CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT
effective
May 10, 2005 between Nalco Holding Company, a Delaware corporation (the
“Company”) and
Xxxxxxx X. Xxxxx, a resident of Connecticut (“Executive”).
Executive
is a skilled and dedicated employee who has important management
responsibilities and talents which benefit the Company. The Company believes
that its best interests will be served if Executive is encouraged to remain with
the Company or its Subsidiaries. The Company has determined that Executive’s
ability to perform Executive’s responsibilities and utilize Executive’s talents
for the benefit of the Company, and the Company’s ability to retain Executive as
an employee, will be significantly enhanced if Executive is provided with fair
and reasonable protection from the risks of a change in control of the Company.
Accordingly, the Company and Executive agree as follows:
1. Defined
Terms.
Unless
otherwise indicated, capitalized terms used in this Agreement which are defined
in Schedule A shall have the meanings set forth in
Schedule A.
2. Effective
Date; Term.
This
Agreement shall be effective as of May 10, 2005 (the “Effective
Date”) and
shall remain in effect until December 31, 2008 (the “Term”).
Notwithstanding the foregoing, this Agreement shall, if in effect on the date of
a Change of Control, remain in effect for three years following the Change of
Control.
3. Change
of Control Benefits.
(a) If
Executive’s employment with the Company and its Subsidiaries is terminated at
any time within the three years following a Change of Control by the Company and
any of its Subsidiaries without Cause or by Executive for Good Reason (the
effective date of either such termination hereafter referred to as the
“Termination
Date”),
Executive shall be entitled to the payments and benefits provided hereafter in
this Section 3 and as
set forth in this Agreement. If Executive’s employment by the Company and any of
its Subsidiaries is terminated prior to a Change of Control by the Company and
any of its Subsidiaries without Cause (i) in connection with or in
anticipation of a Change of Control or (ii) at the request of a third party
that has taken steps reasonably calculated to effect a Change of Control,
Executive shall be entitled to the payments and benefits provided hereafter in
Section 3 and as
otherwise set forth in this Agreement (offset by any other severance benefits
received by Executive, including, without limitation, any severance benefits
under the Employment Agreement), and Executive’s Termination Date shall be
deemed to have occurred immediately following the Change of
Control.
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(i) |
Severance
Payments.
Within fifteen business days after the Termination Date, the Company shall
pay Executive a cash lump sum amount equal to the Severance Multiple
times
the sum of (x) Executive’s Base Salary and (y) the Bonus
Amount. |
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(ii) |
Continuation
of Employee Benefits.
For a period following the Termination Date equal to the lesser of
(x) the number of months remaining in the Term and
(y) thirty-six months, the Company shall provide Executive and
Executive’s spouse and dependents (each as defined under the applicable
program) with medical and dental coverage at least equal to those benefits
that would have been provided to them in accordance with the applicable
program, if Executive’s employment continued during such period (or, if
more favorable, to Executive, as in effect generally at any time
thereafter with respect to other executive of the Company); provided,
however,
that if Executive becomes employed by a new employer that provides
substantially equivalent medical and dental coverage, continuing medical
and dental coverage from the Company shall cease.
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4. Gross-Up.
(a) In the
event it shall be determined that any payment, benefit or distribution (or
combination thereof) by the Company, any of its affiliates, or one or more
trusts established by the Company for the benefit of its employees, to or for
the benefit of Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement, the Employment Agreement
or otherwise) (a “Payment”) is
subject to the excise tax imposed by Section 4999 of the Code or any
interest or penalties are incurred by Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties, hereinafter
collectively referred to as the “Excise
Tax”),
Executive shall be entitled to receive an additional payment (a “Gross-Up
Payment”) in an
amount such that after payment by Executive of all taxes (including any interest
or penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and the Excise Tax imposed upon the Gross-Up Payment, Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments. Notwithstanding the foregoing provisions of this
Section 4(a), if it
shall be determined that Executive is entitled to a Gross Up Payment, but that
the Payment does not exceed 110% of the greatest amount that could be paid to
Executive without giving rise to any Excise Tax (the “Safe
Harbor Amount”), then
no Gross Up Payment shall be made to Executive and the amounts payable under
this Agreement shall be reduced so that the Payment, in the aggregate, is
reduced to the Safe Harbor Amount. The reduction of the amounts payable
hereunder, if applicable, shall be made by first reducing the payments under
Section 3, unless
an alternative method of reduction is elected by Executive.
(b) All
determinations required to be made under this Section 4,
including whether and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in arriving at such
determination, shall be made by a nationally recognized accounting firm
appointed by the Company and reasonably acceptable to the Executive (the
“Accounting
Firm”) which
shall provide detailed supporting calculations both to the Company and Executive
within ten business days of the receipt of notice from Executive that there has
been a Payment, or such earlier time as is requested by the Company;
provided that for
purposes of determining the amount of any Gross-Up Payment, Executive shall be
deemed to pay federal income tax at the highest marginal rates applicable to
individuals in the calendar year in which any such Gross-Up Payment is to be
made and deemed to pay state and local income taxes at the highest marginal
rates applicable to individuals in the state or locality of Executive’s
residence and/or place of employment in the calendar year in which any such
Gross-Up Payment is to be made, net of the maximum reduction in federal income
taxes that can be obtained from deduction of such state and local taxes, taking
into account limitations applicable to individuals subject to federal income tax
at the highest marginal rates. All fees and expenses of the Accounting Firm
shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4, shall
be paid by the Company to Executive five days prior to when to when due (or to
the appropriate taxing authority on Executive’s behalf when due). If the
Accounting Firm determines that no Excise Tax is payable by Executive, it shall
so indicate to Executive in writing. Any determination by the Accounting Firm
shall be binding upon the Company and Executive. As a result of the uncertainty
in the application of Section 4999 of the Code, it is possible that the
amount of the Gross-Up Payment determined by the Accounting Firm to be due to
(or on behalf of) Executive was lower than the amount actually due
(“Underpayment”). In
the event that the Company exhausts its remedies pursuant to
Section 4(c) and
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Company to or for the
benefit of Executive.
(c) Executive
shall notify the Company in writing of any claim by the Internal Revenue Service
that, if successful, would require the payment by the Company of any Gross-Up
Payment. Such notification shall be given as soon as practicable but no later
than ten business days after Executive is informed in writing of such claim and
shall apprise the Company of the nature of such claim and the date on which such
claim is requested to be paid. Executive shall not pay such claim prior to the
expiration of the thirty day period following the date on which it gives such
notice to the Company (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If the Company notifies
Executive prior to the expiration of such period that it desires to contest such
claim, Executive shall (i) give the Company any information reasonably
requested by the Company relating to such claim, (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company, (iii) cooperate with the Company in good faith in order to
effectively contest such claim and (iv) permit the Company to participate
in any proceedings relating to such claim; provided,
however, that
the Company shall bear and pay directly all costs and expenses (including
additional interest and penalties) incurred in connection with such contest and
shall indemnify and hold Executive harmless, on an after-tax basis, for any
Excise Tax or income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and expenses.
Without limitation on the foregoing provisions of this Section 4(c), the
Company shall control all proceedings taken in connection with such contest 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 and may, at its sole option, either direct Executive to pay the tax
claimed and xxx for a refund or contest the claim in any permissible manner, and
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,
further, that if
the Company directs Executive to pay such claim and xxx for a refund, the
Company shall advance the amount of such payment to Executive, on an
interest-free basis, and shall indemnify and hold Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; provided,
further, that if
Executive is required to extend the statute of limitations to enable the Company
to contest such claim, Executive may limit this extension solely to such
contested amount. The Company’s control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after
the receipt by Executive of an amount paid or advanced by the Company pursuant
to this Section 4,
Executive becomes entitled to receive any refund with respect to a Gross-Up
Payment, Executive shall (subject to the Company’s complying with the
requirements of Section 4(c))
promptly pay to the Company the amount of such refund received (together with
any interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by Executive of an amount advanced by the Company pursuant to
Section 4(c), a
determination is made that Executive shall not be entitled to any refund with
respect to such claim and the Company does not notify Executive in writing of
its intent to contest such denial of refund prior to the expiration of thirty
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of the Gross-Up Payment required to be
paid.
5. Other
Terminations.
Nothing
in this Agreement shall be construed to prevent the Company or any of its
Subsidiaries from terminating Executive’s employment for any reason. If
Executive is terminated (a) by the Company for Cause, (b) due to
Executive’s death or Permanent Disability, (c) due to Executive’s
resignation without Good Reason or (d) any termination of employment
(x) prior to a Change of Control (other than a termination of employment by
the Company without Cause prior to a Change of Control as set forth in
Section 3 hereof)
or (y) following the third anniversary of a Change of Control, the Company
shall have no obligation to make any payments or provide any benefits under this
Agreement. Except as expressly set forth in this Agreement, the terms and
condition of Executive’s employment, and termination of employment, shall be
governed by the terms and conditions of the Employment Agreement.
6. Assignment.
Except as
otherwise provided herein, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Company and Executive and their respective
heirs, legal representatives, successors and assigns. If the Company shall be
merged into or consolidated with another entity, the provisions of this
Agreement shall be binding upon and inure to the benefit of the entity surviving
such merger or resulting from such consolidation. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company,
by agreement, expressly (other than an assumption that occurs by operation of
law ) to assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform it if no such
succession had taken place.
7. Withholding.
Notwithstanding
any other provision of this Agreement, the Company may, to the extent required
by law, withhold applicable federal, state and local income and other taxes from
any payments due to Executive hereunder.
8. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois, without regard to conflicts of laws principles
thereof.
9. Notice.
Any
notice given hereunder shall be in writing and shall be deemed to have been
given when delivered by messenger or courier service (against appropriate
receipt), or mailed by registered or certified mail (return receipt requested),
addressed as follows:
If to the
Company: Nalco
Holding Company
0000 X.
Xxxxx Xxxx
Xxxxxxxxxx,
Xxxxxxxx 00000
Attention:
General Counsel
If to
Executive: To the
most recent address of Executive set forth
in the personnel records of the Company.
10. Entire
Agreement; Modification.
This
Agreement (and the documents referred to in this Agreement) set forth the entire
agreement between the parties with respect to the subject matter referred to in
this Agreement and merge and supersede all prior discussions, agreements and
understandings of every kind and nature between any of them, and neither party
shall be bound by any term or condition other than as expressly set forth or
provided for in this Agreement. This Agreement may not be changed or modified
except by an agreement in writing, signed by the parties hereto. Except as
expressly set forth in the Employment Agreement, nothing in this Agreement shall
impair or diminish the rights of Executive under the Employment
Agreement.
11. Counterparts.
This
Agreement may be signed in counterparts, each of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
IN
WITNESS WHEREOF, the
parties have executed this Agreement as of the 10th of May,
2005.
NALCO
HOLDING COMPANY
______________________________
By:
Title:
______________________________
EXECUTIVE
Schedule
A
CERTAIN
DEFINITIONS
As used in this
Agreement, and unless the context requires a different meaning, the following
terms, when capitalized, have the meaning indicated:
1. “Base
Salary” means Executive’s annual rate of base salary in effect on the date in
question.
2. “Bonus
Amount” means actual Variable Compensation (as defined in the Employment
Agreement) paid for the last completed year immediately before the date of
termination (or in the case of such termination prior to the payment of Variable
Compensation, if any, for 2004, the target Variable Compensation).
3. “Cause”
means a termination based upon a determination that Executive has
(a) engaged in serious misconduct in connection with the performance of his
duties hereunder, (b) willfully neglected his duties hereunder, or
(c) engaged in criminal conduct or other serious misconduct that is likely
to be harmful to the business or reputation of the Company; provided, that if
the foregoing actions or inactions on the part of Executive are capable of cure,
the board or directors of the Company shall give Executive notice of the first
occurrence thereof and five business days’ opportunity to cure.
4. “Change
of Control” means the consummation of any transaction (including any merger or
consolidation) the result of which is that any Person, other than a Sponsor or
an affiliate of a Sponsor, becomes the beneficial owner, directly or indirectly,
of (a) more than 50% of the voting securities of the Company or its
successor entity or (b) all or substantially all of the assets of the
Company or its successor entity.
5. “Code”
means the Internal Revenue Code of 1986, as amended.
6. “Company”
means Nalco Holding Company and, after a Change of Control, any successor or
successors thereto.
7. “Employment
Agreement” means the employment agreement between Executive and the Company,
dated as of August 3, 2004, as may be amended from time to
time.
8. “Good
Reason” means any of the following actions on or after a Change of Control,
other than due to Executive’s Permanent Disability or death:
(a) the
assignment to the Executive of any duties materially inconsistent with the
Executive’s position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities, or any material diminution
in such position, authority, duties or responsibilities (other than occurring
solely as a result of the Company’s ceasing to be a publicly traded
entity);
(b) the
failure of the Company to pay or cause to be paid Executive’s Base Salary or
Variable Compensation when due or any reduction in Executive’s Base Salary;
(c) any
failure by the Company to comply with and satisfy Section 6;
or
(d) the
requirement by the Company that Executive’s principal office be relocated to an
area that requires Executive to travel more than one hour longer than the travel time required for
Executive to arrive at Executive's current principal office.
9. “Permanent
Disability” means inability, by reason of any physical or mental impairment, to
substantially perform the significant aspects of his regular duties which
inability has lasted for six months and is reasonably expected to be
permanent.
10. “Person”
means an individual, a partnership, a corporation, a limited liability company,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization and a governmental entity or any department, agency
or political subdivision thereof.
11. “Severance
Multiple” means the lesser of (1) the number of months remaining in the
Term and (2) thirty-six divided
by
(B) twelve.
12. “Sponsor”
means each of BCP Nalco I LLC, BCP Nalco II LLC, BCP IV, Blackstone Family
Investment Partnership IV-A L.P., Blackstone Capital Partners IV-A L.P., GS
Nalco LLC, GSCP, GS Capital Partners 2000 Offshore L.P., GS Capital Partners
2000 GmbH & Co. Beteiligungs KG, GS Capital Partners 2000 Employee Fund,
L.P., Xxxxxxx Xxxxx Direct Investment Fund 2000, L.P., APV Nalco LLC, AP Nalco
LP, Apollo V and Apollo/Nalco Acquisition LLC.
13. “Subsidiary”
means a subsidiary corporation, as defined in Section 424(f) of the Code
(or any successor section thereto).
