1
EXHIBIT 10.10
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of
______, 2000, by and between Pentair, Inc., a Minnesota corporation (hereinafter
referred to as the "Company"), and _____________________ (hereinafter referred
to as the "Executive").
W I T N E S S E T H
WHEREAS, the Executive is employed by the Company and/or a
subsidiary of the Company (hereinafter referred to collectively as the
"Employer") in a key executive capacity and the Executive's services are
valuable to the conduct of the business of the Company;
WHEREAS, the Company desires to continue to attract and retain
dedicated and skilled management employees in a period of industry
consolidation, consistent with achieving the best possible value for its
shareholders in any change in control of the Company;
WHEREAS, the Company recognizes that circumstances may arise in
which a change in control of the Company occurs, through acquisition or
otherwise, thereby causing a potential conflict of interest between the
Company's needs for the Executive to remain focused on the Company's business
and for the necessary continuity in management prior to and following a change
in control, and the Executive's reasonable personal concerns regarding future
employment with the Employer and economic protection in the event of loss of
employment as a consequence of a change in control;
WHEREAS, the Company and the Executive are desirous that any
proposal for a change in control or acquisition of the Company will be
considered by the Executive objectively and with reference only to the best
interests of the Company and its shareholders;
WHEREAS, the Executive will be in a better position to consider
the Company's best interests if the Executive is afforded reasonable economic
security, as provided in this Agreement, against altered conditions of
employment which could result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the
business and affairs of the Company and has acquired certain confidential
information and data with respect to the Company; and
WHEREAS, the Company desires to insure, insofar as possible,
that it will continue to have the benefit of the Executive's services and to
protect its confidential information and goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties hereto
mutually covenant and agree as follows:
2
1. Definitions.
(a) Accrued Benefits. The Executive's "Accrued Benefits"
shall include the following amounts, payable as described herein: (i) all base
salary for the time period ending with the Termination Date; (ii) reimbursement
for any and all monies advanced in connection with the Executive's employment
for reasonable and necessary expenses incurred by the Executive on behalf of the
Employer for the time period ending with the Termination Date; (iii) any and all
other cash earned through the Termination Date and deferred at the election of
the Executive or pursuant to any deferred compensation plan then in effect; (iv)
notwithstanding any provision of any bonus or incentive compensation plan
applicable to the Executive, a lump sum amount, in cash, equal to the sum of (A)
any bonus or incentive compensation that has been allocated or awarded to the
Executive for a fiscal year or other measuring period under the plan that ends
prior to the Termination Date but has not yet been paid (pursuant to Section
5(f) or otherwise) and (B) a pro rata portion to the Termination Date of the
aggregate value of all contingent bonus or incentive compensation awards to the
Executive for all uncompleted periods under the plan calculated as to each such
award as if the Goals with respect to such bonus or incentive compensation award
had been attained reduced by any amounts paid to the Executive pursuant to
Section(b)(iii) and Section 3(b)(iv) under the plan for the fiscal year in which
the Termination Date occurs; and (v) all other payments and benefits to which
the Executive (or in the event of the Executive's death, the Executive's
surviving spouse or other beneficiary) may be entitled on the Termination Date
as compensatory fringe benefits or under the terms of any benefit plan of the
Employer, excluding severance payments under any Employer severance policy,
practice or agreement in effect on the Termination Date. Payment of Accrued
Benefits shall be made promptly in accordance with the Company's prevailing
practice with respect to clauses (i) and (ii) or, with respect to clauses (iii),
(iv) and (v), pursuant to the terms of the benefit plan or practice establishing
such benefits.
(b) Act. The term "Act" means the Securities Exchange Act
of 1934, as amended.
(c) Affiliate and Associate. The terms "Affiliate" and
"Associate" shall have the respective meanings ascribed to such terms in Rule
l2b-2 of the General Rules and Regulations under the Act.
(d) Annual Cash Compensation. The term "Annual Cash
Compensation" shall mean the sum of (i) the Executive's Annual Base Salary
(determined as of the time of the Change in Control of the Company or, if
higher, immediately prior to the date the Notice of Termination is given) plus
(ii) an amount equal to the greater of the Executive's annual incentive target
bonus for the fiscal year in which the Termination Date occurs or the annual
incentive bonus the Executive received for the fiscal year prior to the Change
in Control of the Company (the aggregate amount set forth in clause (i) and
clause (ii) shall hereafter be referred to as the "Annual Cash Compensation"),
(e) Beneficial Owner. A Person shall be deemed to be the
"Beneficial Owner" of any securities:
(i) which such Person or any of such Person's
Affiliates or Associates has the right to acquire (whether such right is
exercisable immediately or
-2-
3
only after the passage of time) pursuant to any agreement, arrangement
or understanding, or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however,
that a Person shall not be deemed the Beneficial Owner of, or to
beneficially own, (A) securities tendered pursuant to a tender or
exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are
accepted for purchase, or (B) securities issuable upon exercise of
Rights issued pursuant to the terms of the Company's Rights Agreement,
dated as of July 21, 1995, between the Company and Norwest Bank
Minnesota, National Association, as amended from time to time (or any
successor to such Rights Agreement), at any time before the issuance of
such securities;
(ii) which such Person or any of such Person's
Affiliates or Associates, directly or indirectly, has the right to vote
or dispose of or has "beneficial ownership" of (as determined pursuant
to Rule l3d-3 of the General Rules and Regulations under the Act),
including pursuant to any agreement, arrangement or understanding;
provided, however, that a Person shall not be deemed the Beneficial
Owner of, or to beneficially own, any security under this clause (ii) as
a result of an agreement, arrangement or understanding to vote such
security if the agreement, arrangement or understanding: (A) arises
solely from a revocable proxy or consent given to such Person in
response to a public proxy or consent solicitation made pursuant to, and
in accordance with, the applicable rules and regulations under the Act
and (B) is not also then reportable on a Schedule l3D under the Act (or
any comparable or successor report); or
(iii) which are beneficially owned, directly or
indirectly, by any other Person with which such Person or any of such
Person's Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in clause (ii) above) or
disposing of any voting securities of the Company.
(f) Cause. "Cause" for termination by the Employer of the
Executive's employment in connection with a Change in Control of the Company
shall be limited to (i) the engaging by the Executive in intentional conduct
that the Company establishes, by clear and convincing evidence, has caused
demonstrable and serious financial injury to the Employer, as evidenced by a
determination in a binding and final judgment, order or decree of a court or
administrative agency of competent jurisdiction, in effect after exhaustion or
lapse of all rights of appeal, in an action, suit or proceeding, whether civil,
criminal, administrative or investigative; (ii) conviction of a felony (as
evidenced by binding and final judgment, order or decree of a court of competent
jurisdiction, in effect after exhaustion of all rights of appeal); or (iii)
continuing willful and unreasonable refusal by the Executive to perform the
Executive's duties or responsibilities (unless significantly changed without the
Executive's consent).
-3-
4
(g) Change in Control of the Company. A "Change in Control
of the Company" shall be deemed to have occurred if an event set forth in any
one of the following paragraphs shall have occurred:
(i) any Person (other than (A) the Company or any of
its subsidiaries, (B) a trustee or other fiduciary holding securities
under any employee benefit plan of the Company or any of its
subsidiaries, (C) an underwriter temporarily holding securities pursuant
to an offering of such securities or (D) a corporation owned, directly
or indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of stock in the Company ("Excluded
Persons")) is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly from
the Company or its Affiliates after August 23, 2000, pursuant to express
authorization by the Board that refers to this exception) representing
20% or more of either the then outstanding shares of common stock of the
Company or the combined voting power of the Company's then outstanding
voting securities; or
(ii) the following individuals cease for any reason
to constitute a majority of the number of directors of the Company then
serving: (A) individuals who, on August 23, 2000 constituted the Board
and (B) any new director (other than a director whose initial assumption
of office is in connection with an actual or threatened election
contest, including but not limited to a consent solicitation, relating
to the election of directors of the Company, as such terms are used in
Rule 14a-11 of Regulation 14A under the Act) whose appointment or
election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors on August 23,
2000, or whose appointment, election or nomination for election was
previously so approved (collectively the "Continuing Directors");
provided, however, that individuals who are appointed to the Board
pursuant to or in accordance with the terms of an agreement relating to
a merger, consolidation, or share exchange involving the Company (or any
direct or indirect subsidiary of the Company) shall not be Continuing
Directors for purposes of this Agreement until after such individuals
are first nominated for election by a vote of at least two-thirds (2/3)
of the then Continuing Directors and are thereafter elected as directors
by the shareholders of the Company at a meeting of shareholders held
following consummation of such merger, consolidation, or share exchange;
and, provided further, that in the event the failure of any such persons
appointed to the Board to be Continuing Directors results in a Change in
Control of the Company, the subsequent qualification of such persons as
Continuing Directors shall not alter the fact that a Change in Control
of the Company occurred; or
(iii) the consummation of a merger, consolidation or
share exchange of the Company with any other corporation or the issuance
of voting securities of the Company in connection with a merger,
consolidation or share exchange of the Company (or any direct or
indirect subsidiary of the Company), in
-4-
5
each case, which requires approval of the shareholders of the Company,
other than (A) a merger, consolidation or share exchange which would
result in the voting securities of the Company outstanding immediately
prior to such merger, consolidation or share exchange continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity or any parent thereof) at
least 50% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger, consolidation or share exchange, or (B) a
merger, consolidation or share exchange effected to implement a
recapitalization of the Company (or similar transaction) in which no
Person (other than an Excluded Person) is or becomes the Beneficial
Owner, directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its Affiliates after
August 23, 2000, pursuant to express authorization by the Board that
refers to this exception) representing 20% or more of either the then
outstanding shares of common stock of the Company or the combined voting
power of the Company's then outstanding voting securities; or
(iv) the consummation of a plan of complete
liquidation or dissolution of the Company or a sale or disposition by
the Company of all or substantially all of the Company's assets (in one
transaction or a series of related transactions within any period of 24
consecutive months), in each case, which requires approval of the
shareholders of the Company, other than a sale or disposition by the
Company of all or substantially all of the Company's assets to an entity
at least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
Notwithstanding the foregoing, no "Change in Control of the Company" shall be
deemed to have occurred if there is consummated any transaction or series of
integrated transactions immediately following which the record holders of the
common stock of the Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same proportions as
their ownership in the Company, an entity that owns all or substantially all of
the assets or voting securities of the Company immediately following such
transaction or series of transactions.
(h) Code. The term "Code" means the Internal Revenue Code
of 1986, including any amendments thereto or successor tax codes thereof.
(i) Covered Termination. Subject to Section 2(b), the term
"Covered Termination" means any termination of the Executive's employment during
the Employment Period where the Termination Date or the date Notice of
Termination is delivered is any date prior to the end of the Employment Period.
(j) Employment Period. Subject to Section 2(b), the term
"Employment Period" means a period commencing on the date of a Change in Control
of the Company, and ending at 11:59 p.m. Central Time on the earlier of the
third anniversary of such date or the Executive's Normal Retirement Date.
-5-
6
(k) Good Reason. The Executive shall have "Good Reason"
for termination of employment in connection with a Change in Control of the
Company in the event of:
(i) any breach of this Agreement by the Employer,
including specifically any breach by the Employer of the agreements
contained in Section 3, Section 4, Section 5, or Section 6, other than
an isolated, insubstantial and inadvertent failure not occurring in bad
faith that the Employer remedies promptly after receipt of notice
thereof given by the Executive;
(ii) any reduction in the Executive's base salary,
percentage of base salary available as incentive compensation or bonus
opportunity or benefits, in each case relative to those most favorable
to the Executive in effect at any time during the 180-day period prior
to the Change in Control of the Company or, to the extent more favorable
to the Executive, those in effect at any time during the Employment
Period;
(iii) the removal of the Executive from, or any
failure to reelect or reappoint the Executive to, any of the positions
held with the Employer on the date of the Change in Control of the
Company or any other positions with the Employer to which the Executive
shall thereafter be elected, appointed or assigned, except in the event
that such removal or failure to reelect or reappoint relates to the
termination by the Employer of the Executive's employment for Cause or
by reason of disability pursuant to Section 12;
(iv) a good faith determination by the Executive
that there has been a material adverse change, without the Executive's
written consent, in the Executive's working conditions or status with
the Employer relative to the most favorable working conditions or status
in effect during the 180-day period prior to the Change in Control of
the Company, or, to the extent more favorable to the Executive, those in
effect at any time during the Employment Period, including but not
limited to (A) a significant change in the nature or scope of the
Executive's authority, powers, functions, duties or responsibilities, or
(B) a significant reduction in the level of support services, staff,
secretarial and other assistance, office space and accoutrements, but in
each case excluding for this purpose an isolated, insubstantial and
inadvertent event not occurring in bad faith that the Employer remedies
within ten (10) days after receipt of notice thereof given by the
Executive;
(v) the relocation of the Executive's principal
place of employment to a location more than 50 miles from the
Executive's principal place of employment on the date 180 days prior to
the Change in Control of the Company;
(vi) the Employer requires the Executive to travel
on Employer business 20% in excess of the average number of days per
month the Executive was required to travel during the 180-day period
prior to the Change in Control of the Company;
-6-
7
(vii) failure by the Company to obtain the Agreement
referred to in Section 17(a) as provided therein; or
(viii) any voluntary termination of employment by the
Executive where the Notice of Termination is delivered during the 30
days following the first anniversary of the Change in Control of the
Company.
(l) Normal Retirement Date. The term "Normal Retirement
Date" means "Normal Retirement Date" as defined in the primary qualified defined
benefit pension plan applicable to the Executive, or any successor plan, as in
effect on the date of the Change in Control of the Company.
(m) Person. The term "Person" shall mean any individual,
firm, partnership, corporation or other entity, including any successor (by
merger or otherwise) of such entity, or a group of any of the foregoing acting
in concert.
(n) Termination Date. Except as otherwise provided in
Section 2(b), Section 10(b), and Section 17(a), the term "Termination Date"
means (i) if the Executive's employment is terminated by the Executive's death,
the date of death; (ii) if the Executive's employment is terminated by reason of
voluntary early retirement, as agreed in writing by the Employer and the
Executive, the date of such early retirement which is set forth in such written
agreement; (iii) if the Executive's employment is terminated for purposes of
this Agreement by reason of disability pursuant to Section 12, the earlier of
thirty days after the Notice of Termination is given or one day prior to the end
of the Employment Period; (iv) if the Executive's employment is terminated by
the Executive voluntarily (other than for Good Reason), the date the Notice of
Termination is given; and (v) if the Executive's employment is terminated by the
Employer (other than by reason of disability pursuant to Section 12) or by the
Executive for Good Reason, the earlier of thirty days after the Notice of
Termination is given or one day prior to the end of the Employment Period.
Notwithstanding the foregoing,
(A) If termination is for Cause pursuant to Section
1(f)(iii) and if the Executive has cured the conduct constituting such
Cause as described by the Employer in its Notice of Termination within
such thirty-day or shorter period, then the Executive's employment
hereunder shall continue as if the Employer had not delivered its Notice
of Termination.
(B) If the Executive shall in good faith give a Notice
of Termination for Good Reason and the Employer notifies the Executive
that a dispute exists concerning the termination within the fifteen-day
period following receipt thereof, then the Executive may elect to
continue his or her employment during such dispute and the Termination
Date shall be determined under this paragraph. If the Executive so
elects and it is thereafter determined that Good Reason did exist, the
Termination Date shall be the earliest of (1) the date on which the
dispute is finally determined, either (x) by mutual written agreement of
the parties or (y) in accordance with Section 22, (2) the date of the
Executive's death or (3) one day prior to the end of the Employment
Period. If the Executive so elects and it is thereafter determined that
Good Reason did not exist, then the employment of the
-7-
8
Executive hereunder shall continue after such determination as if the
Executive had not delivered the Notice of Termination asserting Good
Reason and there shall be no Termination Date arising out of such
Notice. In either case, this Agreement continues, until the Termination
Date, if any, as if the Executive had not delivered the Notice of
Termination except that, if it is finally determined that Good Reason
did exist, the Executive shall in no case be denied the benefits
described in Section 9 (including a Termination Payment) based on events
occurring after the Executive delivered his Notice of Termination.
(C) Except as provided in Section 1(n)(B), if the
party receiving the Notice of Termination notifies the other party that
a dispute exists concerning the termination within the appropriate
period following receipt thereof and it is finally determined that the
reason asserted in such Notice of Termination did not exist, then (1) if
such Notice was delivered by the Executive, the Executive will be deemed
to have voluntarily terminated his employment and the Termination Date
shall be the earlier of the date fifteen days after the Notice of
Termination is given or one day prior to the end of the Employment
Period and (2) if delivered by the Company, the Company will be deemed
to have terminated the Executive other than by reason of death,
disability or Cause.
2. Termination or Cancellation Prior to Change in
Control.
(a) Subject to Section 2(b), the Employer and the
Executive shall each retain the right to terminate the employment of the
Executive at any time prior to a Change in Control of the Company. Subject to
Section 2(b), in the event the Executive's employment is terminated prior to a
Change in Control of the Company, this Agreement shall be terminated and
cancelled and of no further force and effect, and any and all rights and
obligations of the parties hereunder shall cease.
(b) Anything in this Agreement to the contrary
notwithstanding, if a Change in Control of the Company occurs and if the
Executive's employment with the Employer is terminated (other than a termination
due to the Executive's death or as a result of the Executive's disability)
during the period of 180 days prior to the date on which the Change in Control
of the Company occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (i) was at the request of a third party who
has taken steps reasonably calculated to effect a Change in Control of the
Company or (ii) otherwise arose in connection with or in anticipation of a
Change in Control of the Company, then for all purposes of this Agreement such
termination of employment shall be deemed a "Covered Termination," "Notice of
Termination" shall be deemed to have been given, and the "Employment Period"
shall be deemed to have begun on the date of such termination which shall be
deemed to be the "Termination Date" and the date of the Change of Control of the
Company for purposes of this Agreement.
3. Employment Period; Vesting and Payment of Certain
Benefits.
(a) If a Change in Control of the Company occurs when the
Executive is employed by the Employer, the Employer will continue thereafter to
employ the Executive during the Employment Period, and the Executive will remain
in the employ of the Employer in accordance with and subject to the terms and
provisions of this Agreement. Any termination of the
-8-
9
Executive's employment during the Employment Period, whether by the Company or
the Employer, shall be deemed a termination by the Company for purposes of this
Agreement.
(b) If a Change in Control of the Company occurs when the
Executive is employed by the Employer, (i) the Company shall cause all
restrictions on restricted stock awards made to the Executive prior to the
Change in Control of the Company to lapse such that the Executive is fully and
immediately vested in the Executive's restricted stock upon such a Change in
Control of the Company; (ii) the Company shall cause all stock options granted
to the Executive prior to the Change in Control of the Company pursuant to the
Company's stock option plan(s) to be fully and immediately vested upon such a
Change in Control of the Company; (iii) the Company shall cause all incentive
compensation units and performance awards granted to the Executive pursuant to
any long-term incentive plan maintained by the Company to be paid to the
Executive within ten (10) business days after the Change in Control of the
Company (A) at one-third (1/3) of target, if the award cycle has been in effect
less than twelve (12) months, (B) at two thirds (2/3) of the then current value
pursuant to such plan, if the award cycle has been in effect twelve (12) or more
months but less than twenty-four (24) months, and (C) at the then current value
pursuant to such plan, if the award cycle has been in effect twenty-four (24) or
more months, in each case as if all performance or incentive requirements and
periods had been satisfied; and (iv) the Company shall pay to the Executive
within ten (10) business days after the Change in Control of the Company an
amount equal to the Executive's annual incentive target bonus for the fiscal
year in which the Change in Control of the Company occurs.
4. Duties. During the Employment Period, the Executive
shall, in the same capacities and positions held by the Executive at the time of
the Change in Control of the Company or in such other capacities and positions
as may be agreed to by the Employer and the Executive in writing, devote the
Executive's best efforts and all of the Executive's business time, attention and
skill to the business and affairs of the Employer, as such business and affairs
now exist and as they may hereafter be conducted.
5. Compensation. During the Employment Period, the
Executive shall be compensated as follows:
(a) The Executive shall receive, at reasonable intervals
(but not less often than monthly) and in accordance with such standard policies
as may be in effect immediately prior to the Change in Control of the Company,
an annual base salary in cash equivalent of not less than twelve times the
Executive's highest monthly base salary for the twelve-month period immediately
preceding the month in which the Change in Control of the Company occurs or, if
higher, annual base salary at the rate in effect immediately prior to the Change
in Control of the Company (which base salary shall, unless otherwise agreed in
writing by the Executive, include the current receipt by the Executive of any
amounts which, prior to the Change in Control of the Company, the Executive had
elected to defer, whether such compensation is deferred under Section 401(k) of
the Code or otherwise), subject to adjustment as hereinafter provided in Section
6 (such salary amount as adjusted upward from time to time is hereafter referred
to as the "Annual Base Salary").
(b) The Executive shall receive fringe benefits at least
equal in value to the highest value of such benefits provided for the Executive
at any time during the 180-day period immediately prior to the Change in Control
of the Company or, if more favorable to the Executive,
-9-
10
those provided generally at any time during the Employment Period to any
executives of the Employer of comparable status and position to the Executive;
and shall be reimbursed, at such intervals and in accordance with such standard
policies that are most favorable to the Executive that were in effect at any
time during the 180-day period immediately prior to the Change in Control of the
Company, for any and all monies advanced in connection with the Executive's
employment for reasonable and necessary expenses incurred by the Executive on
behalf of the Employer, including travel expenses.
(c) The Executive and/or the Executive's family, as the
case may be, shall be included, to the extent eligible thereunder (which
eligibility shall not be conditioned on the Executive's salary grade or on any
other requirement which excludes persons of comparable status to the Executive
unless such exclusion was in effect for such plan or an equivalent plan at any
time during the 180-day period immediately prior to the Change in Control of the
Company), in any and all plans providing benefits for the Employer's salaried
employees in general, including but not limited to group life insurance,
hospitalization, medical, dental, profit sharing and stock bonus plans;
provided, that, (i) in no event shall the aggregate level of benefits under such
plans in which the Executive is included be less than the aggregate level of
benefits under plans of the Employer of the type referred to in this Section
5(c) in which the Executive was participating at any time during the 180-day
period immediately prior to the Change in Control of the Company and (ii) in no
event shall the aggregate level of benefits under such plans be less than the
aggregate level of benefits under plans of the type referred to in this Section
5(c) provided at any time after the Change in Control of the Company to any
executive of the Employer of comparable status and position to the Executive.
(d) The Executive shall annually be entitled to not less
than the amount of paid vacation and not fewer than the highest number of paid
holidays to which the Executive was entitled annually at any time during the
180-day period immediately prior to the Change in Control of the Company or such
greater amount of paid vacation and number of paid holidays as may be made
available annually to other executives of the Employer of comparable status and
position to the Executive at any time during the Employment Period.
(e) The Executive shall be included in all plans providing
additional benefits to executives of the Employer of comparable status and
position to the Executive, including but not limited to deferred compensation,
split-dollar life insurance, supplemental retirement, stock option, stock
appreciation, stock bonus and similar or comparable plans; provided, that, (i)
in no event shall the aggregate level of benefits under such plans be less than
the highest aggregate level of benefits under plans of the Employer of the type
referred to in this Section 5(e) in which the Executive was participating at any
time during the 180-day period immediately prior to the Change in Control of the
Company; (ii) in no event shall the aggregate level of benefits under such plans
be less than the aggregate levels of benefits under plans of the type referred
to in this Section 5(e) provided at any time after the Change in Control of the
Company to any executive of the Employer comparable in status and position to
the Executive; and (iii) the Employer's obligation to include the Executive in
bonus or incentive compensation plans shall be determined by Section 5(f).
(f) To assure that the Executive will have an opportunity
to earn incentive compensation after a Change in Control of the Company, the
Executive shall be included in a bonus plan of the Employer which shall satisfy
the standards described below (such plan, the "Bonus
-10-
11
Plan"). Bonuses under the Bonus Plan shall be payable with respect to achieving
such financial or other goals reasonably related to the business of the Employer
as the Employer shall establish (the "Goals"), all of which Goals shall be
attainable, prior to the end of the Employment Period, with approximately the
same degree of probability as the most attainable goals under the Employer's
bonus plan or plans as in effect at any time during the 180-day period
immediately prior to the Change in Control of the Company (whether one or more,
the "Company Bonus Plan") and in view of the Employer's existing and projected
financial and business circumstances applicable at the time. The amount of the
bonus (the "Bonus Amount") that the Executive is eligible to earn under the
Bonus Plan shall be no less than 200% of the Executive's target award provided
in such Company Bonus Plan (such bonus amount herein referred to as the
"Targeted Bonus"), and in the event the Goals are not achieved such that the
entire Targeted Bonus is not payable, the Bonus Plan shall provide for a payment
of a Bonus Amount equal to a portion of the Targeted Bonus reasonably related to
that portion of the Goals which were achieved. Payment of the Bonus Amount shall
not be affected by any circumstance occurring subsequent to the end of the
Employment Period, including termination of the Executive's employment.
6. Annual Compensation Adjustments. During the Employment
Period, the Board of Directors of the Company (or an appropriate committee
thereof) will consider and appraise, at least annually, the contributions of the
Executive to the Company, and in accordance with the Company's practice prior to
the Change in Control of the Company, due consideration shall be given to the
upward adjustment of the Executive's Annual Base Salary, at least annually, (a)
commensurate with increases generally given to other executives of the Company
of comparable status and position to the Executive, and (b) as the scope of the
Company's operations or the Executive's duties expand.
7. Termination For Cause or Without Good Reason. If there
is a Covered Termination for Cause or due to the Executive's voluntarily
terminating his or her employment other than for Good Reason (any such
terminations to be subject to the procedures set forth in Section 13), then the
Executive shall be entitled to receive only Accrued Benefits.
8. Termination Giving Rise to a Termination Payment. If
there is a Covered Termination by the Executive for Good Reason, or by the
Company other than by reason of (i) death, (ii) disability pursuant to Section
12, or (iii) Cause (any such terminations to be subject to the procedures set
forth in Section 13), then the Executive shall be entitled to receive, and the
Company shall promptly pay, Accrued Benefits and, in lieu of further base salary
for periods following the Termination Date, as liquidated damages and additional
severance pay and in consideration of the covenant of the Executive set forth in
Section 14(a), the Termination Payment pursuant to Section 9(a).
9. Payments Upon Termination.
(a) Termination Payment. The "Termination Payment" shall
be an amount equal to the Annual Cash Compensation times three (3). The
Termination Payment shall be paid to the Executive in cash equivalent ten (10)
business days after the Termination Date. Such lump sum payment shall not be
reduced by any present value or similar factor, and the Executive shall not be
required to mitigate the amount of the Termination Payment by securing other
employment or otherwise, nor will such Termination Payment be reduced by reason
of the Executive securing
-11-
12
other employment or for any other reason. The Termination Payment shall be in
lieu of, and acceptance by the Executive of the Termination Payment shall
constitute the Executive's release of any rights of the Executive to, any other
cash severance payments under any Company severance policy, practice or
agreement.
(b) Certain Additional Payments by the Company.
(i) Notwithstanding any other provision of this
Agreement, if any portion of the Termination Payment or any other
payment under this Agreement, or under any other agreement with or plan
of the Employer (in the aggregate, "Total Payments"), would constitute
an "excess parachute payment" as defined in Section 280G of the Code (or
any successor provision), then the Company shall pay the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive after deduction of any excise tax imposed
under Section 4999 of the Code (or any successor provision) and any
interest charges or penalties in respect of the imposition of such
excise tax (collectively, the "Excise Tax") (but not any federal, state
or local income tax, or employment tax) on the Total Payments, and any
federal, state and local income tax, employment tax, and excise tax upon
the payment provided for by this Section 9(b)(i), shall be equal to the
Total Payments. For purposes of determining the amount of the Gross-Up
Payment, the Executive shall be deemed to pay federal income tax and
employment taxes at the highest marginal rate of federal income and
employment taxation in the calendar year in which the Gross-Up Payment
is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's domicile
for income tax purposes on the date the Gross-Up Payment is made, net of
the maximum reduction in federal income taxes that may be obtained from
the deduction of such state and local taxes. Notwithstanding the
foregoing, if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Total Payments would not be subject to
the Excise Tax if the Total Payments were reduced by an amount that is
less than 10% of the Total Payments that would be treated as "parachute
payments" under Section 280G of the Code (or any successor provision),
then the amounts payable to the Executive under this Agreement shall be
reduced (but not below zero) to the maximum amount that could be paid to
the Executive without giving rise to the Excise Tax (the "Safe Harbor
Cap"), and no Gross-Up Payment shall be made to the Executive. For
purposes of reducing the Total Payments to the Safe Harbor Cap, only
amounts payable under this Agreement (and no other Total Payments) shall
be reduced. If the reduction of the amounts payable hereunder would not
result in a reduction of the Total Payments to the Safe Harbor Cap, no
amounts payable under this Agreement shall be reduced pursuant to this
provision.
(ii) For purposes of this Agreement, the terms "excess
parachute payment" and "parachute payments" shall have the meanings
assigned to them in Section 280G of the Code (or any successor
provision) and such "parachute payments" shall be valued as provided
therein. Present value for purposes of this Agreement shall be
calculated in accordance with Section 1274(b)(2) of the Code
-12-
13
(or any successor provision). Promptly following a Covered Termination
or notice by the Company to the Executive of its belief that there is a
payment or benefit due the Executive which will result in an "excess
parachute payment" as defined in Section 280G of the Code (or any
successor provision), the Executive and the Company, at the Company's
expense, shall obtain the opinion (which need not be unqualified) of
nationally recognized tax counsel ("National Tax Counsel") selected by
the Company's independent auditors and reasonably acceptable to the
Executive (which may be regular outside counsel to the Company), which
opinion sets forth (A) the amount of the Base Period Income, (B) the
amount and present value of Total Payments, (C) the amount and present
value of any excess parachute payments, and (D) the amount of any
Gross-Up Payment or the reduction of any Total Payments to the Safe
Harbor Cap, as the case may be. As used in this Agreement, the term
"Base Period Income" means an amount equal to the Executive's
"annualized includable compensation for the base period" as defined in
Section 280G(d)(1) of the Code. For purposes of such opinion, the value
of any noncash benefits or any deferred payment or benefit shall be
determined by the Company's independent auditors in accordance with the
principles of Section 280G(d)(3) and (4) of the Code (or any successor
provisions), which determination shall be evidenced in a certificate of
such auditors addressed to the Company and the Executive. The opinion of
National Tax Counsel shall be addressed to the Company and the Executive
and shall be binding upon the Company and the Executive. If such
National Tax Counsel so requests in connection with the opinion required
by this Section 9(b), the Executive and the Company shall obtain, at the
Company's expense, and the National Tax Counsel may rely on, the advice
of a firm of recognized executive compensation consultants as to the
reasonableness of any item of compensation to be received by the
Executive solely with respect to its status under Section 280G of the
Code and the regulations thereunder. Within five (5) days after the
National Tax Counsel's opinion is received by the Company and the
Executive, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of the Executive such
amounts as are then due to the Executive under this Agreement.
(iii) In the event that upon any audit by the Internal
Revenue Service, or by a state or local taxing authority, of the Total
Payments or Gross-Up Payment, a change is finally determined to be
required in the amount of taxes paid by the Executive, appropriate
adjustments shall be made under this Agreement such that the net amount
which is payable to the Executive after taking into account the
provisions of Section 4999 of the Code (or any successor provision)
shall reflect the intent of the parties as expressed in this Section 9,
in the manner determined by the National Tax Counsel.
(iv) The Company agrees to bear all costs associated
with, and to indemnify and hold harmless, the National Tax Counsel of
and from any and all claims, damages, and expenses resulting from or
relating to its determinations pursuant to this Section 9(b), except
for claims, damages or expenses resulting from the gross negligence or
willful misconduct of such firm.
-13-
14
(b) Additional Benefits. If there is a Covered Termination
and the Executive is entitled to Accrued Benefits and the Termination Payment,
then the Company shall provide to the Executive the following additional
benefits:
(i) The Executive shall receive, at the expense of
the Company, outplacement services, on an individualized basis at a
level of service commensurate with the Executive's status with the
Company immediately prior to the date of the Change in Control of the
Company (or, if higher, immediately prior to the termination of the
Executive's employment), provided by a nationally recognized executive
placement firm selected by the Company; provided that the cost to the
Company of such services shall not exceed 10% of the Executive's Annual
Base Salary.
(ii) Until the earlier of the end of the Employment
Period or such time as the Executive has obtained new employment and is
covered by benefits which in the aggregate are at least equal in value
to the following benefits, the Executive shall continue to be covered,
at the expense of the Company, by the same or equivalent life insurance,
hospitalization, medical and dental coverage as was required hereunder
with respect to the Executive immediately prior to the date the Notice
of Termination is given.
(iii) The Company shall bear up to $15,000 in the
aggregate of fees and expenses of consultants and/or legal or accounting
advisors engaged by the Executive to advise the Executive as to matters
relating to the computation of benefits due and payable under this
Section 9.
(iv) The Company shall cause the Executive to be
fully and immediately vested in his accrued benefit under the Pentair,
Inc. Supplemental Executive Retirement Plan or any other successor plan
thereto (the "SERP") and in any defined contribution retirement plan of
the Employer. In addition, the Company shall cause the Executive to be
entitled to receive the Executive's full accrued benefit under the SERP
even though the Executive commences receipt of such benefit before
attainment of age sixty-five (65).
10. Death.
(a) Except as provided in Section 10(b), in the event of a
Covered Termination due to the Executive's death, the Executive's estate, heirs
and beneficiaries shall receive all the Executive's Accrued Benefits through the
Termination Date.
(b) In the event the Executive dies after a Notice of
Termination is given (i) by the Company or (ii) by the Executive for Good
Reason, the Executive's estate, heirs and beneficiaries shall be entitled to the
benefits described in Section 10(a) and, subject to the provisions of this
Agreement, to such Termination Payment as the Executive would have been entitled
to had the Executive lived. For purposes of this Section 10(b), the Termination
Date shall be the earlier of thirty days following the giving of the Notice of
Termination, subject to extension pursuant to Section 1(n), or one day prior to
the end of the Employment Period.
-14-
15
11. Retirement. If, during the Employment Period, the
Executive and the Employer shall execute an agreement providing for the early
retirement of the Executive from the Employer, or the Executive shall otherwise
give notice that he is voluntarily choosing to retire early from the Employer,
the Executive shall receive Accrued Benefits through the Termination Date;
provided, that if the Executive's employment is terminated by the Executive for
Good Reason or by the Company other than by reason of death, disability or Cause
and the Executive also, in connection with such termination, elects voluntary
early retirement, the Executive shall also be entitled to receive a Termination
Payment pursuant to Section 8.
12. Termination for Disability. If, during the Employment
Period, as a result of the Executive's disability due to physical or mental
illness or injury (regardless of whether such illness or injury is job-related),
the Executive shall have been absent from the Executive's duties hereunder on a
full-time basis for a period of six consecutive months and, within thirty days
after the Company notifies the Executive in writing that it intends to terminate
the Executive's employment (which notice shall not constitute the Notice of
Termination contemplated below), the Executive shall not have returned to the
performance of the Executive's duties hereunder on a full-time basis, the
Company may terminate the Executive's employment for purposes of this Agreement
pursuant to a Notice of Termination given in accordance with Section 13. If the
Executive's employment is terminated on account of the Executive's disability in
accordance with this Section, the Executive shall receive Accrued Benefits
through the Termination Date and shall remain eligible for all benefits provided
by any long term disability programs of the Company in effect at the time of
such termination.
13. Termination Notice and Procedure. Any Covered
Termination by the Company or the Executive (other than a termination of the
Executive's employment that is a Covered Termination by virtue of Section 2(b))
shall be communicated by a written notice of termination ("Notice of
Termination") to the Executive, if such Notice is given by the Company, and to
the Company, if such Notice is given by the Executive, all in accordance with
the following procedures and those set forth in Section 23:
(a) If such termination is for disability, Cause or Good
Reason, the Notice of Termination shall indicate in reasonable detail the facts
and circumstances alleged to provide a basis for such termination.
(b) Any Notice of Termination by the Company shall have
been approved, prior to the giving thereof to the Executive, by a resolution
duly adopted by a majority of the directors of the Company (or any successor
corporation) then in office.
(c) If the Notice is given by the Executive for Good
Reason, the Executive may cease performing his duties hereunder on or after the
date fifteen days after the delivery of Notice of Termination and shall in any
event cease employment on the Termination Date. If the Notice is given by the
Company, then the Executive may cease performing his duties hereunder on the
date of receipt of the Notice of Termination, subject to the Executive's rights
hereunder.
(d) The Executive shall have thirty days, or such longer
period as the Company may determine to be appropriate, to cure any conduct or
act, if curable, alleged to provide grounds
-15-
16
for termination of the Executive's employment for Cause under this Agreement
pursuant to Section 1(f)(iii).
(e) The recipient of any Notice of Termination shall
personally deliver or mail in accordance with Section 23 written notice of any
dispute relating to such Notice of Termination to the party giving such Notice
within fifteen days after receipt thereof; provided, however, that if the
Executive's conduct or act alleged to provide grounds for termination by the
Company for Cause is curable, then such period shall be thirty days. After the
expiration of such period, the contents of the Notice of Termination shall
become final and not subject to dispute.
14. Further Obligations of the Executive.
(a) Competition. The Executive agrees that, in the event
of any Covered Termination where the Executive is entitled to Accrued Benefits
and the Termination Payment, the Executive shall not, for a period expiring one
year after the Termination Date, without the prior written approval of the
Company's Board of Directors, (i) solicit for employment an employee of the
Company or its subsidiaries or (ii) participate in the management of, be
employed by or own any business enterprise at a location within the United
States that engages in substantial competition with the Company or its
subsidiaries, where such enterprise's revenues from any competitive activities
amount to 10% or more of such enterprise's net revenues and sales for its most
recently completed fiscal year; provided, however, that nothing in this Section
14(a) shall prohibit the Executive from owning stock or other securities of a
competitor amounting to less than five percent of the outstanding capital stock
of such competitor.
(b) Confidentiality. During and following the Executive's
employment by the Company, the Executive shall hold in confidence and not
directly or indirectly disclose or use or copy or make lists of any confidential
information or proprietary data of the Company (including that of the Employer),
except to the extent authorized in writing by the Board of Directors of the
Company or required by any court or administrative agency, other than to an
employee of the Company or a person to whom disclosure is reasonably necessary
or appropriate in connection with the performance by the Executive of duties as
an executive of the Company. Confidential information shall not include any
information known generally to the public or any information of a type not
otherwise considered confidential by persons engaged in the same business or a
business similar to that of the Company. All records, files, documents and
materials, or copies thereof, relating to the business of the Company which the
Executive shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company and shall be promptly returned to the Company
upon termination of employment with the Company.
15. Expenses and Interest. If, after a Change in Control
of the Company, (a) a dispute arises with respect to the enforcement of the
Executive's rights under this Agreement or (b) any legal or arbitration
proceeding shall be brought to enforce or interpret any provision contained
herein or to recover damages for breach hereof, in either case so long as the
Executive is not acting in bad faith, then the Company shall reimburse the
Executive for any reasonable attorneys' fees and necessary costs and
disbursements incurred as a result of the dispute, legal or arbitration
proceeding ("Expenses"), and prejudgment interest on any money judgment or
arbitration award obtained by the Executive calculated at the rate of interest
announced by U.S. Bank National Association, Minneapolis, Minnesota, from time
to time at its prime or base lending
-16-
17
rate from the date that payments to him or her should have been made under this
Agreement. Within ten days after the Executive's written request therefor, the
Company shall pay to the Executive, or such other person or entity as the
Executive may designate in writing to the Company, the Executive's reasonable
Expenses in advance of the final disposition or conclusion of any such dispute,
legal or arbitration proceeding.
16. Payment Obligations Absolute. The Company's obligation
during and after the Employment Period to pay the Executive the amounts and to
make the benefit and other arrangements provided herein shall be absolute and
unconditional and shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other right which
the Company may have against him or anyone else. Except as provided in Section
15, all amounts payable by the Company hereunder shall be paid without notice or
demand. Each and every payment made hereunder by the Company shall be final, and
the Company will not seek to recover all or any part of such payment from the
Executive, or from whomsoever may be entitled thereto, for any reason
whatsoever.
17. Successors.
(a) If the Company sells, assigns or transfers all or
substantially all of its business and assets to any Person or if the Company
merges into or consolidates or otherwise combines (where the Company does not
survive such combination) with any Person (any such event, a "Sale of
Business"), then the Company shall assign all of its right, title and interest
in this Agreement as of the date of such event to such Person, and the Company
shall cause such Person, by written agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform from and
after the date of such assignment all of the terms, conditions and provisions
imposed by this Agreement upon the Company. Failure of the Company to obtain
such agreement prior to the effective date of such Sale of Business shall be a
breach of this Agreement constituting "Good Reason" hereunder, except that for
purposes of implementing the foregoing the date upon which such Sale of Business
becomes effective shall be deemed the Termination Date. In case of such
assignment by the Company and of assumption and agreement by such Person, as
used in this Agreement, "Company" shall thereafter mean such Person which
executes and delivers the agreement provided for in this Section 17 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law, and this Agreement shall inure to the benefit of, and be
enforceable by, such Person. The Executive shall, in his or her discretion, be
entitled to proceed against any or all of such Persons, any Person which
theretofore was such a successor to the Company and the Company (as so defined)
in any action to enforce any rights of the Executive hereunder. Except as
provided in this Section 17(a), this Agreement shall not be assignable by the
Company. This Agreement shall not be terminated by the voluntary or involuntary
dissolution of the Company.
(b) This Agreement and all rights of the Executive shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, heirs and beneficiaries. All amounts
payable to the Executive under Sections 3, 7, 8, 9, 10, 11, 12 and 15 if the
Executive had lived shall be paid, in the event of the Executive's death, to the
Executive's estate, heirs and representatives; provided, however, that the
foregoing shall not be construed to modify any terms of any benefit plan of the
Employer, as such terms are in effect on
-17-
18
the date of the Change in Control of the Company, that expressly govern benefits
under such plan in the event of the Executive's death.
18. Severability. The provisions of this Agreement shall
be regarded as divisible, and if any of said provisions or any part hereof are
declared invalid or unenforceable by a court of competent jurisdiction, the
validity and enforceability of the remainder of such provisions or parts hereof
and the applicability thereof shall not be affected thereby.
19. Contents of Agreement; Waiver of Rights; Amendment.
This Agreement sets forth the entire understanding between the parties hereto
with respect to the subject matter hereof and shall supersede in all respects,
and the Executive hereby waives all rights under, any prior or other agreement
or understanding between the parties with respect to such subject matter,
including, but not limited to the Management Assurance Agreement between the
Company and the Executive. This Agreement may not be amended or modified at any
time except by written instrument executed by the Company and the Executive.
20. Withholding. The Company shall be entitled to withhold
from amounts to be paid to the Executive hereunder any federal, state or local
withholding or other taxes or charges which it is from time to time required to
withhold; provided, that the amount so withheld shall not exceed the minimum
amount required to be withheld by law. The Company shall be entitled to rely on
an opinion of the National Tax Counsel if any question as to the amount or
requirement of any such withholding shall arise.
21. Certain Rules of Construction. No party shall be
considered as being responsible for the drafting of this Agreement for the
purpose of applying any rule construing ambiguities against the drafter or
otherwise. No draft of this Agreement shall be taken into account in construing
this Agreement. Any provision of this Agreement which requires an agreement in
writing shall be deemed to require that the writing in question be signed by the
Executive and an authorized representative of the Company.
22. Governing Law; Resolution of Disputes. This Agreement
and the rights and obligations hereunder shall be governed by and construed in
accordance with the laws of the State of Minnesota. Any dispute arising out of
this Agreement shall, at the Executive's election, be determined by arbitration
under the rules of the American Arbitration Association then in effect (in which
case both parties shall be bound by the arbitration award) or by litigation.
Whether the dispute is to be settled by arbitration or litigation, the venue for
the arbitration or litigation shall be Minneapolis, Minnesota or, at the
Executive's election, if the Executive is not then residing or working in the
Minneapolis, Minnesota metropolitan area, in the judicial district encompassing
the city in which the Executive resides; provided, that, if the Executive is not
then residing in the United States, the election of the Executive with respect
to such venue shall be either Minneapolis, Minnesota or in the judicial district
encompassing that city in the United States among the thirty cities having the
largest population (as determined by the most recent United States Census data
available at the Termination Date) which is closest to the Executive's
residence. The parties consent to personal jurisdiction in each trial court in
the selected venue having subject matter jurisdiction notwithstanding their
residence or situs, and each party irrevocably consents to service of process in
the manner provided hereunder for the giving of notices.
-18-
19
23. Notice. Notices given pursuant to this Agreement shall
be in writing and, except as otherwise provided by Section 13(d), shall be
deemed given when actually received by the Executive or actually received by the
Company's Secretary or any officer of the Company other than the Executive. If
mailed, such notices shall be mailed by United States registered or certified
mail, return receipt requested, addressee only, postage prepaid, if to the
Company, to Pentair, Inc., Attention: Secretary (or President, if the Executive
is then Secretary), 00 Xxxxx 0xx Xxxxxx, Thirty Xxxxx Xxxxx, Xxxxxxxxxxx,
Xxxxxxxxx 00000, or if to the Executive, at the address set forth below the
Executive's signature to this Agreement, or to such other address as the party
to be notified shall have theretofore given to the other party in writing.
24. No Waiver. No waiver by either party at any time of
any breach by the other party of, or compliance with, any condition or provision
of this Agreement to be performed by the other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same time or any prior or
subsequent time.
25. Headings. The headings herein contained are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.
-19-
20
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
PENTAIR, INC.
By:
--------------------------------------
Its:
----------------------------------
Attest:
-----------------------------------
Its:
----------------------------------
EXECUTIVE:
(SEAL)
------------------------------------
Address:
-----------------------------
-----------------------------
-20-
