifty- five (55), and no Death Benefit shall be payable in the
event his surviving Spouse shall die before such date. No Death
Benefit will be paid hereunder if the Member dies before his Benefit
Commencement Date and is not then married.
Section 5.02-Death After Commencement of Benefits. If the
Member dies after his Benefit Commencement Date, the Member'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 Member's Supplemental Monthly Retirement Benefit was being paid or
was payable prior to his death). If the Member 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 Member.
9. New Section 9.03 is added to the Plan to read as follows:
Section 9.03-Plan Interpretation. The Corporation shall have
sole and absolute discretion and authority to interpret all provisions
of this Plan and to resolve all questions arising under this Plan;
including, but not limited to, determining whether any person is
eligible to contribute to this Plan, whether any person shall receive
any payments pursuant to this Plan, and the amount of any payments to
be paid pursuant to this Plan. Any interpretation, resolution or
determination of the Corporation pursuant to this Section shall be
final and binding upon all concerned.
-4-
<PAGE> 5
IN WITNESS WHEREOF, this Amendment is adopted as of the date set forth
above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
-5-
<PAGE> 1
EXHIBIT 10.12
THIRD AMENDMENT
PURITAN-BENNETT CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
THIS AMENDMENT to the Puritan-Bennett Corporation Supplemental
Retirement Benefit Plan (the "Plan") is made this 7th day of November, 1994 by
Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation").
WHEREAS, the Corporation has adopted the Plan effective as of September
1, 1985, which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Qualified Plan"); and
WHEREAS, the Plan was heretofore amended by a First Amendment thereto
effective on or about September 1, 1993 and a Second Amendment thereto
effective January 1, 1994; and
WHEREAS, the Corporation and the Members of the Plan have agreed to the
further amendment of the Plan in the manner set forth below.
NOW, THEREFORE, the Plan, as heretofore amended, is amended effective
October 1, 1994 as follows:
A. Section 4.01(a)(i) is amended to read in its entirety as
follows:
Section 4.01(a)(i). The amount payable shall be reduced by
one hundred percent (100%) of the monthly income or Pension benefits
payable or which would be payable to the Member under the Qualified
Plan in the form of a single life annuity commencing as of the the
Member's Benefit Commencement Date.
B. Section 8.05 is amended to include the following sentence at
the end of the first paragraph:
Notwithstanding any provision herein to the contrary, no amendment or
termination of this Plan which is made on or after the occurrence of a
"Change in Control," as such term is defined in Section 1.1 of the
Trust Agreement, shall affect any rights or benefits to which any
Member or beneficiary had become entitled pursuant to this Plan prior
to the date of such amendment or termination without the express
written consent of said Member or beneficiary.
C. A new Section 10 is added to read in its entirety as follows:
Section 10.01 - Trust Fund. The Corporation has established a trust
fund pursuant to an agreement with Wachovia Bank of North Carolina,
N.A., as trustee (the "Trustee"), dated November 7, 1994 (the "Trust
Agreement"). Any payments to a Participant from such trust fund shall,
to the extent thereof, discharge the Corporation's obligations pursuant
to this Plan.
<PAGE> 2
IN WITNESS WHEREOF, this Third Amendment is adopted as of the date set
forth above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
-2-
<PAGE> 1
EXHIBIT 10.13
FIRST AMENDMENT TO THE PURITAN-BENNETT CORPORATION
PENSION BENEFIT MAKE UP PLAN
THIS AMENDMENT to the Puritan-Bennett Corporation Pension Benefit Make
Up Plan (the "Plan") is made by the Puritan-Bennett Corporation (the
"Corporation"), effective as of the 7th day of November, 1994.
WHEREAS, the Corporation reserved the right to amend the Plan at any
time and from time to time; and
WHEREAS, the Corporation now desires to amend the Plan as of the date
first written above.
NOW, THEREFORE, the Plan is amended as follows:
1. Section 5.01 of Article V is amended to include the following sentence
at the end of the first paragraph:
Notwithstanding any provision herein to the contrary, no
amendment or termination of this Plan which is made on or
after the occurrence of a "Change in Control," as such term is
defined in Section 1.1 of the Trust Agreement, shall affect
any rights or benefits to which any Participant or beneficiary
had become entitled pursuant to this Plan prior to the date of
such amendment or termination without the express written
consent of such Participant or beneficiary.
2. A new Article VI is added to read in its entirety as follows:
ARTICLE VI
TRUST FUND
The Corporation has established a trust fund pursuant to an agreement
with Wachovia Bank of North Carolina, N.A., as trustee (the "Trustee"),
dated November 7, 1994 (the "Trust Agreement"). Any payments to a
Participant from such trust fund shall, to the extent thereof,
discharge the Corporation's obligations pursuant to this Plan.
IN WITNESS WHEREOF, the Corporation has executed this Amendment,
effective as of the date first written above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
<PAGE> 2
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
-2-
<PAGE> 1
EXHIBIT 10.14
AMENDMENT ADOPTED ON NOVEMBER 6, 1994 TO PURITAN-BENNETT
1988 EMPLOYEE STOCK BENEFIT PLAN
THIS AMENDMENT of the Puritan-Bennett 1988 Stock Benefit Plan (the
"Plan") is made by the Puritan-Bennett Corporation (which, together with its
subsidiaries and affiliates, shall be referred to herein as the "Corporation"),
effective as of the 7th day of November, 1994.
WHEREAS, as part of the Plan, the Corporation reserved the right, at
any time, by action of its Board of Directors, to modify or amend, in whole or
in part, any or all provisions of the Plan; and
WHEREAS, the Corporation now desires to amend the Plan.
NOW, THEREFORE, the Plan is hereby amended to include the following
language at the end of Section 9:
At the sole discretion of the Committee, and on such terms and
conditions as it deems appropriate, the Committee may provide either by
the terms of an option granted under the Plan or by a resolution
adopted prior to the occurrence of an event described in clauses (x),
(y) or (z) above, that upon such event, such option shall be assumed by
the successor corporation, or a parent or subsidiary thereof, or shall
be substituted for by a similar option, covering the stock of the
successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and
exercise prices. In the event that the Committee provides for such
assumption or substitution of options, the assumed or substituted
options shall continue to be subject to their original vesting
schedules notwithstanding the provision for acceleration of vesting set
forth above.
IN WITNESS WHEREOF, the Corporation has executed this Amendment to the
Plan, effective as of the date first written above.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: /s/ Daniel C. Weary
Title: Secretary
<PAGE> 1
EXHIBIT 10.15
AMENDMENT TO THE PURITAN-BENNETT CORPORATION
DIRECTORS POST-RETIREMENT INCOME PLAN
THIS AMENDMENT to the Puritan-Bennett Corporation Directors
Post-Retirement Income Plan (the "Plan") is made by the Puritan-Bennett
Corporation (the "Corporation"), effective as of the 7th day of November, 1994.
WHEREAS, subject to certain restrictions, the Corporation reserved the
right to amend the Plan by action of the Board of Directors at any time and
from time to time; and
WHEREAS, the Corporation now desires to amend the Plan as of the date
first written above by resolution of the Board of Directors.
NOW, THEREFORE, the Plan is amended by the addition of new Section
5.4, which shall read as follows:
5.4 Trust. The Corporation has established a trust fund pursuant to
an agreement with Wachovia Bank of North Carolina, N.A., as trustee
(the "Trustee"), dated November 7, 1994 (the "Trust Agreement"). Any
payments to a Director from such trust fund shall, to the extent
thereof, discharge the Corporation's obligations pursuant to the Plan.
PURITAN-BENNETT CORPORATION
/s/ Lee A. Robbins
By: Lee A. Robbins
Title: Vice President
ATTEST:
By: Daniel C. Weary
Title: Secretary
<PAGE> 1
EXHIBIT 10.16
AGREEMENT
THIS AGREEMENT is made this 7th day of November, 1994 by and between
Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), and Burton A. Dole, Jr. (hereinafter referred to as the
"Employee").
WHEREAS, the Corporation has adopted the Puritan-Bennett Corporation
Supplemental Retirement Benefit Plan effective as of September 1, 1985 (the
"Plan"), which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Pension Plan"); and
WHEREAS, the Corporation and the Employee have entered into an
agreement pursuant to which the Employee became a Member under the terms of the
Plan; and
WHEREAS, the Employee and the Corporation desire to make the following
changes to the Plan as it applies to Employee; and
WHEREAS, contemporaneously herewith the Corporation is agreeing to pay
COBRA benefits for all employees of the Corporation under certain circumstances
and the Corporation and Employee desire that the same agreement shall be made
for Employee.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the Employee and the Corporation agree that:
1. Plan Benefits. Solely for purposes of determining the
Employee's and his beneficiaries' rights under the Plan and not for purposes of
determining the rights of any other individual under the Plan, the terms of the
Plan applicable to Employee shall be amended as follows:
A. Section 4, "Retirement Benefits," shall be amended by
the addition of the following new Section 4.04.
Section 4.04-Exceptions for Certain Terminations of
Employment. Notwithstanding the foregoing provisions of this Section
4 or any other provision(s) of this Plan, in the event of the
termination of employment of a Member within two years following the
occurrence of a Change in Control for Good Reason (if initiated by the
Member), and/or other than for Cause (if initiated by the
Corporation), then (a) even if the Member has not at the date of
termination of employment attained age fifty-five (55) and/or
completed seven (7) Years of Participation, he shall nevertheless be
entitled to the Supplemental Monthly Retirement Benefit provided under
Section 4.01 hereof; (b) the Member shall be deemed to have completed
ten or more Years of Service and to be 100% vested in the Supplemental
Monthly Retirement Benefit pursuant to Section 4.01(b) hereof; and (c)
the Member 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 the Supplemental Monthly
Retirement Benefit (as adjusted by Section 4.01(a)) pursuant to
Section 4.01(c).
<PAGE> 2
For the purposes of this Section 4.04, the terms Cause, Good
Reason and Change in Control shall be defined as follows:
(a) Cause. "Cause" means (i) the Member's willful
violation of any reasonable rule or direct order of the
Corporation's board of directors (the "Board"), which,
after written notice to do so, the Member fails to make
reasonable efforts to correct within a reasonable time,
or (ii) conviction of a crime, or entry of a plea of
nolo contendere with regard to a crime, involving
actual moral turpitude or dishonesty of or by the
Member, or (iii) drug or alcohol abuse on Corporation
premises or at a Corporation sponsored event, or (iv)
the Member's material violation of any provision of his
employment agreement with the Corporation, which, after
written notice to do so, the Member fails to make
reasonable efforts to correct within a reasonable time.
"Cause" shall not include any matter other than these
specified in (i) through (iv) 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 Member, or upon any operation,
asset, product or activity of the Corporation, 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 the Member acted in good faith
and in a manner which he reasonably believed to be in
or not opposed to the best interests of the
Corporation.
(b) Good Reason. "Good Reason" means (i) breach by the
Corporation or any successor company of any of the
provisions of the employment agreement between the
Corporation and the Member (the "Employment Agreement")
not corrected within ninety (90) days after written
notice to the Corporation thereof, or (ii) any of the
following if the same shall occur within two years
after a Change in Control: (A) reduction of the
Member's base salary, management bonus percentage or
other compensation, as in effect immediately prior to
the Change in Control, (B) failure to continue in
effect any medical, dental, accident, or disability
plan in which the Member is entitled to participate
immediately prior to the Change in Control and failure
to provide plans with substantially similar benefits
(except that employee contributions may be raised to
the extent of any cost increases imposed by third
parties) or any action by the Corporation which would
adversely affect the Member's participation or reduce
the Member's benefits under any of such plans, (C)
material reduction in Member's job responsibilities,
(D) material reduction of Member's title or position,
(E) Member shall be requested to relocate to an office
outside of the greater Kansas City metropolitan area,
or (F) failure or refusal of any successor company to
assume the Corporation's obligations under the
Employment Agreement.
-2-
<PAGE> 3
(c) Change in Control. A "Change in Control" shall be
deemed to have occurred at any of the following times:
(i) Upon the acquisition (other than from the
Corporation) by any person, entity or
"group," within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934 (the "Exchange Act")
(excluding, for this purpose, the
Corporation or its affiliates, or any
employee benefit plan of the Corporation
or its affiliates which acquires
beneficial ownership of voting securities
of the Corporation) of beneficial
ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act)
of 50% or more of either the then
outstanding shares of common stock of the
Corporation or the Combined Voting Power
of the Corporation's then outstanding
voting securities. "Combined Voting
Power" means the combined voting power of
the Corporation's then outstanding voting
securities generally entitled to vote in
the election of directors.
(ii) At the time individuals who, as of the
date hereof, constitute the Board (as of
the date hereof, the "Incumbent Board")
cease for any reason to constitute at
least a majority of the Board, provided
that any person becoming a director
subsequent to the date hereof whose
election, or nomination for election by
the Corporation's shareholders, was
approved by a vote of at least a majority
of the directors then comprising the
Incumbent Board (other than an election or
nomination of an individual whose initial
assumption of office is in connection with
an actual or threatened election contest
relating to the election of the directors
of the Corporation, as such terms are used
in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) shall
be, for purposes of this subsection 1.3.2,
considered as though such person were a
member of the Incumbent Board; or
(iii) Upon the approval by the shareholders of
the Corporation of a reorganization,
merger, consolidation (in each case, with
respect to which persons who were the
shareholders of the Corporation
immediately prior to such reorganization,
merger or consolidation do not,
immediately thereafter, own more than 50%
of the Combined Voting Power of the
reorganized, merged or consolidated
company's then outstanding voting
securities) or a liquidation or
dissolution of the Corporation or of the
sale of all or substantially all of the
assets of the Corporation; or
-3-
<PAGE> 4
(iv) The occurrence of any other event which
the Incumbent Board in its sole discretion
determines constitutes a Change in
Control.
B. A new Section 11 is added to read in its entirety as
follows:
Section 11--Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined
that any payment or distribution by the Corporation to
or for the benefit of Member (whether paid or payable
or distributed or distributable pursuant to the terms
of this Agreement or otherwise) (a "Payment") would be
nondeductible by the Corporation for Federal income tax
purposes because of Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the
aggregate present value of amounts payable or
distributable hereunder shall be reduced to the Reduced
Amount; provided, however, that Payments shall not
include any amount payable pursuant to the Agreement
between Member and the Corporation dated April 25,
1980. The "Reduced Amount" shall be an amount
expressed in present value which maximizes the
aggregate present value of such benefits without
causing any Payment to be nondeductible by the
Corporation because of Section 280G of the Code.
Anything to the contrary notwithstanding, if the
Reduced Amount is zero and it is determined further
that any Payment which is not part of the benefits
payable hereunder would nevertheless be nondeductible
by the Corporation for Federal income tax purposes
because of Section 280G of the Code, then the aggregate
present value of Payments which are not benefits
hereunder shall also be reduced (but not below zero) to
an amount expressed in present value which maximizes
the aggregate present value of Payments without causing
any payment to be nondeductible by the Corporation
because of Section 280G of the Code. For purposes of
this Section 11, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
(b) All determinations required to be made
under this Section 11 shall be made by an accounting
firm jointly selected by Member and the Corporation
(the "Accounting Firm") and paid by the Corporation,
and which may be the Company's independent auditors.
The Accounting Firm shall provide detailed supporting
calculations both to the Corporation and Member within
15 business days of the date of termination of Member's
employment by the Corporation (the "Employment
Termination Agreement") or such earlier time as is
requested by the Corporation and an opinion to Member
that he has substantial authority not to report any
excise tax on his Federal income tax return with
respect to any Payments. Any such determination by the
Accounting Firm shall be binding upon the Corporation
and Member. Member shall determine which and how much
of the Payments, shall be eliminated or reduced
consistent with
-4-
<PAGE> 5
the requirements of this Section 11, provided that, if
Member does not make such determination within ten
business days of the receipt of the calculations made
by the Accounting Firm, the Corporation shall elect
which and how much of the Payments shall be eliminated
or reduced consistent with the requirements of this
Section 11 and shall notify Member promptly of such
election; and provided further that any Payments which
do not constitute gross income to Member shall not be
reduced or eliminated unless all other Payments have
first been eliminated. Within five business days
thereafter, the Corporation shall pay to or distribute
to or for the benefit of Employee such amounts as are
then due to Member under this Agreement.
(c) As a result of the uncertainty in the
application of Section 280G of the Code at the time of
the initial determination by the Accounting Firm
hereunder, it is possible that Payments will have been
made by the Corporation which should not have been made
("Overpayment") or that Payments will not have been
made by the Corporation which could have been made
("Underpayment"), in each case, consistent with the
calculations required to be made hereunder. In the
event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue
Service against Member or the Corporation which the
Accounting Firm believes has a high probability of
success, determines that an Overpayment has been made,
any such Overpayment paid or distributed by the
Corporation to or for the benefit of Member shall be
treated for all purposes as a loan ab initio to Member
which Member shall repay to the Corporation together
with interest at the applicable federal rate provided
for in Section 7872(f)(2) of the Code; provided,
however, that no such loan shall be deemed to have been
made and no amount shall be payable to the Corporation
if and to the extent such deemed loan and payment would
not either reduce the amount on which Member is subject
to tax under Section 1 and Section 4999 of the Code or
generate a refund of such taxes. In the event that the
Accounting Firm, based upon controlling precedent or
other substantial authority, determines that an
Underpayment has occurred, any such Underpayment shall
be promptly paid by the Corporation to or for the
benefit of Member together with interest at 120% of the
applicable federal rate provided for in Section
7872(f)(2) of the Code, compounded semiannually.
(d) Notwithstanding anything in this Agreement
to the contrary, if after giving effect to the
provisions of Section 11(a)-(c) any portion of any
payments to Member by the Corporation hereunder would
not be deductible by the Corporation for Federal income
tax purposes by reason of application of Section 162(m)
of the Code, then payment of that portion to Member
shall be deferred until the earliest date upon which
payment thereof can be made to Member without being
non-deductible pursuant to Section 162(m) of the Code.
In the event of a such a deferral, the Corporation
shall pay interest to Member on the amount deferred at
120% of the applicable
-5-
<PAGE> 6
federal rate provided for in Section 7872(f)(2) of the
Code, compounded semiannually.
2. COBRA Benefits. In the event of the termination of employment
of Employee without Cause (if initiated by the Corporation) or for Good Reason
(if initiated by Employee), the Corporation will provide a benefit under the
Consolidated Omnibus Budget Reconciliation Act of 1986 ("COBRA") and Section
4980B of the Internal Revenue Code of 1986, as amended, as follows: the
Corporation shall pay the percentage of the cost of COBRA coverage with respect
to Employee's coverage status (e.g., individual or family) in effect
immediately prior to such termination of employment, which percentage shall be
the fraction (expressed as a percentage), the numerator of which shall be the
difference between (i) the monthly cost of COBRA coverage for Employee's
coverage status in effect immediately prior to the Employment Termination Date
and (ii) Employee's monthly contribution toward Employee's coverage in effect
immediately prior to the Employment Termination Date, and the denominator of
which shall be the monthly cost of COBRA coverage for Employee's coverage
status in effect immediately prior to the Employment Termination Date. All of
such amounts shall be determined as of the day immediately preceding the
termination of Employee's employment. The insurance continuation benefits paid
for hereunder shall be deemed to be part of Employee's COBRA coverage. Such
benefits shall be in addition to any other benefits relating to health or
medical care benefits that, under the Corporation's policies, are available to
Employee following termination of employment.
IN WITNESS WHEREOF, this Agreement has been made as of the date set
forth above.
CORPORATION:
PURITAN-BENNETT CORPORATION
/s/ Lee Robbins
---------------------------------
By: Lee Robbins
Title: Vice President
EMPLOYEE:
/s/ Burton A. Dole, Jr.
- ---------------------------
Burton A. Dole, Jr.
9605 W. 191st Street
Bucyrus, Kansas 66013
-6-
<PAGE> 1
EXHIBIT 10.17
AGREEMENT
THIS AGREEMENT is made as of November 7, 1994 by and between
Puritan-Bennett Corporation, a Delaware corporation (hereinafter referred to as
the "Corporation"), and John H. Morrow (hereinafter referred to as the
"Employee").
WHEREAS, the Corporation has adopted the Puritan-Bennett Corporation
Supplemental Retirement Benefit Plan effective as of September 1, 1985 (the
"Plan"), which provides benefits that supplement benefits provided under the
Restated Puritan-Bennett Pension Plan (the "Pension Plan"); and
WHEREAS, the Corporation and the Employee have entered into an
agreement pursuant to which the Employee became a Member under the terms of the
Plan; and
WHEREAS, the Employee and the Corporation desire to make the
following changes to the Plan as it applies to Employee.
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, the Employee and the Corporation agree that, solely for purposes of
determining the Employee's and his beneficiaries' rights under the Plan and not
for purposes of determining the rights of any other individual under the Plan,
the terms of the Plan applicable to Employee shall be amended as follows:
A. Section 4, "Retirement Benefits," shall be amended by the
addition of the following new Section 4.04.
Section 4.04-Exceptions for Certain Terminations of
Employment. Notwithstanding the foregoing provisions of this Section
4 or any other provision(s) of this Plan, in the event of the
termination of employment of a Member for Good Reason (if initiated
by the Member), and/or other than for Cause (if initiated by the
Corporation), then (a) even if the Member has not at the date of
termination of employment attained age fifty-five (55) and/or
completed seven (7) Years of Participation, he shall nevertheless be
entitled to the Supplemental Monthly Retirement Benefit provided
under Section 4.01 hereof; (b) the Member shall be deemed to have
completed ten or more Years of Service and to be 100% vested in the
Supplemental Monthly Retirement Benefit pursuant to Section 4.01(b)
hereof; (c) the Member 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 the
Supplemental Monthly Retirement Benefit (as adjusted by Section
4.01(a)) pursuant to Section 4.01(c); and (d) the Benefit
Commencement Date under Section 4.02 shall be the first day of the
calendar month coinciding with or next following the earlier of--(i)
the first date following termination of Member's employment on which
the Corporation is in material breach of its obligations pursuant to
the contracts between the Member and the Corporation dated June 9,
1994, and November 7, 1994 (the "Contracts"); or
<PAGE> 2
(ii) the later of: (I) the date the Member attains age fifty-five
(55), or (II) the latest date on which the last payment pursuant to
the Contracts is scheduled to be made (which date shall be determined
without regard to whether the payment is in fact made prior to such
scheduled date).
For the purposes of this Section 4.04, the terms Cause and
Good Reason shall be defined as follows:
(a) Cause. "Cause" means (i) the Member's willful
violation of any reasonable rule or direct order of
the Corporation's board of directors (the "Board")
or the Corporation's Chief Executive Officer
("CEO"), which, after written notice to do so, the
Member fails to make reasonable efforts to correct
within a reasonable time, or (ii) conviction of a
crime, or entry of a plea of nolo contendere with
regard to a crime, involving actual moral turpitude
or dishonesty of or by the Member, or (iii) drug or
alcohol abuse on Corporation premises or at a
Corporation sponsored event, or (iv) the Member's
material violation of any provision of his
employment agreement with the Corporation, which,
after written notice to do so, the Member fails to
make reasonable efforts to correct within a
reasonable time. "Cause" shall not include any
matter other than these specified in (i) through
(iv) 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 Member, or upon any operation, asset,
product or activity of the Corporation, 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 the Member acted in good faith and
in a manner which he reasonably believed to be in or
not opposed to the best interests of the
Corporation.
(b) Good Reason. "Good Reason" means (i) breach by the
Corporation or any successor company of any of the
provisions of the employment agreement between the
Corporation and the Member (the "Employment
Agreement") not corrected within ninety (90) days
after written notice to the Corporation thereof, or
(ii) any of the following: (A) reduction of the
Member's base salary, management bonus percentage or
other compensation, (B) failure to continue in
effect any medical, dental, accident, or disability
plan in which the Member is entitled to participate
and failure to provide plans with substantially
similar benefits (except that employee contributions
may be raised to the extent of any cost increases
imposed by third parties) or any action by the
Corporation which would adversely affect the
Member's participation or reduce the Member's
benefits under any of such plans, (C) material
reduction in Member's job responsibilities, (D)
material reduction of Member's title or position,
(E) Member shall be requested to relocate to an
office outside
-2-
<PAGE> 3
of the greater Kansas City metropolitan area, or (F)
failure or refusal of any successor company to
assume the Corporation's obligations under the
Employment Agreement.
B. Section 9.02(a) is amended to read in its entirety as
follows:
(a) Competition Restriction. During the period of
employment and during the period that the Member is receiving
Supplemental Monthly Retirement Benefits under this Plan, the Member
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 Member shall have obtained the prior written consent of
the Committee.
IN WITNESS WHEREOF, this Agreement has been made as of the date set
forth above.
CORPORATION:
PURITAN-BENNETT CORPORATION
/s/ Burton A. Dole, Jr.
---------------------------------
By: Burton A. Dole, Jr.
Title: President
EMPLOYEE:
/s/ John H. Morrow
- ----------------------------
John H. Morrow
10231 Catalina
Overland Park, Kansas 66207
-3-
<PAGE> 1
STATEMENT REGARDING COMPUTATION
OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Quarter Ending Nine Months Ending
October 31 October 31
----------------------------- ---------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY
Weighted average shares outstanding at end of period 12,533,709 11,908,653 12,478,113 11,914,627
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise 0 80,664 33,924 11,746
----------- ----------- ----------- -----------
Shares outstanding for computation of per share earnings 12,533,709 11,989,317 12,512,037 11,926,373
=========== =========== =========== ===========
Net income $ (640,423) $ (748,000 $ 7,327,664 $ (5,121,00)
=========== =========== =========== ===========
Primary earnings per share $ (0.05) $ 0.06 $ 0.59 $ (0.43)
=========== =========== =========== ===========
FULLY DILUTED
Weighted average shares outstanding at end of period 12,533,709 11,908,653 12,478,113 11,914,627
Assuming exercise of options reduced by the number of
shares which could have been purchased with the
proceeds from exercise 190,988 80,664 101,062 40,574
----------- ----------- ----------- -----------
Shares outstanding for computation of per share earnings 12,724,697 11,989,317 12,579,175 11,955,201
=========== =========== =========== ===========
Net income $ (640,423) $ 748,000 $ 7,327,664 $ (5,121,000)
=========== =========== =========== ===========
Fully diluted earnings per share $ (0.05) $ 0.06 $ 0.58 $ (0.43)
=========== =========== =========== ===========
REPORTED EARNINGS PER SHARE $ (0.05) $ 0.06 $ 0.59 $ (0.43)
=========== =========== =========== ===========
</TABLE>
The company does not meet the 3% dilution test contained in Accounting
Principles Board Opinion #15, therefore disclosure of diluted earnings per
share on the face of the condensed consolidated statements of operations is not
required.
<PAGE> 1
EXHIBIT 15
(Ernst & Young LLP Letterhead)
Letter Regarding Unaudited Interim Financial Information
The Board of Directors
Puritan-Bennett Corporation
We are aware of the incorporation by reference in the following registration
statements of Puritan-Bennett Corporation:
No. 2-98132 on Form S-8 and Form S-3 dated June 23, 1985,
No. 33-6804 on Form S-3 dated July 24, 1986,
No. 33-26495 on Form S-8 and Form S-3 dated January 31, 1989,
No. 33-36497 on Form S-8 dated August 21, 1990, and
No. 33-67634 on Form S-8 dated August 18, 1993,
of our report dated December , 1994 relating to the unaudited condensed
consolidated interim financial statements of Puritan-Bennett Corporation and
subsidiaries which are included in its Form 10-Q for the quarter ended October
31, 1994.
Pursuant to Rule 436(c) of the Securities Act of 1933, our reports are not part
of the registration statement prepared or certified by accountants within the
meaning of Section 7 or 11 of the Securities Act of 1933.
/s/ Ernst & Young
ERNST & YOUNG LLP
December 14, 1994
<PAGE> 1
LETTER TO OUR STOCKHOLDERS
The company recorded charges of $4.6 million for obligations associated
with Thermo Electron Corp.'s unsolicited tender offer resulting in a reported
loss of $640,000 or $.05 per share for the third quarter ending October 31,
1994. Without the charge, earnings per share for the quarter would have been
$.31 per share, up 15% from the $.27 per share (adjusted to eliminate losses
associated with the FOxS blood gas monitoring system) for the same period last
year.
Orders of $83,018,000 and revenues of $83,412,000 for the quarter were up
11% over the same period last year. For the first nine months, orders of
$245,271,000 and revenues of $247,813,000 were up 7% and 8%, respectively, over
the same period last year.
The company also was told by Homedco Group, Inc., one of the nation's
leading providers of home respiratory services, that Puritan-Bennett will be
selected as one of its endorsed vendors for home oxygen equipment. Homedco has
been in the process of upgrading its oxygen therapy technology to achieve
greater operational efficiencies. This announcement is the result of Homedco's
formal bid process, and will be one of the largest purchases of oxygen therapy
equipment in Homedco's history.
In addition, Homedco said it would work with the company to adapt
Puritan-Bennett's CliniVision(R) Respiratory Care Management Information System
to the homecare respiratory management needs of its patients.
SUPPLEMENTAL PRO-FORMA INFORMATION:
In order to help our stockholders better understand the economic dynamics
and potential of the company's business, we have decided to begin providing
supplemental information that sets forth the company's earnings before
interest, taxes and other unusual charges (EBITOC) in its two main lines of
business - Puritan and Bennett. Unusual charges include any historical
restructuring or current Thermo Electron-related charges. The supplemental
information also excludes discontinued lines of business. Supplemental
pro-forma information dollars are reported in thousands.
PURITAN - Puritan includes our rapidly growing homecare product lines as
well as our medical gas and gas-related equipment and spirometry product lines.
Aero Systems is also included because it shares one of our larger manufacturing
facilities with the Puritan Group and is relatively small.
Revenue for the first nine months grew to $159,391 from $136,263 on a FY95
to FY94 comparison, up 17%. Third quarter FY95 revenues are also up, $56,187
compared to $45,751, for the third quarter of FY94. Puritan now accounts for
about two-thirds of the company's total revenues. Puritan revenue for FY94 was
also up from FY93, $184,239 versus $167,763. The average annual growth for the
five years ended January 31, 1994 was 15%. Within Puritan, homecare products
continue to grow at rates considerably above the overall Puritan average.
Puritan's EBITOC was $16,306 (10% of revenue) and $18,493 (14% of revenue)
for the first nine months of FY95 and FY94, respectively. For the third quarter
of this year, EBITOC was $5,995 (11% of revenue) versus $6,251 (14% of revenue)
in the third quarter FY94. EBITOC was $22,939 (12% of revenue) and $24,740 (15%
of revenue) in FY94 and FY93, respectively. EBITOC has been higher in the
recent past and we expect it to return to those higher levels in the future, as
we realize the benefits of several major regulatory control and compliance
initiatives undertaken in the latter part of FY94 and during FY95. These
initiatives required considerable staffing and other resource additions as well
as manufacturing process modifications. As a result, we experienced certain
significant short-run operating disruptions and inefficiencies, which increased
our costs.
BENNETT - The Bennett line of business consists of our critical care
ventilator business - a business that continues to represent an exceptional and
long-standing customer franchise on a global basis - as well as our CliniVision
product line in the U.S., and our holter monitoring and portable ventilator
product lines.
Since FY93, revenues have declined for several reasons including difficult
market conditions, particularly in the U.S. hospital market, discontinuance of
certain older products and accessories as a result of evolving regulatory
standards, and our withdrawal from the U.S. portable ventilator market. In
addition, Bennett has also undertaken major regulatory control and compliance
initiatives at significant cost. Third quarter FY95 and FY94 revenues were
$27,225 and $28,838. For the first nine months of FY95 and FY94, revenues were
$88,422 and $90,361, respectively. FY94 revenues were $122,751 and FY93
revenues were $131,279.
On a quarter-to-quarter comparison, EBITOC was $456 for the third quarter
of FY95 versus a loss of $793 for the same period of FY94. EBITOC was $2,620
and $2,718 for the first nine months of FY95 and FY94, respectively (3% of
revenues for both periods). FY94 EBITOC was $14 compared to FY93 EBITOC of
$11,803 (9% of revenue). Current and recent EBITOC is not close to where we
believe it should and will be. We believe the recent poor profitability of
Bennett will begin to reverse itself and both revenues and margins will
<PAGE> 2
increase as a result of the benefits from full implementation of our regulatory
compliance initiatives, continued growth of CliniVision and service revenue and
several other positive developments. These developments include the new
products/product enhancements recently cleared by FDA for marketing in the U.S.
and recently introduced internationally. In addition, other important new
products are being developed for introductions a little over a year from now.
In summary, we are encouraged by the continued strong growth of Puritan in
the third quarter and believe both Puritan and Bennett are well positioned to
begin returning to historical levels of profitability. We will continue to
build upon our unique franchise in the critical care ventilator area while
continuing to invest in and grow the exciting homecare businesses that make up
the bulk of our Puritan business line.
/s/ BURTON A. DOLE JR.
-------------------------
Burton A. Dole Jr.
Chairman, President and
November 21, 1994 Chief Executive Officer
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (UNAUDITED)
Dollars in thousands, except per share data
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31 OCTOBER 31
---------------------------- -----------------------------
1994 1993 1994 1993
---------------------------- -----------------------------
<S> <C> <C> <C> <C>
Net Sales $ 83,412 $ 75,277 $ 247,813 $ 228,582
Cost of Goods Sold 49,128 43,910 144,091 130,602
----------- ----------- ------------ ------------
Gross Profit 34,284 31,367 103,722 97,980
Selling and Administrative Expense 23,508 23,721 71,790 71,474
Research and Development Expense 5,046 6,153 14,825 19,406
Restructuring Charges -- -- -- 9,014
----------- ----------- ------------ ------------
Operating Profit (Loss) 5,730 1,493 17,107 (1,914)
Interest Expense 1,719 1,159 4,319 3,560
Cost Associated with Unsolicited Offers to
Acquire Company's Stock 4,559 -- 4,559 --
Other Expense (Income), net (768) (773) (1,949) (304)
----------- ----------- ------------ ------------
Income (Loss) Before Income Taxes 220 1,107 10,178 (5,170)
Provision for (Benefit from) Income Taxes 860 359 2,850 (2,804)
----------- ----------- ------------ ------------
Net Income (Loss) Before Cumulative Effect (640) 748 7,328 (2,366)
Cumulative Effect of a Change in Accounting
for Income Taxes -- -- -- (2,755)
----------- ----------- ------------ ------------
Net Income (Loss) $ (640) $ 748 $ 7,328 $ (5,121)
=========== =========== ============ ============
Weighted Average Number of Shares
Outstanding 12,533,709 11,908,653 12,478,113 11,914,627
Net Income (Loss) Before Cumulative Effect
Per Share $ (.05) $ .06 $ .59 $ (.20)
Cumulative Effect of a Change in Accounting for
Income Taxes Per Share -- -- -- (.23)
----------- ----------- ------------ ------------
Net Income (Loss) Per Share $ (.05) $ .06 $ .59 $ (.43)
=========== =========== ============ ============
Dividends Declared Per Share $ .03 $ .03 $ .09 $ .09
=========== =========== ============ ============
</TABLE>
<PAGE> 3
CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
Dollars in thousands
<TABLE>
<CAPTION>
OCTOBER 31 January 31
ASSETS 1994 1994
----------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 603 $ 713
Trade notes and accounts receivable, net 72,204 70,137
Inventories:
Finished goods 18,271 16,163
Work in process 5,951 4,437
Raw materials and supplies 34,904 30,894
----------- -----------
59,126 51,494
Less excess of FIFO cost
over LIFO cost (4,478) 4,024
----------- -----------
54,648 47,470
Prepaid expenses and other 4,678 5,567
Deferred income tax benefits 10,760 10,760
----------- -----------
Total current assets 142,893 134,647
Plant and Equipment 171,011 158,961
Less accumulated depreciation
and amortization 75,658 70,068
----------- -----------
95,353 88,893
Other Assets, net 32,190 33,054
----------- -----------
Total Assets $ 270,436 $ 256,594
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 15,644 $ 27,791
Trade accounts payable 15,436 13,937
Employee compensation, payroll taxes
and withholdings 8,220 8,015
Accrued self-insurance expenses 1,132 1,299
Other accrued expenses 15,238 21,140
Dividends payable 376 359
Income taxes payable 3,507 3,678
Current maturities of long-term debt 6,672 6,546
----------- -----------
Total current liabilities 66,225 82,765
Long-Term Debt, less current maturities 59,388 38,656
Deferred Compensation and Pensions 18,352 17,444
Deferred Income Taxes 55 55
Deferred Revenue 10,786 9,962
Stockholders' Equity:
Common stock, par value $1.00 per share --
Authorized 30,000,000 shares; issued
and outstanding, 12,530,208 shares
in October and 12,427,653 shares
in January 12,530 12,428
Additional paid-in capital 37,052 34,794
Retained earnings 67,460 61,736
Deferred stock awards (1,412) (602)
Treasury stock -- (644)
----------- -----------
Total Stockholders' Equity 115,630 107,712
----------- -----------
Total Liabilities and Stockholders' Equity $ 270,436 $ 256,594
=========== ===========
</TABLE>
<PAGE> 4
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
Dollars in thousands
<TABLE>
<CAPTION>
NINE MONTHS ENDED
OCTOBER 31
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1994 1993
-------------------------
<S> <C> <C>
Net income (loss) $ 7,328 $(5,121)
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Depreciation and amortization 11,010 11,426
Deferred income tax benefit -- (3,671)
Cumulative effect of a change in accounting
principles -- 2,755
Restructuring charges -- 9,014
Deferred compensation and pensions 908 1,507
Provision for losses on accounts
receivable 81 677
Asset dispositions, net (540) (85)
Shares issued to employee
benefit plans 1,895 2,523
Change in operating assets and liabilities:
Trade notes and accounts receivable (2,148) 6,176
Inventories (7,178) (3,772)
Prepaid expenses 408 (114)
Other assets 194 539
Trade accounts payable and
accrued expenses (2,365) (2,833)
Federal and state income taxes
payable/receivable (171) (1,028)
Deferred revenue 824 1,550
------- -------
Net Cash and Cash Equivalents Provided by
Operating Activities 10,246 19,543
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of capital assets 3,072 1,592
Capital expenditures (13,976) (12,140)
Purchases of intangible assets (216) (421)
Acquisitions, net of cash acquired (2,000) (6,624)
------- -------
Net Cash and Cash Equivalents Used in
Investing Activities (13,120) (17,593)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance (repayment) of notes payable (12,147) 8,289
Issuance of long-term debt 20,000 --
Payments on long-term debt (4,004) (4,667)
Dividends paid to stockholders (1,121) (1,073)
Stock options exercised 43 205
Stock repurchased (7) (2,495)
------- -------
Net Cash and Cash Equivalents Provided by
Financing Activities 2,764 259
------- -------
Net Increase (Decrease) in Cash and
Cash Equivalents (110) 2,209
Cash and Cash Equivalents at the Beginning
of the Year 713 403
------- -------
Cash and Cash Equivalents at the End of
the Period $ 603 $ 2,612
======= =======
</TABLE>
<PAGE> 5
INCOMING ORDERS, NET SALES ($ MILLIONS) AND
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
FY 1994 FY 1995
----------------------------------------- -------------------------------
Apr. 30 July 31 Oct. 31 Jan. 31 Apr. 30 July 31 OCT. 31
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
MEDICAL - Orders $ 65.4 $ 75.6 $69.9 $ 85.0 $ 71.9 $ 76.2 $ 74.9
Net Sales 69.4 71.9 69.6 75.0 73.7 77.2 74.9
AERO - Orders 5.6 7.0 5.1 10.4 8.2 6.0 8.1
Net Sales 6.0 6.0 5.7 5.7 6.7 6.8 8.5
TOTAL - Orders $ 71.0 $ 82.6 $75.0 $ 95.4 $ 80.1 $ 82.2 $ 83.0
Net Sales 75.4 77.9 75.3 80.7 80.4 84.0 83.4
BACKLOG INCREASE (DECREASE) $ (4.4) $ 4.7 $(0.3) $ 14.7 $ (0.3) $ (1.8) $ (0.4)
-------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT PER SHARE $ .15 $ (.41) $ .06 $(2.46) $ .30 $ .34 $ (0.5)
CUMULATIVE EFFECT OF ACCOUNTING
CHANGES PER SHARE (.23) -- -- (.01) -- -- --
------ ------ ----- ------ ------ ------ ------
NET INCOME (LOSS) PER SHARE $ (.08) $ (.41) $ .06 $(2.47) $ .30 $ .34 $ (0.5)
====== ====== ===== ====== ====== ====== ======
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MONTHS
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> OCT-31-1994
<CASH> 14
<SECURITIES> 589
<RECEIVABLES> 74,206
<ALLOWANCES> 2,002
<INVENTORY> 54,648
<CURRENT-ASSETS> 142,893
<PP&E> 171,011
<DEPRECIATION> 75,658
<TOTAL-ASSETS> 270,436
<CURRENT-LIABILITIES> 66,225
<BONDS> 59,388
<COMMON> 12,530
0
0
<OTHER-SE> 103,100
<TOTAL-LIABILITY-AND-EQUITY> 270,436
<SALES> 247,813
<TOTAL-REVENUES> 247,813
<CGS> 144,091
<TOTAL-COSTS> 230,706
<OTHER-EXPENSES> 6,929
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,319
<INCOME-PRETAX> 10,178
<INCOME-TAX> 2,850
<INCOME-CONTINUING> 7,328
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,328
<EPS-PRIMARY> 0.59
<EPS-DILUTED> 0.59
</TABLE>
