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EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated as of August 25, 1995, is entered into by and among
Nellcor Incorporated ("Company" or "Nellcor"), Puritan-Bennett Corporation
("PB") and John H. Morrow ("Executive") and supersedes and replaces any prior
employment agreement previously entered into between Company or any subsidiary
thereof, including PB and Employee.
In consideration of the respective undertakings of Company and Executive set
forth below, Company and Executive agree as follows:
1. Certain Definitions.
1.1 Cause. "Cause" means (a) the Executive's willful violation of any
reasonable rule or direct order of the Board or the Company Chief Executive
Officer ("CEO"), which, after written notice to do so, the Executive fails to
make reasonable efforts to correct within a reasonable time, or (b) conviction
of a crime, or entry of a plea of nolo contendere with regard to a crime,
involving an offense against the Company or dishonesty of or by the Executive,
or (c) drug or alcohol abuse on the premises of Company or any subsidiary or
affiliate of the Company, or at an event sponsored by the Company or any
affiliate or subsidiary of the Company, or (d) Executive's material violation of
any provision of this Agreement, which, after written notice to do so, the
Executive fails to correct within a reasonable time. "Cause" shall not include
any matter other than those specified in (a) through (d) above and, without
limiting the generality of the foregoing statement, Cause shall not include (x)
any charge or conviction of a crime, or entry of a plea of nolo contendere with
regard to a crime, under the Federal Food, Drug, and Cosmetic Act, as amended,
or any successor statute thereto (the "Act"), or (y) the imposition or attempt
to impose upon the Executive, or upon any operation, asset, product or activity
of the Company, of any other sanction or remedy under the Act including, without
limitation, civil money penalties, warning letters, injunctions, repairs,
replacements, refunds, recalls or seizures, if in either such case the Executive
acted in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Company.
1.2 Code. "Code" means the Internal Revenue Code of 1986, as amended.
1.3 Continued Payment Period. "Continued Payment Period" shall have the
meaning ascribed to it in Section 7.1.
1.4 Company SERP. "Company SERP" means that certain Supplemental Retirement
Benefit Plan in the form attached hereto as Exhibit A adopted by the
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Company and effective as of the Effective Date providing for certain
supplemental retirement.
1.5 Effective Date. "Effective Date" means the date on which the effective
time of the merger occurs under the Merger Agreement.
1.6 Employment Termination Date. "Employment Termination Date" means the
date specified in any notice of termination provided pursuant to Section 2.2 or
other date of termination of Executive's employment after the Effective Date.
1.7 FY 1996 Bonus Plan. "FY 1996 Bonus Plan" means that certain bonus
available to Executive pursuant to PB's Merger Incentive Compensation Plan, but
only to the extent available to Executive by the terms of such plan.
1.8 401(k) Plan. "401(k) Plan" means that certain Restated Puritan-Bennett
Retirement Savings and Stock Ownership Plan, as amended.
1.9 Good Reason.
(a) "Good Reason" means, on or prior to the first anniversary of the
Effective Date of this Agreement (1) Executive ceases to hold the position
provided to him in Section 2.1, (2) reduction in Executive's total
compensation or in salary from that described in Section 3, (3) requiring
Executive to locate from the greater Kansas City metropolitan area other
than in connection with becoming Chief Operating Officer of the Company; or
(4) failure to afford Executive the employee benefits described in Section
4, if such failure is not corrected within thirty (30) days after written
notice to the Company thereof. Executive shall have one year following the
occurrence of (1) or (2) above to terminate his employment for Good Reason.
Executive shall have ninety (90) days following the occurrence of (3) or (4)
above to give notice to Company of such occurrence and shall have sixty (60)
days (which sixty day period shall commence immediately after the expiration
of any cure period specified in such (3) and (4)) to terminate his
employment for Good Reason.
(b) "Good Reason" means, after the first anniversary of the Effective
Date of this Agreement, (1) any act of the Company constituting "Good
Reason" under Section 1.9(a) above (subject to the last sentence of Section
1.9(a), (2) any material reduction in the nature or scope of the Executive's
authority or duties from those described in Section 2.1 (including if such
reduction occurred prior to the first anniversary of the Effective Date), if
such failure is not corrected within thirty (30) days after written notice
to the Company thereof, or (3) material breach by the Company or any
successor company of any of the provisions of this Agreement not corrected
within ninety (90) days after written notice to the Company thereof.
Executive shall have ninety (90) days following the occurrence of (2) or (3)
above to give notice to Company of such occurrence and
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shall have sixty (60) days (which sixty day period shall commence
immediately after the expiration of any cure period specified in such (2) or
(3)) to terminate his employment for Good Reason.
(c) "Good Reason" means, after the second anniversary of the Effective
Date of this Agreement, (1) any act of the Company constituting "Good
Reason" under Section 1.9(a) (subject to the last sentence of Section
1.9(a)) or Section 1.9(b) above (subject to the last sentence of Section
1.9(b)), or (2) failure of the Company to offer Executive the position of
Chief Operating Officer of the Company (with a commensurate compensation
level). Executive shall have until the third anniversary of the Effective
Date of this Agreement to terminate his employment for "Good Reason" as a
result of the failure of the Company to offer him the position of Chief
Operating Officer of the Company.
1.10 Merger Agreement. "Merger Agreement" means the Agreement and Plan of
Merger dated as of May 21, 1995, as amended by and among the Company, Puma
Merger Corporation and PB.
1.11 PB Agreements and Benefits. "PB Agreements and Benefits" mean all
written or oral agreements relating to the terms and conditions of Executive's
employment with PB, and the provision to Executive of employee benefits,
including, but not limited to (a) the letter agreement dated June 9, 1994,
between PB and Executive, (b) the supplemental letter agreement dated November
7, 1994, between PB and Executive, (c) the PB Supplemental Retirement Benefit
Plan adopted by PB effective as of September 1, 1985 (the "PB SERP"), (d) the
agreement made as of November 7, 1994, between PB and Executive changing the PB
SERP as applicable to Executive, and (e) the PB Pension Benefit Make Up Plan as
applicable to Executive. Notwithstanding the foregoing, "PB Agreements and
Benefits" shall not include benefits and rights under (i) the employee benefit
plans of the Company constituting qualified plans under section 401(a) of the
Code, (ii) any PB stock options or awards held by Executive, (iii) the Restated
PB Deferred Compensation Plan, (iv) the 401(k) Plan, (v) the FY 1996 Bonus Plan,
or (vi) the Retention Bonus Plan.
1.12 Retention Bonus Plan. "Retention Bonus Plan" means that certain bonus
available to Executive pursuant to PB's Retention Compensation Plan, but only to
the extent available to Executive by the terms of such plan.
1.13 Tax Rate. "Tax Rate" shall have the meaning ascribed to it in Section
7.3.
2. Employment.
2.1 The Company shall employ Executive, as of the Effective Date, as
Executive Vice President of the Company and President of the Company's Home
Health Care Business, which will include the PB Puritan Group and Aero Systems
Group, as constituted on the Effective Date, the PB Republic of Ireland
operation, and the
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Company's Edentec and Pierre Medical operation, except to the
extent that for any reason any of such operations are no longer part of the
operations of the Company and its subsidiaries. Executive shall also serve as a
member of the Board of Directors of PB subject to removal at the discretion of
the Company.
2.2 Subject to the foregoing, Executive shall continue in his employment
with the Company until either Company or the Executive gives written notice to
the other of termination of Executive's employment. Such notice shall specify
the date of termination of employment. Subject to making any payments required
to be made under Sections 6 and 7 of this Agreement, the Company may terminate
Executive's employment at any time with or without cause and with or without
advance notice. The Company's right to terminate the Executive shall be governed
solely by the terms of this Agreement and may not be modified by any other
express or implied employment practices, policies or agreements except a
specific written agreement amending this provision signed by Company and
Executive.
2.3 During his employment with the Company, Executive agrees to devote his
full business time and efforts to the rendition of services to the Company
subject, however, to illness and customary vacations. Executive will at all
times be subject to the direction and supervision of the Chief Executive Officer
("CEO") of the Company. Executive may devote a reasonable amount of time to
civic and community affairs but shall not perform services during the term of
his employment for any other business organization in any capacity without the
prior consent of the CEO.
2.4 The employment relationship between the parties shall also be governed
by the general employment policies and practices of the Company including, but
not limited to, any rules, regulations and policies now or hereafter appearing
in the Company's Employee Handbook and other policy statements, except that when
the terms of this Agreement differ from or are in conflict with the Company's
employment policies and practices, this Agreement shall control. Notwithstanding
the foregoing, nothing in this Section 2.4 shall in any way limit the Company's
rights under Section 2.3.
3. Salary and Bonus. Executive's initial base salary shall be $275,000 per
annum, payable at the times payroll for other executives is processed, subject
to required withholdings. Executive shall participate in Company's Short-Term
Cash Incentive Program for Officers and Directors as in effect from time to time
with an initial target bonus of 50% of base salary based on the achievement of
Company and individual objectives. Executive's base salary and bonus will be
reviewed and adjusted at the same time as for other similarly situated
executives.
4. Other Employee Benefits.
4.1 Executive shall be immediately eligible for all employee benefits
generally available to executive officers of the Company including, but not
limited to, vacation,
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sick leave, health insurance, dental insurance, life insurance, disability
insurance and deferred compensation. Executive shall not be entitled to receive,
and hereby waives, any right to benefits under PB's Director's Post-Retirement
Income Plan. Executive's health and dental benefits shall not be subject to any
pre-existing condition limitation for Executive or any covered family member. To
the extent that an employee's period of service with the Company is relevant in
determining eligibility for or vesting in any such benefits, Executive shall
receive credit for service with PB as service with the Company. Notwithstanding
the foregoing, Executive may elect to participate in any health benefits of PB
that are generally available at the time, in lieu of (and to the same extent as)
any health benefits that would otherwise be available to him from Company under
the terms of this Agreement.
4.2 Executive shall be provided a Company automobile, including
reimbursement for reasonable automobile expenses.
4.3 Executive shall be entitled to reimbursement of reasonable travel and
other business expenses incurred by him in relation to Company business in
accordance with the Company's standard policies.
4.4 Executive's membership in Shadow Glen Golf Club shall be continued,
including reimbursement for monthly dues and assessments as well as reasonable
expenses incurred in connection with business usage of the club services and
facilities. If Executive is required to relocate from the Kansas City area, the
Company shall use all reasonable efforts to transfer to Executive ownership of
the Shadow Glen Golf Club membership.
4.5 Executive shall be entitled to an annual allowance of $2,500 which he
may use to obtain income tax, estate planning and other similar services.
4.6 Executive shall be provided with a loan in the amount and containing
the terms provided in Exhibit B so as to enable Executive to pay certain income
taxes arising in connection with the acceleration of restricted stock as a
result of the merger.
4.7 Company shall pay to Executive within 10 days of the Effective Date, an
amount equal to all accrued but unused vacation held by him at PB paid at his
rate of compensation as of the Effective Date of $275,000 per annum. The amount
of such unused vacation is currently expected to be as listed in Exhibit C
hereto.
5. Stock Compensation.
5.1 As of the Effective Date, the Company shall (A) substitute Company
incentive stock options ("ISOs") and Company non-qualified stock options
("NQSOs") for all outstanding ISOs and NQSOs, respectively, under PB's 1988
Stock Benefit Plan expired unexercised as of the Effective Date, and (B) to the
extent that any stock options under PB's 1979 Employee Stock Benefit Plan would
terminate as of the
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Effective Time as a result of the Merger, substitute equivalent Company stock
options in replacement thereof. The substituted Company options will have the
terms provided in the Merger Agreement.
5.2 Executive shall be eligible to participate in the Company's equity
incentive compensation plans to the same extent as are generally made available
to similarly situated executives of the Company. However, to the extent that the
plan in question is a discretionary award plan, the amount of any award to
Executive under the plan shall be in the sole discretion of the Nominating and
Compensation Committee of the Company's Board of Directors, or any successor
thereto.
6. Rights Upon Termination of Employment by Death or Disability or on
Termination of Employment by the Company for Cause, or by Executive other than
for Good Reason; Gross Up Payments. In the event of Executive's death or
disability (as defined in the Company's long-term disability plan last effective
on or before the date of disability), Executive's employment shall terminate. On
termination of Executive's employment by reason of death or disability, or by
the Company for Cause, or by Executive other than for Good Reason, Executive
shall be entitled to receive the full amount of any accrued but unpaid salary
through the Employment Termination Date at the rate in effect at the time of the
notice of termination, plus all other amounts to which Executive is entitled
under any compensation or benefit plan of the Company in which Executive is then
participating, at the time and in the amounts such payments are due in
accordance with the terms of such plans, and the Company shall have no further
obligations to Executive.
7. Rights Upon Termination of Employment By Company other than for Cause,
or by Executive for Good Reason. If the Company terminates Executive's
employment other than for Cause, or if Executive terminates employment for Good
Reason, the Company shall have the obligation to make the payments specified in
this Section 7. For sake of clarity, the provisions of Section 6 of this
Agreement, and not this Section 7, shall apply in the event of termination of
Executive's employment on death or disability (as defined in the Company's
long-term disability plan last effective on or before the date of disability).
7.1 Executive shall receive severance pay for a period of three years from
the Employment Termination Date (the "Continued Payment Period"), at an annual
rate equal to the sum of (a) the Executive's highest base salary rate from the
Company in effect prior to the Employment Termination Date, plus (b) the highest
bonus paid to Executive under the Company's Short-Term Cash Incentive Program
for any fiscal year, such severance award to be payable, other than as provided
in the next sentence, in equal installments payable at the times Company's
payroll for executives is processed for a period of three years. If the Company
terminates Executive's employment other than for Cause or if Executive
terminates employment for Good Reason, in each case prior to the end of the
first fiscal year of the Company beginning after the Effective Date, then
Executive's bonus for purposes of calculating severance
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payments under this Section 7.1 shall be deemed to be equal to the bonus
Executive would have earned under the Company's Short-Term Cash Incentive
Program for the first fiscal year ending after the Effective Date had he been
employed for all twelve months of such fiscal year and satisfied his employment
objectives.
The Company shall make a lump-sum payment to Executive of any amount of
severance payments due under this Section 7.1 in connection with the portion of
the severance payments pertaining to Executive's bonus under (b) above, within
10 business days following the determination by the Company after the end of
such fiscal year that the Company has achieved plan performance criteria for the
payment of incentive compensation. For purposes of the calculation of
Executive's base salary and bonus under this Section 7.1, no deduction shall be
made for amounts deferred by Executive under any qualified plan, cafeteria plan
or deferred compensation plan maintained by the Company. In addition, under no
circumstances shall Executive's base salary and bonus for purposes of Section
7.1 include the value of any benefits provided to Executive under this Agreement
or any other plan or agreement other than base salary and bonus determined under
Section 3 hereof.
7.2 The Company shall use all reasonable efforts to transfer to Executive
ownership of the Shadow Glen Golf Club membership.
7.3 Any Company ISOs or NQSOs awarded to Executive pursuant to Section 5.1
of this Agreement that have not previously vested and become exercisable on the
Employment Termination Date shall become fully vested and exercisable on that
date. To the extent that the vesting of any ISO causes the ISO to become a NQSO
(such options are referred to herein as the "Disqualified Options" and do not
include ISOs that were exercised prior to acceleration and hence did not become
NQSOs), the Company will pay to Executive an amount that, after payment of taxes
by Executive, is equal to the "Lost ISO Value," as determined pursuant to
Section 7.4. The after-tax amount shall be calculated using the Executive's
effective tax rate applicable to such payment (based upon the combined federal
and state and local income, earnings, Medicare and any other tax rates
applicable to Executive, net of the reduction in federal income taxes which
could be obtained by deduction of such state and local taxes) (the "Tax Rate")
for the tax year in which payment occurs. Payment of the Lost ISO Value shall be
made within 60 days following acceleration.
7.4 The "Lost ISO Value" ("V") shall be determined by the formula V=(S x
T)-PV(S x FT), where: (a) S equals the difference between the per share exercise
price and the fair market value of the Company Stock (ignoring all options which
are "out of the money," in other words any excess of the exercise price over
fair market value shall not reduce S), multiplied by the number of shares
subject to the Disqualified Options; "fair market value," for this purpose,
means the mean of the high and low prices of the Company Stock on the Employment
Termination Date as reported on the principal market or transaction reporting
system through which trading of such securities is then made or reported (or on
the next preceding date on which the stock
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was traded if no trades are reported on such principal market or transaction
reporting system for the Employment Termination Date); (b) T equals the Tax Rate
for the tax year in which the Employment Termination Date occurs; (c) FT equals
the future income tax that would have been payable by Executive if (1) the
Disqualified Options were exercised as ISOs on the Employment Termination Date,
(2) the Company Stock received on exercise was held by Executive until
attainment of age 65 and then sold at a price equal to the fair market value of
the Company Stock on the Employment Termination Date, as determined above, and
(3) the tax laws and rates in effect on the Employment Termination Date were
effective for the tax year in which Executive attains age 65; and (d) PV means
the present value of (S x FT) as of the Employment Termination Date discounting
at 120% of the "applicable federal rate" on that date (within the meaning of
section 1274(d) of the Code). Attached hereto as Exhibit D is a sample of the
computation of "Lost ISO Value."
7.5 The Company will provide a benefit to Executive under the Consolidated
Omnibus Budget Reconciliation Act of 1986 ("COBRA") and section 4980B of the
Code, as follows: the Company shall pay for the maximum required period of
coverage under section 4980B(f)(2) of the Code the percentage of the cost of
COBRA coverage with respect to Executive's coverage status (e.g., individual or
family) in effect immediately prior to the Employment Termination Date, which
percentage shall be the fraction (expressed as a percentage), the numerator of
which shall be the difference between (a) the monthly cost of COBRA coverage for
Executive's coverage status in effect immediately prior to the Employment
Termination Date and (b) Executive's monthly contribution toward Executive's
coverage in effect immediately prior to your Employment Termination Date, and
the denominator of which shall be the monthly cost of COBRA coverage for
Executive's coverage status in effect immediately prior to Executive's
Employment Termination Date. All such amounts shall be determined as of the day
immediately preceding the termination of Executive's employment. The insurance
continuation benefits paid for hereunder shall be deemed to be part of
Executive's COBRA coverage. Such benefits shall be in addition to any other
benefits relating to health or medical care benefits that are available under
Company's policies to Executive following termination of employment.
Subject to restrictions under the terms of Company's then existing health and
welfare plans, Company shall continue to make available to Executive after
termination of employment with Company, until Executive attains the age of 65,
health and dental coverage to the same extent as such coverage is generally
available to full-time Company employees with the sole cost of such
participation (both the employer and employee portion of all premiums), to be
borne by Executive; provided that Company's obligation shall be to use
reasonable efforts to seek to obtain coverage the terms of which would cover
Executive within the meaning of this sentence (so long as the inclusion of
Executive does not make Company's cost for the plan uncompetitive with
alternative plans or have a material adverse effect on the taxation of benefits
provided to Company's employees under the plan).
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7.6 In the event that Executive becomes entitled to payments under this
Section 7, then if any of such payments or any other compensation, benefit or
other amount from the Company or PB for the benefit of Executive ("Parachute
Payments"), will be subject to the tax imposed by section 4999 of the Code
(including any applicable interest and penalties, the "Excise Tax"), no
Parachute Payment shall be reduced (except for required tax withholdings) and
the Company shall pay to Executive within 30 days of the date such Excise Tax
becomes payable, an additional amount (the "Gross-Up Payment") such that the net
amount retained by Executive, after deduction of any Excise Tax on the Parachute
Payments and taxes based upon the Tax Rate and Excise Tax upon the payment
provided for by this Section 7.6, shall be equal to the amount the Executive
would have received if no Excise Tax had been imposed. For purposes of
determining whether any of the Parachute Payments will be subject to the Excise
Tax and the amount of the Excise Tax, (a) any other payments, benefits or other
amounts received or to be received by Executive in connection with Executive's
termination of employment at any time from the Company or any entity at any time
affiliated with the Company (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company or any person
affiliated with the Company) shall be treated as "parachute payments" within the
meaning of section 280G(b)(2) of the Code, and all "excess parachute payments"
within the meaning of section 280G(b)(1) shall be treated as subject to the
Excise Tax, unless in the opinion of tax counsel selected by the Company and
acceptable to Executive such other payments or benefits (in whole or in part)
represent reasonable compensation for services actually rendered within the
meaning of section 280G(b)(4) of the Code, (b) the amount of the Parachute
Payments which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (1) the total amount of the Parachute Payments or (2) the amount
of any excess parachute payments within the meaning of section 280G(b)(1) and
(4) (after applying clause (a), above, and after deducting any excess parachute
payments in respect of which payments have been made under this Section 7.6),
and (c) the value of any non-cash benefits or any deferred payment or benefit
shall be determined by the Company in accordance with the principles of section
280G(d)(3) and (4) of the Code. For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed to pay taxes at the Tax Rate
applicable at the time of the Gross-Up Payment. In the event that the Excise Tax
is subsequently determined to be less than the amount taken into account
hereunder at the time of termination of Executive's employment, Executive shall
repay to the Company at the time that the amount of such reduction in Excise Tax
is finally determined the portion of the Gross-Up Payment attributable to such
reduction plus interest on the amount of such repayment at the rate provided in
section 1274(d)(1) of the Code. In the event that the Excise Tax is determined
to exceed the amount taken into account hereunder at the time of termination of
the Executive's employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such excess
(plus any interest payable in respect of such excess) at the time that the
amount of such excess is finally determined.
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7.7 All payments made under this Section 7 shall be subject to all required
withholdings.
7.8 The severance benefits provided Executive under this Section 7 shall be
reduced by any severance benefits to which Executive is entitled under the
Company's severance benefits policies for terminated employees generally.
However, it is expressly agreed that payments or benefits to Executive under the
Company SERP or under any agreement with Executive relating to the Company SERP
or any other retirement, deferred compensation or pension arrangement shall not
be offset against or reduce in any way any payments or benefits to which
Executive is entitled under this Agreement.
7.9 Notwithstanding anything in this Agreement to the contrary, if any
portion of any payments to Executive by the Company under this Agreement and any
other present or future plan of the Company or other present or future agreement
between Executive and the Company would not be deductible by the Company for
federal income tax purposes by reason of application of section 162(m) of the
Code, then payment of that portion to Executive shall be deferred until the
earliest date upon which payment thereof can be made to Executive without being
non-deductible pursuant to section 162(m) of the Code. In the event of such
deferral, the Company shall pay interest to Executive on the deferred amount at
120% of the applicable federal rate provided for in section 1274(d)(1) of the
Code.
7.10 Executive shall be paid within 10 business days of Executive's
Employment Termination Date, a prorated bonus based on the number of days
elapsed in the fiscal year in which his employment terminates and such prorated
bonus shall be calculated assuming that the Company achieved its performance
objectives and the individual achieved his objectives used in calculating the
bonus award for Executive.
8. Death Benefits. If Executive is terminated under circumstances
entitling him to payments under Section 7 of this Agreement and thereafter dies
during the Continued Payment Period, the Company shall be obligated to pay to
Executive's spouse, if surviving, and otherwise to Executive's estate, the
amount to which Executive would have been entitled under Section 7 of this
Agreement had Executive survived.
9. Non-Competition. During Executive's employment and, if applicable,
during the Continued Payment Period, Executive agrees that he will not directly
or indirectly compete with the Company or PB, or engage in, or act as an
officer, director, employee or agent of any person or entity that is engaged in
(or intends to enter into at such time) any business in which the Company or PB
is engaged as of the Employment Termination Date, without the written approval
of the CEO of the Company. The foregoing shall not prohibit Executive from
investing in any securities of a corporation whose securities, or any of them,
are listed on a national securities exchange or traded
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in the over-the-counter market so long as Executive shall own less than 3% of
the outstanding voting securities of such corporation.
10. Confidentiality. During Executive's employment and at all times
thereafter, Executive agrees that he will not divulge to anyone or use for
Executive's own benefit or the benefit of any other person or entity any
information concerning the Company, its businesses, operations, finances,
products, plans, employees, or otherwise, including, without limitation, trade
secrets and other proprietary information, except for information that has been
published by or with the consent of the Company and is as a result thereof
generally available to the public, or information reasonably required by
Executive for the preparation of personal tax returns. The foregoing
restrictions shall not be applicable to any information that is or becomes part
of the public domain other than as a result of disclosure by Executive.
11. No Obligation to Mitigate. Executive shall not be required to mitigate
the damages or the amount of any payment provided for under this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment
provided under this Agreement be reduced by any compensation earned by Executive
as the result of employment by another employer after the Employment Termination
Date, or otherwise.
12. Other Rights. Except as specifically provided herein, the provisions of
this Agreement, and any payment provided for hereunder, shall not reduce any
amounts otherwise payable, or in any way diminish Executive's existing rights or
rights which would accrue solely as a result of the passage of time, under any
benefit or incentive plan, employment arrangement or other contract, plan or
arrangement of the Company. As soon as practicable following the Employment
Termination Date, Executive shall receive cash payment(s) for: (a) the value of
Executive's earned but unused vacation time as of the Employment Termination
Date in accordance with then current Company policy, and (b) the value of
Executive's deferred compensation account(s) under any Company or PB deferred
compensation plan in accordance with Executive's then current payment election.
13. Release and Termination of Rights. As of the Effective Date, the PB
Agreements and Benefits shall terminate. Executive and his representatives,
heirs, successors, and assigns do hereby completely release and forever
discharge Company, any affiliate, and its and their present and former
shareholders, officers, directors, agents, employees, attorneys, successors, and
assigns (collectively, "Released Parties") from all claims, rights, demands,
actions, obligations, liabilities and causes of action of every kind and
character, known or unknown, mature or unmatured, which Executive may now have
or has ever had, whether based on tort, contract (express or implied) or any
federal, state or local law, statute or regulation, relating in any manner
whatsoever to the PB Agreements and Benefits or his employment by PB
(collectively, the "Released Claims"). Notwithstanding the foregoing, Released
Claims shall not include amounts payable to Executive pursuant to PB Agreements
and Benefits relating to (i) out-of-pocket expenses incurred in connection with
the business
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of PB, (ii) wages and salary earned, and (iii) other items as described in
Exhibit E hereto, in each case only to the extent that such amounts are accrued
but unpaid prior to the Effective Date.
14. Successors. This Agreement and the rights and obligations of the
parties hereto shall bind and inure to the benefit of any successor or
successors of the Company by way of reorganization, merger, acquisition or
consolidation, and any assignee of all or substantially all of its business and
properties.
15. Amendments; Waivers. This Agreement may not be modified, amended, or
terminated except by an instrument in writing, signed by Executive and by a duly
authorized representative of the Company other than Executive. By an instrument
in writing similarly executed, either party may waive compliance by the other
party with any provision of this Agreement that such other party was or is
obligated to comply with or perform, provided, however, that such waiver shall
not operate as a waiver of, or estoppel with respect to, any other or subsequent
failure. No failure to exercise and no delay in exercising any right, remedy or
power hereunder shall operate as a waiver thereof or as a waiver of any other
right, remedy or power, nor shall any single or partial exercise of any right,
remedy or power hereunder preclude any other or further exercise of any other
right, remedy, or other power provided herein or by law or in equity.
16. Miscellaneous.
16.1 No Assignment. No benefit hereunder shall be subject to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt to do so shall be void.
16.2 Notices. All notices hereunder shall be in writing, and shall be
delivered in person, by facsimile or by certified mail-return receipt requested.
Notices shall be delivered as follows:
If to the Company or PB:
c/o Nellcor Incorporated
4280 Hacienda Drive
Pleasanton, CA 94288
Attention: Laureen DeBuono, Esq.
Executive Vice President
Human Resources, General
Counsel and Corporate
Secretary
Tel: (510) 463-4214
Fax: (510) 463-4218
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If to the Employee:
John H. Morrow
10231 Catalina
Overland Park, Kansas 66207
Any party may change its address by notice giving notice to the other party of
a new address in accordance with the foregoing provisions.
16.3 Governing Law. This Agreement shall be governed by the laws of the
State where Executive's principal office with the Company is located at the time
a dispute hereunder shall arise.
16.4 Arbitration.
(a) All disputes between Executive (and his attorneys, successors and
assigns) and Company (and its affiliates, shareholders, directors, officers,
employees, agents, successors, attorneys and assigns) relating in any manner
whatsoever to the employment or termination of Executive, including, without
limitation, all disputes arising under this Agreement ("Arbitrable Claims")
shall be resolved by arbitration. All persons and entities specified in the
preceding sentence (other than Company and Executive) shall be considered
third-party beneficiaries of the rights and obligations created by this
Section on Arbitration. Arbitrable Claims shall include, but are not limited
to, contract (express or implied) and tort claims of all kinds, as well as
all claims based on any federal, state or local law, statute or regulation,
excepting only claims under applicable workers' compensation law and
unemployment insurance claims. By way of example and not in limitation of
the foregoing, Arbitrable Claims shall include any claims arising under
Title VII of the Civil Rights Act of 1964, the Age Discrimination in
Employment Act, the Americans with Disabilities Act, as well as any claims
asserting wrongful termination, breach of contract, breach of the covenant
of good faith and fair dealing, negligent or intentional infliction of
emotional distress, negligent or intentional misrepresentation, negligent or
intentional interference with contract or prospective economic advantage,
defamation, invasion of privacy and claims related to disability.
Arbitration shall be final and binding upon the parties and shall be the
exclusive remedy for all Arbitrable Claims. THE PARTIES HEREBY WAIVE ANY
RIGHTS THEY MAY HAVE TO TRIAL BY JURY IN REGARD TO ARBITRABLE CLAIMS.
(b) Arbitration of Arbitrable Claims shall be in accordance with the
Employment Dispute Resolution Rules of the American Arbitration Association
("AAA Employment Rules"), except as provided otherwise in this Agreement.
The burden of proof in any arbitration shall be allocated as provided by
applicable law, unless otherwise specified in this Agreement. Either party
may bring an action in court to compel arbitration under this Agreement and
to enforce an
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arbitration award. Otherwise, neither party shall initiate or
prosecute any lawsuit or administrative action in any way related to any
Arbitrable Claim. All arbitration hearings under this Agreement shall be
conducted in San Francisco, California. The Federal Arbitration Act shall
govern the interpretation and enforcement of this Section 16.4.
(c) All disputes involving Arbitrable Claims shall be decided by a
single arbitrator. The arbitrator shall be selected by mutual agreement of
the parties within thirty (30) days of the effective date of the notice
initiating the arbitration. If the parties cannot agree on an arbitrator,
then the complaining party shall notify the AAA and request selection of an
arbitrator in accordance with the AAA Employment Rules. The arbitrator shall
have authority to award equitable relief, damages, costs, and fees to the
same extent as a court would be permitted by law for the particular claim(s)
asserted. The fees of the arbitrator shall be split between both parties
equally. The arbitrator shall have exclusive authority to resolve all
Arbitrable Claims, including, but not limited to, any claim that all or any
part of this Agreement is void or enforceable and any dispute regarding
whether particular claims are arbitrable.
(c) All proceedings and all documents prepared in connection with any
Arbitrable Claim shall be confidential and, unless otherwise required by
law, the subject matter thereof shall not be disclosed to any person other
than the parties to the proceedings, their counsel, witnesses and experts,
the arbitrator, and, if involved, the court and court staff. All documents
filed with the arbitrator or with a court shall be filed under seal. The
parties shall stipulate to all arbitration and court orders necessary to
effectuate fully the provisions of this subsection concerning
confidentiality.
(d) The rights and obligations of Executive and Company set forth in
this Section 16.4 on Arbitration shall survive the termination of
Executive's employment and the termination of this Agreement.
16.5 Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction, arbitrator or other
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in force
and effect and shall in no way be affected, impaired or invalidated. It is the
intention of the parties that the provisions of Section 9 of this Agreement
shall be enforced to the greatest extent (but to no greater extent) in time,
area, and degree of participation as is permitted by the law of that
jurisdiction whose law is found to be applicable to any acts allegedly in breach
of Section 9. It being the purpose of this Agreement to govern competition by
Executive anywhere throughout the world, Section 9 shall be governed by and
construed according to that law (from among those jurisdictions whose law is
arguably applicable to this Agreement and those in which a breach of Section 9
is alleged to have occurred or to be threatened) which best gives effect to
Section 9 of this Agreement.
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16.6 Consultation with Counsel. Executive acknowledges (a) that he has been
given the opportunity to consult with counsel of his own choice concerning this
Agreement, and (b) that he has read and understands the Agreement, is fully
aware of its legal effect, and has entered into it freely based upon his own
judgment with or without the advice of such counsel
16.7 Descriptive Headings. Descriptive headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.
16.8 Integration. The parties understand and agree that the preceding
Sections recite the sole consideration for this Agreement; that no
representation or promise has been made by Company or Executive concerning the
subject matter of this Agreement, except as expressly set forth in this
Agreement; and that all agreements and understandings between the parties
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concerning the subject matter of this Agreement are embodied and expressed in
this Agreement. This Agreement shall supersede all prior agreements and
understandings among the parties whether written or oral, express or
implied, with respect to the employment, termination and benefits of
Employee, including without limitation, any employment-related agreement or
benefit plan, except to the extent that the provisions of any such agreement
or plan have been expressly referred to in this Agreement as having
continued effect.
16.9 Attorney's Fees. In the event of a breach by PB or Company,
Company shall pay Executive's attorney's fees and costs.
Nellcor Incorporated
By:
Name:
------------------------
Title:
------------------------
Puritan-Bennett Corporation
By:
Name:
------------------------
Title:
------------------------
Executive
---
John H. Morrow
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Exhibit B
The amount of the loan shall be up to that amount required in order for
Executive to pay his state and federal income taxes associated with the
acceleration of his shares of unvested restricted stock less the amount of
accrued vacation (after applicable withholdings) paid to Executive in accordance
with Section 4.7 of his Employment Agreement. The principal loan shall be repaid
by Executive in three equal installments on those dates that his shares of
unvested restricted stock would have vested but for the accelerated vesting that
occurred as a result of the Merger. The loan shall bear interest at the
applicable federal rate (as defined in the Code) for a three year loan and such
interest shall be paid on each principal repayment installment date.
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Exhibit C
Unused Vacation
320.72 hours of unused vacation at $132.22 per hour
equals $42,405.60
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Exhibit D
Lost ISO Value Calculations
Assume that Executive has 10,000 ISOs with an exercise price of $20 per
share which are accelerated on termination of employment, and that no other ISOs
first become exercisable in the year of termination. Assume, further, that (1)
the fair market value of Nellcor-PB stock on the Employment Termination Date is
$40, (2) Executive has attained age 60 on the Employment Termination Date, (3)
the Tax Rate is 50%, (4) 120% of the applicable federal rate for obligations
with a maturity of 5 years is 7.5%, (5) under the tax law in effect on the
Employment Termination Date, ISO stock held for more than one year and then sold
would qualify for capital gain treatment, with an applicable tax rate of 40%
(rather than 50% applicable to disqualifying dispositions).
As a result of acceleration, options first exercisable in a year in
excess of $100,000 (based upon the stock price at the date of grant) are
disqualified. Thus, 5,000 of Executive's ISOs are "Disqualified Options." The
Lost ISO Value of such options is calculated as follows:
S = $20 ($40 - $20)
T = .50
FT = .40
V = 5,000[$20 x .5] - 5,000PV[$20 x .4]
V = $50,000 - 5,000PV[$8]
PV$8 receivable in 5 years discounted at 7.5% per annum = $5.57
V = $50,000 -(5,000 x $5.57)
V = $50,000 - $27,850
V = $22,150
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Exhibit E
Claims under medical plans included in PB Agreements and Benefits in which
Executive and his family participate, for services rendered prior to the
Effective Date.
All fringe benefits earned by Executive prior to the Effective Time for services
rendered prior to the Effective Time if such fringe benefits have not previously
been paid or provided for the benefit of Executive.
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