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Exhibit 3
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:
1.1 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
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Mr. John H. Morrow
November 7, 1994
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below); provided, that the Continued Payment Period shall
not 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
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Mr. John H. Morrow
November 7, 1994
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force and effect. It is expressly agreed that payments or
benefits to you under the 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
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Mr. John H. Morrow
November 7, 1994
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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.
(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.
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Mr. John H. Morrow
November 7, 1994
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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 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.
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Mr. John H. Morrow
November 7, 1994
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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 Robbins
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Vice President
Agreed to and accepted:
/s/ John H. Morrow
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JOHN H. MORROW