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EXHIBIT 6
FORM OF SEVERANCE AGREEMENT
Dear
In view of your position as ____________________________ at
Puritan-Bennett Corporation ("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
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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
Employment Termination Date. 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 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, as follows:
the Company shall pay 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. 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.
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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 ________________________________. 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 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.
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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
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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
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
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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.
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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
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___________________________ 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 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.
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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 the Company's independent auditors which shall
provide detailed supporting calculations both to the Company and Employee
within 15 business days of the Date of
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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 Company's independent auditors 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
Company's independent auditors, 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
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 Company's independent auditors,
based upon the assertion of a deficiency by the Internal Revenue Service
against Employee or the Company which the Company's independent auditors
believe has a high probability of success, determine that an Overpayment has
been made, any such Overpayment paid or distributed by the Company to or for
the benefit of
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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 Company's independent auditors, based upon
controlling precedent or other substantial authority, determine 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
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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.
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.
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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,
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