EMPLOYMENT SECURITY AGREEMENT
This
Employment Security Agreement (“Agreement”) is entered into as of this ____ day
of _______________, _____, by and between Franklin Electric Co., Inc., an
Indiana corporation (“Franklin”), and ____________________
(“Executive”).
WITNESSETH:
WHEREAS, Executive is
currently employed by Franklin as the ____________________;
WHEREAS, Franklin desires to
provide certain security to Executive in connection with Executive’s employment
with Franklin; and
WHEREAS, Executive and
Franklin desire to enter into this Agreement pertaining to the terms of the
security Franklin is providing to Executive with respect to his
employment.
NOW, THEREFORE, in
consideration of the mutual covenants and promises contained herein, and other
good and valuable consideration, the receipt of which is hereby acknowledged,
the parties agree as follows:
1. Definitions. For
purposes of this Agreement:
(a) “Affiliate” has the
meaning set forth in Rule 12b-2 under the Securities Exchange Act of
1934.
(b) “Base Salary” means
Executive’s annual base salary at the rate in effect on the date of a Change in
Control, or if greater, the rate in effect immediately prior to Executive’s
termination of employment with Franklin.
(c) “Change in Control”
means the occurrence of any of the following events:
(i) any
individual, partnership, firm, corporation, association, trust, unincorporated
organization or other entity (other than Franklin or a trustee or other
fiduciary holding securities under an employee benefit plan of Franklin), or any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act), directly or indirectly, of securities of
Franklin representing 20% or more of the combined voting power of Franklin’s
then outstanding securities entitled to vote generally in the election of
directors;
(ii) Franklin
is party to a merger, consolidation, reorganization or other similar transaction
with another corporation or other legal person unless, following such
transaction, more than 50% of the combined voting power of the outstanding
securities of the surviving, resulting or acquiring corporation or person or its
parent entity entitled to vote generally in the election of directors (or
persons performing similar functions) is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and entities who were
the beneficial owners of Franklin’s outstanding securities entitled to vote
generally in the election of directors immediately prior to such transaction, in
substantially the same proportions as their ownership, immediately prior to such
transaction, of Franklin’s outstanding securities entitled to vote generally in
the election of directors;
(iii) The
stockholders of Franklin approve a plan of complete liquidation or dissolution
of Franklin or Xxxxxxxx xxxxx all or substantially all of its business and/or
assets to another corporation or other legal person unless, following such sale,
more than 50% of the combined voting power of the outstanding securities of the
acquiring corporation or person or its parent entity entitled to vote generally
in the election of directors (or persons performing similar functions) is then
beneficially owned, directly or indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners of Franklin’s
outstanding securities entitled to vote generally in the election of directors
immediately prior to such sale, in substantially the same proportions as their
ownership, immediately prior to such sale, of Franklin’s outstanding securities
entitled to vote generally in the election of directors; or
(iv) during
any period of two consecutive years or less, individuals who at the beginning of
such period constituted the Board of Directors of Franklin (and any new
Directors, whose appointment or election by the Board of Directors or nomination
for election by Franklin’s stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were Directors at
the beginning of the period or whose appointment, election or nomination for
election was so approved) cease for any reason to constitute a majority of the
Board of Directors.
Notwithstanding
the foregoing, a Change in Control shall not be deemed to occur by virtue of any
transaction in which Executive is a participant in a group effecting an
acquisition of Franklin if Executive holds an equity interest in the entity
acquiring Franklin at the time of such acquisition.
(d) “Good Cause”
means:
(i) Executive’s
intentional and material misappropriation of, or damage to, the property or
business of Franklin;
(ii) Executive’s
conviction of a criminal violation involving fraud or dishonesty or of a felony
that causes material harm or injury (whether financial or otherwise) to
Franklin; or
(iii) Executive’s
willful and continuous failure to perform his obligations under the Agreement,
provided that Franklin shall first give written notice to Executive describing
such failure and, as long as it is capable of being cured and does not involve
acts of material dishonesty directed against Franklin, Executive does not
substantially cure or correct such failure within 30 days thereafter, or if such
failure can not reasonably be cured within such period, cure is not commenced
within such period and diligently pursued and fully cured within 60 days of
Franklin’s original notice to Executive.
Notwithstanding
anything herein to the contrary, in the event Franklin terminates the employment
of Executive for Good Cause hereunder, Franklin shall give Executive at least 30
days prior written notice specifying in detail the reason or reasons for
Executive’s termination.
(e) “Good Reason”
means:
(i) a
material reduction in Executive’s salary or retirement benefits or a material
reduction in Executive’s compensation and benefits in the aggregate, excluding,
in the case of incentive benefits that are based upon the performance of
Executive or Franklin, reductions in benefits resulting from diminished
performance by Executive or Franklin;
(ii) any
purchaser (or affiliate thereof) who purchases substantially all of the assets
of Franklin shall decline to assume all of Franklin’s obligations under this
Agreement; or
(iii) the
relocation of the Executive’s principal place of employment by more than 50
miles.
(f) “Severance Period”
means the period beginning on the date Executive’s employment with Franklin
terminates under circumstances described in Section 2 and ending on the earlier
of the date 24 months thereafter or the date Executive attains age
65.
(g) “Target Bonus” means
the amount that would be payable to Executive under the Executive Officer Annual
Incentive Cash Bonus Program or any successor plan thereto for the year in which
Executive’s employment with Franklin terminates, assuming attainment of the
target performance goals at 100% level and employment of Executive at the end of
such year (such amount to be determined regardless of whether Executive would
otherwise be eligible for a bonus under the terms of any such plan or the extent
to which the performance goals are actually met).
2. Termination
of Employment. If within two
years after a Change in Control, (a) Franklin terminates Executive’s employment
for any reason other than Good Cause, or (b) Executive terminates his employment
with Franklin for Good Reason, Franklin shall make the payments and provide the
benefits described in Section 3 below.
3. Benefits
Upon Termination of Employment. Upon termination of
Executive’s employment with Franklin under circumstances described in Section 2
above:
(a) Within 30
days following the date of such termination, Franklin shall pay Executive a lump
sum cash payment equal to the sum of (i), (ii) and (iii)
below:
(i) unpaid
Base Salary earned by Executive through the date of termination (which shall
include payment for all accrued but unused vacation pay);
(ii) two
times Executive’s Base Salary; and
(iii) an
amount equal to the sum of (A) a prorata portion of Executive’s
Target Bonus (based on the date on which such termination of employment occurs),
and (B) two times Executive’s Target Bonus.
(b) Franklin
shall pay Executive a lump sum payment within 30 days following his termination
of employment of an amount equal to the increase in benefits under all
tax-qualified and supplemental retirement plans maintained by Franklin in which
Executive participates at termination of employment that results from crediting
Executive with an additional 24 months of service for all purposes under such
plans, and deeming Executive to be an employee of Franklin during the Severance
Period. The amounts attributable to additional benefits under any such plan
shall be based on Executive’s compensation level as of his termination of
employment. The amounts attributable to additional benefits under any
retirement plan that is a defined contribution plan shall include the additional
Franklin contributions that would have been made or credited on Executive’s
behalf had he authorized the same elective contributions he had elected for the
year in which the termination of employment occurs, and shall include earnings
that would have accrued under the applicable plan during the Severance Period
based on the investment alternatives elected by Executive as of his termination
of employment. Benefits accrued under such plans prior to Executive’s
termination of employment shall be paid in accordance with the terms of such
plans. Notwithstanding the foregoing, the payment under this Section
3(b) shall be offset by the lump sum value of the amounts of additional benefits
paid or payable in accordance with the terms of such plans as a result of the
occurrence of a Change in Control but not below zero.
(c) If
Executive holds any stock-based awards as of the date of his termination of
employment, (i) all such awards that are stock options shall immediately become
exercisable on such date and shall be exercisable for 12 months following such
termination of employment, or if earlier, until the expiration of the term of
the stock option; (ii) all restrictions on any awards of restricted stock or
restricted stock units shall terminate or lapse; and (iii) all performance goals
applicable to any performance-based awards shall be deemed satisfied at the
highest level, and in each case settlement of such awards shall be made to
Executive within 30 days of Executive’s termination. To the extent
any of the foregoing is not permissible under the terms of any plan pursuant to
which the awards were granted, Franklin shall pay to Executive, in a lump sum
within 30 days after termination of Executive’s employment, an amount as
follows: (A) to the extent the acceleration of the exercise of such
stock options is not permissible, an amount equal to the excess, if any, of the
aggregate fair market value of the stock subject to such options, determined on
the date of Executive’s termination of employment, over the aggregate exercise
price of such stock options; (B) to the extent the termination or lapse of
restrictions on restricted stock or restricted stock units is not permissible,
an amount equal to the aggregate fair market value of the stock subject to the
restrictions (determined without regard to such restrictions); and (C) to the
extent performance awards are limited, an amount equal to the aggregate fair
market value of the additional shares that were not
awarded. Executive shall surrender all outstanding awards for which
payment pursuant to the preceding sentence is made.
(d) During
the Severance Period, Executive and his spouse and eligible dependents shall
continue to be covered by all employee benefit plans of Franklin providing
health, prescription drug, dental, vision, disability and life insurance in
which he or his spouse or eligible dependents were participating immediately
prior to the date of his termination of employment, as if he continued to be an
active employee of Franklin, and Franklin shall continue to pay the costs of
such coverage under such plans on the same basis as is applicable to active
employees covered thereunder; provided that, if participation in any one or more
of such plans is not possible under the terms thereof, Franklin shall provide
substantially identical benefits. The date of Executive’s termination of
employment shall be considered a “qualifying event” as such term is defined in
Title I, Part 6 of the Employee Retirement Income Security Act of 1974
(“COBRA”), and any continued coverage by Executive, his spouse or eligible
dependents under Franklin’s group health plan after Executive’s termination of
employment shall be considered COBRA coverage.
(e) During
the Severance Period, Executive will receive 12 months of executive outplacement
services (not to exceed $50,000) with a professional outplacement firm selected
by Franklin.
(f) If at the
time of Executive’s termination of employment for reasons other than death he is
a “Key Employee” as determined in accordance with the procedures set forth in
Treas. Reg. §1.409A-1(i), any amounts payable to Executive pursuant to this
Agreement that are subject to Section 409A of the Internal Revenue Code shall
not be paid or commence to be paid until six months following Executive’s
termination of employment, or if earlier, Executive’s subsequent death, with the
first payment to include the payments that otherwise would have been made during
such period and including interest accruing thereon from the first day of the
month following the date of such termination of employment until the date of
payment, based on the applicable interest rate as defined in Section 417(e)(3)
of the Internal Revenue Code.
4. Release
of Claims. Payment by Franklin of
the termination benefits provided in Section 3 hereof shall be conditioned on
Executive’s execution of a release of claims substantially in the form attached
hereto as Exhibit
A.
5. Death. If Executive dies during the
Severance Period, all amounts payable hereunder to Executive, to the extent not
paid, shall be paid, within 30 days of the date of Executive’s death, to his
surviving spouse or his designated beneficiary, or if none, then to his
estate. Executive’s surviving spouse and eligible dependents shall
continue to be covered under plans described in Section 3(d) during the
remainder of the Severance Period. On the death of the surviving
spouse and eligible dependents, no further coverage under such plans shall be
provided (other than any coverage required pursuant to COBRA).
6. Excise Tax Gross-Up
Payment.
(a) Subject
to Section 6(b) below, if in connection with a Change in Control Executive would
be or is subject to an excise tax under Section 4999 of the Internal Revenue
Code with respect to any cash, benefits or other property received, or any
acceleration of vesting of any benefit or award (the “Change in Control
Benefits”), Franklin shall pay Executive an amount (a “Gross-Up Payment”) equal
to the sum of (i) the amount of such excise tax plus (ii) all taxes, interest
and penalties, including, without limitation, any federal, state and local
income taxes and any additional excise taxes, that become payable by Executive
as a result of the receipt of the Gross-Up Payment or the assessment of any
excise tax against Executive (the “Excise Tax”). In determining the
amount of any Gross-Up Payment, Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income taxation in the calendar
year in which the Gross-Up Payment is to be made, and state and local taxes at
the highest marginal rates of taxation for such year in the state and locality
of Executive’s residence. For such purposes, federal income taxes shall be
determined net of the maximum reduction in such federal income taxes that could
be obtained from the deduction of such state and local taxes.
(b) Notwithstanding
Section 6(a), if the Change in Control Benefits, when calculated on a
net-after-tax basis (using the assumptions set forth in the last sentence of
Section 6(a)), are less than 110% of the amount that could be paid to Executive
without imposition of the excise tax under Section 4999 of the Internal Revenue
Code, the Change in Control Benefits payable under this Agreement shall be
reduced to the largest amount payable without resulting in the imposition of
such excise tax.
(c) Within 30
days after Executive’s termination of employment, a nationally recognized
accounting firm selected by Franklin shall make a determination as to whether
any Excise Tax should be reported and paid by Executive, and if applicable, the
amount of such Excise Tax and the related Gross-Up Payment. Within 30
days after such determination, Franklin shall pay the amount of such Gross-Up
Payment to Executive, and Executive shall report and pay such Excise
Tax. Franklin shall be responsible for all fees and expenses
connected with the determinations by the accounting firm pursuant to this
Section 6.
(d) In the
event that Executive is at any time required to pay any Excise Tax in addition
to any amount determined pursuant to subsection (a), Franklin shall pay
Executive a Gross-Up Payment determined with respect to such additional Excise
Tax, within 30 days of such determination. In the event that Executive receives
any refund of any Excise Tax with respect to which Executive has previously
received a Gross-Up Payment hereunder, Executive shall promptly pay to Franklin
the amount of such refund (together with any interest paid or credited thereon
after taxes applicable thereto).
(e) Executive
agrees to notify Franklin in the event of any audit or other proceeding by the
IRS or any taxing authority in which the IRS or other taxing authority asserts
that any Excise Tax should be assessed against Executive and to cooperate with
Franklin in contesting any such proposed assessment with respect to such Excise
Tax (a “Proposed Assessment”). Executive agrees not to settle any Proposed
Assessment without the consent of Franklin. If Franklin does not
settle the Proposed Assessment, or does not consent to allow Executive to settle
the Proposed Assessment, within 30 days following such demand therefor, Franklin
shall indemnify and hold harmless Executive (i) with respect to any additional
interest and/or penalties that Executive is required to pay by reason of the
delay in finally resolving Executive’s tax liability and (ii) with respect to
any taxes, interest and penalties that Executive is required to pay by reason of
any indemnification payment under this subsection (e).
(f) Franklin
shall pay Executive all Gross Up Payments at the times described herein, but in
no event later than the end of the calendar year following the calendar year in
which Executive made such remittance.
7. Indemnification. Franklin shall
indemnify, protect, defend and hold harmless Executive from and against all
liabilities, costs and expenses (including but not limited to attorneys’ fees)
incurred as a result of Executive’s employment with Franklin to the fullest
extent permitted by the Indiana Business Corporation Law.
8. Litigation
Expenses. Franklin shall
pay to Executive all out-of-pocket expenses, including attorneys’ fees, incurred
by Executive in connection with any enforcement, claim or legal action or
proceeding involving this Agreement, whether brought by Executive or by or on
behalf of Franklin or by another party. Franklin shall pay
prejudgment interest on any money judgment obtained by Executive, calculated at
the published prime interest rate charged by Franklin’s principal banking
connection from the date that payment(s) to him should have been made under this
Agreement.
9. Post-Termination
Payment Obligations. Subject to
Section 4, Franklin's obligation to
pay Executive the compensation and to make the other arrangements provided
herein to be paid and made after termination of Executive's employment with
Franklin shall be absolute and unconditional and shall not be affected by any
circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right that Franklin may have against him or anyone
else. All amounts so payable by Franklin shall be paid without notice
or demand. Each and every such payment made by Franklin shall be
final and Franklin will not seek to recover all or any part of such payment from
Executive or from whomsoever may be entitled thereto, for any reason
whatsoever.
10. Disclosure
Of Confidential Information. Without the consent of Franklin,
Executive shall not at any time divulge, furnish or make accessible to anyone
(other than in the regular course of business of Franklin) any knowledge or
information with respect to confidential or secret processes, inventions,
formulae, machinery, plan, devices or materials of Franklin or with respect to
any confidential or secret engineering development or research work of Franklin
or with respect to any other confidential or secret aspect of the business of
Franklin. Executive recognizes that irreparable injury will result to
Franklin and its business and properties, in the event of any breach by
Executive of any of the provisions of this Section 10. In the event
of any breach of any of the commitments of Executive pursuant to this Section
10, Franklin shall be entitled, in addition to any other remedies and damages
available, to injunctive relief to restrain the violation of such commitments by
Executive or by any person or persons acting for or with Executive in any
capacity whatsoever.
11. Solicitation
Of Employees. During Executive’s employment with Franklin and
for a period of 18 months after termination of employment, Executive shall not
(a) directly or indirectly, employ or retain or solicit for employment or
arrange to have any other person, firm or other entity employ or retain or
solicit for employment or otherwise participate in the employment or retention
of any person who is an employee of Franklin or (b) encourage or solicit any
such employee to leave the service of Franklin.
12. Executive
Assignment. No interest of
Executive or his spouse or any other beneficiary under this Agreement, or any
right to receive any payment or distribution hereunder, shall be subject in any
manner to sale, transfer, assignment, pledge, attachment, garnishment, or other
alienation or encumbrance of any kind, nor may such interest or right to receive
a payment or distribution be taken, voluntarily or involuntarily, for the
satisfaction of the obligations or debts of, or other claims against, Executive
or his spouse or other beneficiary, by operation of law or otherwise, other than
pursuant to the terms of a qualified domestic relations order to which Executive
is a party.
13. Reimbursements
or In-Kind Benefits. Reimbursements or
in-kind benefits provided under this Agreement that are subject to Section 409A
of the Internal Revenue Code of 1986, as amended, are subject to the following
restrictions: (a) the amount of expenses eligible for reimbursements,
or in-kind benefits provided, to Executive during a calendar year shall not
affect the expenses eligible for reimbursement or the in-kind benefits provided
in any other calendar year, and (b) reimbursement of an eligible expense shall
be made as soon as practicable, but in no event later than the last day of the
calendar year following the calendar year in which the expense was
incurred.
14. Waiver,
Modification. No provisions of
this Agreement may be waived, modified or discharged unless such waiver,
modification or discharge is agreed to in a writing signed by Executive and
Franklin. No waiver by either party at any time of any breach by the
other party of, or compliance with, any condition or provision of this Agreement
to be performed by the other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
15. Applicable
Law. This Agreement
shall be construed and interpreted pursuant to the laws of Indiana.
16. Entire
Agreement. This Agreement
contains the entire Agreement between Franklin and Executive and supersedes any
and all previous agreements, written or oral, between the parties relating to
severance benefits, including any previous Employment Agreement between
Executive and Franklin. No amendment or modification of the terms of
this Agreement shall be binding upon the parties hereto unless reduced to
writing and signed by Franklin and Executive.
17. Severability. If any provision of this
Agreement or the application thereof is held invalid, such invalidity shall not
affect other provisions or applications of this Agreement that can be given
effect without the invalid provision or application and, to such end, the
provisions of this Agreement are declared to be severable.
18. No
Employment Contract. Nothing contained
in this Agreement shall be construed to be an employment contract between
Executive and Franklin. Executive is employed at will and Franklin may terminate
his employment at any time, with or without cause.
19. Employment
with an Affiliate. If Executive is employed by
Franklin and an Affiliate, or solely by an Affiliate, on the date of termination
of employment of Executive under circumstances described in Section 2, then (a)
employment or termination of employment as used in this Agreement shall mean
employment or termination of employment of Executive with Franklin and such
Affiliate, or with such Affiliate, as applicable, and related references to
Franklin shall also include Affiliate, as applicable, and (b) the obligations of
Franklin hereunder shall be satisfied by Franklin and/or such Affiliate as
Franklin, in its discretion, shall determine; provided that Franklin shall
remain liable for such obligations to the extent not satisfied by such
Affiliate.
20. Successors. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
heirs, representatives and successors. Any reference in this
Agreement to Franklin shall be deemed a reference to any successor (whether
direct or indirect, by purchase of stock or assets, merger or consolidation or
otherwise) to all or substantially all of the business and/or assets of
Franklin; provided that Executive’s employment by a successor shall not be
deemed a termination of Executive’s employment with Franklin.
21. Withholding. Franklin
may withhold from any payment that it is required to make under this Agreement
amounts sufficient to satisfy applicable withholding requirements under any
federal, state, or local law.
22. Headings. The
headings contained herein are for reference purposes only and shall not in any
way affect the meaning or interpretation of any provision of this
Agreement.
23. Notice. Notices given pursuant to
this Agreement shall be in writing and shall be deemed given when received or,
if mailed, two days after mailing by United States registered or certified mail,
return receipt requested, postage prepaid and addressed as herein
provided. Notice to Franklin shall be addressed to Corporate
Secretary, Franklin Electric Co., Inc. at 000 Xxxx Xxxxxx Xxxxxx, Xxxxxxxx,
Xxxxxxx 00000. Notices to Executive shall be addressed to Executive
at his last permanent address as shown on Franklin's
records. Notwithstanding the foregoing, if either party shall
designate a different address by notice to the other party given in the
foregoing manner, then notices to such party shall be addressed as designated
until the designation is revoked by further notice given in such
manner.
24. Counterparts. This Agreement may be
executed in counterparts, each of which shall be deemed an
original.
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IN WITNESS WHEREOF, the
parties have executed this Employment Security Agreement as of the day and year
written above.
FRANKLIN
ELECTRIC CO., INC.
By:
Its:
EXECUTIVE
CH2\2186237.7
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