EXHIBIT 10.12
DEFERRED COMPENSATION AGREEMENT
This Deferred Compensation Agreement is entered into this 30th day of March,
1998, by and between XXXXXXX CORPORATION, a Minnesota corporation located at
Xxx Xxxxxxx Xxxxxx, Xx. Xxxx, Xxxxxxxxx (the "Company") and XXXX X. XXXXXX,
an individual residing at 0000 Xxxxxxxxxxx Xxxxx, Xxxxx, Xxxxxxxxx (the
"Executive").
RECITALS
FIRST: The Executive is an employee of the Company.
SECOND: The Executive and the Company have entered into an Employment
Agreement.
THIRD: The Employment Agreement provides that the Company will pay the
Executive a Bonus.
FOURTH: The Company and the Executive wish to provide for the automatic
deferral of any portion of the Bonus that would cause the Executive's
compensation for any fiscal year of the Company not to be deductible for the
fiscal year pursuant to Code section 162(m).
NOW, THEREFORE, the Company and the Executive agree as follows:
ARTICLE
1.
DEFINITIONS, CONSTRUCTION AND INTERPRETATION
The definitions and rules of construction and interpretation set forth in
this article apply in construing this Agreement unless the context otherwise
indicates.
1.1. ACCOUNT. "Account" means the bookkeeping account maintained with
respect to the Executive pursuant to Section 2.1.
1.2. AGREEMENT. "Agreement" means this Deferred Compensation Agreement as
it may be amended from time to time.
1.3. BONUS. "Bonus" means the annual cash bonus to which Executive is
entitled pursuant to the Employment Agreement.
1.4. BENEFICIARY. "Beneficiary" is the person designated or otherwise
determined under the provisions of Section 3.5 as the distributee of
benefits payable after the Executive's death.
1.5. CHANGE IN CONTROL. "Change in Control" means a change in control of
the Company within the meaning of the Employment Agreement.
1.6. CODE. "Code" means the Internal Revenue Code of 1986, as amended.
Any reference to a specific provision of the Code includes a reference
to that provision as it may be amended from time to time and to any
successor provision.
1.7. COMPANY. "Company" means Xxxxxxx Corporation or any successor thereto.
1.8. CROSS REFERENCES. References within a section of this Agreement to a
particular subsection refer to that subsection within the same section
and references within a section or subsection to a particular clause
refer to that clause within the same section or subsection, as the
case may be.
1.9. EMPLOYMENT AGREEMENT. "Employment Agreement" means the Employment
Agreement made as of February 1, 1989 between the Company and the
Executive, as amended by the Amendment to Employment Agreement dated
as of April 29, 1994, and as it may be further amended from time to
time.
1.10. EXECUTIVE. "Executive" means Xxxx X. Xxxxxx.
1.11. GOVERNING LAW. To the extent that state law is not preempted by the
provisions of the Employee Retirement Income Security Act of 1974, as
amended, or any other laws of the United States, all questions arising
in connection with this Agreement, including, without limitation,
those pertaining to construction, validity, effect, enforcement and
remedies, will be determined in accordance with the internal,
substantive laws of the State of Minnesota without regard to the
conflict of laws rules of the State of Minnesota or any other
jurisdiction.
1.12. HEADINGS. The headings of articles and sections are included solely
for convenience of reference; if there exists any conflict between
such headings and the text of this Agreement, the text will control.
1.13. TERMINATION OF EMPLOYMENT. "Termination of Employment" means (a) a
complete termination of the employment relationship between the
Company and the Executive as determined in accordance with generally
applicable Company policies as in effect from time to time or (b) an
absence from active employment with the Company due to accident,
injury or illness if and when the Executive becomes entitled to
receive benefits under the Company's long-term disability plan in
connection with the absence. For purposes of determining whether the
Executive has experienced a Termination of Employment, the term
"Company" includes all entities, whether or not incorporated, that
together with the Company are treated as a single employer pursuant to
Code sections 414(b) and (c).
1.14. TRUST. "Trust" means the trust established pursuant to Section 4.1 of
this Agreement, as it may be amended from time to time.
1.15. TRUSTEE. "Trustee" means the one or more banks or trust companies
that at the relevant time has or have been appointed by the Company to
act as Trustee of the Trust.
ARTICLE
2.
BENEFITS
2.1. ACCOUNT. The Company will establish and maintain an Account for the
Executive to evidence amounts credited pursuant to Sections 2.2 and
2.3.
2.2. DEFERRAL CREDITS.
(A) If payment of the Bonus for any fiscal year of the Company in
accordance with the terms of the Employment Agreement would cause
any portion of the Executive's compensation to not be deductible
by the Company for the fiscal year pursuant to Code section
162(m), the amount of the Bonus that would otherwise be paid to
the Executive
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in accordance with the terms of the Employment Agreement will be
reduced until no portion of the Executive's compensation is not
deductible pursuant to Code section 162(m) and the amount of the
reduction will be deferred pursuant to this Agreement.
(B) The amount of any deferral pursuant to this Section 2.2 will be
credited to the Executive's Account as of the date on which the
Executive would have otherwise received the Bonus with respect to
which such credit relates.
2.3. EARNINGS. As of the last day of each month, the Administrator will
adjust the Account by multiplying the average daily balance of the
Account for the month by the decimal equivalent of the percentage
increase or decrease in the Standard & Poors 500 index for the month,
determined by comparing the value of the index on the first business
day of the month to the value of the index on the last business day of
the month. The Company and the Executive may from time to time agree
to an alternative methodology for calculating earnings. The agreement
must be in writing and signed by the Company and the Executive.
2.4. VESTING. The Executive always has a fully vested nonforfeitable
interest in his Account.
ARTICLE
3.
DISTRIBUTION
3.1. DISTRIBUTION BEFORE TERMINATION OF EMPLOYMENT. Prior to the
Executive's Termination of Employment, if, taking into account all
other compensation that the Executive has or will receive for a fiscal
year of the Company, the Company determines that the Executive may
receive additional compensation without exceeding the maximum amount
deductible by the Company for the fiscal year pursuant to Code section
162(m), not later than the last day of the fiscal year distribution of
the Executive's Account will be made, in the form of a single lump sum
payment, in an amount equal to the lesser of (a) the balance of the
Account and (b) the amount of additional compensation that the
Executive may receive for the fiscal year without exceeding the
maximum amount deductible by the Company for the fiscal year pursuant
to Code section 162(m).
3.2. DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT.
(A) Distribution of the Executive's Account after his Termination of
Employment will be made or begin, as the case may be, as soon as
administratively practicable after the fifteenth day of the third
month following the last day of the Company's fiscal year that
includes the Executive's Termination of Employment.
(B) The balance of the Executive's Account will be distributed to the
Executive after his Termination of Employment in the form of a
single lump sum payment, unless (1) the Executive makes an
irrevocable written election, on a form provided by the Company,
to receive his distribution in the form of annual installment
payments for either five or ten years and (2) the date of his
Termination of Employment is at least two years after the date on
which the written election is provided to the Company.
(C) The balance of the Executive's Account will be distributed to his
Beneficiary as soon as administratively practicable after the
Executive's death in the form of a single lump sum payment.
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(D) If the distribution is made in the form of a lump sum payment,
the amount of the payment will be equal to the balance of the
Executive's Account as of the last day of the month immediately
preceding the distribution.
(E) If the distribution is made in the form of installment payments,
the undistributed portion of the Account balance will continue to
be credited with earnings pursuant to Section 2.3. The first
annual payment will be made on a date determined in accordance
with Subsection A and subsequent annual payments will be made on
or around the same date in each of the following four or nine
years, as the case may be. The amount of the payment each year
will be determined by dividing the Account balance as of the last
day of the month immediately preceding the payment date by the
total number of remaining payments (including the payment in
question).
3.3. SPECIAL RULES.
(A) ACCELERATED DISTRIBUTION. Notwithstanding Sections 3.1 and 3.2,
subject to Section 3.3(C) the Executive may elect an immediate
distribution in an amount equal to 90 percent of the amount of
the lump sum distribution to which he would then be entitled
pursuant to Section 3.2(C) and the remaining 10 percent of his
Account balance will be permanently forfeited. The distribution
will be made in the form of a lump sum payment within the 10-day
period following the receipt by the Company of the Executive's
written request for the distribution.
(B) UNFORESEEABLE EMERGENCY. Notwithstanding Sections 3.1 and 3.2,
subject to Section 3.3(C) a distribution will be made to the
Executive if the Company determines that he has experienced an
"unforeseeable emergency." The amount of the distribution may
not exceed the lesser of (1) the amount necessary to satisfy the
emergency, as determined by the Company or (2) the amount of the
lump sum distribution to which he would then be entitled pursuant
to Section 3.2(D). The distribution will be made in the form of
a lump sum payment within the 10-day period following the
Company's determination that the Executive has experienced an
unforeseeable emergency. For purposes of this section, an
"unforeseeable emergency" is an unanticipated emergency that is
caused by an event beyond the control of the Executive and that
would result in severe financial hardship to the Executive if the
hardship withdrawal was not permitted.
(C) NONDEDUCTIBILITY.
(1) If the Company determines in good faith prior to a Change in
Control that there is a reasonable likelihood that any
compensation paid to the Executive for a taxable year of the
Company would not be deductible by the Company solely by
reason of the limitation under Code section 162(m), solely
to the extent deemed necessary by the Company to ensure that
the entire amount of any distribution to the Executive
pursuant to this Section 3.3 prior to the Change in Control
is deductible, the Company may defer all or any portion of
the distribution. Any amounts deferred pursuant to this
subsection will continue to be credited with earnings in
accordance with Section 2.3. The deferred amounts and
earnings thereon will be distributed to the Executive or to
his Beneficiary in the case of his death at the earliest
possible date, as determined by the Company in good faith,
on which the deductibility of compensation paid or payable
to the Executive for the taxable year of the Company during
which the distribution is
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made will not be limited by Code section 162(m) or, if
earlier, the effective date of a Change in Control.
(2) In lieu of a deferral of a distribution pursuant to
Subsection (A), the Executive may make a written election to
receive the distribution and reimburse the Company for the
value of the deduction lost by operation of Code section
162(m) as a result of the distribution, as determined by the
Company. The Company's good faith determination based on
assumptions determined by the Company to be reasonable will
be final and binding on the Company and the Executive and no
adjustments will be made to reflect differences between
assumptions and actual facts and circumstances. The amount
of any reimbursement pursuant to this Subsection (B) in
connection with a distribution pursuant to Subsection (A)
will reduce, dollar for dollar, the amount of any forfeiture
pursuant to Subsection (A). The Company may subtract the
amount of any reimbursement due to the Company pursuant to
this Subsection (B) from the amount of any distribution
pursuant to this Agreement.
3.4. DISTRIBUTION REDUCES ACCOUNT BALANCE. The balance of the Account will
be reduced as of the date of any distribution by the gross amount of
the distribution.
3.5. BENEFICIARY DESIGNATION.
(A) Executive may designate, on a form furnished by the Company, one
or more primary Beneficiaries or alternative Beneficiaries to
receive all or a specified part of his Account after his death,
and the Executive may change or revoke any such designation from
time to time. No such designation, change or revocation is
effective unless executed by the Executive and received by the
Company during the Executive's lifetime. If the Executive is
married, his spouse must consent to any designation, change or
revocation which would result in any person other than the spouse
being the Executive's primary Beneficiary. The consent must be
in writing, signed by the spouse and witnessed by a notary
public. The consent relates only to the specific Beneficiary or
class of Beneficiaries designated and the spouse may not
subsequently revoke the consent with respect to that Beneficiary
or class of Beneficiaries unless the Executive makes a new
designation. No change or revocation requires the consent of any
person other than the Executive's spouse.
(B) If the Executive -
(1) fails to designate a Beneficiary, or
(2) revokes a Beneficiary designation without naming another
Beneficiary, or
(3) designates one or more Beneficiaries none of whom survives
the Executive,
for all or any portion of his Account, such Account or portion
will be payable to the Executive's surviving spouse or, if the
Executive is not survived by a spouse, to the representative of
the Executive's estate.
(C) The automatic Beneficiaries specified above and, unless the
designation otherwise specifies, the Beneficiaries designated by
the Executive, become fixed as of the Executive's death so that,
if a Beneficiary survives the Executive but dies before the
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receipt of the payment due such Beneficiary, payment will be made
to the representative of such Beneficiary's estate. Any
designation of a Beneficiary by name that is accompanied by a
description of relationship or only by statement of relationship
to the Executive is effective only to designate the person or
persons standing in such relationship to the Executive at the
Executive's death.
3.6. PAYMENT IN EVENT OF INCAPACITY. If the Executive or any Beneficiary
entitled to receive a payment under this Agreement is, in the judgment
of the Company, physically, mentally or legally incapable of receiving
or acknowledging receipt of the payment, and no legal representative
has been appointed for the individual, the Company may (but is not
required to) cause the payment to be made to any one or more of the
following as may be chosen by the Company: the Beneficiary (in the
case of the incapacity of the Executive); the institution maintaining
the Executive or Beneficiary; a custodian under the Uniform Transfers
to Minors Act of any state (in the case of the incapacity of a
Beneficiary); or the Executive's or Beneficiary's spouse, children,
parents or other relatives by blood or marriage. The Company is not
required to see to the proper application of any payment so made, and
any such payment completely discharges all claims under this Agreement
against the Company to the extent of the payment.
ARTICLE
4.
ESTABLISHMENT OF TRUST; NATURE OF EXECUTIVE'S INTEREST
4.1. ESTABLISHMENT OF TRUST.
(A) The Company may choose to provide benefits through a Trust with
an independent corporate trustee. The Trust must (1) be a grantor
trust with respect to which the Company is treated as grantor,
(2) not cause the benefits under this Agreement to be funded for
federal income tax purposes or for purposes of the Employee
Retirement Income Security Act of 1974, as amended, and (3)
provide that Trust assets will, upon the Company's insolvency, be
used to satisfy claims of the Company's general creditors. The
Company may from time to time transfer to the Trust cash,
marketable securities or other property acceptable to the Trustee
in accordance with the terms of the Trust.
(B) Notwithstanding Subsection (A), not later than the effective date
of a Change in Control, the Company must transfer to the Trust an
amount not less than the amount by which (1) 125 percent of the
balance of the Account as of the last day of the month
immediately preceding the effective date of the Change in Control
exceeds (2) the value of the Trust assets attributable to the
Agreement.
4.2. SOURCE OF PAYMENTS. The Company may make payment of benefits directly
to the Executive or his Beneficiary as they become due under the terms
of this Agreement or may direct the Trustee to make such payments. If
the Trust assets are not sufficient to make payments of benefits in
accordance with the terms of this Agreement, the Company will make the
balance of each such payment as it falls due.
4.3. NATURE OF EXECUTIVE'S INTEREST. Nothing contained in the Agreement is
to be construed as providing for assets to be held for the benefit of
the Executive or any other person or persons to whom benefits are to
be paid pursuant to the terms of this Agreement, the Executive's only
interest under the Agreement being the right to receive the benefits
set forth herein. The Trust is established only for the convenience
of the Company and the Executive, and the Executive has
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no interest in the assets of the Trust prior to their distribution
pursuant to the Agreement. To the extent the Executive or any other
person acquires a right to receive benefits under this Agreement or
the Trust, such right is no greater than the right of any unsecured
general creditor of the Company.
ARTICLE
5.
MISCELLANEOUS
5.1. DETERMINATION OF BENEFITS. The Company will make all determinations
as to rights to benefits under this Agreement. Subject to and in
compliance with the specific procedures contained in the applicable
regulations under the Employee Retirement Income Security Act of 1974,
as amended.
(A) Any decision by the Company denying a claim by the Executive or
his Beneficiary for benefits under this Agreement will be stated
in writing and delivered or mailed to the Executive or such
Beneficiary.
(B) Each such notice will set forth the specific reasons for the
denial.
(C) The Company will afford a reasonable opportunity to the Executive
or Beneficiary for a full and fair review of the decision denying
such claim.
5.2. ADMINISTRATION.
(A) Prior to a Change in Control, the Company's Board of Directors
has discretionary power and authority to interpret, construe,
apply, enforce and otherwise administer this Agreement and to act
on behalf of the Company. The Board of Directors may delegate
such power and authority to any individual or committee. Any
action taken by the Board of Directors or the Board of Directors'
delegate in good faith is binding and conclusive upon all parties
in interest and neither the Board of Directors nor any such
delegate will be liable to any person for any action taken or
omitted to be taken in connection with the interpretation,
construction, application, enforcement or other administration of
this Agreement, so long as such action or omission to act be made
in good faith.
(B) After a Change in Control, the Board of Directors of the Company
will interpret, construe, apply, enforce and administer this
Agreement on behalf of the Company and, other than with respect
to ministerial acts, the Board's duties are not delegable.
5.3. STATEMENTS. The Company will provide the Executive, or his
Beneficiary after the Executive's death, with written statements,
indicating the balance of the Account as of each January 31 (a
"statement date") until the Account has been distributed in full. The
statement will indicate the balance of the Account as of the last
statement date, deferrals credited to the Account since the last
statement date pursuant to Section 2.2, earnings credited to the
Account since the last statement date pursuant to Section 2.3 and the
balance of the Account as of the current statement date. If the
Executive or Beneficiary fails to object to the balance reflected on
the statement within 90 days after receipt, the balance will be
presumed to be correct and the Executive or Beneficiary may not
thereafter object to the balance or the computation thereof.
Statements will be provided within 30 days after the statement date.
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5.4. AMENDMENT. This Agreement may not be amended, altered or modified,
except by a written instrument signed on behalf of the Company by the
Chair of the Compensation Committee of the Company's Board of
Directors and the Executive, or their respective successors.
5.5. INUREMENT. This Agreement is binding upon and inures to the benefit
of the Company and its successors and assigns, and the Executive, his
successors, heirs, executors, administrators and Beneficiaries.
5.6. NON-ASSIGNABILITY OF BENEFITS. The benefits payable under this
Agreement and the right to receive future benefits may not be
anticipated, alienated, sold, transferred, assigned, pledged,
encumbered, or subjected to any charge or legal process.
5.7. WITHHOLDING AND OFFSETS. The Company and the Trustee retain the right
to withhold from any benefit payment under this Agreement and from any
other wages payable to the Executive, any and all income, employment,
excise and other tax as the Company or Trustee deems necessary and,
prior to a Change in Control, the Company may offset against amounts
payable to the Executive or Beneficiary any amounts then owing to the
Company by the Executive or Beneficiary.
5.8. NO EMPLOYMENT RIGHTS. Nothing in this Agreement either (a) confers on
the Executive any right to continued employment with the Company,
employment with the Company in any particular position or Bonus
payments in any particular amount or (b) alters, impairs or modifies
any such right arising under the Employment Agreement.
5.9. DISPUTES.
(A) The Company and the Executive agree that any dispute regarding
this Agreement that they are unable to resolve to their mutual
satisfaction by negotiation will be resolved exclusively by
arbitration, by a panel of three arbitrators, in accordance with
the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Any arbitration proceeding that
commences before a Change in Control will be held in St. Xxxx,
Minnesota. Any arbitration proceeding that commences after a
Change in Control will be held in a location within the
continental United States specified by the Executive.
(B) In connection with any dispute arising before a Change in
Control, the Executive or Beneficiary is responsible for paying
any costs he or she incurs, including attorney's fees and legal
expenses, and the Company is responsible for paying any costs it
incurs, including attorney's fees and legal expenses. In
connection with any dispute arising after a Change in Control,
the Company is responsible for paying all costs of both parties,
including attorney's fees and expenses.
5.10. NO WAIVER. The waiver by either of the parties, express or implied,
of any right under this Agreement or any failure to perform under this
Agreement by the other party does not constitute a waiver of any other
right under this Agreement or of any other failure to perform under
this Agreement by the other party.
5.11. OTHER BENEFITS.
(A) Except to the extent otherwise expressly provided under a
specific benefit plan, practice, policy or procedure of the
Company, neither amounts deferred pursuant to Section 2.2
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nor amounts paid to the Executive pursuant to Article 3
constitute salary or compensation to the Executive for the purpose
of computing benefits to which he may be entitled thereunder.
(B) Amounts deferred pursuant to Section 2.2 will be considered
"excess pensionable earnings" for purposes of the Xxxxxxx
Corporation Supplemental Executive Retirement Plan for the plan
year during which the amounts would have been paid to the
Executive but for the deferral.
(C) Deferrals pursuant to this Agreement will be made after any
deferral of the Bonus pursuant to the Xxxxxxx Corporation Income
Deferral Plan.
5.12. NO WARRANTIES REGARDING TAX TREATMENT. The Executive acknowledges
that he has consulted independent counsel whose input has been
incorporated in structuring this Agreement. The Company makes no
warranties regarding the tax treatment to the Executive of any
deferrals or payments made pursuant to this Agreement and the
Executive will hold the Company and its officers, directors,
employees, agents and advisors harmless from any liability resulting
from any tax position taken by the Company in good faith in connection
with this Agreement.
5.13. NOTICE. All notices, requests, elections, demands and all other
communications required or permitted by either party to the other
party by this Agreement must be in writing and will 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 follows:
If to the Company, to:
Xxxxxxx Corporation
Energy Park
0 Xxxxxxx Xxxxxx
Xx. Xxxx, XX 00000
Attention: Chair of the Compensation Committee of
the Board of Directors
with a copy to the General Counsel
If to Executive, to:
Xxxx X. Xxxxxx
0000 Xxxxxxxxxxx Xxxxx
Xxxxx, XX 00000
Either party hereto may change its address for purposes of this
section by giving 15 days' prior notice to the other party.
5.14. SEVERABILITY. If any term or provision of this Agreement or the
application hereof to any person or circumstance is to any extent
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 will
not be affected thereby, and each term and provision of this Agreement
will be valid and enforceable to the fullest extent permitted by law.
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5.15. COUNTERPARTS. This Agreement may be executed in several counterparts
each of which will be deemed to be an original copy, and all of which
together constitute one agreement binding on the Company and the
Executive.
To acknowledge and affirm their respective rights and obligations, the
Company and the Participant have signed this Agreement as of the date first
above written.
EXECUTIVE XXXXXXX CORPORATION
/s/ Xxxxxxxx X. Xxxxxx,
/s/ Xxxx X. Xxxxxx Vice President-Human Resources
---------------------------- ------------------------------
March 30, 1998 March 30, 1998
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