Exhibit 10.6
October 1, 1994
PAUL D. COTTONE
Dear Paul,
This letter is to assure you that in the event you become entitled to
payments by operation of the Employee Agreement dated October 1, 1994
("Agreement") between you and Mallinckrodt Group Inc., formerly known
as IMCERA Group Inc., ("Mallinckrodt"), and if any of the payments to
be made under the Agreement ("Agreement Payments") will be subject to
the tax ("Excise Tax") imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended ("Code") (or any similar tax that may
hereafter be imposed), Mallinckrodt shall pay to you at the time
specified in Paragraph (c) below an additional amount ("Gross-up
Payment") such that the net amount retained by you, after deduction of
any Excise Tax on the Total Payments (as hereinafter defined) and any
federal, state and local income tax and Excise Tax upon the Gross-up
Payment provided for by this paragraph, but before deduction for any
federal, state or local income tax on the Agreement Payments, shall be
equal to the sum of (a) the Total Payments, and (b) an amount equal to
the product of any deductions disallowed because of the inclusion of
the Gross-Up Payment in your adjusted gross income and the highest
applicable marginal rate of federal income taxation for the calendar
year in which the Gross-up Payment is to be made. Notwithstanding
the foregoing, your Gross-up Payment, if any, may not exceed
$1,216,965.
(1) For purposes of determining whether any of the Agreement
Payments will be subject to the Excise Tax and the amount of such
Excise Tax,
(a) any other payments or benefits received or to be
received by you in connection with a change in control (as that
term is defined in the Mallinckrodt Group Inc. Management
Compensation and Benefit Assurance Program) of Mallinckrodt or
AGREEMENT/2
PAUL D. COTTONE
your termination of employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with
Mallinckrodt, any person whose actions result in a change of
control of Mallinckrodt or any person affiliated with
Mallinckrodt or such person) (which, together with the Agreement
Payments, shall constitute the "Total Payments") shall be treated
as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless in the opinion of tax counsel
selected by Mallinckrodt's independent auditors, such other
payments or benefits (in whole or in part) do not constitute
parachute payments, or such excess parachute payments (in whole
or in part) represent reasonable compensation for services
actually rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of Section
280G(b)(3) o the Code or are otherwise not subject to the Excise
Tax.
(b) the amount of the Total Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (i)
the total amount of the Total Payments or (ii) the amount of
excess parachute payments within the meaning of, Section
280G(b)(1) of the Code (after applying clause (a), above), and
(c) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by Mallinckrodt's
independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
(2) For purposes of determining the amount of the Gross-up
Payment, you shall be deemed to (x) pay federal income taxes at the
highest marginal rate of federal income taxation for the calendar year
in which the Gross-up Payment is to be made and, (y) pay the
applicable state and local income taxes at the highest marginal rate
of taxation for the calendar year in which the Gross-up Payment is to
be made, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes
(determined without regard to limitations on deductions based upon the
amount of your adjust gross income), and (z) have otherwise allowable
deductions for federal income tax purposes at least equal to those
disallowed because of the inclusion of the Gross-up Payment in your
adjusted gross income. In the event that the Excise Tax is
subsequently determined to be less than the amount taken into account
AGREEMENT/3
PAUL D. COTTONE
hereunder at the time the Gross-up Payment is made, you shall repay to
Mallinckrodt at the time that the amount of such reduction in Excise
Tax is finally determined the portion of the Gross-up Payment
attributable to such reduction (plus the portion of the Gross-up
Payment attributable to the Excise Tax and federal and state and local
income tax imposed on the portion of the Gross-up Payment being repaid
by you if such repayment results in a reduction in Excise Tax and/or a
federal and state and local income tax deduction), plus interest on
the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. In the event that the Excise Tax is
determined to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment
the existence or amount of which cannot be determined at the time of
the Gross-up Payment) Mallinckrodt shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect of such excess) at the time that the amount of such excess is
finally determined.
(3) The Gross-Up Payment or porion thereof provided for in
Paragraphs (1) and (2) above shall be paid not later than the
thirtieth day following payment of any amounts under the Agreement;
provided, however, that if the amount of such Gross-Up Payment or
portion thereof cannot be finally determined on or before such day,
Mallinckrodt shall pay to you on such day an estimate, as determined
in good faith by Mallinckrodt, of the minimum amount of such payments
and shall pay the remainder of such payments (together with interest
at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later than the
forty-fifth day after payment of any amounts under the Agreement. In
the event that the amount of the estimated payment exceeds the amount
subsequently determined to have been due, such excess shall constitute
a loan by Mallinckrodt to you, payable on the fifth day after demand
by Mallinckrodt (together with interest at the rate provided in
Section 1274(b)(2)(B) of the Code).
Should a change in control occur (as defined in the Management
Compensation and Benefit Assurance Program) and should Gross-up
Payments become due you as a result of the operation of your
Agreement, then such Gross-up Payments will be paid to you from the
Trust Agreement between Mallinckrodt Group Inc., and Wachovia Bank of
North Carolina, N.A., which has been established to protect payment
obligations of Mallinckrodt under this letter agreement.
Mallinckrodt is pleased to be able to provide you with this additional
assurance of economic protection in the event of a change in control.
AGREEMENT/4
PAUL D. COTTONE
Please sign, date and return the original of this letter in the
envelope provided and retain the enclosed copy for your records.
Very truly yours,
BEVERLY L. HAYES
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Beverly L. Hayes
Vice President
Organization & Human Resources
I have read this letter and
understand and accept its terms.
PAUL D. COTTONE
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(Signed)
Paul D. Cottone
October 21, 1994
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(Dated)