CHANGE IN CONTROL SEVERANCE AGREEMENT
Exhibit 10.4
CHANGE IN CONTROL
SEVERANCE AGREEMENT
SEVERANCE AGREEMENT
THIS AGREEMENT is made as of the 29th day of October, 2007, between Otter Tail
Corporation, a Minnesota corporation, with its principal offices at 000 Xxxxx Xxxxxxx Xxxxxx, X.X.
Xxx 000, Xxxxxx Xxxxx, Xxxxxxxxx 00000-0000 (the “Corporation “) and Xxxxxx Xxxxx (“You”), residing
at 0000 0xx Xxxxxx Xxxxx, Xxxxx, XX 00000.
WITNESSETH THAT:
WHEREAS, this Agreement is intended to specify the financial arrangements that the
Corporation will provide to You upon Your separation from employment with the Corporation under
any of the circumstances described herein; and
WHEREAS, this Agreement is entered into by the Corporation in the belief that it is in the
best interests of the Corporation and its shareholders to provide stable conditions of
employment for You notwithstanding the possibility, threat or occurrence of certain types of
change in control, thereby enhancing the Corporation ‘s ability to attract and retain highly
qualified people.
NOW, THEREFORE, to assure the Corporation that it will have Your continued dedication
notwithstanding the possibility, threat or occurrence of a bid to take over control of the
Corporation, and to induce You to remain in the employ of the Corporation, and for other good and
valuable consideration, the Corporation and You agree as follows:
1. Termination of Employment.
(i) Prior to a Change in Control. Your rights upon termination of employment prior to
a Change in Control (as defined in Section 2(i) hereof) shall be governed by the Corporation ‘s
standard employment termination policy applicable to You in effect at the time of termination or
the Your Employment Agreement.
(ii) After a Change in Control.
(a) From and after the date of a Change in Control during the term of this Agreement, the
Corporation shall not terminate You from employment with the Corporation except as provided in this
Section 1(ii) or as a result of Your Disability (as defined in Section 2(iv) hereof) or death.
(b) From and after the date of a Change in Control during the term of this Agreement, the
Corporation shall have the right to terminate You from employment with the Corporation at any time
during the term of this Agreement for Cause (as defined in Section 2(iii) hereof), by written
notice to You, specifying the particulars of Your conduct forming the basis for such termination.
(c) From and after the date of a Change in Control during the term of this Agreement: (x) the
Corporation shall have the right to terminate Your employment without Cause at any time; and (y)
You shall, upon the occurrence of such a termination by the Corporation without Cause, or upon the
voluntary termination of employment by You for Good Reason (as defined in Section 2(ii) hereof),
be entitled to receive the benefits provided in Section 3 hereof. You shall evidence a voluntary
termination for Good Reason by written notice to the Corporation given within 60 days after the
date of the occurrence of any event that You know or should reasonably have known constitutes Good
Reason for voluntary termination. Such notice need only identify You and set forth in reasonable
detail the facts and circumstances claimed by You to constitute Good Reason.
Any notice given by You pursuant to this Section 1 shall be effective five business days
after the date it is given by You.
2. Definitions
(i) A “Change in Control” shall mean:
(a) a change in control of a nature that would be required to be reported in response to
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the “Exchange Act”), or successor provision thereto, whether or not the
Corporation is then subject to such reporting requirement;
(b) any “person” (as such tennis used in Sections 13(d) and 14(d) of the Exchange Act) is or
becomes the “beneficial owner” (as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities of the Corporation representing 35% or more of the combined
voting power of the Corporation ‘s then outstanding securities;
(c) the Continuing Directors (as defined in Section 2(v) hereof) cease to constitute a
majority of the Corporation ‘s Board of Directors; provided
that such change is the direct or indirect result of a proxy fight and contested election or elections for positions on
the Board of Directors; or
(d) the majority of the Continuing Directors (as defined in Section 2(v) hereof) determine
in their sole and absolute discretion that there has been a change in control of the Corporation.
(ii) “Good Reason” shall mean the occurrence of any of the following events, except for the
occurrence of such an event in connection with the termination or reassignment of You by the
Corporation for Cause, for Disability or for death:
(a) the assignment to You of employment responsibilities which are not of comparable
responsibility and status as the employment responsibilities held by You immediately prior to a
Change in Control;
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(b) a reduction by the Corporation in Your base salary as in effect immediately prior
to a Change in Control;
(c) an amendment or modification of the Corporation ‘s incentive compensation program (except
as may be required by applicable law) which affects the terms or administration of the program in a
manner adverse to Your interest as compared to the terms and administration of such program
immediately prior to a Change in Control;
(d) the Corporation ‘s requiring You to be based anywhere other than within 50 miles of Your
office location immediately prior to a Change in Control, except for requirements of temporary
travel on the Corporation ‘s business to an extent substantially consistent with Your business
travel obligations immediately prior to a Change in Control;
(e) except to the extent otherwise required by applicable law, the failure by the Corporation
to continue in effect any benefit or compensation plan, stock ownership plan, stock purchase plan,
stock incentive plan, bonus plan, life insurance plan, health-and-accident plan, or disability
plan in which You are participating immediately prior to a Change in Control (or plans providing
You with substantially similar benefits), the taking of any action by the Corporation which would
adversely affect Your participation in, or materially reduce Your benefits under, any of such
plans or deprive You of any material fringe benefit enjoyed by You immediately prior to such
Change in Control, or the failure by the Corporation to provide You with the number of paid
vacation days to which You are entitled immediately prior to such Change in Control in accordance
with the Corporation ‘s vacation policy as then in effect; or
(f) the failure by the Corporation to obtain, as specified in Section 5(i) hereof, an
assumption of the obligations of the Corporation to perform this Agreement by any successor to the
Corporation.
(iii) “Cause” shall mean termination by the Corporation of Your employment based upon (a) the
willful and continued failure by You substantially to perform Your duties and obligations (other
than any such failure resulting from Your incapacity due to physical or mental illness or any such
actual or anticipated failure resulting from Your termination for Good Reason) or (b) the willful
engaging by You in misconduct which is materially injurious to the Corporation , monetarily or
otherwise. For purposes of this Section 2(iii), no action or failure to act on Your part shall be
considered “willful” unless done, or omitted to be done, by You in bad faith and without reasonable
belief that such action or omission was in the best interests of the Corporation.
(iv) “Disability” shall mean any physical or mental condition which would qualify You for
a disability benefit under the Corporation ‘s long-term disability plan.
(v) “Continuing Director” shall mean any person who is a member of the Board of Directors
of the Corporation, while such person is a member of the Board of Directors, who is not an
Acquiring Person (as hereinafter defined) or an Affiliate or Associate (as hereinafter defined)
of an Acquiring Person, or a representative of an Acquiring Person or of any such Affiliate or
Associate, and who (a) was a member of the Board of Directors on the
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date of this Agreement as first written above or (b) subsequently becomes a member of the
Board of Directors, if such person’s nomination for election or initial election to the Board
of Directors is recommended or approved by a majority of the Continuing Directors. For purposes
of this Section 2(v): “Acquiring Person” shall mean any “person” (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act) who or which, together with all Affiliates and
Associates of such person, is the “beneficial owner” (as defined in Rule 13d-3 promulgated
under the Exchange Act) of 20% or more of the shares of Common Stock of the Corporation then
outstanding, but shall not include the Corporation, any subsidiary of the Corporation or any
employee benefit plan of the Corporation or of any subsidiary of the Corporation or any entity
holding shares of Common Stock organized, appointed or established for, or pursuant to the
terms of, any such plan; and “Affiliate” and “Associate” shall have the respective meanings
ascribed to such terms in Rule 12b-2 promulgated under the Exchange Act.
3. Benefits upon Termination under Section 1(ii)(c)
(i) Upon the termination (voluntary or involuntary) of Your employment of pursuant to Section
1(ii)(c) hereof, You shall be entitled to receive the benefits specified in this Section 3. The
amounts due to You under subparagraph (a) of this Section 3(i) shall be paid to You in a lump sum
not later than one business day prior to the date that the termination of Your employment becomes
effective. The amounts due to You under subparagraphs (b), (c) and (d) of this Section 3(i) shall
be paid to You not later than one business day prior to the date that the termination of Your
employment becomes effective. Subject to the provisions of Section 3(ii) hereof, all benefits to
You pursuant to this Section 3(i) shall be subject to any applicable payroll or other taxes
required by law to be withheld.
(a) The Corporation shall pay as severance pay to You an amount equal to two times the sum of
(1) Your highest annual rate of salary from the Corporation in effect at any time during the 24
months preceding the date that the termination of Your employment became effective and (2) the
average of the annual bonus paid or to be paid to You in respect of each of the two fiscal years
preceding the fiscal year when the termination of Your employment became effective.
(b) For a period of 24 months following the date that the termination of Your employment
became effective or until You reach age 65 or die, whichever is the shorter period, the Corporation
shall continue for You, at the Corporation ‘s expense, the health, disability and life insurance
coverage in effect for You immediately prior to the date that the termination of Your employment
became effective under the plans provided by the Corporation for its executive personnel generally
or, if such coverage cannot by the terms of such plans be provided thereunder, then the Corporation
shall provide equivalent insurance coverage for You for such period under specially obtained
policies of insurance.
(c) The Corporation shall pay to You (1) any amount earned by You as a bonus with respect to
the fiscal year of the Corporation preceding the termination of Your employment if such bonus has
not theretofore been paid to You, and (2) an amount representing credit for any vacation earned or
accrued by him but not taken.
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(d) The Corporation shall also pay to You all legal fees and expenses incurred by You as a
result of such termination of employment (including all fees and expenses, if any, incurred by You
in seeking to obtain or enforce any right or benefit provided to You by this Agreement whether by
arbitration or otherwise); and
(e) Any and all contracts, agreements or arrangements between the Corporation and You
prohibiting or restricting You from owning, operating, participating in, or providing employment or
consulting services to, any business or company competitive with the Corporation at any time or
during any period after the date the termination of Your employment becomes effective, shall be
deemed terminated and of no further force or effect as of the date the termination of Your
employment becomes effective, to the extent, but only to the extent, such contracts, agreements or
arrangements so prohibit or restrict You; provided that the foregoing provision shall not
constitute a license or right to use any proprietary information of the Corporation and shall in no
way affect any such contracts, agreements or arrangements insofar as they relate to nondisclosure
and nonuse of proprietary information of the Corporation notwithstanding the fact that such
nondisclosure and nonuse may prohibit or restrict You in certain competitive activities.
(ii) Any payment not made to You when due hereunder shall thereafter, until paid in full, bear
interest at the rate of interest equal to the reference rate announced from time to time by U.S.
Bank National Association, plus two percent, with such interest to be paid to You upon demand or
monthly in the absence of a demand.
(iii) You shall not be required to mitigate the amount of any payment provided for in this
Section 3 by seeking other employment or otherwise. The amount of any payment or benefit provided
in this Section 3 shall not be reduced by any compensation earned by You as a result of any
employment by another employer.
4. Your Agreements.
You agree that:
(i) Without the consent of the Corporation, You will not terminate employment with the
Corporation without giving 60 days prior notice to the Corporation, and during such 60 day period
You will assist the Corporation, as and to the extent reasonably requested by the Corporation, in
training the successor to Your position with the Corporation. The provisions of this Section 4(i)
shall not apply to any termination (voluntary or involuntary) of Your employment pursuant to
Section 1(ii)(c) hereof.
(ii) Without the consent of the Corporation or except as may be required by law, You will not
at any time after termination of Your employment with the Corporation disclose to any person,
corporation, firm, or other entity, confidential information concerning the Corporation of which
You have gained knowledge during employment with the Corporation.
(iii) In the event that You have received any benefits from the Corporation under Section 3
of this Agreement, then, during the period of 24 months following the date that the
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termination of Your employment became effective, You, upon request by the Corporation:
(a) Will consult with one or more of the executive officers concerning the business and
affairs of the Corporation for not to exceed four hours in any month at times and places
selected by You , all without compensation other than what is provided for in Section 3 of this
Agreement; and
(b) Will testify as a witness on behalf of the Corporation in any legal proceedings
involving the Corporation which arise out of events or circumstances that occurred or existed
prior to the date that the termination of Your employment became effective (except for any such
proceedings relating to this Agreement), without compensation other than what is provided for in
Section 3 of this Agreement, provided that all out-of-pocket expenses incurred by You in
connection with serving as a witness shall be paid by the Corporation.
You shall not be required to perform Your obligations under this Section 4(iii) if and so long
as the Corporation is in default with respect to performance of any of its obligations under this
Agreement.
5. Successors and Binding Agreement.
(i) The Corporation will require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise to all or substantially all of the business and/or assets of the
Corporation), by agreement in form and substance satisfactory to You, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the Corporation would be
required to perform it if no such succession had taken place. Failure of the Corporation to obtain
such agreement prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle You to compensation from the Corporation in the same amount and on the
same terms as You would be entitled hereunder if employee terminated employment after a Change in
Control for Good Reason, except that for purposes of implementing the foregoing, the date on which
any such succession becomes effective shall be deemed the date that the termination of Your
employment becomes effective. As used in this Agreement, “Corporation “ shall mean the Corporation
and any successor to its business and/or assets which executes and delivers the agreement provided
for in this Section 5(i) or which otherwise becomes bound by all the terms and provisions of this
Agreement by operation of law.
(ii) This Agreement is personal to You, and You may not assign or transfer any part of Your
rights or duties hereunder, or any compensation due to You hereunder, to any other person.
Notwithstanding the foregoing, this Agreement shall inure to the benefit of and be enforceable by
Your personal or legal representatives, executors, administrators, heirs, distributees, devisees,
and legatees.
6. Arbitration. Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration in the Fergus Falls, Minnesota, in
accordance with the applicable rules of the American Arbitration Association then in effect.
Judgment may be entered on the arbitrator’s award in any court having jurisdiction.
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7. Modification; Waiver. No provisions of this Agreement may be modified, waived, or
discharged unless such waiver, modification, or discharge is agreed to in a writing signed by You
and such officer as may be designated by the Board of Directors of the Corporation. No waiver by
either party hereto at any time of any breach by the other party hereto of, or compliance with,
any condition or provision of this Agreement to be performed by such other party shall be deemed a
waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent
time.
8. Notice. All notices, requests, demands, and all other communications required or
permitted by either party to the other party by this Agreement (including, without limitation, any
notice of termination of employment and any notice of an intention to arbitrate) shall be in
writing and shall be deemed to have been duly given when delivered personally or received by
certified or registered mail, return receipt requested, postage prepaid, at the address of the
other party, as first written above (directed to the attention of the Board of Directors and
Corporate Secretary in the case of the Corporation ). Either party hereto may change its address
for purposes of this Section 8 by giving 15 days’ prior notice to the other party hereto.
9. Severability. If any term or provision of this Agreement or the application hereof
to any person or circumstances shall to any extent be invalid or unenforceable, the remainder of
this Agreement or the application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by
law.
10. Counterparts. This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together shall constitute one and the same
instrument.
11. Governing Law. This Agreement has been executed and delivered in the State of
Minnesota and shall, in all respects, be governed by, and construed and enforced in accordance
with, the laws of the State of Minnesota, including all matters of construction, validity and
performance.
12. Effect of Agreement; Entire Agreement. The Corporation and You understand and
agree that this Agreement is intended to reflect their agreement only with respect to payments and
benefits upon termination in certain cases and is not intended to create any obligation on the part
of either party to continue employment. This Agreement supersedes any and all other oral or written
agreements or policies made relating to the subject matter hereof and constitutes the entire
agreement of the parties relating to the subject matter hereof; provided that this
Agreement shall not supersede or limit in any way Your rights under any benefit plan, program or
arrangements in accordance with their terms.
13. ERISA. For purposes of the You Retirement Income Security Act of 1974, this
Agreement is intended to be a severance pay employee welfare benefit plan, and not an employee
pension benefit plan, and shall be construed and administered with that intention.
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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed in its name by a
duly authorized director and officer, and You have hereunto set Your hand, all as of the date
first written above.
| OTTER TAIL CORPORATION | ||||||
| By: | ||||||
| Xxxx Xxxxxxxx | ||||||
| Its: President & CEO | ||||||
| Xxxxxx Xxxxx | ||||||
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