KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
Exhibit 10.12
THIS AGREEMENT, made and entered into as of the day of , 20___, by and between
Pentair, Inc., a Minnesota corporation (hereinafter referred to as the “Company”), and
(hereinafter referred to as the “Executive”).
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a subsidiary of the Company
(hereinafter referred to collectively as the “Employer”) in a key executive capacity and the
Executive’s services are valuable to the conduct of the business of the Company;
WHEREAS, the Company desires to continue to attract and retain dedicated and skilled
management employees in a period of industry consolidation, consistent with achieving the best
possible value for its shareholders in any change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in which a change in control of
the Company occurs, through acquisition or otherwise, thereby causing a potential conflict of
interest between the Company’s needs for the Executive to remain focused on the Company’s business
and for the necessary continuity in management prior to and following a change in control, and the
Executive’s reasonable personal concerns regarding future employment with the Employer and economic
protection in the event of loss of employment as a consequence of a change in control;
WHEREAS, the Company and the Executive are desirous that any proposal for a change in control
or acquisition of the Company will be considered by the Executive objectively and with reference
only to the best interests of the Company and its shareholders;
WHEREAS, the Executive will be in a better position to consider the Company’s best interests
if the Executive is afforded reasonable economic security, as provided in this Agreement, against
altered conditions of employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the business and affairs of the Company
and has acquired certain confidential information and data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible, that it will continue to have the
benefit of the Executive’s services and to protect its confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements
hereinafter set forth, the parties hereto mutually covenant and agree as follows:
1. Definitions.
(a) 409A Affiliate. The term “409A Affiliate” means each entity that is required to
be included in the Company’s controlled group of corporations within the meaning of Section 414(b)
of the Code, or that is under common control with the Company within the meaning of
Section 414(c) of the Code; provided, however, that the phrase “at least 50 percent” shall be
used in place of the phrase “at least 80 percent” each place it appears therein or in the
regulations thereunder.
(b) Accrued Benefits. The Executive’s “Accrued Benefits” shall include the following
amounts, payable as described herein: (i) all base salary for the time period ending with the
Termination Date; (ii) reimbursement for any and all monies advanced in connection with the
Executive’s employment for reasonable and necessary expenses incurred by the Executive on behalf of
the Employer for the time period ending with the Termination Date; (iii) any and all other cash
earned through the Termination Date and deferred at the election of the Executive or pursuant to
any deferred compensation plan then in effect; (iv) notwithstanding any provision of any bonus or
incentive compensation plan applicable to the Executive, but subject to any irrevocable deferral
election then in effect, a lump sum amount, in cash, equal to the sum of (A) any bonus or incentive
compensation that has been allocated or awarded to the Executive for a fiscal year or other
measuring period under the plan that ends prior to the Termination Date but has not yet been paid
(pursuant to Section 5(f) or otherwise) and (B) a pro rata portion to the Termination Date
of the aggregate value of all contingent bonus or incentive compensation awards to the Executive
for all uncompleted periods under the plan calculated as to each such award as if the Goals with
respect to such bonus or incentive compensation award had been attained reduced by any amounts paid
to the Executive pursuant to Section(b)(iii) and Section 3(b)(iv) under the plan
for the fiscal year in which the Termination Date occurs; and (v) all other payments and benefits
to which the Executive (or in the event of the Executive’s death, the Executive’s surviving spouse
or other beneficiary) may be entitled on the Termination Date as compensatory fringe benefits or
under the terms of any benefit plan of the Employer, excluding severance payments under any
Employer severance policy, practice or agreement in effect on the Termination Date. Payment of
Accrued Benefits shall be made promptly in accordance with the Company’s prevailing practice with
respect to clauses (i) and (ii) or, with respect to clauses (iii),
(iv) and (v), pursuant to the terms of the benefit plan or practice establishing
such benefits; provided that payments pursuant to clause (iv)(B) shall be paid on the first day of
the seventh month following the month in which the Executive’s Separation from Service occurs,
unless the Executive’s Separation from Service is due to death, in which event such payment shall
be made within ninety (90) days of the date of Executive’s death.
(c) Act. The term “Act” means the Securities Exchange Act of 1934, as amended.
(d) Affiliate and Associate. The terms “Affiliate” and “Associate” shall have the
respective meanings ascribed to such terms in Rule l2b-2 of the General Rules and Regulations under
the Act.
(e) Annual Cash Compensation. The term “Annual Cash Compensation” shall mean the sum
of (i) the Executive’s Annual Base Salary (determined as of the time of the Change in Control of
the Company or, if higher, immediately prior to the date the Notice of Termination is given) plus
(ii) an amount equal to the greater of the Executive’s annual incentive target bonus for the fiscal
year in which the Termination Date occurs or the annual incentive bonus the Executive received for
the fiscal year prior to the Change in Control of the Company (the aggregate amount set forth in
clause (i) and clause (ii) shall hereafter be referred to as the “Annual Cash
Compensation”),
(f) Beneficial Owner. A Person shall be deemed to be the “Beneficial Owner” of any
securities:
2
(i) which such Person or any of such Person’s Affiliates or Associates has the
right to acquire (whether such right is exercisable immediately or only after the
passage of time) pursuant to any agreement, arrangement or understanding, or upon
the exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the Beneficial Owner
of, or to beneficially own, (A) securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such Person’s Affiliates or
Associates until such tendered securities are accepted for purchase, or (B)
securities issuable upon exercise of Rights issued pursuant to the terms of the
Company’s Rights Agreement, dated as of December 10, 2004, as amended from time to
time (or any successor to such Rights Agreement), at any time before the issuance of
such securities;
(ii) which such Person or any of such Person’s Affiliates or Associates,
directly or indirectly, has the right to vote or dispose of or has “beneficial
ownership” of (as determined pursuant to Rule l3d-3 of the General Rules and
Regulations under the Act), including pursuant to any agreement, arrangement or
understanding; provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security under this clause (ii) as a
result of an agreement, arrangement or understanding to vote such security if the
agreement, arrangement or understanding: (A) arises solely from a revocable proxy or
consent given to such Person in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable rules and regulations under
the Act and (B) is not also then reportable on a Schedule l3D under the Act (or any
comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by any other Person
with which such Person or any of such Person’s Affiliates or Associates has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting (except pursuant to a revocable proxy as described in clause (ii)
above) or disposing of any voting securities of the Company.
(g) Cause. “Cause” for termination by the Employer of the Executive’s employment in
connection with a Change in Control of the Company shall be limited to (i) the engaging by the
Executive in intentional conduct that the Company establishes, by clear and convincing evidence,
has caused demonstrable and serious financial injury to the Employer, as evidenced by a
determination in a binding and final judgment, order or decree of a court or administrative agency
of competent jurisdiction, in effect after exhaustion or lapse of all rights of appeal, in an
action, suit or proceeding, whether civil, criminal, administrative or investigative; (ii)
conviction of a felony (as evidenced by binding and final judgment, order or decree of a court of
competent jurisdiction, in effect after exhaustion of all rights of appeal); or (iii) continuing
willful and unreasonable refusal by the Executive to perform the Executive’s duties or
responsibilities (unless significantly changed without the Executive’s consent).
3
(h) Change in Control of the Company. A “Change in Control of the Company” shall be
deemed to have occurred if an event set forth in any one of the following paragraphs shall have
occurred:
(i) any Person (other than (A) the Company or any of its subsidiaries, (B) a
trustee or other fiduciary holding securities under any employee benefit plan of the
Company or any of its subsidiaries, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities or (D) a corporation owned,
directly or indirectly, by the shareholders of the Company in substantially the same
proportions as their ownership of stock in the Company (“Excluded Persons”)) is or
becomes the Beneficial Owner, directly or indirectly, of securities of the Company
(not including in the securities beneficially owned by such Person any securities
acquired directly from the Company or its Affiliates after the date of this
Agreement, pursuant to express authorization by the Board that refers to this
exception) representing 30% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the Company’s then outstanding
voting securities; or
(ii) the following individuals cease for any reason to constitute a majority of
the number of directors of the Company then serving: (A) individuals who, on the
date of this Agreement constituted the Board and (B) any new director (other than a
director whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent solicitation,
relating to the election of directors of the Company, as such terms are used in Rule
14a-11 of Regulation 14A under the Act) whose appointment or election by the Board
or nomination for election by the Company’s shareholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors on the date of this Agreement, or whose appointment, election or
nomination for election was previously so approved (collectively the “Continuing
Directors”); provided, however, that individuals who are appointed to the Board
pursuant to or in accordance with the terms of an agreement relating to a merger,
consolidation, or share exchange involving the Company (or any direct or indirect
subsidiary of the Company) shall not be Continuing Directors for purposes of this
Agreement until after such individuals are first nominated for election by a vote of
at least two-thirds (2/3) of the then Continuing Directors and are thereafter
elected as directors by the shareholders of the Company at a meeting of shareholders
held following consummation of such merger, consolidation, or share exchange; and,
provided further, that in the event the failure of any such persons appointed to the
Board to be Continuing Directors results in a Change in Control of the Company, the
subsequent qualification of such persons as Continuing Directors shall not alter the
fact that a Change in Control of the Company occurred; or
(iii) the consummation of a merger, consolidation or share exchange of the
Company with any other corporation or the issuance of voting securities of the
Company in connection with a merger, consolidation or share exchange of the Company
(or any direct or indirect subsidiary of the Company), in each case, which requires
approval of the shareholders of the Company, other than (A) a merger, consolidation
or share exchange which would result in the voting securities of the Company
outstanding immediately prior to such merger,
4
consolidation or share exchange continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or
any parent thereof) at least 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent thereof outstanding
immediately after such merger, consolidation or share exchange, or (B) a merger,
consolidation or share exchange effected to implement a recapitalization of the
Company (or similar transaction) in which no Person (other than an Excluded Person)
is or becomes the Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates after the date of
this Agreement, pursuant to express authorization by the Board that refers to this
exception) representing 30% or more of either the then outstanding shares of common
stock of the Company or the combined voting power of the Company’s then outstanding
voting securities; or
(iv) the consummation of a plan of complete liquidation or dissolution of the
Company or a sale or disposition by the Company of all or substantially all of the
Company’s assets (in one transaction or a series of related transactions within any
period of 24 consecutive months), in each case, which requires approval of the
shareholders of the Company, other than a sale or disposition by the Company of all
or substantially all of the Company’s assets to an entity at least 75% of the
combined voting power of the voting securities of which are owned by Persons in
substantially the same proportions as their ownership of the Company immediately
prior to such sale.
Notwithstanding the foregoing, no “Change in Control of the Company” shall be deemed to have
occurred if there is consummated any transaction or series of integrated transactions immediately
following which the record holders of the common stock of the Company immediately prior to such
transaction or series of transactions continue to own, directly or indirectly, in the same
proportions as their ownership in the Company, an entity that owns all or substantially all of the
assets or voting securities of the Company immediately following such transaction or series of
transactions.
(i) Code. The term “Code” means the Internal Revenue Code of 1986, including any
amendments thereto or successor tax codes thereof.
(j) Covered Termination. Subject to Section 2(b), the term “Covered
Termination” means any Termination of Employment during the Employment Period where the Termination
Date or the date Notice of Termination is delivered is any date prior to the end of the Employment
Period.
(k) Employment Period. Subject to Section 2(b), the term “Employment Period”
means a period commencing on the date of a Change in Control of the Company, and ending at 11:59
p.m. Central Time on the earlier of the second anniversary of such date or the Executive’s Normal
Retirement Date.
(l) Good Reason. The Executive shall have “Good Reason” for termination of employment
in connection with a Change in Control of the Company in the event of:
(i) any breach of this Agreement by the Employer, including specifically any
breach by the Employer of the agreements contained in Section 3,
5
Section 4, Section 5, or Section 6, other than an
isolated, insubstantial and inadvertent failure not occurring in bad faith that the
Employer remedies promptly after receipt of notice thereof given by the Executive;
(ii) any reduction in the Executive’s base salary, percentage of base salary
available as incentive compensation or bonus opportunity or benefits, in each case
relative to those most favorable to the Executive in effect at any time during the
180-day period prior to the Change in Control of the Company or, to the extent more
favorable to the Executive, those in effect at any time during the Employment
Period;
(iii) the removal of the Executive from, or any failure to reelect or reappoint
the Executive to, any of the positions held with the Employer on the date of the
Change in Control of the Company or any other positions with the Employer to which
the Executive shall thereafter be elected, appointed or assigned, except in the
event that such removal or failure to reelect or reappoint relates to the
termination by the Employer of the Executive’s employment for Cause or by reason of
disability pursuant to Section 12;
(iv) a good faith determination by the Executive that there has been a material
adverse change, without the Executive’s written consent, in the Executive’s working
conditions or status with the Employer relative to the most favorable working
conditions or status in effect during the 180-day period prior to the Change in
Control of the Company, or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period, including but not limited to (A) a
significant change in the nature or scope of the Executive’s authority, powers,
functions, duties or responsibilities, or (B) a significant reduction in the level
of support services, staff, secretarial and other assistance, office space and
accoutrements, but in each case excluding for this purpose an isolated,
insubstantial and inadvertent event not occurring in bad faith that the Employer
remedies within ten (10) days after receipt of notice thereof given by the
Executive;
(v) the relocation of the Executive’s principal place of employment to a
location more than 50 miles from the Executive’s principal place of employment on
the date 180 days prior to the Change in Control of the Company;
(vi) the Employer requires the Executive to travel on Employer business 20% in
excess of the average number of days per month the Executive was required to travel
during the 180-day period prior to the Change in Control of the Company; or
(vii) failure by the Company to obtain the Agreement referred to in Section
17(a) as provided therein.
(m) Normal Retirement Date. The term “Normal Retirement Date” means “Normal
Retirement Date” as defined in the primary qualified defined benefit pension plan applicable to the
Executive, or any successor plan, as in effect on the date of the Change in Control of the Company.
6
(n) Person. The term “Person” shall mean any individual, firm, partnership,
corporation or other entity, including any successor (by merger or otherwise) of such entity, or a
group of any of the foregoing acting in concert.
(o) Separation from Service. For purposes of this Agreement, the term “Separation
from Service” means the Executive’s Termination of Employment, or if the Executive continues to
provide services following his or her Termination of Employment, such later date as is considered a
separation from service from the Company and its 409A Affiliates within the meaning of Code Section
409A. Specifically, if the Executive continues to provide services to the Company or a 409A
Affiliate in a capacity other than as an employee, such shift in status is not automatically a
Separation from Service.
(p) Termination of Employment. For purposes of this Agreement, the Executive’s
termination of employment shall be presumed to occur when the Company and Executive reasonably
anticipate that no further services will be performed by the Executive for the Company and its 409A
Affiliates or that the level of bona fide services the Executive will perform as an employee of the
Company and its 409A Affiliates will permanently decrease to no more than 20% of the average level
of bona fide services performed by the Executive (whether as an employee or independent contractor)
for the Company and its 409A Affiliates over the immediately preceding 36-month period (or such
lesser period of services). Whether the Executive has experienced a Termination of Employment
shall be determined by the Employer in good faith and consistent with Section 409A of the Code.
Notwithstanding the foregoing, if the Executive takes a leave of absence for purposes of military
leave, sick leave or other bona fide reason, the Executive will not be deemed to have incurred a
Separation from Service for the first 6 months of the leave of absence, or if longer, for so long
as the Executive’s right to reemployment is provided either by statute or by contract, including
this Agreement; provided that if the leave of absence is due to a medically determinable physical
or mental impairment that can be expected to result in death or last for a continuous period of not
less than six months, where such impairment causes the Executive to be unable to perform the duties
of his or her position of employment or any substantially similar position of employment, the leave
may be extended by the Employer for up to 29 months without causing a Termination of Employment.
(q) Termination Date. Except as otherwise provided in Section 2(b),
Section 10(b), and Section 17(a), the term “Termination Date” means (i) if the
Executive’s Termination of Employment is by the Executive’s death, the date of death; (ii) if the
Executive’s Termination of Employment is by reason of voluntary early retirement, as agreed in
writing by the Employer and the Executive, the date of such early retirement which is set forth in
such written agreement; (iii) if the Executive’s Termination of Employment is, for purposes of this
Agreement, by reason of disability pursuant to Section 12, the earlier of thirty days after
the Notice of Termination is given or one day prior to the end of the Employment Period; (iv) if
the Executive’s Termination of Employment is by the Executive voluntarily (other than for Good
Reason), the date the Notice of Termination is given; and (v) if the Executive’s Termination of
Employment is by the Employer (other than by reason of disability pursuant to Section 12)
or by the Executive for Good Reason, the earlier of thirty days after the Notice of Termination is
given or one day prior to the end of the Employment Period. Notwithstanding the foregoing,
(A) If termination is for Cause pursuant to Section 1(f)(iii) and if
the Executive has cured the conduct constituting such Cause as described by the
Employer in its Notice of Termination within such 30-day or shorter period, then the
7
Executive’s employment hereunder shall continue as if the Employer had not
delivered its Notice of Termination.
(B) If the Executive shall in good faith give a Notice of Termination for Good
Reason and the Employer notifies the Executive that a dispute exists concerning the
termination within the 15-day period following receipt thereof, then the Executive
may elect to continue his or her employment during such dispute and the Termination
Date shall be determined under this paragraph. If the Executive so elects and it is
thereafter determined that Good Reason did exist, the Termination Date shall be the
earliest of (1) the date on which the dispute is finally determined, either (x) by
mutual written agreement of the parties or (y) in accordance with Section
22, (2) the date of the Executive’s death or (3) one day prior to the end of the
Employment Period. If the Executive so elects and it is thereafter determined that
Good Reason did not exist, then the employment of the Executive hereunder shall
continue after such determination as if the Executive had not delivered the Notice
of Termination asserting Good Reason and there shall be no Termination Date arising
out of such Notice. In either case, this Agreement continues, until the Termination
Date, if any, as if the Executive had not delivered the Notice of Termination except
that, if it is finally determined that Good Reason did exist, the Executive shall in
no case be denied the benefits described in Section 9 (including a
Termination Payment) based on events occurring after the Executive delivered his
Notice of Termination.
(C) Except as provided in Section 1(n)(B), if the party receiving the
Notice of Termination notifies the other party that a dispute exists concerning the
termination within the appropriate period following receipt thereof and it is
finally determined that the reason asserted in such Notice of Termination did not
exist, then (1) if such Notice was delivered by the Executive, the Executive will be
deemed to have voluntarily terminated his employment and the Termination Date shall
be the earlier of the date 15 days after the Notice of Termination is given or one
day prior to the end of the Employment Period and (2) if delivered by the Company,
the Company will be deemed to have terminated the Executive other than by reason of
death, disability or Cause.
2. Termination or Cancellation Prior to Change in Control.
(a) Subject to Section 2(b), the Employer and the Executive shall each retain the
right to terminate the employment of the Executive at any time prior to a Change in Control of the
Company. Subject to Section 2(b), in the event that prior to a Change in Control of the
Company (i) the Executive’s employment is terminated or (ii) as determined in writing by the
Compensation Committee of the Board of Directors of the Company in its sole discretion, the
Executive’s authority, powers, functions, duties, responsibilities or pay grade are materially
reduced, this Agreement shall be terminated and cancelled and of no further force and effect, and
any and all rights and obligations of the parties hereunder shall cease.
(b) Anything in this Agreement to the contrary notwithstanding, if a Change in Control of the
Company occurs and if the Executive’s employment with the Employer is terminated (other than a
termination due to the Executive’s death or as a result of the Executive’s disability) during the
period of 180 days prior to the date on which the Change in Control of the Company occurs, and if
it is reasonably demonstrated by the Executive that such termination of employment (i)
8
was at the request of a third party who has taken steps reasonably calculated to effect a
Change in Control of the Company or (ii) otherwise arose in connection with or in anticipation of a
Change in Control of the Company, then for all purposes of this Agreement such termination of
employment shall be deemed a “Covered Termination,” “Notice of Termination” shall be deemed to have
been given, and the “Employment Period” shall be deemed to have begun on the date of such
termination which shall be deemed to be the “Termination Date” and the date of the Change of
Control of the Company for purposes of this Agreement. Anything in this Agreement to the contrary
notwithstanding, if a Change in Control of the Company occurs and if the Executive’s authority,
powers, functions, duties, responsibilities or pay grade were reduced pursuant to Section 2(a)(ii)
during the period of 180 days prior to the date on which the Change in Control of the Company
occurs, and if it is reasonably demonstrated by the Executive that such reduction in authority,
powers, functions, duties, responsibilities or pay grade (i) was at the request of a third party
who has taken steps reasonably calculated to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in anticipation of a Change in Control of the Company, then
the termination and cancellation of this Agreement pursuant to Section 2(a) shall be deemed null
and void, this Agreement shall be deemed to remain in full force and effect with any and all rights
and obligations of the parties hereunder continuing and such reduction in authority, powers,
functions, duties, responsibilities or pay grade shall be considered “Good Reason” for the
Executive to terminate employment in connection with a Change in Control of the Company.
3. Employment Period; Vesting and Payment of Certain Benefits.
(a) If a Change in Control of the Company occurs when the Executive is employed by the
Employer, the Employer will continue thereafter to employ the Executive during the Employment
Period, and the Executive will remain in the employ of the Employer in accordance with and subject
to the terms and provisions of this Agreement. Any Termination of Employment during the Employment
Period, whether by the Company or the Employer, shall be deemed a termination by the Company for
purposes of this Agreement.
(b) If a Change in Control of the Company occurs when the Executive is employed by the
Employer, (i) the Company shall cause all restrictions on restricted stock awards made to the
Executive prior to the Change in Control of the Company to lapse such that the Executive is fully
and immediately vested in the Executive’s restricted stock upon such a Change in Control of the
Company; (ii) the Company shall cause all stock options granted to the Executive prior to the
Change in Control of the Company pursuant to the Company’s stock option plan(s) to be fully and
immediately vested upon such a Change in Control of the Company; (iii) the Company shall cause all
incentive compensation units and performance awards granted to the Executive pursuant to any
long-term incentive plan maintained by the Company to be paid to the Executive, subject to any
irrevocable deferral election then in effect, within ten (10) business days after the Change in
Control of the Company (A) at one-third (1/3) of target, if the award cycle has been in effect less
than twelve (12) months, (B) at two thirds (2/3) of the then current value pursuant to such plan,
if the award cycle has been in effect twelve (12) or more months but less than twenty-four (24)
months, and (C) at the then current value pursuant to such plan, if the award cycle has been in
effect twenty-four (24) or more months, in each case as if all performance or incentive
requirements and periods had been satisfied; and (iv) the Company shall pay to the Executive within
ten (10) business days after the Change in Control of the Company an amount equal to the
Executive’s annual incentive target bonus for the fiscal year in which the Change in Control of the
Company occurs, subject to any irrevocable deferral election then in effect.
9
4. Duties. During the Employment Period, the Executive shall, in the same capacities
and positions held by the Executive at the time of the Change in Control of the Company or in such
other capacities and positions as may be agreed to by the Employer and the Executive in writing,
devote the Executive’s best efforts and all of the Executive’s business time, attention and skill
to the business and affairs of the Employer, as such business and affairs now exist and as they may
hereafter be conducted.
5. Compensation. During the Employment Period, the Executive shall be compensated as
follows:
(a) The Executive shall receive, at reasonable intervals (but not less often than monthly) and
in accordance with such standard policies as may be in effect immediately prior to the Change in
Control of the Company, an annual base salary in cash equivalent of not less than twelve times the
Executive’s highest monthly base salary for the twelve-month period immediately preceding the month
in which the Change in Control of the Company occurs or, if higher, annual base salary at the rate
in effect immediately prior to the Change in Control of the Company (which base salary shall,
unless otherwise agreed in writing by the Executive or subject to any irrevocable deferral election
then in effect, include the current receipt by the Executive of any amounts which, prior to the
Change in Control of the Company, the Executive had elected to defer, whether such compensation is
deferred under Section 401(k) of the Code or otherwise), subject to adjustment as hereinafter
provided in Section 6 (such salary amount as adjusted upward from time to time is hereafter
referred to as the “Annual Base Salary”).
(b) The Executive shall receive fringe benefits at least equal in value to the highest value
of such benefits provided for the Executive at any time during the 180-day period immediately prior
to the Change in Control of the Company or, if more favorable to the Executive, those provided
generally at any time during the Employment Period to any executives of the Employer of comparable
status and position to the Executive; and shall be reimbursed, at such intervals and in accordance
with such standard policies that are most favorable to the Executive that were in effect at any
time during the 180-day period immediately prior to the Change in Control of the Company, for any
and all monies advanced in connection with the Executive’s employment for reasonable and necessary
expenses incurred by the Executive on behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive’s family, as the case may be, shall be included, to the
extent eligible thereunder (which eligibility shall not be conditioned on the Executive’s salary
grade or on any other requirement which excludes persons of comparable status to the Executive
unless such exclusion was in effect for such plan or an equivalent plan at any time during the
180-day period immediately prior to the Change in Control of the Company), in any and all plans
providing benefits for the Employer’s salaried employees in general, including but not limited to
group life insurance, hospitalization, medical, dental, profit sharing and stock bonus plans;
provided, that, (i) in no event shall the aggregate level of benefits under such plans in which the
Executive is included be less than the aggregate level of benefits under plans of the Employer of
the type referred to in this Section 5(c) in which the Executive was participating at any
time during the 180-day period immediately prior to the Change in Control of the Company and (ii)
in no event shall the aggregate level of benefits under such plans be less than the aggregate level
of benefits under plans of the type referred to in this Section 5(c) provided at any time
after the Change in Control of the Company to any executive of the Employer of comparable status
and position to the Executive.
10
(d) The Executive shall annually be entitled to not less than the amount of paid vacation and
not fewer than the highest number of paid holidays to which the Executive was entitled annually at
any time during the 180-day period immediately prior to the Change in Control of the Company or
such greater amount of paid vacation and number of paid holidays as may be made available annually
to other executives of the Employer of comparable status and position to the Executive at any time
during the Employment Period.
(e) The Executive shall be included in all plans providing additional benefits to executives
of the Employer of comparable status and position to the Executive, including but not limited to
deferred compensation, split-dollar life insurance, supplemental retirement, stock option, stock
appreciation, stock bonus and similar or comparable plans; provided, that, (i) in no event shall
the aggregate level of benefits under such plans be less than the highest aggregate level of
benefits under plans of the Employer of the type referred to in this Section 5(e) in which
the Executive was participating at any time during the 180-day period immediately prior to the
Change in Control of the Company; (ii) in no event shall the aggregate level of benefits under such
plans be less than the aggregate levels of benefits under plans of the type referred to in this
Section 5(e) provided at any time after the Change in Control of the Company to any
executive of the Employer comparable in status and position to the Executive; and (iii) the
Employer’s obligation to include the Executive in bonus or incentive compensation plans shall be
determined by Section 5(f).
(f) To assure that the Executive will have an opportunity to earn incentive compensation after
a Change in Control of the Company, the Executive shall be included in a bonus plan of the Employer
which shall satisfy the standards described below (such plan, the “Bonus Plan”). Bonuses under the
Bonus Plan shall be payable with respect to achieving such financial or other goals reasonably
related to the business of the Employer as the Employer shall establish (the “Goals”), all of which
Goals shall be attainable, prior to the end of the Employment Period, with approximately the same
degree of probability as the most attainable goals under the Employer’s bonus plan or plans as in
effect at any time during the 180-day period immediately prior to the Change in Control of the
Company (whether one or more, the “Company Bonus Plan”) and in view of the Employer’s existing and
projected financial and business circumstances applicable at the time. The amount of the bonus
(the “Bonus Amount”) that the Executive is eligible to earn under the Bonus Plan shall be no less
than 200% of the Executive’s target award provided in such Company Bonus Plan (such bonus amount
herein referred to as the “Targeted Bonus”), and in the event the Goals are not achieved such that
the entire Targeted Bonus is not payable, the Bonus Plan shall provide for a payment of a Bonus
Amount equal to a portion of the Targeted Bonus reasonably related to that portion of the Goals
which were achieved. Payment of the Bonus Amount shall not be affected by any circumstance
occurring subsequent to the end of the Employment Period, including the Executive’s Termination of
Employment.
6. Annual Compensation Adjustments. During the Employment Period, the Board of
Directors of the Company (or an appropriate committee thereof) will consider and appraise, at least
annually, the contributions of the Executive to the Company, and in accordance with the Company’s
practice prior to the Change in Control of the Company, due consideration shall be given to the
upward adjustment of the Executive’s Annual Base Salary, at least annually, (a) commensurate with
increases generally given to other executives of the Company of comparable status and position to
the Executive, and (b) as the scope of the Company’s operations or the Executive’s duties expand.
7. Termination For Cause or Without Good Reason. If there is a Covered Termination
for Cause or due to the Executive’s voluntarily terminating his or her employment other
11
than for Good Reason (any such terminations to be subject to the procedures set forth in
Section 13), then the Executive shall be entitled to receive only Accrued Benefits.
8. Termination Giving Rise to a Termination Payment. If there is a Covered
Termination by the Executive for Good Reason, or by the Company other than by reason of (i) death,
(ii) disability pursuant to Section 12, or (iii) Cause (any such terminations to be subject
to the procedures set forth in Section 13), then the Executive shall be entitled to
receive, and the Company shall promptly pay, Accrued Benefits and, in lieu of further base salary
for periods following the Termination Date, as liquidated damages and additional severance pay and
in consideration of the covenant of the Executive set forth in Section 14(a), the
Termination Payment pursuant to Section 9(a).
9. Payments Upon Termination.
(a) Termination Payment. The “Termination Payment” shall be an amount equal to the
Annual Cash Compensation times two and one-half (21/2). The Termination Payment shall be paid to the
Executive in cash equivalent on the first day of the seventh month following the month in which the
Executive’s Separation from Service occurs, without interest thereon; provided that, if on the date
of the Executive’s Separation from Service, neither the Company nor any other entity that is
considered a “service recipient” with respect to the Executive within the meaning of Code Section
409A has any stock which is publicly traded on an established securities market (within the meaning
of Treasury Regulation Section 1.897-1(m)) or otherwise, then the Termination Payment shall be paid
to the Executive in cash equivalent within ten (10) business days after the Termination Date.
Notwithstanding the foregoing, in the event the Executive’s Termination Date is pursuant to Section
2(b), the Termination Payment shall be paid within ten (10) business days after the date of the
Change in Control of the Company (as defined without reference to Section 2(b)), without interest.
Such lump sum payment shall not be reduced by any present value or similar factor, and the
Executive shall not be required to mitigate the amount of the Termination Payment by securing other
employment or otherwise, nor will such Termination Payment be reduced by reason of the Executive
securing other employment or for any other reason. The Termination Payment shall be in lieu of,
and acceptance by the Executive of the Termination Payment shall constitute the Executive’s release
of any rights of the Executive to, any other cash severance payments under any Company severance
policy, practice or agreement.
(b) Certain Additional Payments by the Company.
(i) Notwithstanding any other provision of this Agreement, if any portion of
the Termination Payment or any other payment under this Agreement, or under any
other agreement with or plan of the Employer (in the aggregate, “Total Payments”),
would constitute an “excess parachute payment” as defined in Section 280G of the
Code (or any successor provision), then the Company shall pay the Executive an
additional amount (the “Gross-Up Payment”) such that the net amount retained by the
Executive after deduction of any excise tax imposed under Section 4999 of the Code
(or any successor provision) and any interest charges or penalties in respect of the
imposition of such excise tax (collectively, the “Excise Tax”) (but not any federal,
state or local income tax, or employment tax) on the Total Payments, and any
federal, state and local income tax, employment tax, and excise tax upon the payment
provided for by this Section 9(b)(i), shall be equal to the Total Payments.
For purposes of determining the amount of the Gross-Up Payment, the Executive
12
shall be deemed to pay federal income tax and employment taxes at the highest
marginal rate of federal income and employment taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at the
highest marginal rate of taxation in the state and locality of the Executive’s
domicile for income tax purposes on the date the Gross-Up Payment is made, net of
the maximum reduction in federal income taxes that may be obtained from the
deduction of such state and local taxes. Notwithstanding the foregoing, if it shall
be determined that the Executive is entitled to a Gross-Up Payment, but that the
Total Payments would not be subject to the Excise Tax if the Total Payments were
reduced by an amount that is less than 10% of the Total Payments that would be
treated as “parachute payments” under Section 280G of the Code (or any successor
provision), then the amounts payable to the Executive under this Agreement shall be
reduced (but not below zero) to the maximum amount that could be paid to the
Executive without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no
Gross-Up Payment shall be made to the Executive. For purposes of reducing the Total
Payments to the Safe Harbor Cap, only amounts payable under this Agreement (and no
other Total Payments) shall be reduced. If the reduction of the amounts payable
hereunder would not result in a reduction of the Total Payments to the Safe Harbor
Cap, no amounts payable under this Agreement shall be reduced pursuant to this
provision.
(ii) For purposes of this Agreement, the terms “excess parachute payment” and
“parachute payments” shall have the meanings assigned to them in Section 280G of the
Code (or any successor provision) and such “parachute payments” shall be valued as
provided therein. Present value for purposes of this Agreement shall be calculated
in accordance with Section 1274(b)(2) of the Code (or any successor provision).
Promptly following a Covered Termination or notice by the Company to the Executive
of its belief that there is a payment or benefit due the Executive which will result
in an “excess parachute payment” as defined in Section 280G of the Code (or any
successor provision), the Executive and the Company, at the Company’s expense, shall
obtain the opinion (which need not be unqualified) of nationally recognized tax
counsel (“National Tax Counsel”) selected by the Company’s independent auditors and
reasonably acceptable to the Executive (which may be regular outside counsel to the
Company), which opinion sets forth (A) the amount of the Base Period Income, (B) the
amount and present value of Total Payments, (C) the amount and present value of any
excess parachute payments, and (D) the amount of any Gross-Up Payment or the
reduction of any Total Payments to the Safe Harbor Cap, as the case may be. As used
in this Agreement, the term “Base Period Income” means an amount equal to the
Executive’s “annualized includable compensation for the base period” as defined in
Section 280G(d)(1) of the Code. For purposes of such opinion, the value of any
noncash benefits or any deferred payment or benefit shall be determined by the
Company’s independent auditors in accordance with the principles of Section
280G(d)(3) and (4) of the Code (or any successor provisions), which determination
shall be evidenced in a certificate of such auditors addressed to the Company and
the Executive. The opinion of National Tax Counsel shall be addressed to the
Company and the Executive and shall be binding upon the Company and the Executive.
If such National Tax Counsel so requests in connection with the opinion required by
this Section 9(b), the Executive and the Company shall obtain, at the
Company’s expense, and the National Tax Counsel may rely on, the
13
advice of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the Executive solely
with respect to its status under Section 280G of the Code and the regulations
thereunder. The Company shall pay the Executive the Gross-Up Payment, if any, at
the same time as the Termination Payment is paid, or if the Executive’s Covered
Termination is pursuant to Section 2(b), then within 90 days following the Change in
Control of the Company (determined without regard to Section 2(b)); provided that if
prior to such date the Executive is required to remit the excise tax under Section
4999 of the Code to the Internal Revenue Service, then upon written notice by the
Executive to the Company, the Company shall promptly reimburse the Executive for the
Gross-Up Payment (but based on Executive’s actual rate of taxation).
(iii) In the event that upon any audit by the Internal Revenue Service, or by a
state or local taxing authority, of the Total Payments or Gross-Up Payment, a change
is finally determined to be required in the amount of taxes paid by the Executive,
appropriate adjustments shall be made under this Agreement such that the net amount
which is payable to the Executive after taking into account the provisions of
Section 4999 of the Code (or any successor provision) shall reflect the intent of
the parties as expressed in this Section 9, in the manner determined by the
National Tax Counsel. If the Company is required to make a payment to the
Executive, such payment shall be paid following the date of the final determination
by a court or the Internal Revenue Service and within thirty (30) days after the
date Executive provides the Company a written request for reimbursement thereof
(accompanied by proof of taxes paid), but in no event shall the reimbursement be
made later than the end of the calendar year following the year in which the
Executive remits the excise tax to the Internal Revenue Service.
(iv) The Company agrees to bear all costs associated with, and to indemnify and
hold harmless, the National Tax Counsel of and from any and all claims, damages, and
expenses resulting from or relating to its determinations pursuant to this
Section 9(b), except for claims, damages or expenses resulting from the
gross negligence or willful misconduct of such firm.
(b) Additional Benefits. If there is a Covered Termination and the Executive is
entitled to Accrued Benefits and the Termination Payment, then the Company shall provide to the
Executive the following additional benefits:
(i) The Executive shall receive until the end of the second calendar year
following the calendar year in which the Executive’s Separation from Service occurs,
at the expense of the Company, outplacement services, on an individualized basis at
a level of service commensurate with the Executive’s status with the Company
immediately prior to the date of the Change in Control of the Company (or, if
higher, immediately prior to the Executive’s Termination of Employment), provided by
a nationally recognized executive placement firm selected by the Company; provided
that the cost to the Company of such services shall not exceed 10% of the
Executive’s Annual Base Salary.
(ii) Until the earlier of the end of the Employment Period or such time as the
Executive has obtained new employment and is covered by benefits which
14
in the aggregate are at least equal in value to the following benefits, the
Executive shall continue to be covered, at the expense of the Company, by the same
or equivalent life insurance, hospitalization, medical and dental coverage as was
required hereunder with respect to the Executive immediately prior to the date the
Notice of Termination is given, subject to the following:
(A) Following the end of the COBRA continuation period, if such
hospitalization, medical or dental coverage is provided under a health plan that is
subject to Section 105(h) of the Code, benefits payable under such health plan shall
comply with the requirements of Treasury regulation section 1.409A-3(i)(1)(iv) and,
if necessary, the Company shall amend such health plan to comply therewith.
(B) During the first six months following the Executive’s Separation from
Service, the Executive shall pay the Company for any life insurance coverage that
provides a benefit in excess of $50,000 under a group term life insurance policy.
After the end of such six month period, the Company shall make a cash equivalent
payment to the Executive equal to the aggregate premiums paid by the Executive for
such coverage, and thereafter such coverage shall be provided at the expense of the
Company for the remainder of the period as set forth above; provided that this
clause (B) shall cease to apply if on the date of the Executive’s Separation from
Service, neither the Company nor any other entity that is considered a “service
recipient” with respect to the Executive within the meaning of Code Section 409A has
any stock which is publicly traded on an established securities market (within the
meaning of Treasury Regulation Section 1.897-1(m)) or otherwise.
If the Executive is entitled to the Termination Payment pursuant to Section 2(b), then
within ten (10) days following the Change in Control of the Company (determined without
regard to Section 2(b)), the Company shall reimburse the Executive for any COBRA premiums
the Executive paid for his or her hospitalization, medical and dental coverage under COBRA
from the Executive’s Termination Date through the date of the Change in Control of the
Company (determined without regard to Section 2(b)).
(iii) The Company shall bear up to $15,000 in the aggregate of fees and
expenses of consultants and/or legal or accounting advisors engaged by the Executive
to advise the Executive as to matters relating to the computation of benefits due
and payable under this Section 9.
(iv) The Company shall cause the Executive to be fully and immediately vested
in his accrued benefit under the Pentair, Inc. 1999 Supplemental Executive
Retirement Plan (“SERP”) and the Pentair, Inc. Restoration Plan (“Restoration Plan”)
or any successor plans thereto (the “Plans”) (to the extent the Executive
participates in the Plans) and in any nonqualified defined contribution retirement
plan of the Employer. The amount of benefits under the Plans shall be determined as
if the Executive had completed additional years of Benefit Service (as such term is
defined in the Plans) equal to the lesser of (A) three years or (B) the greater of
(x) seven minus the years of Benefit Service credited to such Executive under the
Plans, determined without regard to the terms of this Agreement, as of the end of
the calendar year which includes the date of the Change in Control of the Company,
or (y) zero. In addition, if the Executive is described in Appendix A to the
15
SERP, the additional benefit therein provided for the Executive shall be fully
vested and the amount of such additional benefit shall be no less than if the
Executive had continued in qualified employment through the end of the calendar year
in which he would attain age 62. In addition, the Executive’s accrued benefit under
the Restoration Plan shall be appropriately increased by the value of the
Executive’s accrued benefit, if any, under the Company’s tax-qualified defined
benefit plan which is forfeited due to the Executive’s failure to become fully
vested thereunder.
10. Death.
(a) Except as provided in Section 10(b), in the event of a Covered Termination due to
the Executive’s death, the Executive’s estate, heirs and beneficiaries shall receive all the
Executive’s Accrued Benefits through the Termination Date.
(b) In the event the Executive dies after a Notice of Termination is given (i) by the Company
or (ii) by the Executive for Good Reason, the Executive’s estate, heirs and beneficiaries shall be
entitled to the benefits described in Section 10(a) and, subject to the provisions of this
Agreement, to such Termination Payment as the Executive would have been entitled to had the
Executive lived, except that the Termination Payment shall be paid within 90 days following the
date of the Executive’s death, without interest thereon. For purposes of this Section
10(b), the Termination Date shall be the earlier of 30 days following the giving of the Notice
of Termination, subject to extension pursuant to Section 1(n), or one day prior to the end
of the Employment Period.
11. Retirement. If, during the Employment Period, the Executive and the Employer
shall execute an agreement providing for the early retirement of the Executive from the Employer,
or the Executive shall otherwise give notice that he is voluntarily choosing to retire early from
the Employer, the Executive shall receive Accrued Benefits through the Termination Date; provided,
that if the Executive’s employment is terminated by the Executive for Good Reason or by the Company
other than by reason of death, disability or Cause and the Executive also, in connection with such
termination, elects voluntary early retirement, the Executive shall also be entitled to receive a
Termination Payment pursuant to Section 8.
12. Termination for Disability. If, during the Employment Period, as a result of the
Executive’s disability due to physical or mental illness or injury (regardless of whether such
illness or injury is job-related), the Executive shall have been absent from the Executive’s duties
hereunder on a full-time basis for a period of six consecutive months and, within 30 days after the
Company notifies the Executive in writing that it intends to terminate the Executive’s employment
(which notice shall not constitute the Notice of Termination contemplated below), the Executive
shall not have returned to the performance of the Executive’s duties hereunder on a full-time
basis, the Company may terminate the Executive’s employment for purposes of this Agreement pursuant
to a Notice of Termination given in accordance with Section 13. If the Executive’s
employment is terminated on account of the Executive’s disability in accordance with this Section,
the Executive shall receive Accrued Benefits through the Termination Date and shall remain eligible
for all benefits provided by any long term disability programs of the Employer in effect at the
time of such termination.
13. Termination Notice and Procedure. Any Covered Termination by the Company or the
Executive (other than a termination of the Executive’s employment that is a Covered Termination by
virtue of Section 2(b)) shall be communicated by a written notice of termination
16
(“Notice of Termination”) to the Executive, if such Notice is given by the Company, and to the
Company, if such Notice is given by the Executive, all in accordance with the following procedures
and those set forth in Section 24:
(a) If such termination is for disability, Cause or Good Reason, the Notice of Termination
shall indicate in reasonable detail the facts and circumstances alleged to provide a basis for such
termination.
(b) Any Notice of Termination by the Company shall have been approved, prior to the giving
thereof to the Executive, by a resolution duly adopted by a majority of the directors of the
Company (or any successor corporation) then in office.
(c) If the Notice is given by the Executive for Good Reason, the Executive may cease
performing his duties hereunder on or after the date fifteen days after the delivery of Notice of
Termination and shall in any event cease employment on the Termination Date. If the Notice is
given by the Company, then the Executive may cease performing his duties hereunder on the date of
receipt of the Notice of Termination, subject to the Executive’s rights hereunder.
(d) The Executive shall have thirty days, or such longer period as the Company may determine
to be appropriate, to cure any conduct or act, if curable, alleged to provide grounds for
termination of the Executive’s employment for Cause under this Agreement pursuant to Section
1(f)(iii).
(e) The recipient of any Notice of Termination shall personally deliver or mail in accordance
with Section 24 written notice of any dispute relating to such Notice of Termination to the
party giving such Notice within 15 days after receipt thereof; provided, however, that if the
Executive’s conduct or act alleged to provide grounds for termination by the Company for Cause is
curable, then such period shall be 30 days. After the expiration of such period, the contents of
the Notice of Termination shall become final and not subject to dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event of any Covered Termination
where the Executive is entitled to Accrued Benefits and the Termination Payment, the Executive
shall not, for a period expiring one year after the Termination Date, without the prior written
approval of the Company’s Board of Directors, (i) solicit for employment an employee of the Company
or its subsidiaries or (ii) participate in the management of, be employed by or own any business
enterprise at a location within the United States that engages in substantial competition with the
Company or its subsidiaries, where such enterprise’s revenues from any competitive activities
amount to 10% or more of such enterprise’s net revenues and sales for its most recently completed
fiscal year; provided, however, that nothing in this Section 14(a) shall prohibit the
Executive from owning stock or other securities of a competitor amounting to less than five percent
of the outstanding capital stock of such competitor.
(b) Confidentiality. During and following the Executive’s employment by the Company,
the Executive shall hold in confidence and not directly or indirectly disclose or use or copy or
make lists of any confidential information or proprietary data of the Company (including that of
the Employer), except to the extent authorized in writing by the Board of Directors of the Company
or required by any court or administrative agency, other than to an employee of the
17
Company or a person to whom disclosure is reasonably necessary or appropriate in connection
with the performance by the Executive of duties as an executive of the Company. Confidential
information shall not include any information known generally to the public or any information of a
type not otherwise considered confidential by persons engaged in the same business or a business
similar to that of the Company. All records, files, documents and materials, or copies thereof,
relating to the business of the Company which the Executive shall prepare, or use, or come into
contact with, shall be and remain the sole property of the Company and shall be promptly returned
to the Company upon termination of employment with the Company.
15. Expenses and Interest. If, after a Change in Control of the Company, (a) a
dispute arises with respect to the enforcement of the Executive’s rights under this Agreement or
(b) any legal or arbitration proceeding shall be brought to enforce or interpret any provision
contained herein or to recover damages for breach hereof, in either case so long as the Executive
is not acting in bad faith, then the Company shall reimburse the Executive for any reasonable
attorneys’ fees and necessary costs and disbursements incurred as a result of the dispute, legal or
arbitration proceeding (“Expenses”), and prejudgment interest on any money judgment or arbitration
award obtained by the Executive calculated at the rate of interest announced by U.S. Bank National
Association, Minneapolis, Minnesota, from time to time at its prime or base lending rate from the
date that payments to him or her should have been made under this Agreement. Within ten days after
the Executive’s written request therefore (but in no event later than the end of the calendar year
following the calendar year in which such Expense is incurred), the Company shall reimburse the
Executive, or such other person or entity as the Executive may designate in writing to the Company,
the Executive’s reasonable Expenses.
16. Payment Obligations Absolute. The Company’s obligation during and after the
Employment Period to pay the Executive the amounts and to make the benefit and other arrangements
provided herein shall be absolute and unconditional and shall not be affected by any circumstances,
including, without limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else. Except as provided in Section 15, all
amounts payable by the Company hereunder shall be paid without notice or demand. Each and every
payment made hereunder by the Company shall be final, and the Company will not seek to recover all
or any part of such payment from the Executive, or from whomsoever may be entitled thereto, for any
reason whatsoever.
17. Successors.
(a) If the Company sells, assigns or transfers all or substantially all of its business and
assets to any Person or if the Company merges into or consolidates or otherwise combines (where the
Company does not survive such combination) with any Person (any such event, a “Sale of Business”),
then the Company shall assign all of its right, title and interest in this Agreement as of the date
of such event to such Person, and the Company shall cause such Person, by written agreement in form
and substance reasonably satisfactory to the Executive, to expressly assume and agree to perform
from and after the date of such assignment all of the terms, conditions and provisions imposed by
this Agreement upon the Company. Failure of the Company to obtain such agreement prior to the
effective date of such Sale of Business shall be a breach of this Agreement constituting “Good
Reason” hereunder, except that for purposes of implementing the foregoing the date upon which such
Sale of Business becomes effective shall be deemed the Termination Date. In case of such
assignment by the Company and of assumption and agreement by such Person, as used in this
Agreement, “Company” shall thereafter mean such Person which executes and delivers the
18
agreement provided for in this Section 17 or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law, and this Agreement shall inure to the
benefit of, and be enforceable by, such Person. The Executive shall, in his or her discretion, be
entitled to proceed against any or all of such Persons, any Person which theretofore was such a
successor to the Company and the Company (as so defined) in any action to enforce any rights of the
Executive hereunder. Except as provided in this Section 17(a), this Agreement shall not be
assignable by the Company. This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company.
(b) This Agreement and all rights of the Executive shall inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors, administrators, heirs
and beneficiaries. All amounts payable to the Executive under Sections 3, 7, 8, 9, 10, 11, 12
and 15 if the Executive had lived shall be paid, in the event of the Executive’s death, to the
Executive’s estate, heirs and representatives; provided, however, that the foregoing shall not be
construed to modify any terms of any benefit plan of the Employer, as such terms are in effect on
the date of the Change in Control of the Company, that expressly govern benefits under such plan in
the event of the Executive’s death.
18. Severability. The provisions of this Agreement shall be regarded as divisible,
and if any of said provisions or any part hereof are declared invalid or unenforceable by a court
of competent jurisdiction, the validity and enforceability of the remainder of such provisions or
parts hereof and the applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment. This Agreement sets forth the
entire understanding between the parties hereto with respect to the subject matter hereof and shall
supersede in all respects, and the Executive hereby waives all rights under, any prior or other
agreement or understanding between the parties with respect to such subject matter, including, but
not limited to the Management Assurance Agreement and any Key Executive Employment and Severance
Agreement between the Company and the Executive entered into prior to the date hereof. This
Agreement may not be amended or modified at any time except by written instrument executed by the
Company and the Executive.
20. Withholding. The Company shall be entitled to withhold from amounts to be paid to
the Executive hereunder any federal, state or local withholding or other taxes or charges which it
is from time to time required to withhold; provided, that the amount so withheld shall not exceed
the minimum amount required to be withheld by law. In addition, if prior to the date of payment of
the Termination Payment hereunder, the Federal Insurance Contributions Act (FICA) tax imposed under
Sections 3101, 3121(a) and 3121(v)(2), where applicable, becomes due with respect to any payment or
benefit to be provided hereunder, the Company may provide for an immediate payment of the amount
needed to pay the Executive’s portion of such tax (plus an amount equal to the taxes that will be
due on such amount) and the Executive’s Termination Payment shall be reduced accordingly. The
Company shall be entitled to rely on an opinion of the National Tax Counsel if any question as to
the amount or requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be considered as being responsible
for the drafting of this Agreement for the purpose of applying any rule construing ambiguities
against the drafter or otherwise. No draft of this Agreement shall be taken into account in
construing this Agreement. Any provision of this Agreement which requires an agreement in
writing shall be deemed to require that the writing in question be signed by the Executive and
an authorized representative of the Company.
19
22. Governing Law; Resolution of Disputes. This Agreement and the rights and
obligations hereunder shall be governed by and construed in accordance with the laws of the State
of Minnesota. Any dispute arising out of this Agreement shall, at the Executive’s election, be
determined by arbitration under the rules of the American Arbitration Association then in effect
(in which case both parties shall be bound by the arbitration award) or by litigation. Whether the
dispute is to be settled by arbitration or litigation, the venue for the arbitration or litigation
shall be Minneapolis, Minnesota or, at the Executive’s election, if the Executive is not then
residing or working in the Minneapolis, Minnesota metropolitan area, in the judicial district
encompassing the city in which the Executive resides; provided, that, if the Executive is not then
residing in the United States, the election of the Executive with respect to such venue shall be
either Minneapolis, Minnesota or in the judicial district encompassing that city in the United
States among the thirty cities having the largest population (as determined by the most recent
United States Census data available at the Termination Date) which is closest to the Executive’s
residence. The parties consent to personal jurisdiction in each trial court in the selected venue
having subject matter jurisdiction notwithstanding their residence or situs, and each party
irrevocably consents to service of process in the manner provided hereunder for the giving of
notices.
23. Additional Section 409A Provisions. (a) If, after the date of a Change in
Control of the Company, any payment amount or the value of any benefit under this Agreement is
required to be included in the Executive’s income prior to the date such amount is actually paid or
the benefit provided as a result of the failure of this Agreement (or any other arrangement that is
required to be aggregated with this Agreement under Code Section 409A) to comply with Code Section
409A, then the Executive shall receive a distribution, in a lump sum, within 90 days after the date
it is finally determined that the Agreement (or such other arrangement that is required to be
aggregated with this Agreement) fails to meet the requirements of Section 409A of the Code; such
distribution shall equal the amount required to be included in the Executives income as a result of
such failure and shall reduce the amount of payments or benefits otherwise due hereunder.
(b) The Company and the Executive intend the terms of this Agreement to be in compliance with
Section 409A of the Code. The Company does not guarantee the tax treatment or tax consequences
associated with any payment or benefit, including but not limited to consequences related to
Section 409A of the Code. To the maximum extent permissible, any ambiguous terms of this Agreement
shall be interpreted in a manner that avoids a violation of Section 409A of the Code.
(c) If the Executive believes he or she is entitled to a payment or benefit pursuant to the
terms of this Agreement that was not timely paid or provided, and such payment or benefit is
considered deferred compensation subject to the requirements of Section 409A of the Code, the
Executive acknowledges that to avoid an additional tax on such payment or benefit pursuant to the
provisions of Section 409A of the Code, the Executive must make a reasonable, good faith effort to
collect such payment or benefit no later than 90 days after the latest date upon which the payment
could have been timely made or benefit timely provided without violating Section 409A of the Code,
and if not paid or provided, must take further enforcement measures within 180 days after such
latest date.
24. Notice. Notices given pursuant to this Agreement shall be in writing and, except
as otherwise provided by Section 13(d), shall be deemed given when actually received by the
20
Executive or actually received by the Company’s Secretary or any officer of the Company other
than the Executive. If mailed, such notices shall be mailed by United States registered or
certified mail, return receipt requested, addressee only, postage prepaid, if to the Company, to
Pentair, Inc., Attention: Secretary (or Chief Executive Officer, if the Executive is then
Secretary), 0000 Xxxxxxx Xxxx., Xxxxx 000, Xxxxxx Xxxxxx, Xxxxxxxxx 00000, or if to the Executive,
at the address set forth below the Executive’s signature to this Agreement, or to such other
address as the party to be notified shall have theretofore given to the other party in writing.
25. No Waiver. 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 any prior or subsequent time.
26. Headings. The headings herein contained are for reference only and shall not
affect the meaning or interpretation of any provision of this Agreement.
21
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first
above written.
| PENTAIR, INC. | ||||||||
| By: | ||||||||
| Its: | ||||||||
| Attest: | ||||||||
| Its: | ||||||||
| EXECUTIVE: | ||||||||
| Address: | ||||||||
22
