Exhibit 10.5
SEVERANCE AGREEMENT
This Severance Agreement (the "Agreement") is dated as
of the ___ day of ________, 1997, between The Timken Company, an
Ohio corporation, and ___________________ (the "Employee").
Recitals
The Employee is a key employee of The Timken Company
(the "Company") and has made and is expected to continue to make
major contributions to the profitability, growth and financial
strength of the Company.
The Company wishes to induce its key employees to
remain in the employment of the Company and to assure itself of
continuity of management in the event of any threatened or actual
change in control of the Company. The Company recognizes that a
termination of employment may occur following a change in control
in circumstances where the Employee should receive additional
compensation for services theretofore rendered and for other good
reasons, the appropriate amount of which would be difficult to
ascertain. Hence, the Company has agreed to provide as severance
benefits the amounts set forth herein.
The Company and the Employee were parties to a
Severance Agreement, as amended (the "Prior Agreement"),
providing certain benefits in the event of a Change in Control
and the Company and the Employee desire to amend and restate the
Prior Agreement.
NOW, THEREFORE, in consideration of the premises,
including the Release provided for in Section 6 hereof, the
Company and the Employee hereby agree as follows:
1. Definitions:
1.1 Limited Period: The term "Limited Period"
shall mean that period of time commencing on the date of a Change
in Control and continuing for a period of three years.
1.2 Notice of Termination: The term "Notice of
Termination" shall mean a written notice delivered to the
Employee in the manner specified in Section 8 of this Agreement,
which notice indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Employee's employment.
1.3 Change in Control: The term "Change in
Control" shall mean the occurrence of any of the following
events:
(a) 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 ("Voting Stock") or
other capital interests of the acquiring
corporation or entity are owned, directly or
indirectly, by the holders of Voting Stock of the
Company generally prior to the transaction; or
(b) 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
Securities Exchange Act of 1934 (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) 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 Act)
of securities representing 30% or more of the
combined voting power of the then-outstanding
Voting Stock of the Company; or
(c) 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
Item 6(e) of Schedule 14A thereunder (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
(d) 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.
Notwithstanding the foregoing provisions of Section 1.3(b) or
1.3(c) hereof, unless otherwise determined in a specific case by
majority vote of the Board of Directors of the Company (the
"Board"), a "Change in Control" shall not be deemed to have
occurred for purposes of this Agreement solely because (x) the
Company, (y) an entity in which the Company directly or
indirectly beneficially owns more than 50% of the outstanding
Voting Stock (a "Subsidiary") or (z) any Company-sponsored
employee stock ownership plan or any other employee benefit plan
of the Company or any Subsidiary, or any entity holding shares of
Voting Stock for or pursuant to the terms of any such plan,
either files or becomes obligated to file a report or a proxy
statement under or in response to Schedule 13D, Schedule 14D-1,
Item 1 of Form 8-K or Item 6(e) of Schedule 14A (or any successor
schedule, form or report or item therein) under the Exchange Act,
disclosing beneficial ownership by it of shares of Voting Stock
of the Company, whether in excess of 30% or otherwise, or because
the Company reports that a change in control of the Company has
or may have occurred or will or may occur in the future by reason
of such beneficial ownership by the entities described in clauses
(x), (y) and (z) of this paragraph. The Company shall give the
Employee written notice, delivered to the Employee in the manner
specified in Section 8 hereof, of the occurrence of any event
constituting a Change in Control as promptly as practical, and in
no case later than 10 calendar days, after the occurrence of such
event.
1.4 Company Termination Event: The term "Company
Termination Event" shall mean the termination, prior to any
Employee Termination Event, of the employment of the Employee by
the Company in any of the following events:
(a) The Employee's death during the Limited Period;
(b) If the Employee shall become eligible
during the Limited Period to receive and begins
actually to receive long-term disability benefits
under The Long Term Disability Program of The
Timken Company or any successor plan as in effect
immediately prior to the date the Change in
Control occurred in an amount not less than the
benefits provided by such plans as in effect as of
such date; or
(c) For Cause. Termination shall be deemed
to have been for "Cause" only if based on the fact
that the Employee has done any of the following
acts during the Limited Period and such is
materially harmful to the Company:
(i) An intentional act
of fraud, embezzlement or theft in
connection with his duties with the
Company and resulting or intended to
result directly or indirectly in
substantial personal gain to the
Employee at the expense of the Company;
(ii) Intentional wrongful
disclosure of secret processes or
confidential information of the Company
or a Subsidiary; or
(iii) Intentional wrongful
engagement in any Competitive Activity
which would constitute a material breach
of the Employee's duty of loyalty to the
Company.
For purposes of this Agreement, the term "Competitive Activity"
shall mean the Employee'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 and such enterprise's sales
of any product or service competitive with any product or service
of the Company amounted to 25% 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 25% of the Company's
net sales for its most recently completed fiscal year.
"Competitive Activity" shall not include (y) the mere ownership
of securities in any enterprise and exercise of rights
appurtenant thereto or (z) participation in management of any
enterprise or business operation thereof other than in connection
with the competitive operation of such enterprise.
For purposes of this Agreement, no act, or failure to act, on the
part of the Employee shall be deemed "intentional" unless done,
or omitted to be done, by the Employee not in good faith and
without reasonable belief that his action or omission was in or
not opposed to the best interest of the Company. Notwithstanding
the foregoing, the Employee shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall
have been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters
of the Directors then in office at a meeting of the Directors
called and held for such purpose (after reasonable notice to the
Employee and an opportunity for the Employee, together with his
counsel, to be heard before the Directors), finding that, in the
good faith opinion of the Directors, the Employee had committed
an act set forth in paragraph (c) of this Section and specifying
the particulars thereof in detail. Nothing herein shall limit
the right of the Employee or his beneficiaries to contest the
validity or propriety of any such determination.
1.5 Employee Termination Event: The term
"Employee Termination Event" shall mean the termination of the
employment of the Employee (including a decision to retire if
eligible under The 1984 Retirement Plan for Salaried Employees of
The Timken Company, or any successor plan (the "Retirement
Plan")), by the Employee in any of the following events:
(a) A determination by the Employee made in
good faith that upon or after the occurrence of a
Change in Control: (i) a significant reduction or
other adverse change has occurred in the nature or
scope of the responsibilities, authorities,
duties, powers or functions of the Employee
attached to the Employee's position held
immediately prior to the Change in Control; (ii) a
change of more than 60 miles has occurred in the
location of the Employee's principal office
immediately prior to the Change in Control; or
(iii) the Employee shall be required to travel
away from his office in the course of discharging
his responsibilities or duties of his employment
more than 14 consecutive calendar days or an
aggregate of more than 90 calendar days in any
consecutive 365 calendar-day period without in
either case his approval;
(b) A failure to elect, reelect or otherwise
maintain the Employee in the office or position in
the Company or any Subsidiary which the Employee
held immediately prior to a Change in Control, or
removal of the Employee as a Director of the
Company (or a successor thereto) or a Subsidiary,
if the Employee shall have been a Director of the
Company or such Subsidiary immediately prior to
the Change in Control;
(c) A reduction by the Company in the annual
base salary payable to the Employee as in effect
on the date this Agreement becomes operative, as
the same may be increased from time to time ("Base
Salary").
For purposes of this Agreement, the
amount of any reduction in annual base salary
elected by the Employee pursuant to any qualified
or non-qualified salary reduction arrangement
maintained by the Company, including, without
limitation, The Timken Company Savings and
Investment Pension Plan (the "SIP Plan") and The
Timken Company 1996 Deferred Compensation Plan
(the "Deferred Compensation Plan"), shall be
included in the determination of Base Salary;
(d) If in any calendar year, or portion of a
calendar year, during the Limited Period in or for
which the Company pays to any employee any cash
incentive compensation (whether pursuant to the
Company's Management Performance Plan or any
successor similar plan or through any other means
(together, "Incentive Payments")), the amount of
Incentive Payments received by or awarded to the
Employee is less than an amount equal to the
Employee's Incentive Pay.
For purposes of this Agreement,
"Incentive Pay" shall mean an annual amount equal
to not less than the highest aggregate annual
amount of Incentive Payments received by or
payable to the Employee, without regard to any
reduction thereof elected by the Employee pursuant
to any qualified or non-qualified salary reduction
arrangement maintained by the Company, including,
without limitation, the SIP Plan and the Deferred
Compensation Plan, in any calendar year during the
three most recent calendar years preceding the
Termination Date in which the Company has made
Incentive Payments or in which the Company has
considered and declined to make Incentive
Payments;
(e) The failure by the Company to continue
in effect without substantial change any
compensation or benefit plan in which the Employee
participates, or the failure by the Company to
continue the Employee's participation therein, or
the taking of any action by the Company or its
Subsidiaries which would directly or indirectly
materially reduce any of the benefits of such
plans enjoyed by the Employee at the time of the
Change in Control, or the failure by the Company
or its Subsidiaries to provide the Employee with
the number of paid vacation days to which the
Employee is entitled on the basis of years of
service with the Company or its Subsidiaries in
accordance with the normal vacation policy of the
Company or of the Subsidiary by which the Employee
is employed as in effect at the time of the Change
in Control, or the taking of any other action by
the Company or its Subsidiaries which materially
adversely changes the conditions or perquisites of
the Employee's employment;
(f) The purported termination of the
Employee's employment which is not effected
pursuant to a Notice of Termination satisfying the
requirements of Section 1.2 of this Agreement,
which purported termination shall not be effective
for purposes of this Agreement; or
(g) A failure of any successor company to
execute the Agreement required by Section 7.1 of
this Agreement.
1.6 Severance Amount: The term "Severance
Amount" shall mean a lump sum amount equal to the sum of:
(a) Three times the Employee's Base Salary
for the year in which the Employee's employment is
terminated;
(b) Three times the Employee's Incentive
Pay;
(c) The Supplemental Pension Benefit;
(d) The Supplemental SIP Plan Benefit; and
(e) The Post-Tax SIP Plan Benefit.
1.7 Code: The term "Code" shall mean the
Internal Revenue Code of 1986, as amended.
1.8 Supplemental Pension Benefit: The term
"Supplemental Pension Benefit" shall mean (a) less (b), where:
(a) is the sum of the future pension
benefits (converted to a lump sum of actuarial
equivalence as of the Termination Date) which the
Employee would have been entitled to receive at or
after the Termination Date under (i) the
Retirement Plan, (ii) any annuity distributed to
the Employee as a result of the termination on
October 31, 1984 of the Retirement Plan for
Salaried Employees of The Timken Company (the
"Terminated Pension Plan"), (iii) any Employee
Excess Benefits Agreement ("Excess Agreement"),
and (iv) the Supplemental Pension Plan of The
Timken Company ("Supplemental Plan"), assuming for
purposes of this calculation that (A) the
Employee's benefits under the Retirement Plan, the
Excess Agreement and the Supplemental Plan were
vested and non-forfeitable, (B) the Employee
satisfied any other condition under the Retirement
Plan, the Excess Agreement and the Supplemental
Plan to his receipt of benefits thereunder, (C)
the Employee's compensation for purposes of the
Retirement Plan, the Excess Agreement and the
Supplemental Plan was determined without regard to
any reduction in compensation elected by the
Employee pursuant to any qualified or non-
qualified salary reduction arrangement maintained
by the Company, including, without limitation, the
SIP Plan and the Deferred Compensation Plan, (D)
the Employee was credited with additional service
with the Company equal to the period of time
between the Termination Date and the end of the
Limited Period, (E) solely for purposes of
determining the time at which the Employee would
receive benefits under the Retirement Plan, the
Terminated Pension Plan, the Excess Agreement and
the Supplemental Plan, the Employee had continued
his employment with the Company until such time,
(F) the Employee's compensation for purposes of
benefit calculations under the Retirement Plan,
the Excess Agreement and the Supplemental Plan
included a period of the Employee's full-time
employment with the Company equal to the period of
time between the Termination Date and the end of
the Limited Period during which the Employee had
Base Salary equal to his Base Salary for the
calendar year in which the Employee's employment
is terminated and Incentive Pay equal to the
Employee's Incentive Pay and (G) the Employee
commenced receiving benefits from the Retirement
Plan, the Terminated Pension Plan, the Excess
Agreement and the Supplemental Plan at the point
in time when the total of the lump sums of
actuarial equivalence under the Retirement Plan,
the Terminated Pension Plan, the Excess Agreement
and the Supplemental Plan is the greatest; and
(b) is the sum of the future pension
benefits (converted to a lump sum of actuarial
equivalence as of the Termination Date) which the
Employee is entitled to receive at or after the
Termination Date under (i) the Retirement Plan,
and (ii) any annuity distributed to the Employee
as a result of the termination on October 31, 1984
of the Terminated Pension Plan.
The calculations of the Supplemental Pension Benefit (and its
actuarial equivalence) shall be made, as of the Termination Date,
by Xxxxxx Xxxxx & Company or such other independent actuary
appointed by the administrator of the Retirement Plan and
acceptable to the Employee. The lump sum of actuarial
equivalence shall be calculated using the applicable mortality
table promulgated by the Internal Revenue Service ("IRS") under
Section 417(e)(3) of the Code as in effect on the Termination
Date and the applicable interest rate promulgated by the IRS
under Section 417(e)(3) of the Code for the month third preceding
the month in which the Termination Date occurs, and if the IRS
ceases to promulgate such interest rates, an interest rate
determined by Xxxxxx Xxxxx & Company or such other independent
actuary appointed by the administrator of the Retirement Plan and
acceptable to the Employee.
1.9 Supplemental SIP Plan Benefit: The
"Supplemental SIP Plan Benefit" shall mean:
(a) The amount of the matching contributions
that would have been made to the SIP Plan by the
Company and allocated to the Employee's account
thereunder as of the end of the Limited Period if
the Employee had remained in the full-time
employment of the Company until the end of the
Limited Period at his Base Salary for the calendar
year in which the Employee's employment is
terminated, at the Employee's Incentive Pay, and
assuming the Employee's salary deferral was at the
maximum permissible level; less
(b) The amount of the matching contributions
made to the SIP Plan by the Company and allocated
to the Employee's account thereunder at the
Termination Date.
1.10 Post-Tax SIP Plan Benefit: The "Post-Tax
SIP Plan Benefit" shall mean the sum of:
(a) The amount credited to the Employee's
account under the Timken Company-Latrobe Steel
Company Post-Tax SIP Plan (the "Post-Tax SIP
Plan") as of the Termination Date; plus
(b) The amount of Company contributions that
would have been credited to the Employee's account
under the Post-Tax SIP Plan from the Termination
Date to the end of the Limited Period if the
Employee had remained in the full-time employment
of the Company until the end of the Limited Period
at his Base Salary for the calendar year in which
the Employee's employment is terminated and at the
Employee's Incentive Pay, and assuming the
Employee's contributions to the Post-Tax SIP Plan
following the Termination Date had been at the
highest rate at which such contributions had been
made at any time during the three-year period
ending on the Termination Date.
1.11 Termination Date: The term "Termination
Date" shall mean the effective date on which the Employee's
employment with the Company is terminated.
2. Operation of Agreement: This Agreement shall be
effective immediately upon its execution, but anything in this
Agreement to the contrary notwithstanding, neither this Agreement
nor any of its provisions shall be operative unless and until a
Change in Control has occurred. Upon the occurrence of a Change
in Control, this Agreement and all of its provisions shall become
operative immediately.
3. Severance Compensation:
3.1 Severance Compensation: (a) If the Company
shall terminate the Employee's employment during the Limited
Period other than pursuant to a Company Termination Event, or if
the Employee shall voluntarily terminate his employment during
the Limited Period pursuant to an Employee Termination Event,
then the Company shall pay as severance compensation to the
Employee a lump sum cash payment in the amount of the Severance
Amount.
(b) Notwithstanding anything contained in this
Agreement to the contrary, in the event of a Change in Control,
the Employee may terminate his employment with the Company for
any reason, or without reason, during the 30-day period
immediately following the first anniversary of the first
occurrence of a Change in Control, with the right to severance
compensation and other benefits as provided in Section 3 hereof.
If the Employee shall so terminate his employment during such 30-
day period, then the Company shall pay as severance compensation
to the Employee a lump sum cash payment in the amount of the
Severance Amount.
(c) The payment of the Severance Amount required
by this Section 3.1 and any Gross-Up Payment initially determined
to be required by Section 3.5 shall, subject to execution and
delivery by the Employee of the Release described in Section 6
hereof, and the expiration of all applicable rights of the
Employee to revoke the Release or any provision thereof, be made
to the Employee within 30 calendar days after the Termination
Date. Upon receipt of the Severance Amount and because the
Severance Amount includes a supplemental pension benefit that the
parties intend to be paid pursuant to this Agreement in lieu of
any benefits to which the Employee is entitled under the Excess
Agreement and the Supplemental Plan, the Employee hereby
retroactively waives, upon his receipt of the Severance Amount,
participation in any non-qualified pension plan of, or benefits
under any employee excess benefits agreement with, the Company
providing for benefits in excess of those permitted by the Code
to be paid under the Retirement Plan, and which measures service
and compensation under such plan or agreement as a basis for
benefits, including, without limitation, the Excess Agreement and
the Supplemental Plan.
3.2 Compensation through Termination: The
Company shall pay the Employee (a) his full Base Salary through
the Termination Date; and (b) an amount equivalent to the
Incentive Pay multiplied by a fraction, the numerator of which is
the number of days in the current calendar year that have expired
prior to the Termination Date and the denominator of which is
three hundred sixty-five.
3.3 Set-off: There shall be no right of set-off
or counterclaim against, or delay in, any payment of the
Severance Amount or the Gross-Up Payment by the Company to the
Employee provided for in this Agreement in respect of any claim
against or debt or obligation of the Employee, whether arising
hereunder or otherwise.
3.4 Interest on Overdue Payments: Without
limiting the rights of the Employee at law or in equity, if the
Company fails to make any payment required to be made under this
Agreement on a timely basis, the Company shall pay interest on
the amount thereof at an annualized rate of interest equal to
eighteen percent (18%).
3.5 Indemnification: (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 to or for the benefit of the Employee, whether paid
hereunder or paid or payable or distributed or distributable
pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock
option, stock appreciation right or similar right, or the lapse
or termination of any of the foregoing (individually and
collectively a "Payment"), would be subject to the excise tax
imposed by Section 4999 of 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 to any
interest or penalties with respect to such taxes (such taxes,
together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Employee
shall be entitled to receive an additional payment or payments
(individually and collectively, a "Gross-Up Payment"). The Gross-
Up Payment shall be in an amount such that, after payment by the
Employee 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 Employee retains a portion
of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payment.
(b) Subject to the provisions of paragraph (e) of
this Section 3.5, all determinations required to be made under
this Section 3.5, including whether an Excise Tax is payable by
the Employee and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the
Employee 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 Employee in his sole
discretion. The Employee shall direct the Accounting Firm to
submit its determination and detailed supporting calculations to
both the Company and the Employee 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 Employee. If the
Accounting Firm determines that any Excise Tax is payable by the
Employee, the Company shall pay the required Gross-Up Payment to
the Employee within five business days after receipt of such
determination and calculations with respect to any Payment to the
Employee. If the Accounting Firm determines that no Excise Tax
is payable by the Employee, it shall, at the same time as it
makes such determination, furnish the Company and the Employee an
opinion that the Employee has substantial authority not to report
any Excise Tax on his federal income 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 paragraph (e) of this Section
3.5 and the Employee thereafter is required to make a payment of
the Excise Tax, the Employee 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 Employee as promptly as possible. Any
such Underpayment shall be promptly paid by the Company to, or
for the benefit of, the Employee within five business days after
receipt of such determination and calculations.
(c) The Company and the Employee shall each
provide the Accounting Firm access to and copies of any books,
records and documents in the possession of the Company or the
Employee, 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 paragraph (b) of
this Section 3.5. Any determination by the Accounting Firm as to
the amount of the Gross-Up Payment or the Underpayment shall be
binding upon the Company and the Employee.
(d) The fees and expenses of the Accounting Firm
for its services in connection with the determinations and
calculations contemplated by paragraph (b) of this Section 3.5
shall be borne by the Company. If such fees and expenses are
initially paid by the Employee, the Company shall reimburse the
Employee the full amount of such fees and expenses within five
business days after receipt from the Employee of a statement
therefor and reasonable evidence of his payment thereof.
(e) The Employee shall notify the Company in
writing of any claim by the IRS 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 10 business days after the
Employee actually receives notice of such claim and the Employee
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 Employee). The Employee shall
not pay such claim prior to the earlier of (y) the expiration of
the 30-calendar-day period following the date on which he gives
such notice to the Company and (z) the date that any payment of
an amount with respect to such claim is due. If the Company
notifies the Employee in writing prior to the expiration of such
period that it desires to contest such claim, the Employee shall:
(i) provide the Company with any written records
or documents in his possession relating to such claim
reasonably requested by the Company;
(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 competent in respect of the
subject matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including interest and penalties)
incurred in connection with such contest and shall indemnify and
hold harmless the Employee, 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 paragraph (e), the Company
shall control all proceedings taken in connection with the
contest of any claim contemplated by paragraph (e) 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
Employee may participate therein at his own cost and expense) and
may, at its option, either direct the Employee to pay the tax
claimed and xxx for a refund or contest the claim in any
permissible manner, and the Employee 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 Employee to pay the tax claimed and
xxx for a refund, the Company shall advance the amount of such
payment to the Employee on an interest-free basis and shall
indemnify and hold the Employee 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 Employee 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 Employee shall be
entitled to settle or contest, as the case may be, any other
issue raised by the IRS or any other taxing authority.
(f) If, after the receipt by the Employee of an
amount advanced by the Company pursuant to paragraph (e) of this
Section 3.5, the Employee receives any refund with respect to
such claim, the Employee shall (subject to the Company's
complying with the requirements of paragraph (e) of this Section
3.5) 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 Employee
of an amount advanced by the Company pursuant to paragraph (e) of
this Section 3.5, a determination is made that the Employee shall
not be entitled to any refund with respect to such claim and the
Company does not notify the Employee in writing of its intent to
contest such denial or refund prior to the expiration of 30
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 Employee pursuant to this Section 3.5.
(g) The federal, state and local income or other
tax returns filed by the Employee shall be prepared and filed on
a basis consistent with the determination of the Accounting Firm
with respect to the Excise Tax payable by the Employee. The
Employee shall make proper payment of the amount of any Excise
Tax, 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 IRS 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 Employee'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 Employee shall within five business days pay to the
Company the amount of such reduction.
4. No Obligation to Mitigate Damages; No Effect on
Other Contractual Rights:
4.1 The Employee shall not be required to
mitigate damages or the amount of any payment provided for under
this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment provided for under this Agreement
be reduced by any compensation earned by the Employee as the
result of employment by another employer after the Termination
Date, or otherwise.
4.2 The provisions of this Agreement, and any
payment provided for hereunder, shall not reduce any amounts
otherwise payable, or in any way diminish the Employee's existing
rights, or rights which would accrue solely as a result of the
passage of time, under any other employment agreement or other
contract, plan or arrangement with the Company.
5. Confidential Information; Covenant Not To Compete:
5.l The Employee acknowledges that all trade
secrets, customer lists and other confidential business
information are the exclusive property of the Company. The
Employee shall not (following the execution of this Agreement,
during the Limited Period, or at any time thereafter) disclose
such trade secrets, customer lists, or confidential business
information without the prior written consent of the Company.
The Employee also shall not (following the execution of this
Agreement, during the Limited Period, or at any time thereafter)
directly or indirectly, or by act in concert with others, employ
or attempt to employ or solicit for any employment competitive
with the Company any person(s) employed by the Company. The
Employee recognizes that any violation of this Section 5 is
likely to result in immediate and irreparable harm to the Company
for which money damages are likely to be inadequate.
Accordingly, the Employee consents to the entry of injunctive and
other appropriate equitable relief by a court of competent
jurisdiction, after notice and hearing and the court's finding of
irreparable harm and the likelihood of prevailing on a claim
alleging violation of this Section 5, in order to protect the
Company's rights under this Section. Such relief shall be in
addition to any other relief to which the Company may be entitled
at law or in equity. The Employee agrees that the state and
federal courts located in the State of Ohio shall have
jurisdiction in any action, suit or proceeding against Employee
based on or arising out of this Agreement and Employee hereby:
(a) submits to the personal jurisdiction of such courts; (b)
consents to service of process in connection with any action,
suit or proceeding against Employee; and (c) waives any other
requirement (whether imposed by statute, rule of court or
otherwise) with respect to personal jurisdiction, venue or
service of process.
5.2 For a period of time beginning upon the
Termination Date and ending upon the first anniversary of the
Termination Date, the Employee shall not (a) engage or
participate, directly or indirectly, in any Competitive Activity,
as defined in Section 1.4, or (b) solicit or cause to be
solicited on behalf of a competitor any person or entity which
was a customer of the Company during the term of this Agreement,
if the Employee had any direct responsibility for such customer
while employed by the Company.
6. Release:
Payment of the severance payments set forth in Section
3 hereof is conditioned upon the Employee executing and
delivering a release satisfactory to the Company releasing the
Company from any and all claims, demands, damages, actions and/or
causes of action whatsoever, which he may have had on account of
the termination of his employment, and including, but not limited
to claims of discrimination, including on the basis of sex, race,
age, national origin, religion, or handicapped status (with all
applicable periods during which the Employee may revoke the
Release or any provision thereof having expired), and any and all
claims, demands and causes of action for retirement benefits
(other than under the Retirement Plan, the Terminated Pension
Plan or any Company medical or life insurance plan with respect
to claims thereunder), severance or other termination pay, or
benefits under the Post-Tax SIP Plan. Such Release shall not,
however, apply to the obligations of the Company arising under
this Agreement, under any Indemnification Agreement between the
Employee and the Company, or rights of indemnification the
Employee may have under the Company's Regulations or by statute.
7. Successors and Binding Agreement:
7.1 Successors: 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 in form and
substance satisfactory to the Employee, to assume and agree to
perform this Agreement.
7.2 Binding Agreement: This Agreement shall
inure to the benefit of and be enforceable by the Employee's
personal or legal representative, executor, administrators,
successors, heirs, distributees and legatees. This Agreement
shall be binding upon and inure to the benefit of the Company and
any successor of or to the Company, including, without
limitation, any person acquiring directly or indirectly all or
substantially all of the assets of the Company whether by merger,
consolidation, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this
Agreement), but shall not otherwise be assignable by the Company.
8. Notices: For the purpose of this Agreement, all
communications provided for herein shall be in writing and shall
be deemed to have been duly given when delivered or mailed by
United States registered or certified mail, return receipt
requested, postage prepaid, addressed as indicated below, or to
such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
If to the Company: The Timken Company
0000 Xxxxxx Xxxxxx, X.X.
Xxxxxx, Xxxx 00000
If to the Employee:
9. Governing Law: The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of Ohio, without giving effect to the
principles of conflict of laws of such State.
10. Miscellaneous: No provisions of this Agreement
may be amended, modified, waived or discharged unless such
amendment, waiver, modification or discharge is agreed to in
writing signed by the Employee and the Company. No waiver by
either party hereto at any time of any breach by the other party
hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall 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.
11. Validity: The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement which
shall remain in full force and effect.
12. 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.
13. Employment Rights: Nothing expressed or implied
in this Agreement shall create any right or duty on the part of
the Company or the Employee to have the Employee remain in the
employment of the Company; provided, however, that any
termination of the employment of the Employee or removal of the
Employee as an elected officer or Director of the Company or a
Subsidiary following the commencement of any discussion with or
communication from a third party that ultimately results in a
Change in Control shall be deemed to be a termination or removal
of the Employee after a Change in Control for purposes of this
Agreement. In the event the Employee is entitled to the benefits
under this Agreement as contemplated by the preceding sentence,
then (x) the 30-calendar-day periods specified in Section 3.1(c)
hereof and Section 3.5(b) hereof shall be deemed to commence on
the date on which the Employee receives the notice contemplated
by the last sentence of Section 1.3 hereof, and (y) any
employment or consulting arrangement that the Employee has
established or entered into, and the Employee's performance
pursuant thereto, prior to receiving such notice shall not be
deemed a violation of Section 5.2 hereof, and the Employee may
continue such employment or consulting arrangement following
receipt of such notice.
14. Withholding of Taxes: The Company may withhold
from any amount payable under this Agreement all federal, state,
city or other taxes as shall be required pursuant to any law or
government regulation or ruling.
15. Nonassignability: This Agreement is personal in
nature and neither of the parties hereto shall, without the
consent of the other, assign or transfer this Agreement or any
rights or obligations hereunder, except as provided in Sections
7.1 and 7.2 above. Without limiting the foregoing, the
Employee's right to receive payments hereunder shall not be
assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than by a transfer by his
will or by the laws of descent and distribution and in the event
of any attempted assignment or transfer contrary to this Section
the Company shall have no liability to pay any amounts so
attempted to be assigned or transferred.
16. Termination of Agreement: The term of this
Agreement (the "Term") shall commence as of the date hereof and
shall expire as of the later of the close of business on December
31, 1999 and the expiration of the Limited Period; provided,
however, that (a) the Term shall automatically be extended for an
additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Employee shall
have given notice that it or he, as the case may be, does not
wish to have the Term extended, and (b) subject to Section 13
hereof, if prior to a Change in Control, the Employee ceases for
any reason to be an employee of the Company, thereupon the Term
shall be deemed to have expired and this Agreement shall
immediately terminate and be of no further effect; and provided
further, however, that notwithstanding any notice by the Company
to terminate, if a Change in Control shall have occurred during
the Term, this Agreement shall continue in effect for a period of
three years from the date of the occurrence of the Change in
Control; and provided further, however, that the provisions of
Section 5.1 hereof which by their terms extend beyond the Term
shall survive beyond the Term.
17. Indemnification of Legal Fees and Expenses;
Security for Payment:
(a) Indemnification of Legal Fees. It is the intent
of the Company that the Employee not be required to incur the
expenses associated with the enforcement of his rights under this
Agreement by litigation or other legal action because the cost
and expense thereof would substantially detract from the benefits
intended to be extended to the Employee hereunder. Accordingly,
if it should appear to the Employee 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 any action
to declare this Agreement void or unenforceable, or institutes
any litigation designed to deny, or to recover from, the Employee
the benefits intended to be provided to the Employee hereunder,
the Company irrevocably authorizes the Employee from time to time
to retain counsel of his choice, at the expense of the Company as
hereafter provided, to represent the Employee in connection with
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
attorney-client relationship between the Company and such
counsel, the Company irrevocably consents to the Employee's
entering into an attorney-client relationship with such counsel,
and in that connection the Company and the Employee agree that a
confidential relationship shall exist between the Employee and
such counsel. The Company shall pay or cause to be paid and
shall be solely responsible for any and all attorneys' and
related fees and expenses incurred by the Employee as a result of
the Company's failure to perform this Agreement or any provision
hereof or as a result of the Company or any person contesting the
validity or enforceability of this Agreement or any provision
hereof as aforesaid.
(b) Trust Agreements. To ensure that the provisions
of this Agreement can be enforced by the Employee, two agreements
("Amended and Restated Trust Agreement" and "Amended and Restated
Trust Agreement No. 2") each dated as of March 26, 1991, as they
may have been or may be amended, have been established between a
Trustee selected by the members of the Compensation Committee or
any officer (the "Trustee") and the Company. The Amended and
Restated Trust Agreement sets forth the terms and conditions
relating to payment pursuant to the Amended and Restated Trust
Agreement of the Severance Amount, the Gross-Up Payment and other
payments provided for in Section 3.5 hereof pursuant to this
Agreement owed by the Company, and Amended and Restated Trust
Agreement No. 2 sets forth the terms and conditions relating to
payment pursuant to Amended and Restated Trust Agreement No. 2 of
attorneys' and related fees and expenses pursuant to paragraph
(a) of this Section owed by the Company. Employee shall make
demand on the Company for any payments due Employee pursuant to
paragraph (a) of this Section prior to making demand therefor on
the Trustee under Amended and Restated Trust Agreement No. 2.
Payments by such Trustee shall discharge the Company's liability
under paragraph (a) of this Section only to the extent that trust
assets are used to satisfy such liability.
(c) Obligation of the Company to Fund Trusts. Upon
the earlier to occur of (x) a Change in Control that involves a
transaction that was not approved by the Board, and was not
recommended to the Company's shareholders by the Board, (y) a
declaration by the Board that the trusts under the Amended and
Restated Trust Agreement and Amended and Restated Trust Agreement
No. 2 should be funded in connection with a Change in Control
that involves a transaction that was approved by the Board, or
was recommended to shareholders by the Board, or (z) a
declaration by the Board that a Change in Control is imminent,
the Company shall promptly to the extent it has not previously
done so, and in any event within five business days:
(i) transfer to the Trustee to be added to the
principal of the trust under the Amended and Restated Trust
Agreement a sum equal to the aggregate value on the date of
the Change in Control of the Severance Amount and Gross-Up
Payment which could become payable to the Employee under the
provisions of Section 3.1 and Section 3.5 hereof. The
payment of any Severance Amount, Gross-Up Payment or other
payment by the Trustee pursuant to the Amended and Restated
Trust Agreement shall, to the extent thereof, discharge the
Company's obligation to pay the Severance Amount, Gross-Up
Payment or other payment hereunder, it being the intent of
the Company that assets in such Amended and Restated Trust
Agreement be held as security for the Company's obligation
to pay the Severance Amount, Gross-Up Payment and other
payments under this Agreement; and
(ii) transfer to the Trustee to be added to the
principal of the trust under Amended and Restated Trust
Agreement No. 2 the sum authorized by the members of the
Compensation Committee from time to time. Any payments of
attorneys' and related fees and expenses, which are the
obligation of the Company under paragraph (a) of this
Section, by the Trustee pursuant to Amended and Restated
Trust Agreement No. 2 shall, to the extent thereof,
discharge the Company's obligation hereunder, it being the
intent of the Company that such assets in such Amended and
Restated Trust Agreement No. 2 be held as security for the
Company's obligation under paragraph (a) of this Section.
18. Prior Agreement: This Agreement amends and
restates in its entirety the Severance Agreement, dated
___________________, as amended, between the Company and the
Employee.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered as of the date first set
forth above.
_____________________________
THE TIMKEN COMPANY
By: _________________________
Name: X. X. Xxxxxx, Xx.
Title: Chairman -- Board of
Directors
