EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), dated as of August 4, 1998,
between Fairfield Manufacturing Company, Inc., a Delaware corporation (the
"Company"), and Xx. Xxxxxxx X. Xxxxxx (the "Executive").
The parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, upon the terms and subject
to the conditions set forth herein.
2. Term. Subject to earlier termination pursuant to Section 13
hereof, the term of the employment by the Company of the Executive pursuant to
this Agreement (the "Term") shall commence on August 12, 1998 (the "Effective
Date") and terminate on the third anniversary thereof, unless extended by mutual
agreement of the parties no later than one year prior to its expiration.
3. Position. During the Term, the Executive shall serve as the
President and Chief Executive Officer ("CEO") of the Company, supervising the
conduct of the business and affairs of the Company and performing such other
duties as the Board of Directors of the Company (the "Board") shall determine.
4. Duties. During the Term, the Executive shall devote his full time
and attention to the business and affairs of the Company, except for absences
due to authorized vacations, illness, family emergency, incapacity, jury duty or
other government or court-mandated activity, or (to the extent required by the
Separation Agreement referred to in Section 14) the provision of assistance to
former employer in the defense of any legal or administrative proceeding.
5. Place of Performance. The Executive shall perform his duties and
conduct his business at the principal executive offices of the Company, which
are in the Lafayette, Indiana area, except for required travel on the Company's
business.
6. Salary and Bonus. (a) During the Term, the Company shall pay to
the Executive a base salary (the "Base Salary") at the rate of $400,000 per
year. The Compensation Committee of the Board shall review the Base Salary
periodically, but not less frequently than annually, and may, in its discretion,
adjust the Executive's Base Salary in accordance with the Company's salary
administration practices. The Base Salary shall be payable to the Executive in
substantially equal installments in accordance with the Company's normal payroll
practices.
(b) For each fiscal year of the Company ending during the Term,
Executive shall be eligible to receive a target bonus equal to 100% of the Base
Salary for such fiscal year provided the Company and the Executive each achieves
the target performance objectives established for such fiscal year by the Board,
in consultation with the Executive. If the performance of the Company and the
Executive exceeds such target performance objectives for an applicable fiscal
year, the amount of the Executive's annual bonus for such fiscal year shall be
increased proportionately, subject to a maximum annual bonus equal to 200% of
the Base Salary for such fiscal year for performance at or above 150% of the
target performance objectives for such fiscal year. If the Company or
the Executive does not achieve the target performance objectives for an
applicable fiscal year, the amount of the Executive's annual bonus for such
fiscal year shall be decreased proportionately, subject to a minimum annual
bonus equal to 50% of the Base Salary for such fiscal year for performance by
the Company and the Executive at least equal to 80% of the target performance
objectives for such fiscal year. Notwithstanding the forgoing, the Executive's
annual bonus for the fiscal year ending December 31, 1998 shall be a pro-rated
amount determined by multiplying the annual bonus amount by a fraction, the
numerator of which is the number of days remaining in calendar year 1998 as of
the Effective Date and the denominator of which is 365. The Board shall review
with the Executive the budget and performance targets established for each
fiscal year no later than January 31 of such fiscal year. The annual bonus, if
any, shall be paid to the Executive within ten business days after receipt by
the Board of the completed audited financial statements of the Company for the
fiscal year to which such annual bonus relates. Subject to Section 13, the
Executive will not be entitled to an annual bonus for a fiscal year if he is not
an active employee by the Company on the last day of such fiscal year.
7. Long-Term Incentive Programs. (a) During the Term, following the
adoption thereof by the Board (which the Board has committed to adopt by
December 31, 1998), the Executive shall participate in the Amended and Restated
Fairfield Manufacturing Company, Inc. Incentive Plan for Senior Management (the
"Incentive Plan") in accordance with the terms and provisions thereof as in
effect from time to time. Upon the adoption of the Incentive Plan by the Board,
the Executive shall receive a grant of 40% of the Performance Units available
for grant, covering, in the aggregate, 40% of the Performance Pool established
pursuant to the terms of the Incentive Plan (the "Incentive Plan Award").
(b) As an additional long term incentive, subject to the last
sentence of this Section 7(b) regarding vesting, if, as of the relevant
Measurement Date, (i) Equity Value Created exceeds by more than 150% the
threshold amount set forth in clause (b) of the definition of the term Equity
Value Created in Section 1.3 of the Incentive Plan, the Executive shall be
entitled to a long term incentive bonus equal to 1% of such amount exceeding
150% of the threshold amount and (ii) Equity Value Created exceeds by more than
200% the threshold amount set forth in such clause (b) of the definition of the
term Equity Value Created, the Executive shall be entitled to an additional long
term incentive bonus equal to 1% of such amount exceeding 200% of the threshold
amount. Any long term incentive bonus payable pursuant to this Section 7(b)
shall be paid in the same form of consideration as the Incentive Plan Award.
The Executive's right to receive any long term incentive bonus pursuant to this
Section 7(b) shall become vested and non-forfeitable in six increments as and to
the extent the Executive's rights to the Incentive Plan Award become vested in
accordance with the terms of the Incentive Plan.
(c) Capitalized terms used in this Section 7 without definition shall
have the meanings ascribed thereto in the Incentive Plan.
8. Relocation. (a) The Company shall pay or reimburse the Executive
for the reasonable costs and expenses set forth on Annex A actually incurred by
the Executive in connection with his relocation from the Clearwater, Florida
area to the Lafayette, Indiana area. The Executive shall receive the $10,000
allowance referred to in item 5 of Annex A promptly upon his relocation to
Lafayette, Indiana.
(b) During the first year of the Term, the Company shall reimburse
the Executive for the reasonable costs of a reasonable number of round-trip
flights for the Executive and his spouse between Lafayette, Indiana and
Clearwater, Florida.
9. Vacation, Holidays and Sick Leave. Beginning January 1, 1999, the
Executive will be entitled to four weeks paid vacation for each full calendar
year ending during the Term. Such vacation must be taken during the calendar
year in which it accrues and may not be carried forward, unless otherwise
expressly permitted by the Board. During the Term, the Executive shall also be
entitled to paid holidays and sick leave in accordance with the Company's
policies and practices for its senior officers, as in effect from time to time.
10. Business Expenses. The Company shall reimburse the Executive for
all reasonable and necessary business expenses incurred by him in connection
with the performance of the duties of his employment (including, without
limitation, reasonable expenses for travel and entertainment incurred in
conducting or promoting business for the Company) upon timely submission by the
Executive of receipts and other documentation as required by the Internal
Revenue Code of 1986, as amended (the "Code"), and in accordance with the
Company's normal expense reimbursement policies as in effect from time to time.
11. Other Benefits. (a) During the Term, the Executive shall be
eligible to participate fully in all health and other employee benefit
arrangements generally available to senior executive officers of the Company in
accordance with the terms of such arrangements as in effect from time to time.
(b) During the Term, the Company will provide the Executive with a
car, equipped with a cellular telephone, for his exclusive use and will bear the
costs and expenses incident to maintaining such car, including, without
limitation, insurance premiums and reasonable costs of repair and upkeep.
(c) The Company shall reimburse the Executive for the initiation and
annual membership fees and assessments of a country club in Lafayette, Indiana
of the Executive's choosing, upon presentation to the Company of appropriate
evidence of the incurrence and amount thereof.
12. Ownership of Intellectual Property. All intellectual property
conceived or developed by the Executive during the Term which relate to the
business or operations of the Company shall belong to and constitute property
solely of the Company.
13. Termination of Agreement. The Executive's employment by the
Company pursuant to this Agreement shall not be terminated prior to the end of
the Term except as set forth in this Section 13. Upon the effective date of any
termination of the Executive's employment pursuant to this Section 13, the Term
shall expire.
(a) By Mutual Consent. The Executive's employment pursuant to this
Agreement may be terminated at any time by the mutual written agreement of
the Company and the Executive.
(b) Death. The Executive's employment pursuant to this Agreement
shall be terminated upon the death of the Executive, in which event the
Executive's spouse or heirs shall receive, when the same would have been
paid to the Executive but for such termination, (i) all Base Salary and
benefits to be paid or provided to the Executive under this Agreement
through the Date of Termination (as defined in Section 13(f) hereof), (ii)
the Base Salary that would have been paid to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination and (iii) the pro rata portion of any annual bonus
that would have been payable to the Executive for the then current fiscal
year of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Company Board.
(c) Disability. The Executive's employment pursuant to this
Agreement may be terminated by written notice to the Executive by the
Company or to the Company by the Executive in the event that (i) the
Executive becomes unable to perform the normal duties of his employment by
reason of physical or mental illness or accident for any six (6)
consecutive month period, or (ii) the Company receives written opinions
from both a physician for the Company and a physician for the Executive
that the Executive will become so unable within the immediate future. In
the event that the Executive's employment terminates pursuant to this
Section 13(c), the Executive shall be entitled to receive, when the same
would have been paid to the Executive but for such termination, (i) all
Base Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination, (ii) the Base Salary and health
benefits that would have been paid or provided to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination and (iii) the pro rata portion of any annual bonus
that would have been payable to the Executive for the then current fiscal
year of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Board; provided, however, that amounts
payable to the Executive under this Section 13(c) shall be reduced by the
proceeds of any short- or long-term disability payments to which the
Executive may be entitled during such period.
(d) By the Company for Cause. The Executive's employment pursuant to
this Agreement may be terminated by the Company by written notice to the
Executive ("Notice of Termination") upon the occurrence of any of the
following events (each of which shall constitute "Cause" for termination):
(i) the Executive commits any act of gross negligence, incompetence, fraud
or wilful misconduct causing or reasonably expected to cause material harm
to the Company, (ii) the conviction of the Executive of a felony, (iii) the
Executive intentionally obtains personal gain, profit or enrichment at the
expense of the Company or from any transaction in which the Executive has
an interest which is adverse to the interest of the Company unless the
Executive shall have obtained the prior written consent of the Board, (iv)
the Executive acts in a manner which the Executive intends to be materially
detrimental or damaging to the Company's reputation, business operations or
relations with its employees, suppliers or customers, or (v) any material
breach by the Executive of this Agreement, including, without limitation, a
material breach of Section 17 or Section 18 hereof. In the event the
Executive's employment by the Company is terminated pursuant to this
Section 13(d), the Executive shall only be entitled to receive the Base
Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination.
(e) By the Company Without Cause. The Executive's employment
pursuant to this Agreement may be terminated by the Company at any time
without Cause by delivery of a Notice of Termination to the Executive. In
the event that the employment by the Company of the Executive pursuant to
this Agreement is terminated by the Company without Cause pursuant to this
Section 13(e), the Executive shall be entitled to receive, when the same
would have been paid to the Executive but for such termination, (i) all
Base Salary and benefits to be paid or provided to the Executive under this
Agreement through the Date of Termination, (ii) the Base Salary and health
benefits that would have been paid or provided to the Executive under this
Agreement but for such termination during the one year period commencing on
the Date of Termination, and (iii) the pro rata portion of any annual bonus
that would have payable to the Executive for the then current fiscal year
of the Company pursuant to Section 6(b) of this Agreement but for such
termination, as determined by the Board.
(f) Date of Termination. The Date of Termination shall be (i) if the
Executive's employment by the Company is terminated pursuant to Section
13(b), the date of his death, (ii) if the Executive's employment by the
Company is terminated pursuant to Section 13(c) above, the last day of the
six-month period, or the date of the delivery of the physicians' opinions,
referred to in Section 13(c) above, (iii) if the Executive's employment by
the Company is terminated pursuant to Section 13(d) the date on which a
Notice of Termination is given and (iv) if the Executive's employment is
terminated pursuant to Section 13(e), 60 days after the date the Notice of
Termination is given; provided, that the Executive may waive such notice in
the event of a termination pursuant to Section 13(e) in which event, the
Date of Termination shall be five days after the Notice of Termination.
14. Representations. (a) The Company represents and warrants that
this Agreement has been authorized by all necessary corporate action of the
Company and is a valid and binding agreement of the Company enforceable against
it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party to
any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement. The Executive is subject
to the terms of a Separation Agreement dated June 26, 1998 with his former
employer which imposes restrictions on the Executive for a period of 30 months
from engaging in business activities deemed competitive with his former
employer.
15. Assignment; Binding Agreement. This Agreement is a personal
contract and the rights and interests of the Executive hereunder may not be
sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except
as otherwise expressly permitted by the provisions of this Agreement. This
Agreement shall inure to the benefit of and be enforceable by the Executive and
his personal or legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. In the event of the Executive's
death, any amounts remaining to be paid to the Executive pursuant to the terms
of this Agreement shall be paid to his devisee, legatee or other designee or, if
there is no such designee, to his estate.
16. Offset Upon Subsequent Employment. In the event that the
Executive's employment with the Company is terminated pursuant to Section 13(e)
and the Executive obtains any other employment (including self-employment)
during the one year period commencing on the Date of Termination, Executive
agrees that any income earned in connection with such other employment shall
reduce the Company's obligation to the Executive under Section 13(e) on a
dollar-for-dollar basis.
17. Non-Competition Covenants. The Executive agrees that he will not
at any time during the Term and, for a period of 12 months following the Date of
Termination, directly or indirectly, own any interest in, operate, join, control
or participate as a partner, director, principal, officer, or agent of, enter
into the employment of, act as a consultant to, or perform any services for, any
entity in the United States of America (and any other geographic areas in which
the Company or its subsidiaries, as of Date of Termination, have material
operations) which directly competes with the Company in the sale of any products
or services sold by the Company or any of its subsidiaries at the Date of
Termination. Notwithstanding anything herein to the contrary, this Section 17
shall not prevent the Executive from acquiring securities representing not more
than 1% of the outstanding voting securities of any publicly held corporation.
It is the intent of the parties hereto that, if in the opinion of any court of
competent jurisdiction any provision of this Section 17 is not reasonable in any
respect, such court shall have the right, power and authority to modify any and
all such provisions as to such court shall appear not unreasonable and to
enforce the remainder of this Section 17 as so modified.
18. Confidentiality Covenant. The Executive agrees that he will not
at any time during the Term or at any time thereafter, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation, other
than authorized officers, directors and employees of the Company or its
respective subsidiaries, Confidential Information (as hereinafter defined) of
the Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of his
association with the Company, which information is not generally known to the
public or in the businesses in which the Company is engaged or which information
relates to specific investment opportunities within the scope of the business of
the Company which were considered by the Company during the Term.
19. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes any other undertakings and agreements, whether oral or in writing,
previously entered into by them. The Executive represents that, in executing
this Agreement, he does not rely and has not relied upon any representation or
statement not set forth herein made by the Company regarding the subject matter
or effect of this Agreement or otherwise.
20. Amendment or Modification; Waivers. No provision of this
Agreement may be amended or waived, unless such amendment or waiver is agreed to
in writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto of
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of a similar or dissimilar condition or provision at
the same time, any prior time or any subsequent time.
21. Notices. Any notice to be given hereunder shall be in writing
and shall be deemed given when delivered personally, sent by courier or
facsimile or registered or certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or to
such other address as such party may subsequently give notice hereunder in
writing:
To the Executive at:
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxx 00000
To the Company at:
Fairfield Manufacturing Company, Inc.
X.X. 00 Xxxxx
X.X. Xxx 0000
Xxxxxxxxx, Xxxxxxx 00000-0000
Attention: Corporate Secretary
Any notice delivered personally or by courier under this Section 21
shall be deemed given on the date delivered and any notice sent by facsimile or
registered or certified mail, postage prepaid, return receipt requested, shall
be deemed given on the date transmitted by facsimile or mailed.
22. Severability. If any provision of this Agreement or the
application of any such provision to any party or circumstances shall be
determined by any court of competent jurisdiction to be invalid and
unenforceable to any extent, the remainder of this Agreement or the application
of such provision to such person or circumstances other than those to which it
is so determined to be invalid and unenforceable, shall not be affected thereby,
and each provision hereof shall be validated and shall be enforced to the
fullest extent permitted by law.
23. Survivorship. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
24. Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Indiana, without regard to the
principles of conflicts of law thereof.
25. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
26. Withholding. All payments to the Executive under this Agreement
shall be reduced by all applicable withholding required by federal, state or
local law.
27. Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement on August 4, 1998, to be effective as of the Effective Date.
FAIRFIELD MANUFACTURING COMPANY, INC.
By:_____________________________
Name:
Title:
_________________________________
Xxxxxxx X. Xxxxxx
Summary of Relocation Provisions
The Company will arrange and/or reimburse the cost of the following items
arising from the relocation of the Executive to Lafayette, Indiana.
1. The Company will arrange transportation of personal and household effects
to include packing, transportation, insurance, storage (not to exceed one
year), etc.
2. If the Executive sells his current residence in connection with the
relocation, the Company will reimburse the Executive for normal closing
cost expenses, real estate commission, and legal fees, but excluding
points.
3. If the Executive purchases a home in Lafayette in connection with the
relocation, the Company will reimburse the Executive for most closing cost
related expenses, excluding, in most instances, loan origination or
interest reduction fees.
4. The Company will pay the Executive $10,000 for incidental expenses incurred
in connection with the relocation. The Executive will not be required to
submit receipts. This allowance will be paid in a lump sum at the time of
the relocation to Lafayette. This incidental expense allowance will be
treated as ordinary income and not grossed up.
5. Home warranties and repairs to either residence required for loan approvals
are not included.
6. The Company will "gross up" the taxable portion of the Executive's
relocation costs (excluding item 5 above) according to the Company's
formula.
7. Reasonable temporary living expenses in Lafayette for a period not to
exceed 90 days.
