TRANSITIONAL COMPENSATION AGREEMENT
Exhibit 10.4
THIS AGREEMENT, made and entered into as of August 22, 2005
and amended and restated as of December 2008
by and between Xxxxxxxx Governor Company, a Delaware
corporation, (hereinafter called the “Corporation”)
and Xxxxxx X. Xxxxx, Xx. (hereinafter called the
“Executive”).
WITNESSETH THAT:
WHEREAS, the Board of Directors of the Corporation (the
“Board”) has determined that it is in the best
interests of the Corporation and its shareholders to assure that
the Corporation will have the continued dedication of the
Executive, despite the possibility, threat or occurrence of a
Change in Control (as defined below) of the Corporation; and
WHEREAS, the Board believes that it is imperative to diminish
the inevitable distraction of the Executive which would result
from the personal uncertainties and risks created by a
threatened or pending Change in Control and to encourage the
Executive’s full attention and dedication to the business
of the Corporation currently and in the event of any threatened
or pending Change in Control and to provide the Executive with
appropriate compensation and benefit protection upon a Change in
Control;
NOW, THEREFORE, the Corporation and the Executive, each
intending to be legally bound, hereby mutually covenant and
agree as follows:
1. Term. This Agreement shall become
effective upon the occurrence of a Change in Control (as defined
in Paragraph 4(d), below) (hereinafter called the
“Effective Date”) and shall remain in effect for a
term continuing until the end of the twenty-fourth (24th)
calendar month following the month in which the Effective Date
occurs; provided, however, that, anything in this Agreement to
the contrary notwithstanding, if a Change in Control occurs and
if the Executive’s employment with the Corporation was
terminated prior to the date on which the Change in Control
occurs, and if it is reasonably demonstrated by the Executive
that such termination of employment (a) was at the request
of a third party who was taking steps reasonably calculated to
effect a Change in Control or (b) otherwise arose in
connection with or anticipation of a Change in Control, then for
all purposes of this Agreement the “Effective Date”
shall mean the date immediately prior to the date of such
termination of employment.
2. Employment. After the Effective Date,
the Corporation shall employ the Executive to, and the Executive
shall, exercise such authority and perform such executive duties
as are commensurate with the authority being exercised and
performed by the Executive during the
ninety-day
period immediately prior to the Effective Date, which services
shall be performed at the location where the Executive was
employed immediately prior to the Effective Date. The Executive
shall also continue to serve as a member of the Board of
Directors of the Corporation, if serving as such as of the
Effective Date. The Executive shall devote substantially his
entire time during reasonable business hours (reasonable sick
leave and vacations excepted) and reasonable best efforts to
fulfill faithfully and responsibly his duties hereunder. During
the period of employment after the Effective Date, it shall not
be a violation of this Agreement for the Executive to serve on
corporate, civic or charitable boards or committees, or be
involved in civic, charitable or educational endeavors, or
manage personal investments, so long as such activities do not
significantly interfere with the performance of Executive’s
responsibilities as an employee of the Corporation hereunder. It
is expressly agreed and understood that to the extent any such
activities were conducted by the Executive prior to the
Effective Date, the continued conduct of such or similar
activities subsequent to the Effective Date shall not thereafter
be deemed to interfere with the performance of the
Executive’s responsibilities to the Corporation.
3. Compensation and Benefits. For the
Executive’s employment with the Corporation after the
Effective Date, the Executive shall be compensated as follows:
(a) The Executive shall receive an annual base salary at a
rate not less than the highest aggregate annual base salary and
seniority-based vacation plan amount paid or payable to the
Executive by the Corporation during the 24 month period
immediately prior to the Effective Date, to be paid in
accordance
the Corporation’s regular payroll practices. Such amount,
or such greater annual base salary rate which may be paid or
payable to the Executive after the Effective Date, is
hereinafter referred to as the “Annual Base Salary.”
(b) The Executive shall be eligible to participate on a
reasonable basis in the Corporation’s bonus and incentive
compensation plans and programs which provide opportunities to
receive compensation which are not less than opportunities
provided by the Corporation for executives with comparable
annual base salary.
(c) The Executive shall be entitled to receive executive
and employee benefits and perquisites which are not less than
the executive and employee benefits and perquisites provided by
the Corporation to executives with comparable duties or annual
base salary.
4. Termination. Unless earlier terminated
in accordance with the following provisions of this
Paragraph 4, the Corporation shall continue to employ the
Executive and the Executive shall remain employed by the
Corporation from the Effective Date through the end of the term
of this Agreement as set forth in Paragraph 1, above.
Paragraph 6 hereof sets forth certain obligations of the
Corporation in the event that the Executive’s employment
hereunder is terminated prior to the expiration of such term.
Certain capitalized terms used in this Paragraph 4 and in
Paragraphs 5 and 6 hereof are defined in
Paragraph 4(d), below.
(a) Death or Disability. The
Executive’s employment shall terminate immediately as of
the Date of Termination in the event of the Executive’s
death or in the event that the Executive becomes disabled. The
Executive will be deemed to be disabled upon the earlier of
(i) the end of a six (6)-consecutive month period during
which, by reason of physical or mental injury or disease, the
Executive has been unable to perform substantially all of his
usual and customary duties under this Agreement or (ii) the
date that a reputable physician selected by the Board, and as to
whom the Executive has no reasonable objection, determines in
writing that the Executive will, by reason of physical or mental
injury or disease, be unable to perform substantially all of the
Executive’s usual and customary duties under this Agreement
for a period of at least six (6) consecutive months. If any
question arises as to whether the Executive is disabled, upon
reasonable request therefore by the Board, the Executive shall
submit to reasonable medical examination for the purpose of
determining the existence, nature and extent of any such
disability. The Board shall promptly give the Executive written
notice of any such determination of the Executive’s
disability and of any decision of the Board to terminate the
Executive’s employment by reason thereof. Until the Date of
Termination for disability, the base salary payable to the
Executive shall be reduced
dollar-for-dollar
by the amount of any disability benefits paid to the Executive
in accordance with any disability policy or program of the
Corporation.
(b) Discharge for Cause. In accordance
with the procedures hereinafter set forth, the Board may
discharge the Executive from his employment hereunder for Cause.
Any discharge of the Executive for Cause shall be communicated
by a Notice of Termination to the Executive given in accordance
with Paragraph 14 of this Agreement. For purposes of this
Agreement, a “Notice of Termination” means a written
notice which (i) indicates the specific termination
provision in this Agreement relied upon, (ii) sets forth in
reasonable detail the facts and circumstances claimed to provide
a basis for termination of the Executive’s employment under
the provision so indicated and (iii) specifies the
termination date, which may be as early as the date of the
giving of such notice. No purported termination of the
Executive’s employment for Cause shall be effective without
a Notice of Termination.
(c) Termination for Other Reasons. The
Corporation may discharge the Executive without Cause by giving
written notice to the Executive in accordance with
Paragraph 14 at least fifteen (15) days prior to the
Date of Termination. The Executive may resign from his
employment, without liability to the Corporation, by giving
written notice to the Corporation in accordance with
Paragraph 14 at least fifteen (15) days prior to the
Date of Termination.
(d) Definitions. For purposes of this
Agreement, the following capitalized terms shall have the
meanings set forth below:
(i) “Accrued Obligations” shall mean, as
of the Date of Termination, the sum of (A) the
Executive’s base salary through the Date of Termination to
the extent not theretofore paid, (B) the amount of any
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bonus, incentive compensation, deferred compensation and other
cash compensation accrued by the Executive as of the Date of
Termination to the extent not theretofore paid and (C) any
vacation pay, expense reimbursements and other cash entitlements
accrued by the Executive as of the Date of Termination to the
extent not theretofore paid. For the purpose of this
Paragraph 4(d)(i), amounts shall be deemed to accrue
ratably over the period during which they are earned, but no
discretionary compensation shall be deemed earned or accrued
until it is specifically approved by the Board or the
Compensation Committee in accordance with the applicable plan,
program or policy.
(ii) “Cause” shall mean: (A) the
Executive’s commission of an act materially and
demonstrably detrimental to the financial condition
and/or
goodwill of the Corporation or any of its subsidiaries, which
act constitutes gross negligence or willful misconduct by the
Executive in the performance of his material duties to the
Corporation or any of its subsidiaries, or (B) the
Executive’s commission of any material act of dishonesty or
breach of trust resulting or intended to result in material
personal gain or enrichment of the Executive at the expense of
the Corporation or any of its subsidiaries, or (C) the
Executive’s conviction of a felony involving moral
turpitude, but specifically excluding any conviction based
entirely on vicarious liability. No act or failure to act will
be considered “willful” unless it is done, or omitted
to be done, by the Executive in bad faith or without reasonable
belief that his action or omission was in the best interests of
the Corporation. In addition, no act or omission will constitute
Cause unless (A) a resolution finding that Cause exists has
been approved by a majority of all of the members of the Board
at a meeting at which the Executive is allowed to appear with
his legal counsel and (B) the Corporation has given
detailed written notice thereof to the Executive and, where
remedial action is feasible, he then fails to remedy the act or
omission within a reasonable time after receiving such notice.
(iii) A “Change in Control” shall be
deemed to have occurred if:
(A) Any “person” (as defined in
Section 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended (the “Exchange Act”)), excluding for
this purpose the Corporation or any subsidiary of the
Corporation, or any employee benefit plan of the Corporation or
any subsidiary of the Corporation, or any person or entity
organized, appointed or established by the Corporation for or
pursuant to the terms of such plan which acquires beneficial
ownership of voting securities of the Corporation, is or becomes
the “beneficial owner” (as defined in
Rule 13d-3
under the Exchange Act) directly or indirectly of securities of
the Corporation representing fifteen percent (15%) or more of
the combined voting power of the Corporation’s then
outstanding securities; provided, however, that no Change in
Control shall be deemed to have occurred (1) as the result
of an acquisition of securities of the Corporation by the
Corporation which, by reducing the number of voting securities
outstanding, increases the direct or indirect beneficial
ownership interest of any person to fifteen percent (15%) or
more of the combined voting power of the Corporation’s then
outstanding securities, but any subsequent increase in the
direct or indirect beneficial ownership interest of such a
person in the Corporation shall be deemed a Change in Control,
or (2) as a result of the acquisition directly from the
Corporation of securities of the Corporation representing less
than 50% of the voting power of the Corporation, or (3) if
the Board of Directors of the Corporation determines in good
faith that a person who has become the beneficial owner directly
or indirectly of securities of the Corporation representing
fifteen percent (15%) or more of the combined voting power of
the Corporation’s then outstanding securities has
inadvertently reached that level of ownership interest, and if
such person divests as promptly as practicable a sufficient
amount of securities of the Corporation so that the person no
longer has a direct or indirect beneficial ownership interest in
fifteen percent (15%) or more of the combined voting power of
the Corporation’s then outstanding securities; or
(B) During any period of two (2) consecutive years
(not including any period prior to the Effective Date of this
Agreement), individuals who at the beginning of such two-year
period constitute the Board of Directors of the Corporation and
any new director or directors (except for any director
designated by a person who has entered into an agreement with
the Corporation to effect a transaction described in
subparagraph (A), above, or subparagraph (C), below) whose
election by the Board or nomination for election by the
Corporation’s shareholders was approved by a vote of at
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least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority of the
Board (such individuals and any such new directors being
referred to as the “Incumbent Board”); or
(C) Consummation of (1) an agreement for the sale or
disposition of the Corporation or all or substantially all of
the Corporation’s assets, (2) a plan of merger or
consolidation of the Corporation with any other corporation, or
(3) a similar transaction or series of transactions
involving the Corporation (any transaction described in parts
(1) through (3) of this subparagraph (C) being
referred to as a “Business Combination”), in each case
unless after such a Business Combination (x) the
shareholders of the Corporation immediately prior to the
Business Combination continue to own, directly or indirectly,
more than fifty-one percent (51%) of the combined voting power
of the then outstanding voting securities entitled to vote
generally in the election of directors of the new (or continued)
entity (including, but not by way of limitation, an entity which
as a result of such transaction owns the Corporation or all or
substantially all of the Corporation’s former assets either
directly or through one or more subsidiaries) immediately after
such Business Combination, in substantially the same proportion
as their ownership of the Corporation immediately prior to such
Business Combination, and (y) at least a majority of the
members of the board of directors of the entity resulting from
such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business
Combination; or
(D) Approval by the shareholders of the Corporation of a
complete liquidation or dissolution of the Corporation.
(iv) “Date of Termination” shall mean
(A) in the event of a discharge of the Executive by the
Board for Cause, the date specified in such Notice of
Termination, (B) in the event of a discharge of the
Executive without Cause or a resignation by the Executive, the
date specified in the written notice to the Executive (in the
case of discharge) or the Corporation (in the case of
resignation), which date shall be no less than fifteen
(15) days and no more than thirty-one (31) days from
the date of such written notice; provided however, if the
written notice is received in December, the notice period may be
shortened so that in no event will the Date of Termination occur
in the year following the year in which the written notice is
received by either party, (C) in the event of the
Executive’s death, the date of the Executive’s death,
and (D) in the event of termination of the Executive’s
employment by reason of disability pursuant to
Paragraph 4(a), the date the Executive receives written
notice of such termination.
(v) “Good Reason” shall mean any of the
following without the written consent of the Executive: (A)(1)
assignment of duties inconsistent with the Executive’s
position, authority, duties or responsibilities referred to in
Paragraph 2, or any action by the Corporation which results
in a substantial diminution of such position, authority, duties
or responsibilities, other than an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied
by the Corporation promptly after receipt of notice thereof
given by the Executive, or (2) if applicable, removal or
other failure to continue Executive as a member of the Board as
required by Paragraph 2, (B) any reduction in
Executive’s Annual Base Salary, or bonus or incentive
opportunities from those referred to in Paragraph 3(a) or
3(b), other than an isolated, insubstantial and inadvertent
reduction not made in bad faith and which is remedied by the
Corporation promptly after receipt of notice thereof given by
the Executive, or (C) a relocation of Executive to an
office location more than 30 miles from the location
referred to in Paragraph 2, or (D) failure by the
Corporation to provide Executive with the executive or employee
benefits and perquisites referred to in Paragraph 3(c),
other than an isolated, insubstantial and inadvertent reduction
not made in bad faith and which is remedied by the Corporation
promptly after receipt of notice thereof given by the Executive,
or (E) failure by any successor to enter into the
assumption of and agreement to perform this Agreement referred
to in Paragraph 13. For purposes of this
Paragraph 4(d)(v), any good faith determination by the
Executive that one of the foregoing events has occurred shall be
conclusive. In addition, resignation for any reason by the
Executive, which resignation is to be effective at any time
during the 30 day period beginning twelve (12) months
after the Effective Date shall constitute a resignation for Good
Reason;
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provided, further, that if the Executive dies after the
execution of a definitive agreement for a transaction which will
constitute a Change in Control but before the expiration of such
30-day
period, then the Executive shall be deemed to have terminated
employment for Good Reason on the later of (1) the
effective date of the Change in Control or (2) the date of
the Executive’s death or termination of employment due to
disability.
(vi) “Qualifying Termination” shall mean
termination of the Executive’s employment after the
Effective Date and during the term of this Agreement as
described in Paragraph 1, above, (A) by reason of the
discharge of the Executive by the Corporation other than for
Cause or disability or (B) by reason of the resignation of
the Executive for Good Reason within six (6) months after
an event constituting Good Reason or (C) in accordance with
the last sentence of the definition of Good Reason in
subparagraph (v), above.
5. Vesting of Equity Awards Upon a Change in
Control. Immediately upon a Change in Control,
all stock options, restricted stock and other equity awards to
the Executive which are not otherwise vested shall vest in full,
and all options shall remain exercisable for the period provided
for in the applicable plan or award agreement.
6. Obligations of the Corporation Upon
Termination. The following provisions describe
certain obligations of the Corporation to the Executive under
this Agreement upon termination of his employment. However,
except as explicitly provided in this Agreement, nothing in this
Agreement shall limit or otherwise adversely affect any rights
which the Executive may have under applicable law, under any
other agreement with the Corporation or any of its subsidiaries,
or under any compensation or benefit plan, program, policy or
practice of the Corporation or any of its subsidiaries.
(a) Death, Disability, Discharge for Cause, or
Resignation Without Good Reason. In the event the
Executive’s employment terminates by reason of the death or
disability of the Executive (other than in circumstances which
constitute a Qualifying Termination under
Paragraph 4(d)(vi)(C)), or by reason of the discharge of
the Executive by the Corporation for Cause, or by reason of the
resignation of the Executive other than for Good Reason, the
Corporation shall pay to the Executive, or his designated
beneficiaries, heirs or estate, in the event of the
Executive’s death, all Accrued Obligations in a lump sum
within thirty (30) days after the Date of Termination;
provided, however, that any portion of the Accrued Obligations
which consists of bonus, deferred compensation, or incentive
compensation shall be determined and paid in accordance with the
terms of the relevant plan as applicable to the Executive. In
addition, if the Executive’s employment is terminated by
death, disability or retirement under a retirement plan of the
Corporation or by resignation of the Executive other than for
Good Reason, the Executive may, in the discretion of the
Compensation Committee, be awarded a pro rata cash bonus for the
year in which the Date of Termination occurs; provided, however,
that in no event shall any pro rata cash bonus be paid later
than March 15th of the year following the year in which the Date
of Termination occurs.
(b) Qualifying Termination. In the event
of a Qualifying Termination, the Executive shall receive the
following benefits:
(i) Payment of all Accrued Obligations in a lump sum on the
Date of Termination; provided, however, that any portion of the
Accrued Obligations which consists of bonus, deferred
compensation or incentive compensation shall be determined and
paid in accordance with the terms of the relevant plan as
applicable to the Executive,
(ii) Payment in a lump sum on the Date of Termination of a
pro rata cash bonus for the year in which the Date of
Termination occurs, determined and paid in accordance with the
terms of the then current annual bonus plan applicable to the
Executive,
(iii) Payment in a lump sum on the Date of Termination of a
salary replacement amount equal to three hundred percent (300%)
of the annual base salary required to be paid to Executive
pursuant to Paragraph 3(a) above, or if greater, the rate
of annual salary as in effect immediately prior to the Date of
Termination,
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(iv) Payment in a lump sum on the Date of Termination of a
bonus replacement amount equal to three hundred percent (300%)
of the highest of the annual bonus paid or payable to the
Executive for the three (3) years preceding the year in
which the Date of Termination occurs or, if greater, the
Executive’s target bonus for year in which the Date of
Termination occurs,
(v) Payment in a lump sum on the Date of Termination of a
retirement replacement amount equal to 300% of the sum of the
Member Investment and Stock Ownership Plan, Retirement Income
Plan and Unfunded Deferred Compensation Plan contributions made
or credited by the Corporation for the benefit of the Executive
for the plan year of each such plan during which the Date of
Termination occurs or, if greater, for the plan year of each
such plan (or any successor or replacement plan) immediately
preceding the plan year in which the Effective Date occurs,
(vi) Continuation, for a period of three (3) years
after the Date of Termination, of the following employee
benefits on terms at least as favorable to the Executive as
those which would have been provided if the Executive’s
employment had continued for that time pursuant to this
Agreement, with the cost of such benefits to be paid by the
Corporation: medical and dental benefits, life and disability
insurance, and executive physical examinations
(“Corporation-Paid Coverage”). Corporation-Paid
Coverage shall be paid directly by the Corporation to the
applicable insurer
and/or
administrator when premiums for such coverage are due in
accordance with the terms and conditions of the applicable
insurance policy or administrative services agreement.
Notwithstanding the foregoing, if the Executive is a
“specified employee” (as described in Section 7
below) on the date of the Executive’s “separation from
service” (as described in Section 7 below), continued
coverage under the disability and life insurance plans shall be
solely at the expense of the Executive for the period beginning
on the date of the Executive’s separation and ending six
(6) months thereafter. On the date six (6) months and
one (1) day following his or her separation (or, in the
event of his or her death, at such earlier time as provided in
Section 7 below), the Corporation shall reimburse the
Executive for the Corporation-Paid Coverage under the disability
and life insurance plans portion of such expense in a lump sum
cash payment. Thereafter, Corporation-Paid Coverage under the
disability and life insurance plans shall be paid directly by
the Corporation to the applicable insurer
and/or
administrator when premiums for such coverage are due in
accordance with the terms and conditions of the applicable
insurance policy or administrative services agreement. To the
extent the Corporation is unable to provide comparable insurance
for reasons other than cost, the Corporation may provide a
lesser level or no coverage and compensate the Executive for the
difference in coverage through a cash lump sum payment grossed
up for taxes, payable on the Date of Termination. This payment
will be tied to the cost of an individual insurance policy if it
were assumed to be available. Upon the expiration of the
coverage provided under this paragraph (vi), the Executive and
Executive’s dependents will be entitled to elect
Consolidated Omnibus Budget Reconciliation Act of 1985
(“COBRA”) continuation coverage on the same basis as
would be extended with respect to an employee whose employment
terminated at the time of such expiration and for purposes of
Title X of COBRA, the date of the “qualifying
event” for the Executive and Executive’s dependents
shall be the date upon which the Corporation-Paid Coverage
terminates,
(vii) Outplacement services, at the expense of the
Corporation, from a provider reasonably selected by the
Executive, provided however, to the extent the outplacement
services are taxable under the Internal Revenue Code, the
expenses must be incurred before the last day of the second year
following separation from service and the reimbursement must be
made before the last day of the third year following separation
from service, and
(viii) Tax preparation services for the Executive’s
taxable year in which the Date of Termination occurs, provided
at the expense of the Corporation, on the same basis as provided
to Executive immediately prior to the Effective Date provided
however, to the extent the tax preparation services are taxable
under the Internal Revenue Code, the expenses must be incurred
before the last day of the second year following separation from
service and the reimbursement must be made before the last day
of the third year following separation from service.
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7. Section 409A.
(a) Six-Month Delay. Notwithstanding
anything to the contrary in this Agreement, no Deferred
Compensation Separation Benefits (as defined below) will be
considered due or payable until the Executive has incurred a
“separation from service” within the meaning of
Section 409A of the Internal Revenue Code of 1986, as
amended and the final regulations and any guidance promulgated
thereunder (together, “Section 409A”).
Notwithstanding anything to the contrary in this Agreement, if
the Executive is a “specified employee” within the
meaning of Section 409A at the time of his termination
(other than due to death), the severance payable to him, if any,
pursuant to this Agreement, when considered together with any
other severance payments or separation benefits that are
considered deferred compensation under Section 409A
(together, the “Deferred Compensation Separation
Benefits”) that are payable within the first six
(6) months following his termination of employment, will
become payable on the first payroll date that occurs on or after
the date six (6) months and one (1) day following the
date of the Executive’s termination of employment. All
subsequent Deferred Compensation Separation Benefits, if any,
will be payable in accordance with the payment schedule
applicable to each payment or benefit. Notwithstanding anything
herein to the contrary, if the Executive dies following
termination but prior to the six (6) month anniversary of
termination, then any payments delayed in accordance with this
Section 7 will be payable in a lump sum as soon as
administratively practicable after the date of the
Executive’s death and all other Deferred Compensation
Separation Benefits will be payable in accordance with the
payment schedule applicable to each payment or benefit. Each
payment and benefit payable under this Agreement is intended to
constitute separate payments for purposes of
Section 1.409A-2(b)(2)
of the Treasury Regulations.
(b) The foregoing provisions are intended to comply with
the requirements of Section 409A so that none of the
severance payments and benefits to be provided hereunder will be
subject to the additional tax imposed under Section 409A,
and any ambiguities herein will be interpreted to so comply. The
Executive and the Corporation agree to work together in good
faith to consider amendments to this Agreement and to take such
reasonable actions, which are necessary, appropriate or
desirable to avoid imposition of any additional tax or income
recognition prior to actual payment to him under
Section 409A.
8. Certain Additional Payments by the
Corporation. The Corporation agrees that:
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Corporation to or for the benefit
of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Paragraph 8) (a
“Payment”) would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as
amended, (the “Code”) or if any interest or penalties
are incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and penalties,
being hereinafter collectively referred to as the “Excise
Tax”), then the Executive shall be entitled to receive an
additional payment (a
“Gross-Up
Payment”) in an amount such that, after payment by the
Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up
Payment, the Executive retains an amount of the
Gross-Up
Payment equal to the Excise Tax imposed upon the Payment. .
Notwithstanding the foregoing, if the Executive is a
“specified employee” (as described in Section 7
above) on the date of the Executive’s “separation from
service” other than due to death (as described in
Section 7 above) and a
Gross-Up
Payment would not have been required under this Section 8
in the absence of the benefits provided for in this Agreement,
any Gross-Up
Payment otherwise due to the Executive on or within the six
(6) month period following the Executive’s separation
from service will accrue during such six (6) month period
and will become payable in a lump sum payment (less any
applicable withholding taxes) on the date six (6) months
and one (1) day following the date of the Executive’s
separation from service.
(b) Subject to the provisions of paragraph (c), below, all
determinations required to be made under this Paragraph 8,
including whether and when a
Gross-Up
Payment is required and the amount of such
Gross-Up
Payment and the assumptions to be utilized in arriving at such
determination, shall be made by the accounting firm which is
then serving as the auditors for the Corporation (the
“Accounting Firm”),
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which shall provide detailed supporting calculations both to the
Corporation and the Executive within fifteen (15) business
days of the receipt of notice from the Executive that there has
been a Payment, or such earlier time as is requested by the
Corporation. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Corporation. Any
Gross-Up
Payment, as determined pursuant to this Paragraph 8, shall
be paid by the Corporation to the Executive within five
(5) days of the receipt of the Accounting Firm’s
determination. If the Accounting Firm determines that no Excise
Tax is payable by the Executive, it shall furnish the Executive
with a written opinion that failure to report the Excise Tax on
the Executive’s applicable federal income tax return would
not result in the imposition of a negligence or similar penalty.
Any good faith determination by the Accounting Firm shall be
binding upon the Corporation and the Executive. As a result of
the uncertainty in the application of Section 4999 of the
Code at the time of the initial determination by the Accounting
Firm hereunder, it is possible that
Gross-Up
Payments which will not have been made by the Corporation should
have been made (“Underpayment”), consistent with the
calculations required to be made hereunder. In the event that
the Corporation exhausts its remedies pursuant to paragraph (c),
below, and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Corporation to or for
the benefit of the Executive.
(c) The Executive shall notify the Corporation in writing
of any claim by the Internal Revenue Service that, if
successful, would require the payment by the Corporation of a
Gross-Up
Payment. Such notification shall be given as soon as practicable
but no later than fifteen (15) business days after the
Executive is informed in writing of such claim and shall apprise
the Corporation of the nature of such claim and the date on
which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty
(30)-day period following the date on which Executive gives such
notice to the Corporation (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Corporation notifies the Executive in writing prior
to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) Give the Corporation any information reasonably
requested by the Corporation relating to such claim,
(ii) Take such action in connection with contesting such
claim as the Corporation shall reasonably request in writing
from time to time, including, without limitation, accepting
legal representation with respect to such claim by an attorney
reasonably selected by the Corporation,
(iii) Cooperate with the Corporation in good faith in order
effectively to contest such claim, and
(iv) Permit the Corporation to participate in any
proceedings relating to such claim; provided, however, that the
Corporation shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for all taxes
(including interest and penalties with respect thereto),
including without limitation any Excise Tax and income tax
(including interest and penalties with respect thereto), imposed
as a result of such representation and payment of costs and
expenses. Without limiting the foregoing provisions of this
paragraph (c), the Corporation shall control all proceedings
taken in connection with such contest and, at its sole option,
may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority
in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and xxx for a refund
or contest the claim in any permissible manner; and the
Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the
Corporation shall determine; provided, however, that if the
Corporation directs the Executive to pay such claim and xxx for
a refund, the
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Corporation shall advance the amount of such payment to the
Executive on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, for all taxes
(including interest and penalties with respect thereto),
including without limitation any Excise Tax and income tax
(including interest or penalties with respect thereto), imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to
which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the
Corporation’s control of the contest shall be limited to
issues with respect to which a
Gross-Up
Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Corporation pursuant to paragraph (c), above,
the Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject to the
Corporation’s complying with the requirements of said
paragraph (c)) promptly pay to the Corporation the amount of
such refund (together with any interest paid or credited
thereon, after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Corporation
pursuant to said paragraph (c), a determination is made that the
Executive shall not be entitled to any refund with respect to
such claim and the Corporation does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of thirty (30) days after such
determination, then such advance shall be forgiven and shall not
be required to be repaid; and the amount of such advance shall
offset, to the extent thereof, the amount of the
Gross-Up
Payment required to be paid.
9. No Set-Off or Mitigation. The
Corporation’s obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Corporation may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this
Agreement, and such amounts shall not be reduced whether or not
the Executive obtains other employment.
10. Payment of Certain Expenses. The
Corporation shall pay the reasonable legal fees and expenses
incurred by the Executive in connection with the negotiation and
preparation of this Agreement. In addition, the Corporation
shall pay promptly as incurred, to the fullest extent permitted
by law, all legal fees and expenses which the Executive may
reasonably incur as a result of any contest by the Corporation,
the Executive or others of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a
result of any contest initiated by the Executive about the
amount of any payment due pursuant to this Agreement), plus in
each case interest on any delayed payment at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the
Code, plus an additional amount such that after payment by the
Executive of all taxes imposed on such additional amount, the
Executive shall retain an amount equal to the total taxes
imposed on the Executive due to the payment by the Corporation,
to or for the Executive, of legal fees and expenses with respect
to any such contest; provided, however, that the Corporation
shall not be obligated to make such payment with respect to any
contest in which the Corporation prevails over the Executive.
11. Indemnification. To the full extent
permitted by law, the Corporation shall, both during and after
the term of the Executive’s employment, indemnify the
Executive (including the advancement of expenses) for any
judgments, fines, amounts paid in settlement and reasonable
expenses, including attorneys’ fees, incurred by the
Executive in connection with the defense of any lawsuit or other
claim to which he is made a party by reason of being (or having
been) an officer, director or employee of the Corporation or any
of its subsidiaries. In addition, the Executive shall be
covered, both during and after the term of the Executive’s
employment, by director and officer liability insurance to the
maximum extent that such insurance covers any officer or
director (or former officer or director) of the Corporation.
12. Confidentiality. During and after the
period of employment with the Corporation, the Executive shall
not, without prior written consent from the Chief Executive
Officer or the General Counsel of the
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Corporation, directly or indirectly disclose to any individual,
corporation or other entity, other than to the Corporation or
any subsidiary or affiliate thereof or their officers, directors
or employees entitled to such information or any other person or
entity to whom such information is disclosed in the normal
course of the business of the Corporation) or use for the
Executive’s own benefit or for the benefit of any such
individual, corporation or other entity, any Confidential
Information of the Corporation. For purposes of this Agreement,
“Confidential Information” is information relating to
the business of the Corporation or its subsidiaries or
affiliates (a) which is not generally known to the public
or in the industry, (b) which has been treated by the
Corporation and its subsidiaries and affiliates as confidential
or proprietary, (c) which provides the Corporation or its
subsidiaries or affiliates with a competitive advantage, and
(d) in the confidentiality of which the Corporation has a
legally protectable interest. Confidential Information which
becomes generally known to the public or in the industry, or in
the confidentiality of which the Corporation and its
subsidiaries and affiliates cease to have a legally protectable
interest, shall cease to be subject to the restrictions of this
Paragraph 12.
13. Binding Effect. This Agreement shall
be binding upon and inure to the benefit of the heirs and
representatives of the Executive and the successors and assigns
of the Corporation. Amounts payable under this Agreement upon
the Executive’s death shall be paid to his beneficiaries,
if any, designated in writing and filed with the Corporate
Secretary, and in the absence of such designation, shall be paid
to his heirs by will or laws of descent and distribution. The
Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation,
acquisition of property or stock, liquidation, or otherwise) to
all or a substantial portion of its assets, by agreement in form
and substance reasonably satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the
same manner and to the same extent that the Corporation would be
required to perform this Agreement if no such succession had
taken place. Regardless of whether such an agreement is
executed, this Agreement shall be binding upon any successor of
the Corporation in accordance with the operation of law, and
such successor shall be deemed the “Corporation” for
purposes of this Agreement.
14. Notices. All notices, requests,
demands and other communications hereunder shall be in writing
and shall be deemed to have been duly given when delivered by
hand or by recognized commercial delivery service or on the
third business day after being mailed within the continental
United States by first class certified mail, return receipt
requested, postage prepaid, addressed as follows:
| (a) |
If to the Board or the Corporation, to: Xxxxxxxx Governor Company 0000 Xxxx Xxxxx Xxxx Xxxx Xxxxxxx, Xxxxxxxx 00000 Attn: Corporate Secretary |
| (b) |
If to the Executive, to: Xxxxxx X. Xxxxx, Xx. 0000 Xxxx Xxxxx Xxxx Xxxx Xxxxxxx, XX 00000 (Unless otherwise specified by the Executive) |
Such addresses may be changed by written notice sent to the
other party at the last recorded address of that party.
15. Tax Withholding. The Corporation
shall provide for the withholding of any taxes required to be
withheld by federal, state, or local law with respect to any
payment in cash, shares of stock
and/or other
property made by or on behalf of the Corporation to or for the
benefit of the Executive under this Agreement or otherwise. The
Corporation may, at its option: (a) withhold such taxes
from any cash payments owing from the Corporation to the
Executive, (b) require the Executive to pay to the
Corporation in cash such amount as may be required to satisfy
such withholding obligations
and/or
(c) make other satisfactory arrangements with the Executive
to satisfy such withholding obligations.
16. Arbitration. Any dispute or
controversy between the Corporation and the Executive arising
out of or relating to this Agreement or the breach of this
Agreement shall be settled by arbitration administered by the
10
American Arbitration Association (“AAA”) in accordance
with its Commercial Arbitration Rules then in effect, and
judgment on the award rendered by the arbitrator may be entered
in any court having jurisdiction thereof. Any arbitration shall
be held before a single arbitrator who shall be selected by the
mutual agreement of the Corporation and the Executive, unless
the parties are unable to agree to an arbitrator, in which case
the arbitrator will be selected under the procedures of the AAA.
The arbitrator shall have the authority to award any remedy or
relief that a court of competent jurisdiction could order or
grant, including, without limitation, the issuance of an
injunction. However, either party may, without inconsistency
with this arbitration provision, apply to any court otherwise
having jurisdiction over such dispute or controversy and seek
interim provisional, injunctive or other equitable relief until
the arbitration award is rendered or the controversy is
otherwise resolved. Except as necessary in court proceedings to
enforce this arbitration provision or an award rendered
hereunder, or to obtain interim relief, neither a party nor an
arbitrator may disclose the existence, content or results of any
arbitration hereunder without the prior written consent of the
Corporation and the Executive. The Corporation and the Executive
acknowledge that this Agreement evidences a transaction
involving interstate commerce. Notwithstanding any choice of law
provision included in this Agreement, the United States Federal
Arbitration Act shall govern the interpretation and enforcement
of this arbitration provision. The arbitration proceeding shall
be conducted in Rockford, Illinois or such other location to
which the parties may agree. The Corporation shall pay the costs
of any arbitrator appointed hereunder.
17. No Assignment. Except as otherwise
expressly provided herein, this Agreement is not assignable by
any party and no payment to be made hereunder shall be subject
to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or other charge.
18. Execution in Counterparts. This
Agreement may be executed by the parties hereto in two
(2) or more counterparts, each of which shall be deemed to
be an original, but all such counterparts shall constitute one
and the same instrument, and all signatures need not appear on
any one counterpart.
19. Jurisdiction and Governing Law. This
Agreement shall be construed and interpreted in accordance with
and governed by the laws of the State of Illinois, other than
the conflict of laws provisions of such laws.
20. Severability. If any provision of
this Agreement shall be adjudged by any court of competent
jurisdiction to be invalid or unenforceable for any reason, such
judgment shall not affect, impair or invalidate the remainder of
this Agreement. Furthermore, if the scope of any restriction or
requirement contained in this Agreement is too broad to permit
enforcement of such restriction or requirement to its full
extent, then such restriction or requirement shall be enforced
to the maximum extent permitted by law, and the Executive
consents and agrees that any court of competent jurisdiction may
so modify such scope in any proceeding brought to enforce such
restriction or requirement.
21. Prior Understandings. This Agreement
embodies the entire understanding of the parties hereto and
supersedes all other oral or written agreements or
understandings between them regarding the subject matter hereof.
No change, alteration or modification hereof may be made except
in a writing, signed by each of the parties hereto. The headings
in this Agreement are for convenience of reference only and
shall not be construed as part of this Agreement or to limit or
otherwise affect the meaning hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above
written.
|
Attest:
|
XXXXXXXX GOVERNOR COMPANY | |||
| By: |
|
|||
| Xxxxxx X. Xxxxx, Xx. | ||||
| Title: Chief Financial Officer and Treasurer | ||||
| By: |
|
|||
| Xxxxx X. Xxxxxx | ||||
|
Title: Chairman of the Compensation
Committee of the Board of Directors |
||||
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