EXHIBIT 10(c)
RETENTION AGREEMENT
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AGREEMENT by and between Solutia Inc., a Delaware corporation
(the "Company"), and Xxxx X. Xxxxxx III (the "Executive"), dated as of the
30th day of June, 2003 (the "Effective Date").
The Board of Directors of the Company (the "Board") has
determined that it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication
of the Executive over the next 30-month period. The Board believes it is
imperative to retain the Executive's services as Chief Executive Officer of
the Company or else the Company would suffer substantial harm and additional
costs to replace the Executive if he were to terminate his employment with
the Company. To induce the Executive to continue to serve the Company over
the next 30 months, the Company will provide the Executive with a cash
retention payment, payable in installments. It is the Board's judgment that
such a retention arrangement is in the best interest of the Company, its
shareholders, and its creditors, and is consistent with the desire of the
Board to maximize the value of the Company. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into
this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Retention Payment. Within 5 days of the 12-month anniversary of
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the Effective Date, the Company shall pay to the Executive a cash payment
equal to 100% of his base salary as of the Effective Date if he is employed
by the Company on such anniversary date. Within 5 days of the 24-month
anniversary of the Effective Date, the Company shall pay to the Executive a
cash payment equal to 100% of his base salary as of the Effective Date if he
is employed by the Company on such anniversary date. Within 5 days of the
30-month anniversary of the Effective Date, the Company shall pay to the
Executive a cash payment equal to 50% of his base salary as of the Effective
Date if he is employed by the Company on such anniversary date.
2. Termination of Employment.
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(a) If, prior to the 30-month anniversary of the Effective
Date, the Executive's employment is terminated by the Company without Cause
(as defined below) or is terminated by the Executive for Good Reason (as
defined below), the Company shall continue to pay to the Executive the
retention payments in accordance with Section 1 above as if the Executive's
employment had not been terminated by the Company without Cause or by the
Executive for Good Reason; provided, however, that such retention payments
will not be made if the Executive materially violates any provision of this
Agreement or any provision of any other agreement he has entered into with
the Company relating to the Executive's promises with respect to
confidentiality, competitive activity against the Company, solicitation of
the Company's employees, or ideas, inventions or discoveries that belong to
the Company.
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(b) If, prior to the 30-month anniversary of the Effective
Date, the Executive's employment is terminated due to the death or
Disability of the Executive, the Company shall pay to the Executive or his
estate, as applicable, within a reasonable period of time following the date
of death or the termination of employment, as the case may be, a cash
payment equal to (x) 250% of his base salary as of the Effective Date
multiplied by (y) a fraction the numerator of which is equal to the number
of full months that the Executive was employed by the Company following the
Effective Date and the denominator of which is equal to 30, less (z) the
amount of all payments already made under Section 1 above.
(c) Definition of Cause. For purposes of this Agreement,
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"Cause" shall mean:
(i) the willful and continued failure of the Executive to
perform substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board which specifically
identifies the manner in which the Board believes that the Executive has not
substantially performed the Executive's duties; or
(ii) the willful engaging by the Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution
duly adopted by the Board or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by
the Executive in good faith and in the best interests of the Company. The
cessation of employment of the Executive shall not be deemed to be for Cause
unless and until there shall have been delivered to the Executive a copy of
a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the
Board called and held for such purpose (after reasonable notice is provided
to the Executive and the Executive is given an opportunity, together with
counsel, to be heard before the Board), finding that, in the good faith
opinion of the Board, the Executive is guilty of the conduct described in
subparagraph (i) or (ii) above, and specifying the particulars thereof in
detail.
(d) Definition of Good Reason. For purposes of this Agreement,
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"Good Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position as of the
Effective Date (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any other action by
the Company which results in a diminution in such position, authority,
duties or responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
the Executive;
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(ii) any failure by the Company to comply with any of the
provisions of Section 1 above or Section 3 below, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice thereof given by
the Executive; or
(iii) the Company's requiring the Executive to be based at
any office or location other than the office at which the Executive is based
as of the Effective Date or the Company's requiring the Executive to travel
on Company business to a substantially greater extent than required
immediately prior to the Effective Date, unless the Executive is on
international assignment on the Effective Date and the relocation is as a
result of the Executive's being repatriated pursuant to the terms of his
international assignment agreement as in effect before the Effective Date.
For purposes of this Section 2(d), any good faith determination of Good
Reason made by the Executive shall be conclusive.
(e) Definition of Disability. For purposes of this
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Agreement, "Disability" shall mean a "disability" as such term is defined
under the Company's long-term disability plan, program or arrangement
applicable to the Executive as in effect on the date the disability first
occurs.
(f) Notice of Termination. Any termination by the Company
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for Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
Section 8(b) below. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated and (iii) if the Date of Termination is
other than the date of receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after the giving of such
notice). The failure by the Executive or the Company to set forth in the
Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive
or the Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in enforcing
the Executive's or the Company's rights hereunder.
(g) Date of Termination. For purposes of this Agreement,
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"Date of Termination" means if the Executive's employment is terminated by
the Company for Cause, or by the Executive for Good Reason, the date of
receipt of the Notice of Termination or any later date specified therein, as
the case may be.
3. Letter of Credit. In order to ensure the benefits intended to
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be provided to the Executive under this Agreement, the Company shall
promptly use its best efforts to secure an irrevocable standby letter of
credit for the benefit of the Executive issued by Commerce Bank or another
bank having combined capital and surplus in excess of $500 million (the
"Letter of Credit"). The Company shall pay all amounts and take all action
necessary to establish and maintain the Letter of Credit during the 30-month
period following the Effective Date.
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Following the Company's complete discharge of its obligations under this
Agreement, the Letter of Credit shall be terminated or not renewed.
4. Non-exclusivity of Rights. Nothing in this Agreement shall
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prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies for which the Executive may qualify, nor, subject to
Section 9(g) below, shall anything herein limit or otherwise affect such
rights as the Executive may have under any contract or agreement with the
Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice
or program or contract or agreement except as explicitly modified by this
Agreement.
5. Full Settlement; Legal Fees. The Company's obligation to make
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the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may
have against the Executive or others. Notwithstanding anything contained in
this Agreement to the contrary, the Executive agrees that any payments made
to the Executive by the Company in accordance with Section 6 of the
Employment Agreement by and between the Company and the Executive dated
February 28, 1998, as amended from time to time, shall be reduced by an
amount equal to the difference of (A) 250% of his base salary as of the
Effective Date less (B) the result of (x) 250% of his base salary as of the
Effective Date multiplied by (y) a fraction the numerator of which is equal
to the number of full and partial months remaining in the 30-month period
following the Effective Date as of the date of the termination of the
executive's employment with the Company and the denominator of which is
equal to 30. The Company agrees to pay as incurred, to the full extent
permitted by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest (regardless of the outcome
thereof) by the Company, the Executive or others of the validity or
enforceability of, or liability under, any provision of this Agreement or
any guarantee of performance thereof (whether such contest is between the
Company and the Executive or between either of them and any third party, and
including as a result of any contest by the Executive about the amount of
any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code").
6. Certain Additional Payments by the Company.
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(a) Anything in this Agreement to the contrary notwithstanding
and except as set forth below, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise, but determined without regard
to any additional payments required under this Section 6) (a "Payment")
would be subject to the excise tax imposed by Section 4999 of the Code or
any interest or penalties are incurred by the Executive with respect to such
excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be
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entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all taxes (including any
interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. Notwithstanding the foregoing provisions of this
Section 6(a), if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that
the receipt of Payments would not give rise to any Excise Tax, then no
Gross-Up Payment shall be made to the Executive and the Payments, in the
aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 6(c) below, all
determinations required to be made under this Section 6, including whether
and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such
determination, shall be made by Ernst & Young LLP or such other certified
public accounting firm as may be designated by the Executive (the
"Accounting Firm") which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the receipt of
notice from the Executive that there has been a Payment, or such earlier
time as is requested by the Company. In the event that the Accounting Firm
is serving as accountant or auditor for the individual, entity or group
effecting the change of control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 6, shall be paid by the Company to the Executive within 5 days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the
Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6(c) below and the Executive
thereafter is required to make a payment of any Excise Tax, the Accounting
Firm shall determine the amount of the Underpayment that has occurred and
any such Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall
be given as soon as practicable but no later than ten business days after
the Executive is informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the 30-day period following the date on which the Executive
gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
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(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option,
may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to pay the tax
claimed and xxx for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one
or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and xxx for a
refund, the Company shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold the
Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect
to such advance or with respect to any imputed income with respect to such
advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the
Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other issue raised by
the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 6(c) above, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
6(c) above) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 6(c) above, a determination is made that the Executive
shall not be entitled to any refund with respect to such
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claim and the Company does not notify the Executive in writing of its intent
to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
7. Confidential Information. As used herein, "Confidential
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Information" means all technical and business information of the Company and
its subsidiaries, whether patentable or not, which is of a confidential,
trade secret and/or proprietary character and which is either developed by
the Executive (alone or with others) or to which the Executive has had
access during the Executive's employment. "Confidential Information" shall
also include confidential evaluations of, and the confidential use or
non-use by the Company or any subsidiary of, technical or business
information in the public domain. The Executive shall use the Executive's
best efforts and diligence both during and after employment by the Company
to protect the confidential, trade secret and/or proprietary character of
all Confidential Information. The Executive shall not, directly or
indirectly, use (for the Executive or another) or disclose any Confidential
Information, for so long as it shall remain proprietary or protectible as
confidential or trade secret information, except as may be necessary for the
performance of the Executive's duties with the Company. The Executive shall
deliver promptly to the Company, at the termination of the Executive's
employment, or at any other time at the Company's request, without retaining
any copies, all documents and other material in the Executive's possession
relating, directly or indirectly, to any Confidential Information. Each of
the Executive's obligations in this Section 7 shall also apply to the
confidential, trade secret and proprietary information learned or acquired
by the Executive during the Executive's employment from others with whom the
Company or any subsidiary has a business relationship. The Executive
understands that the Executive is not to disclose to the Company or any
subsidiary, or use for its benefit, any of the confidential, trade secret or
proprietary information of others, including any of the Executive's former
employers. In no event shall an asserted violation of the provisions of this
Section 7 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
8. Successors.
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(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company 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 Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as
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hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
9. Miscellaneous.
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(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement
may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: Xxxx X. Xxxxxx III
0000 Xxxxxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
If to the Company: Xxxxxx X. Xxxxx, Esq.
Senior Vice President, Secretary & General Counsel
Solutia Inc.
X.X. Xxx 00000
Xx. Xxxxx, Xxxxxxxx 00000-0000
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) This Agreement contains the entire understanding and
agreement between the parties concerning the subject matter hereof and
supersedes all prior agreements, understandings, discussions, negotiations
and undertakings, whether written or oral, between the parties with respect
thereto.
(e) The Company may withhold from any amounts payable
under this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(f) The Executive's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure
to assert any right the Executive or the Company may have hereunder, shall
not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
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(g) The Executive and the Company acknowledge that, except
as may otherwise be provided under any other written agreement between the
Executive and the Company, the employment of the Executive by the Company is
"at will" and the Executive's employment may be terminated by either the
Executive or the Company at any time. From and after the Effective Date this
Agreement shall have no effect on the Executive's rights under any plan,
program, policy or practice provided by the Company or any of its affiliated
companies.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
/s/ Xxxx X. Xxxxxx III
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Xxxx X. Xxxxxx III
SOLUTIA INC.
By: /s/ Xxxxxx X. Xxxxx
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Xxxxxx X. Xxxxx
Its: Senior Vice President and
General Counsel
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