1
Exhibit 10
FORM OF SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of
September ___, 1998, is made and entered by and between Lincoln Electric
Holdings, Inc., an Ohio corporation (the "Company"), and (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company or
one or more of its Subsidiaries and has made and is expected to continue to make
major contributions to the short- and long-term profitability, growth and
financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present
and future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior
executives are not practically disabled from discharging their duties in respect
of a proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement
for the Executive to continue to remain in the ongoing employ of the Company or
one or more of its Subsidiaries.
NOW, THEREFORE, the Company and the Executive agree as
follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined
elsewhere herein, the following terms have the following meanings when used in
this Agreement with initial capital letters:
(a) "Base Pay" means the greatest of (i) the Executive's
annual fixed or base salary as in effect for the Executive immediately prior to
the occurrence of a Change in Control, (ii) an amount equal to the average of
the Executive's annual fixed or base salary as in effect during the two fiscal
years immediately preceding the fiscal year in which the Change in Control
occurs, and (iii) the Executive's annual fixed or base salary as in effect for
the Executive immediately prior to his Termination Date.
(b) "Board" means the Board of Directors of the Company.
2
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b), the Executive shall have committed:
(i) a criminal conviction involving fraud, embezzlement or
theft in connection with his duties or in the course of his employment with the
Company or any Subsidiary;
(ii) intentional wrongful damage to property of the
Company or any Subsidiary;
(iii) intentional wrongful disclosure of secret processes
or confidential information of the Company or any Subsidiary; or
(iv) intentional wrongful engagement in any Competitive
Activity;
and any such act described in Section 1(c)(ii), (iii) or (iv) shall
have been demonstrably harmful to the Company or any Subsidiary. For purposes of
this Agreement, no act or failure to act on the part of the Executive shall be
deemed "intentional" if it was due primarily to an error in judgment or
negligence, but shall be deemed "intentional" only if done or omitted to be done
by the Executive not in good faith and without reasonable belief that his action
or omission was in the best interest of the Company or any Subsidiary.
Notwithstanding the foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than two-thirds of the Board then in office at a
meeting of the Board called and held for such purpose, after reasonable notice
to the Executive and an opportunity for the Executive, together with his counsel
(if the Executive chooses to have counsel present at such meeting), to be heard
before the Board, finding that, in the good faith opinion of the Board, the
Executive had committed an act constituting "Cause" as herein defined and
specifying the particulars thereof in detail. Nothing herein will limit the
right of the Executive or his beneficiaries to contest the validity or propriety
of any such determination.
(d) "Change in Control" means the occurrence during the Term
of any of the following events, subject to the provisions of Section (1)(d)(v)
hereof:
(i) All or substantially all of the assets of the Company
are sold or transferred to another corporation or entity, or the Company is
merged, consolidated or reorganized into or with another corporation or entity,
with the result that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the election of directors
or other capital interests of the acquiring corporation or entity are owned
directly or indirectly, by the shareholders of the Company generally prior to
the transaction; or
(ii) There is a report filed on Schedule 13D or Schedule
14D-1 (or any successor schedule, form or report), each as promulgated pursuant
to the Exchange Act, disclosing that any person (as the term "person" is used in
Section 13(d)(3) or Section 14(d)(2) of the Exchange Act (a "Person")) has
become the beneficial owner (as the term "beneficial owner" is defined under
Rule 13d-3 or any successor rule or regulation promulgated under the Exchange
3
Act (a "Beneficial Owner")) of securities representing 20% or more of the
combined voting power of the then-outstanding voting securities of the Company,
excluding (A) any person or group of persons who are officers, directors or
employees of the Company or any Subsidiary as of the date hereof or are related
by blood or marriage to the descendants of Xxxxx X. or Xxxx X. Xxxxxxx,
including any trusts or similar arrangements for any of the foregoing and any
foundations established by any of the foregoing and (B) any underwriter or
syndicate of underwriters acting on behalf of the Company in a public offering
of the Company's securities and any of their transferees; or
(iii) The Company shall file a report or proxy statement
with the Securities and Exchange Commission pursuant to the Exchange Act
disclosing in response to Item 1 of Form 8-K thereunder or Schedule 14A (or any
successor schedule, form or report or item therein) that a change in control of
the Company has or may have occurred or will or may occur in the future pursuant
to any then-existing contract or transaction; or
(iv) The individuals who, at the beginning of any period
of two consecutive calendar years, constituted the Directors of the Company
cease for any reason to constitute at least a majority thereof unless the
nomination for election by the Company's stockholders of each new Director of
the Company was approved by a vote of at least two-thirds of the Directors of
the Company still in office who were Directors of the Company at the beginning
of any such period.
(v) Notwithstanding the foregoing provisions of this
Section (1)(d):
(A) Unless otherwise determined in a specific case by
the Board, a "Change in Control" shall not be deemed to have occurred for
purposes of Section (1)(d)(ii) or (iii) solely because (X) the Company, (Y) a
Subsidiary, or (Z) any Company-sponsored employee stock ownership plan or any
other employee benefit plan of the Company or any Subsidiary either files or
becomes obligated to file a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act disclosing
Beneficial Ownership by it of shares of the then-outstanding voting securities
of the Company, whether in excess of 20% or otherwise, or because the Company
reports that a change in control of the Company has occurred or will occur in
the future by reason of such beneficial ownership.
(B) If any such merger, consolidation, reorganization,
sale or transfer of assets, or tender offer or other transaction or event or
series of transactions or events shall be abandoned, or any such accumulation of
shares shall be dispersed or otherwise resolved, the Board may, by notice to the
Executive, nullify the effect thereof and reinstate this Agreement as previously
in effect, but without prejudice to any action that may have been taken prior to
such nullification.
(e) "Competitive Activity" means the Executive's
participation, without the written consent of an officer of the Company, in the
management of any business enterprise if such enterprise engages in substantial
and direct competition with the Company or any Subsidiary and such enterprise's
sales of any product or
4
service competitive with any product or service of the Company amounted to 10%
of such enterprise's net sales for its most recently completed fiscal year and
if the Company's net sales of said product or service amounted to 10% of the
Company's consolidated net sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere ownership of securities in
any corporation or other entity listed for trading on a national securities
exchange or NASDAQ of less than 5% of the issued and outstanding shares of
capital stock, or in the case of bonds or other securities, less than 5% of the
aggregate principal amount thereof issued and outstanding, and the exercise of
rights appurtenant thereto, or (ii) participation in the management of any
business enterprise other than in connection with the competitive operations of
such enterprise.
(f) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or arrangements in which
Executive is entitled to participate, including without limitation any stock
option, performance share, performance unit, stock purchase, stock appreciation,
savings, pension, supplemental executive retirement, or other retirement income
or welfare benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital or other insurance (whether funded by
actual insurance or self-insured by the Company), disability, salary
continuation, expense reimbursement and other employee benefit policies, plans,
programs or arrangements that may now exist or any equivalent successor
policies, plans, programs or arrangements that may be adopted hereafter by the
Company or a Subsidiary.
(g) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Pay" means the greater of (i) an annual amount
equal to the average of the annual bonus made or to be made in regard to
services rendered in any fiscal year during the two fiscal years immediately
preceding, or (ii) the target bonus opportunity for, the fiscal year in which
the Change in Control occurs pursuant to the annual bonus program applicable to
the Executive (whether or not funded) of the Company or a Subsidiary, or any
successor thereto.
(i) "Severance Period" means the period of time commencing on
the date of the first occurrence of a Change in Control and continuing until the
earliest of (i) the third anniversary of the occurrence of the Change in
Control, (ii) the Executive's death, or (iii) the Executive's attainment of age
65.
(j) "Subsidiary" means a corporation, company or other entity
(i) more than 50% of whose outstanding shares or securities (representing the
right to vote for the election of directors or other managing authority) are, or
(ii) which does not have outstanding shares or securities (as may be the case in
a partnership, joint venture or unincorporated association), but more than 50%
of whose ownership interest representing the right generally to make decisions
for such other entity is, now or hereafter, owned or controlled, directly or
indirectly, by the Company except that for purposes of determining whether any
person may be a Participant for purposes of any grant of incentive stock
options, "Subsidiary" means any corporation in which at the time the Company
owns or controls, directly or indirectly, more than 50% of the total combined
voting power represented by all classes of stock issued by such corporation.
5
(k) "Term" means the period commencing as of the date hereof
and expiring as of the later of (i) the close of business on December 31, 2000,
or (ii) the expiration of the Severance Period; provided, however, that (A)
commencing on January 1, 1999 and each January 1 thereafter, the term of this
Agreement will automatically be extended for an additional year unless, not
later than September 30 of the immediately preceding year, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) subject to the last sentence of
Section 10, if, prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company and its Subsidiaries, thereupon without
further action the Term shall be deemed to have expired and this Agreement will
immediately terminate and be of no further effect. For purposes of this
Subsection, the Executive shall not be deemed to have ceased to be an employee
of the Company and its Subsidiaries by reason of the transfer of Executive's
employment between the Company and any Subsidiary, or among any Subsidiaries.
(l) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date of
termination, or such other date that may be specified by the Executive if the
termination is pursuant to Section 3(b)).
2. OPERATION OF AGREEMENT. This Agreement will be effective
and binding immediately upon its execution, but, anything in this Agreement to
the contrary notwithstanding, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change in Control at
any time during the Term, without further action, this Agreement shall become
immediately operative.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) If the Executive's employment is terminated by the Company
or any Subsidiary during the Severance Period, the Executive shall be entitled
to the benefits provided by Section 4 unless such termination is the result of
the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) The Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, the Executive
immediately prior to the Change in Control; or
(iii) Cause.
(b) If the Executive terminates his employment with the
Company and its Subsidiaries during the Severance Period, the Executive shall be
entitled to the benefits provided by Section 4 if such termination follows the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as hereinabove provided, for such termination
exists or has occurred, including without limitation other employment):
(i) (A) A significant adverse change in the nature or
scope of the
6
authorities, powers, functions, responsibilities or duties attached to the
position with the Company and any Subsidiary which the Executive held
immediately prior to the Change in Control, (B) a significant reduction in the
Executive's base salary (for purposes of this Section 3(b)(i), a "significant
reduction in the Executive's base salary" means a reduction of 10% or more in
the Executive's annual fixed or base salary as in effect immediately prior to
such reduction), (C) a reduction in the Executive's opportunities for Incentive
Pay (including but not limited to a reduction in target bonus percentage or
target award opportunity (whether measured by dollar amount or management
objectives)) provided by the Company or any Subsidiary; provided, however, that
a reduction in the Executive's base salary that is not a significant reduction
in the Executive's base salary shall not, standing alone, constitute a reduction
in the Executive's opportunities for Incentive Pay for purposes of this Section
3(b)(i)(C), or (D) the termination or denial of the Executive's rights to
Employee Benefits or a material reduction in the scope or aggregate value
thereof, any of which is not remedied by the Company within ten calendar days
after receipt by the Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(ii) The Company relocates its principal executive
offices, or requires the Executive to have his principal location of work
changed, to any location that is in excess of 50 miles from the location thereof
immediately prior to the Change in Control; or
(iii) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any successor
thereto which is not remedied by the Company within ten calendar days after
receipt by the Company of written notice from the Executive of such breach.
(c) Subject to Section 7, a termination by the Company
pursuant to Section 3(a) (other than as described in Section 3(a)(i), (ii) or
(iii)) or by the Executive pursuant to Section 3(b) will not affect any rights
that the Executive may have pursuant to any agreement, policy, plan, program or
arrangement of the Company or any Subsidiary providing Employee Benefits, which
rights shall be governed by the terms thereof.
4. SEVERANCE COMPENSATION.
(a) Severance benefits to which the Executive is entitled
pursuant to Section 3 are described on Annex A. The Company will pay to the
Executive the amounts described in Paragraphs (1) and (2) of Annex A within five
business days after the Termination Date or, if later, upon the expiration of
the revocation period provided for in Annex C. The benefits and perquisites
described in Paragraphs (3), (4), (5), (6) and (7)(1) of Annex A will be
provided to the Executive as described therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company will pay
interest on the amount or value thereof at an annualized rate of interest equal
to the so-called composite "prime rate" as quoted from time to time during the
relevant period in the Midwest Edition of THE WALL STREET JOURNAL. Such interest
----------
(1) For those executives not in SERP, Annex A will not contain a Paragraph (7).
7
will be payable as it accrues on demand. Any change in such prime rate will be
effective on and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this Section 4
and under Sections 5 and 8 will survive any termination or expiration of this
Agreement or the termination of the Executive's employment following a Change in
Control for any reason whatsoever.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that this Agreement shall become operative and it
shall be determined (as hereafter provided) that any payment or distribution by
the Company or any of its affiliates to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without limitation any stock
option, performance share, performance unit, stock appreciation right or similar
right, or the lapse or termination of any restriction on, or the vesting or
exercisability of, any of the foregoing (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with any such
interest and penalties, being hereafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment shall be made with respect to the Excise Tax, if any,
attributable to (i) any incentive stock option, as defined by Section 422 of the
Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (i). The Gross-Up Payment shall be in an amount such
that, after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Termination Date, if
applicable, and any such other time or times as may be requested by the Company
or the Executive. If the Accounting Firm determines that any Excise Tax is
payable by the Executive, the Company shall pay the required Gross-Up Payment to
the Executive within five business days after receipt of such determination and
calculations with respect to any Payment to the Executive. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it shall, at the
same time as it makes such determination, furnish the
8
Company and the Executive an opinion that the Executive has substantial
authority not to report any Excise Tax on his federal, state or local income or
other tax return. As a result of the uncertainty in the application of Section
4999 of the Code (or any successor provision thereto) and the possibility of
similar uncertainty regarding applicable state or local tax law at the time of
any determination by the Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should have been made (an
"Underpayment"), consistent with the calculations required to be made hereunder.
In the event that the Company exhausts or fails to pursue its remedies pursuant
to Section 5(f) and the Executive thereafter is required to make a payment of
any Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment. Such
notification shall be given as promptly as practicable but no later than ten
business days after the Executive actually receives notice of such claim and the
Executive shall further apprise the Company of the nature of such claim and the
date on which such claim is requested to be paid (in each case, to the extent
known by the
9
Executive). The Executive shall not pay such claim prior to the earlier of (i)
the expiration of the thirty calendar-day period following the date on which he
gives such notice to the Company and (ii) the date that any payment of amount
with respect to such claim is due. If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(A) provide the Company with any written records or
documents in his possession relating to such claim reasonably requested by the
Company;
(B) take such action in connection with contesting
such claim as the Company shall reasonably request in writing from time to time,
including without limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject matter and reasonably
selected by the Company;
(C) cooperate with the Company in good faith in order
effectively to contest such claim; and
(D) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all
costs and expenses (including interest and penalties) incurred in connection
with such contest and shall indemnify and hold harmless the Executive, on an
after-tax basis, for and against any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without limiting the foregoing
provisions of this Section 5(f), the Company shall control all proceedings taken
in connection with the contest of any claim contemplated by this Section 5(f)
and, at its sole option, may pursue or forego any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim (provided, however, that the Executive may participate
therein at his own cost and expense) and may, at its option, either direct the
Executive to pay the tax claimed and xxx for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and xxx for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income or other tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and provided further, however, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which the contested amount is
claimed to be due is limited solely to such contested amount. Furthermore, the
Company's control of any such contested claim shall be limited to issues with
respect to which a Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the Internal Revenue Service or any other taxing authority.
10
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of thirty calendar days
after such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges
that it will be difficult and may be impossible for the Executive to find
reasonably comparable employment following the Termination Date and that the
non-competition covenant contained in Section 9 will further limit the
employment opportunities for the Executive. Accordingly, the payment of the
severance compensation by the Company to the Executive in accordance with the
terms of this Agreement is hereby acknowledged by the Company to be reasonable,
and the Executive will not be required to mitigate the amount of any payment
provided for in this Agreement by seeking other employment or otherwise, nor
will any profits, income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation on the part of
the Executive hereunder or otherwise, except as expressly provided in Section 7
and the last sentence of Paragraph (4) of Annex A.
7. COORDINATION WITH OTHER PAYMENTS. If the Executive becomes
entitled to receive payments under this Agreement as a result of termination of
his employment, those payments will be in lieu of any and all other claims or
rights that the Executive may have for severance, separation and/or salary
continuation pay upon that termination of employment pursuant to any policy,
plan, program or arrangement sponsored or maintained by the Company or any
Subsidiary or any agreement to which the Executive and the Company or a
Subsidiary are parties.
8. FUNDING; PROFESSIONAL FEES AND EXPENSES.
(a) It is the intent of the Company that the Executive not be
required to incur fees and related expenses for the retention of attorneys,
accountants, actuaries, consultants, and/or other professionals
("professionals") in connection with the interpretation, enforcement or defense
of Executive's rights under this Agreement by litigation or otherwise because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, if it should
appear to the Executive that the Company has failed to comply with any of its
obligations under this Agreement or in the event that the Company or any other
person takes or threatens to take any action to declare this Agreement void or
unenforceable, or institutes any litigation or other action or proceeding
designed to deny, or to recover from, the Executive the benefits provided or
intended to be provided to the Executive hereunder, the Company irrevocably
authorizes the Executive from time to time to retain one or more professionals
of the Executive's choice, at the expense of the Company as hereafter
11
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or defense, including without limitation the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any Director, officer, stockholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior relationship between the Company and such professional, the Company
irrevocably consents to the Executive's entering into a relationship with any
such professional, and in that connection the Company and the Executive agree
that a confidential relationship shall exist between the Executive and any such
professional. Without respect to whether the Executive prevails, in whole or in
part, in connection with any of the foregoing, the Company will pay and be
solely financially responsible for any and all reasonable fees and related
expenses incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to this Agreement, in the event a Change in Control occurs, the performance of
the Company's obligations under this Agreement may be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, providing, among other things for the
payment of severance compensation to the Executive pursuant to Section 4, and
the Gross-Up Payment to the Executive pursuant to Section 5, and providing that
the reasonable fees and related expenses of one or more professionals selected
from time to time by the Executive pursuant to Section 8(a) shall be paid, or
reimbursed to the Executive if paid by the Executive, either in accordance with
the terms of such trust agreements, or, if not so provided, on a regular,
periodic basis upon presentation by the Executive to the trustee of a statement
or statements prepared by such professional in accordance with its customary
practices. Any failure by the Company to satisfy any of its obligations under
this Subsection shall not limit the rights of the Executive hereunder. Upon the
earlier to occur of (i) a Change of a Control or (ii) a declaration by the Board
that a Change in Control is imminent, the Company may to the extent it has not
previously done so:
(A) transfer to trustees of such trust agreements to be
added to the principal of the trusts a sum equal to (I) the present value on the
date of the Change in Control (or on such fifth business day if the Board has
declared a Change in Control to be imminent) of the payments to be made to the
Executive under the provisions of Sections 4 and 5, such present value to be
computed using the assumptions set forth on Annex B, less (II) the balance in
the Executive's accounts provided for in such trust agreements as of the most
recently completed valuation thereof, as certified by the trustee under each
trust agreement; provided, however, that if the trustee under any trust
agreement, respectively, does not so certify by the end of the fourth business
day after the earlier of such Change in Control or declaration, then the balance
of such respective account shall be deemed to be zero. Any payments of severance
compensation or other benefits hereunder by the trustee pursuant to any trust
agreement shall, to the extent thereof, discharge the Company's obligation to
pay severance compensation and other benefits hereunder, it being the intent of
the Company that assets in such trusts be held as security for the Company's
obligation to pay severance compensation and other benefits under this
Agreement; and
(B) transfer to the trustees to be added to the principal
of the trusts under the trust agreements the sum of FIVE HUNDRED THOUSAND
DOLLARS ($500,000) less any principal in such trusts on such fifth business day
dedicated to the payment of the Company's obligations under Section 8(a). Any
payments of the Executive's reasonable
12
professional fees and related expenses by the trustees pursuant to the trust
agreements shall, to the extent thereof, discharge the Company's obligation
hereunder, it being the intent of the Company that assets in such trust be held
as security for the Company's obligation under Section 8(a). The Executive
understands and acknowledges that the corpus of the trust, or separate portion
thereof, dedicated to the payment of the Company's obligations under Section
8(a) will be $500,000 and that such amount will be available to discharge not
only the obligations of the Company to the Executive under Section 8(a), but
also similar obligations of the Company to other executives and employees under
similar provisions of other agreements.
(c) Subject to the foregoing, the Executive shall have the
status of a general unsecured creditor of the Company and shall have no right
to, or security interest in, any assets of the Company or any Subsidiary.
9. COMPETITIVE ACTIVITY. During a period ending on the later
of (a) one year following the Termination Date or (b) the end of the Severance
Period, if the Executive shall have received or shall be receiving severance
compensation under Section 4, the Executive shall not, without the prior written
consent of the Company, which consent shall not be unreasonably withheld, engage
in any Competitive Activity.
10. EMPLOYMENT RIGHTS. Nothing expressed or implied in this
Agreement will create any right or duty on the part of the Company or the
Executive to have the Executive remain in the employment of the Company or any
Subsidiary prior to or following any Change in Control. Any termination of
employment of the Executive as described in Section 3(a) (other than as
described in Section 3(a)(i), (ii) or (iii) or Section 3(b), but without regard
to the requirement that such termination occur during the Severance Period)
following the commencement of any action by or discussion with a third person
that ultimately results in a Change in Control shall be deemed to be a
termination or removal of the Executive during the Severance Period for purposes
of this Agreement entitling the Executive to severance compensation provided by
Section 4.
11. RELEASE. Payment of the severance compensation set forth
in Section 4 is conditioned upon the Executive executing and delivering a
release (the "Release") substantially in the form provided in Annex C.
12. WITHHOLDING OF TAXES. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or other taxes as
the Company is required to withhold pursuant to any law or government regulation
or ruling.
13. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or otherwise) to
all or substantially all of the business or assets of the Company, by agreement
in form and substance satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent the
Company would be required to perform if no such succession had taken place. This
Agreement will be binding upon and inure to the benefit of the Company and any
successor to the Company, including without limitation any persons acquiring
directly or
13
indirectly all or substantially all of the business or assets of the Company
whether by purchase, merger, consolidation, reorganization or otherwise (and
such successor shall thereafter be deemed the "Company" for the purposes of this
Agreement), but will not otherwise be assignable, transferable or delegable by
the Company.
(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided in Sections 13(a) and 13(b). Without limiting the generality
or effect of the foregoing, the Executive's right to receive payments hereunder
will not be assignable, transferable or delegable, whether by pledge, creation
of a security interest, or otherwise, other than by a transfer by Executive's
will or by the laws of descent and distribution and, in the event of any
attempted assignment or transfer contrary to this Section 13(c), the Company
shall have no liability to pay any amount so attempted to be assigned,
transferred or delegated.
14. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
five business days after having been mailed by United States registered or
certified mail, return receipt requested, postage prepaid, or three business
days after having been sent by a nationally recognized overnight courier service
such as Federal Express, UPS, or Purolator, addressed to the Company (to the
attention of the Secretary of the Company) at its principal executive office and
to the Executive at his principal residence, or to such other address as any
party may have furnished to the other in writing and in accordance herewith,
except that notices of changes of address shall be effective only upon receipt.
15. GOVERNING LAW. The validity, interpretation, construction
and performance of this Agreement will be governed by and construed in
accordance with the substantive laws of the State of Ohio, without giving effect
to the principles of conflict of laws of such State.
16. VALIDITY. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances is held
invalid, unenforceable or otherwise illegal, the remainder of this Agreement and
the application of such provision to any other person or circumstances will not
be affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
17. MISCELLANEOUS. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing signed by the Executive and the Company. No waiver by
either party hereto at any time of any breach by the other party hereto or
compliance with any condition or provision of this Agreement to be
14
performed by such other party will be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, expressed or implied with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. References to Sections are to
references to Sections of this Agreement.
18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.
------------------------------
Executive
LINCOLN ELECTRIC HOLDINGS, INC.
By:
--------------------------
Title:
15
Annex A
-------
SEVERANCE COMPENSATION
----------------------
1. BASE PAY AND ANNUAL BONUS. A lump sum payment in an amount
equal to (a) any unpaid regular salary through the Executive's Termination Date,
(b) any unpaid bonus for any year prior to the year in which the Executive's
Termination Date occurs and (c) the prorated portion of the annual bonus payable
in the year in which the Executive's Termination Date occurs, determined at the
greater of actual or target in accordance with the provisions of the annual
bonus program applicable to the Executive.
2. SEVERANCE PAY. A lump sum payment in an amount equal to the
amount of Base Pay and Incentive Pay that would have been paid to the Executive
for the greater of (a) one year or (b) the remainder of the Severance Period.
3. PERFORMANCE AWARDS: All performance awards granted prior to
a Change in Control under the Company's 1998 Stock Option Plan or any successor
plan, if any, for the open performance periods will be paid in accordance with
the provisions of such Plan at the greater of target or actual performance on
the Executive's Termination Date.
4. HEALTH AND LIFE BENEFITS. For the greater of (a) one year
or (b) the remainder of the Severance Period (the "Continuation Period"), the
Company will arrange to provide the Executive with Employee Benefits that
provide health and life benefits (but not disability, stock option, performance
share, performance unit, stock purchase, stock appreciation or similar
compensatory benefits) substantially similar to those that the Executive was
receiving or entitled to receive immediately prior to the Termination Date (or,
if greater, immediately prior to the reduction, termination, or denial described
in Section 3(b)(i)), except that the level of any such Employee Benefits to be
provided to the Executive may be reduced in the event of a corresponding
reduction generally applicable to all recipients of or participants in such
Employee Benefits. At the expiration of the Continuation Period, upon the
Executive's request, the Company will arrange to provide health and life
benefits at group rates as described in the preceding sentence. If and to the
extent that any benefit described in this Paragraph is not or cannot be provided
under any policy, plan, program or arrangement of the Company or any Subsidiary,
as the case may be, then the Company will itself provide for such Employee
Benefits. Employee Benefits otherwise receivable by the Executive pursuant to
this Paragraph will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer or under title XVIII of
the Social Security Act (Medicare) during the Continuation Period following the
Executive's Termination Date, and any such benefits actually received by the
Executive shall be reported by the Executive to the Company. The cost of
Employee Benefits provided pursuant to this Paragraph will be paid by the
Company during the Continuation Period and thereafter by the Executive.
16
5. SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. For purposes of
determining the Executive's benefit payable under the Supplemental Executive
Retirement Plan or any successor thereto, the Executive (a) will be credited
with the number of years of continuous service equal to the number of his actual
years of continuous service at his Termination Date plus the number of years of
continuous service he would have had if he had continued his employment
throughout the greater of (i) one year or (ii) the remainder of the Severance
Period and (b) will be considered to have attained his actual chronological age
at his Termination Date age plus the greater of (i) one additional year of
chronological age or (b) additional years of chronological age equal to the
number of years and months included in the remainder of the Severance Period. If
the Executive is at least age 50 on his Termination Date, his benefits under the
Supplemental Executive Retirement Plan will be fully vested as of his
Termination Date.(2)
6. OUTPLACEMENT SERVICES. Outplacement services for a period
of up to 12 months by a firm selected by the Executive, at the expense of the
Company in an amount up to 20% of the Executive's Base Pay.
7. STOCK OPTIONS AND EQUITY AWARDS. Upon the Executive's
Termination Date, all stock options and equity awards granted prior to a Change
in Control to the Executive pursuant to the 1988 Incentive Equity Plan, the 1998
Stock Option Plan or any successor or similar plan, shall be vested.
----------
(2) Not applicable to Executives not eligible for the SERP.
A-2
17
Annex B
-------
For the purposes of Section 8(b)(A)(I), the actuarial
assumptions used shall not be less favorable to the Executive than the actuarial
assumptions utilized under the "Qualified Plan Benefit" definition in Section
2.1 of The Lincoln Electric Company Supplemental Executive Retirement Plan (or
any successor provision) at the time of the Change in Control or, if more
favorable to the Executive, on the date of funding pursuant to Section 8.
18
Annex C
-------
FORM OF RELEASE
---------------
WHEREAS, the Executive's employment has been terminated in
accordance with Section 3(a) (other than as described in Section 3(a)(i), (ii)
or (iii)) or (b) of the Severance Agreement dated as of ____________, 1998, by
and between _________________ (the "Executive") and Lincoln Electric Holdings,
Inc. (the "Agreement").
WHEREAS, the Executive is required to sign this Release in
order to receive the Severance Compensation as described in Annex A of the
Agreement and the other benefits described in the Agreement.
NOW THEREFORE, in consideration of the promises and agreements
contained herein and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, and intending to be legally bound, the
Executive agrees as follows:
1. This Release is effective on the date hereof and will continue in
effect as provided herein.
2. In consideration of the payments to be made and the benefits to be
received by the Executive pursuant to the Agreement, which the Executive
acknowledges are in addition to payments and benefits which the Executive would
be entitled to receive absent the Agreement, the Executive, for himself and his
dependents, successors, assigns, heirs, executors and administrators (and his
and their legal representatives of every kind), hereby releases, dismisses,
remises and forever discharges Lincoln Electric Holdings, Inc., its
predecessors, parents, subsidiaries, divisions, related or affiliated companies,
officers, directors, stockholders, members, employees, heirs, successors,
assigns, representatives, agents and counsel (the "Company") from any and all
arbitrations, claims, including claims for attorney's fees, demands, damages,
suits, proceedings, actions and/or causes of action of any kind and every
description, whether known or unknown, which Executive now has or may have had
for, upon, or by reason of any cause whatsoever ("claims"), against the Company,
including but not limited to:
(a) any and all claims arising out of or relating to
Executive's employment by or service with the Company and his termination from
the Company;
(b) any and all claims of discrimination, including but not
limited to claims of discrimination on the basis of sex, race, age, national
origin, marital status, religion or handicap, including, specifically, but
without limiting the generality of the foregoing, any claims under the Age
Discrimination in Employment Act, as amended, Title VII of the Civil Rights Act
of 1964,
19
as amended, the Americans with Disabilities Act, Ohio Revised Code Section
4101.17 and Ohio Revised Code Chapter 4112, including Sections 4112.02 and
4112.99 thereof; and
(c) any and all claims of wrongful or unjust discharge or
breach of any contract or promise, express or implied.
3. Executive understands and acknowledges that the Company does not
admit any violation of law, liability or invasion of any of his rights and that
any such violation, liability or invasion is expressly denied. The consideration
provided for this Release is made for the purpose of settling and extinguishing
all claims and rights (and every other similar or dissimilar matter) that
Executive ever had or now may have against the Company to the extent provided in
this Release. Executive further agrees and acknowledges that no representations,
promises or inducements have been made by the Company other than as appear in
the Agreement.
4. Executive further agrees and acknowledges that:
(a) The release provided for herein releases claims to and
including the date of this Release;
(b) He has been advised by the Company to consult with legal
counsel prior to executing this Release, has had an opportunity to consult with
and to be advised by legal counsel of his choice, fully understands the terms of
this Release, and enters into this Release freely, voluntarily and intending to
be bound;
(c) He has been given a period of 21 days to review and
consider the terms of this Release, prior to its execution and that he may use
as much of the 21 day period as he desires; and
(d) He may, within seven days after execution, revoke this
Release. Revocation shall be made by delivering a written notice of revocation
to the Vice President of Human Resources at the Company. For such revocation to
be effective, written notice must be actually received by the Vice President of
Human Resources at the Company no later than the close of business on the
seventh day after Executive executes this Release. If Executive does exercise
his right to revoke this Release, all of the terms and conditions of the Release
shall be of no force and effect and the Company shall not have any obligation to
make payments or provide benefits to Executive as set forth in Sections 4, 5 and
8 of the Agreement.
5. Executive agrees that he will never file a lawsuit or other
complaint asserting any claim that is released in this Release.
C-2
20
6. Executive waives and releases any claim that he has or may have to
reemployment after
IN WITNESS WHEREOF, the Executive has executed and delivered
this Release on the date set forth below.
Dated:_____________________ ___________________________________
Executive
C-3
