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Exhibit 7
PURITAN-BENNETT CORPORATION
CHANGE OF CONTROL SEVERANCE PLAN
SECTION 1. INTRODUCTION
This Change of Control Severance Plan (the "Plan") was adopted by the
Board of Directors of Puritan-Bennett Corporation effective November 7, 1994.
The Plan is intended to provide Employees whose employment terminates for
specified reasons within two years after a Change of Control with a lump sum
severance payment and with the continuation of coverage under certain employee
benefit plans.
The Plan is an employee welfare benefit plan within the meaning of
Section 3(l) of the Employee Retirement Income Security Act of 1974 ("ERISA")
and Section 2510.3-1 of the regulations issued thereunder.
SECTION 2. DEFINITIONS
(a) "Board" means the Company's Board of Directors, as constituted
from time to time.
(b) "Cause" means (i) the Employee's violation of Company policy
or failure to perform satisfactorily any assigned duties of his or her job, if
such failure is not corrected within 30 days after written notice to the
Employee, or (ii) misconduct, including but not limited to: (A) 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 (B)
drug or alcohol abuse on Company premises or at a Company sponsored event, or
(C) conduct by an Employee that in the good faith and reasonable determination
of the Company demonstrates gross unfitness. "Cause" shall not include any
matter other than those specified in (A) through (C) 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.
(c) "Change of Control" shall be deemed to have occurred at any of
the following times:
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(i) 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
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 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 (c)(ii), considered as though such
person were a member of the Incumbent Board; or
(iii) 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
(iv) The occurrence of any other event which the Incumbent
Board in its sole discretion determines constitutes a
Change of Control.
(d) "Company" means Puritan-Bennett Corporation.
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(e) "Controlled Group" means the Company and each other entity
that, at the time in question, is in the same controlled group of corporations
within the meaning of Section 414(b) of the Internal Revenue Code of 1986, as
amended; provided, however, that the term "Controlled Group" shall not include
any foreign (non-U.S.) corporations or unincorporated entities.
(f) "Date of Termination" means the date of receipt of the written
notice of termination pursuant to Section 3 or any later date specified in such
notice; provided, however, that (i) if the 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 the
Employee of such termination and (ii) if the 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 Section 2(g), as
the case may be.
(g) "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 the Employee or the
Employee's legal representative (such acceptance not to be unreasonably
withheld).
(h) "Employee" means each regular full-time and regular part-time
employee on the payroll of the Company on the day before a Change of Control
occurs; provided, however, that "Employee" shall exclude any individual who
renders services to the Company through any temporary employment agency or
other employee leasing arrangement.
(i) "Good Reason" means (i) reduction of Employee's base salary or
rate of compensation as in effect immediately prior to the Change of Control,
(ii) failure to continue to provide any medical, dental, accident or disability
benefits that are no less favorable in the aggregate than the benefits provided
to Employee immediately prior to the Change of Control (except that employee
contributions may be raised to the extent of any cost increases imposed by
third parties), (iii) failure or refusal of the successor company to assume the
Company's obligations under this Plan, as required by Section 4(b), (iv) breach
by the Company or any successor company of any of the provisions of this Plan,
or (v) change of Employee's principal place of employment to a location more
than 50 miles from Employee's principal place of employment on the date hereof
without the consent of Employee.
(j) "Pay" means all wages, salary, bonus and other incentive
compensation (including commissions) paid by the Company as consideration for
an Employee's service during the 12 months ended on either the Date of
Termination or the date of the Change of Control, whichever is greater, that
are includible in the gross income of the Employee for federal income tax
purposes. If an Employee has not been employed by the Company for a full 12
months, the amount actually received by
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Employee during Employee's actual period of employment shall be annualized to
compute "Pay".
SECTION 3. NOTICE OF TERMINATION
Any termination of an Employee by the Company (whether for Cause or
otherwise) or by the 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 mailed, notice to an
Employee shall be delivered to his or her address as set forth in the Company's
records. Notice to the Company shall be delivered to Puritan-Bennett
Corporation, 9401 Indian Creek Parkway, Overland Park, Kansas 66225, Attention:
Human Relations Director. Any notice given pursuant to this Section 3 shall be
effective on the earlier of when such notice is actually received by the
addressee or three days after such notice is delivered or sent.
SECTION 4. BENEFITS
(a) Conditions of Payment. A benefit shall be payable to an
Employee under the Plan if, within 24 months after the occurrence of a Change
of Control, his or her employment with any member of the Controlled Group is
terminated (i) by the Company for any reason other than Cause or the Employee's
death or Disability or (ii) voluntarily by the Employee for Good Reason.
Subject to Subsections (b) and (e) of this Section 4, the benefit is payable
regardless of any return to employment.
(b) Special Rules and Exceptions. All members of the Controlled
Group shall participate in the Plan. In the case of a spinoff after a Change
of Control, the spun-off member shall adopt a plan equivalent to this Plan and
any other severance plan maintained by the member of the Controlled Group from
which it was spun off and shall continue this Plan and such other plan (if any)
for two years following the spinoff. No benefit shall be payable hereunder
solely because an Employee is transferred to another member of the Controlled
Group (as it existed prior to the Change of Control) or there is a spin-off and
the Employee becomes an employee of a spun-off member.
In addition no benefit shall be payable hereunder solely because an
Employee's employment terminates because a subsidiary, a division or other
operating assets of any member of the Controlled Group is sold if:
(i) The purchaser is contractually obligated to
offer the Employee the same or a better job without relocation; and
(ii) The purchaser is contractually obligated to
maintain both a plan equivalent to this Plan and a plan equivalent to any other
severance plan that
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covered the Employee prior to the sale for the balance of the two-year period
from the Change of Control.
In the event of a transfer to another member of the Controlled Group
(as it existed before the Change of Control) that requires the Employee's
relocation, the Employee shall be reimbursed for his or her relocation expenses
under the Company's policy in effect prior to the Change of Control.
(c) Cash Benefit. An Employee's lump sum severance payment shall
be paid in cash as soon as practicable (but in no event more than 30 days)
following termination of employment, and shall be equal to the greater of (i)
four weeks of Pay, or (ii) one week of Pay for each completed six months of
such Employee's service with the Company; provided that in no event shall the
total amount of payments hereunder to an Employee exceed two times the
Employee's compensation during the one-year period ending on the Date of
Termination.
(d) Offsets and Withholding. The benefit under this Plan will be
reduced by any severance benefits to which the Employee is entitled under the
Company's Severance Benefits policy for terminated employees, or any other
agreement between the Employee and the Company for severance benefits. In any
event, the Company shall withhold any appropriate federal, state, local and
foreign income and employment taxes from any cash payments made hereunder.
(e) COBRA Benefits. An Employee who is entitled to the lump sum
severance payment hereunder shall also be entitled to the following 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 the Employee's
coverage status (e.g., individual or family coverage) in effect immediately
preceding termination of the Employee's 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 the Employee's
coverage status in effect immediately prior to the termination of the
Employee's employment and (ii) the Employee's monthly contribution toward the
Employee's coverage in effect immediately prior to the termination of the
Employee's employment, and the denominator of which shall be the monthly cost
of COBRA coverage for the Employee's coverage status in effect immediately
prior to the termination of the Employee's employment. 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 a part of such 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 terminated
Employees.
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SECTION 5. NONEXCLUSIVITY
Nothing in this Plan shall prevent or limit the Employee's continuing
or future participation in any benefit, bonus, incentive or other plan,
program, policy or practice provided by the Company and for which Employees may
otherwise qualify, nor shall anything herein limit or otherwise affect such
rights that any Employee may have under any stock option or other agreement
with the Company. Except as otherwise expressly provided herein, amounts that
are vested benefits or that an 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.
SECTION 6. PAYMENTS TO AND FROM THE PLAN
The benefits under the Plan shall be paid from the general funds of
the Company, and all Employees shall be no more than unsecured general
creditors of the Company. Nothing contained in the Plan shall be deemed to
create a trust of any kind for the benefit of the Employees, or create any
fiduciary relationship between the Company and the Employees with respect to
any assets of the Company. The Company is under no obligation to fund the
benefits provided herein prior to payment, although it may do so if it chooses.
Any assets that the Company chooses to use for advance funding shall
nevertheless constitute assets of the Company and shall not cause the Plan to
be a funded plan within the meaning of any section of ERISA.
SECTION 7. ADMINISTRATION
The Company is the plan administrator and plan sponsor for purposes of
ERISA.
SECTION 8. REDUCTION OR DEFERRAL OF BENEFIT
Although it is highly unlikely that the provisions of this Section 8
could ever apply, in order to minimize potential adverse income tax
consequences to either or both the Company and the Employee, and
notwithstanding anything in this Plan to the contrary:
(a) If any amounts due to the Employee under this Agreement and
any other plan or program of the Company constitute a "parachute payment" as
such term is defined in Section 280G(b)(2) of the Code, and the amount of the
parachute payment, is equal to or greater than three times the Employee's "base
amount," as defined in Section 280G(b)(3) of the Code, then the aggregate of
the amounts constituting the parachute payment shall be reduced to an amount
that will equal three times the Employee's base amount, less $1.00. The
determination to be made with respect to this Section 8(a) shall be made by the
Company's independent auditors, who shall be paid by the Company.
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(b) If after giving effect to the provisions of Section 8(a) any
portion of any payments to the 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 the
Employee shall be deferred until the earliest date upon which payment thereof
can be made to the 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 the Employee on the amount deferred at 120% of the applicable
federal rate provided for in Section 7872(f)(2) of the Code, compounded
semi-annually.
SECTION 9. AMENDMENT AND TERMINATION
If no Change of Control occurs, the Plan shall terminate on the first
anniversary of its effective date, subject to renewal from year to year. Prior
to a Change of Control, the Company may amend or terminate the Plan at any time
and for any reason. For 24 months following a Change of Control, this Plan and
any other Controlled Group severance plan shall not be terminated and shall not
be amended to reduce any benefit or to make any condition more restrictive as
it applies to any Employee.
SECTION 10. MISCELLANEOUS
(a) No Implied Employment Contract. The Plan shall not be deemed
to give (i) any Employee or other person any right to be retained in the employ
of the Company nor (ii) to interfere with the right of the Company to discharge
any Employee or other person at any time and for any reason, which right is
hereby reserved.
(b) Benefits Not Assignable. 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.
(c) Legal Construction. The Plan shall be construed in accordance
with ERISA and, to the extent not preempted by ERISA, with the laws of the
State of Kansas.
(d) Severability. If any term, provision, covenant or restriction
of the Plan is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of the Plan shall remain in full force and effect and shall in no
way be affected, impaired or invalidated.
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SECTION 11. CLAIMS, INQUIRIES AND APPEALS
(a) Applications for Benefits and Inquiries. Any application for
benefits, inquiries about the Plan or inquiries about present or future rights
under the Plan must be submitted to the Plan Administrator in writing. The
Plan Administrator is:
Puritan-Bennett Corporation
Attention: Human Relations Department
9401 Indian Creek Parkway
Overland Park, Kansas 66225
(b) Denial of Claims. In the event that any application for
benefits is denied in whole or in part, the Plan Administrator must notify the
applicant, in writing, of the denial of the application, and of the applicant's
right to review of the denial. The written notice of denial will be set forth
in a manner designed to be understood by the applicant, and will include
specific reasons for the denial, specific references to the Plan provision upon
which the denial is based, a description of any information or material that
the Plan Administrator needs to complete the review and an explanation of the
Plan's review procedure.
This written notice will be given to the applicant within 90 days
after the Plan Administrator receives the application, unless special
circumstances require an extension of time, in which case the Plan
Administrator shall have up to an additional 90 days for processing the
application. If an extension of time for processing is required, written
notice of the extension will be furnished to the applicant before the end of
the initial 90-day period. This notice of extension will describe the special
circumstances necessitating the additional time and the date by which the Plan
Administrator is to render its decision on the application.
If written notice of denial of the application for benefits is not
furnished within the specified time, the application shall be deemed to be
denied. The applicant will then be permitted to appeal the denial in
accordance with the Review Procedure described below.
(c) Review Panel. The Plan Administrator will appoint a "Review
Panel," consisting of three individuals who may, but need not, be employees of
the Company. The Review Panel will be the named fiduciary that has the
authority to act on any appeal from a denial of benefits under the Plan.
(d) Request for a Review. Any person (or that person's authorized
representative) whose application for benefits is denied (or deemed denied), in
whole or in part, may appeal the denial by submitting a request for a review to
the Review Panel within 60 days after receiving written notice of the denial
from the Plan
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Administrator (or in the case of a deemed denial, within 60 days after the
application is deemed denied). The Plan Administrator will give the applicant
(or his or her representative) an opportunity to review pertinent documents in
preparing a request for review. A request for a review shall be in writing and
shall be addressed to the Review Panel. A request for review must set forth
all of the grounds on which it is based, all facts in support of the request
and any other matters that the applicant believes to be pertinent. The Review
Panel may require the applicant to submit additional facts, documents or other
material as it may find necessary or appropriate in making its review.
(e) Decision on Review. The Review Panel will act on each request
for review within 60 days after receipt of the request, unless special
circumstances require an extension of time (not to exceed an additional 60
days) for processing the request for review. If an extension of time is
required, written notice of the extension will be furnished to the applicant
within the initial 60-day period. The Review Panel will give prompt, written
notice of its decision to the applicant and to the Plan Administrator. In the
event that the Review Panel confirms the denial of the application for benefits
in whole or in part, the notice will outline, in a manner calculated to be
understood by the applicant, the specific Plan provisions upon which the
decision is based. If written notice of the Review Panel's decision is not
given to the applicant within the time prescribed in this Subsection (e), the
application will be deemed denied.
(f) Rules and Procedures. The Review Panel will establish rules
and procedures, consistent with the Plan and with ERISA, as necessary and
appropriate in carrying out its responsibilities. The Review Panel may require
an applicant who wishes to submit additional information in connection with an
appeal from the denial (or deemed denial) of benefits to do so at the
applicant's own expense.
(g) Exhaustion of Remedies. No legal action for benefits under
the Plan may be brought until (i) the applicant has submitted a written
application for benefits in accordance with the procedures described by
Subsection (a) above, (ii) such application has been denied or deemed denied
in accordance with Subsection (b) above, (iii) the applicant has filed a
written request for a review of the application in accordance with the appeal
procedure described in Subsection (d) above, and (iv) the application is denied
or deemed denied under the review procedure set forth in Subsection (e) above.
SECTION 12. OTHER PLAN INFORMATION
(a) Employer and Plan Identification Numbers. The Employer
Identification Number ("EIN") assigned to Puritan-Bennett Corporation is
44-0399150. The Plan Number ("PN") assigned to the Plan by the Plan Sponsor
pursuant to the instructions of the Internal Revenue Service is 512.
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(b) Ending Date for Plan's Fiscal Year. The date of the end of
the fiscal year for the purpose of maintaining the Plan's records is January
31.
(c) Agent for the Service of Legal Process. The agent for the
service of legal process with respect to the Plan is Mr. Daniel C. Weary,
Member, Blackwell Sanders Matheny Weary & Lombardi L.C., 2300 Main Street,
Kansas City, Missouri 64108. The service of legal process may also be made on
the Plan by serving the Plan Administrator.
(d) Plan Sponsor and Administrator. The "Plan Sponsor" and the
"Plan Administrator" of the Plan is Puritan-Bennett Corporation. The Plan
Administrator is the named fiduciary charged with the responsibility for
administering the Plan.
SECTION 13. STATEMENT OF ERISA RIGHTS
Participants in this Plan (which is a welfare plan sponsored by
Puritan-Bennett Corporation) are entitled to certain rights and protections
under ERISA and are entitled to:
(a) Examine, without charge, at the Plan Administrator's office
and at other specified locations, such as work sites, all Plan documents filed
by the Plan with the U.S. Department of Labor, such as detailed annual reports;
(b) Obtain copies of all Plan documents and Plan information upon
written request to the Plan Administrator. The Administrator may make a
reasonable charge for the copies;
(c) Receive a summary of the Plan's annual financial report, in
the case of a plan which is required to file an annual financial report with
the Department of Labor.
In addition to creating rights for Plan participants, ERISA imposes
duties upon the people responsible for the operation of the employee benefit
plan. The people who operate the Plan, called "fiduciaries" of the Plan, have
a duty to do so prudently and in the interest of you and other Plan
participants and beneficiaries.
No one, including your employer or any other person, may fire you or
otherwise discriminate against you in any way to prevent you from obtaining a
Plan benefit or exercising your rights under ERISA. If your claim for a Plan
benefit is denied in whole or in part, you must receive a written explanation
of the reason for the denial. You have the right to have the Plan review and
reconsider your claim.
Under ERISA, there are a few steps you can take to enforce the above
rights. For instance, if you request materials from the Plan and do not
receive them within 30
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days, you may file suit in a federal court. In such a case, the court may
require the Plan Administrator to provide the materials and pay you up to $100
a day until you receive the materials, unless the materials were not sent
because of reasons beyond the control of the Plan Administrator. If you have a
claim for benefits which is denied or ignored, in whole or in part, you may
file suit in a state or federal court. If it should happen that the Plan
fiduciaries misuse the Plan's money, or if you are discriminated against for
asserting your rights, you may seek assistance from the U.S. Department of
Labor, or you may file suit in a federal court. The court will decide who
should pay court costs and legal fees. If you are successful, the court may
order the person you have sued to pay these costs and fees. If you lose, the
court may order you to pay these costs and fees--for example, if it finds your
claim is frivolous.
If you have any questions about the Plan, you should contact the Plan
Administrator. If you have any questions about your rights under ERISA, you
should contact your nearest area office of the Pension and Welfare Benefit
Administration, Department of Labor.
SECTION 14. EXECUTION
To record the adoption of the Plan as set forth herein,
Puritan-Bennett Corporation has caused its duly authorized officer to execute
the same this 7th day of November, 1994.
PURITAN-BENNETT CORPORATION
By: /s/ Lee Robbins
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Title: Vice President
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