Exhibit 10.5
KEY EXECUTIVE EMPLOYMENT AND SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the ____ day of ______,
2001, by and between Regal-Beloit Corporation, a Wisconsin corporation
(hereinafter referred to as the "Company"), and [Xxxxx X. Xxxxxxxx/Xxxxxxx X.
Xxxxxx] (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:
1. Definitions.
(a) Accrued Benefits. The term "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; 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 plus (iii) an amount equal to the greater of the Executive's Fringe
Benefits for the fiscal year in which the Termination Date occurs or the annual
amount of Fringe Benefits the Executive received for the fiscal year prior to
the Change in Control of the Company (the aggregate amount set forth in clause
(i), clause (ii) and clause iii 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 only after the passage of time) pursuant to any agreement,
arrangement or
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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 January 28, 2000, between the
Company and Firstar Bank, N.A., 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 not taken in
good faith 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),
which substantially impairs the Executive's ability to perform his duties or
responsibilities; 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).
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(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
____________, 2001, 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 __________, 2001 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) 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 ___________, 2001, 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 shareholders of the Company approve a merger,
consolidation or share exchange of the Company with any other corporation
or approve 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) pursuant to applicable stock
exchange requirements, 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,
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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
___________, 2001, 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 shareholders of the Company approve of a plan of
complete liquidation or dissolution of the Company or an agreement for the
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), 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.
(k) Fringe Benefits. The term "Fringe Benefits" means the fair market
value of the fringe benefits payable to Executive by the Company (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). For these purposes,
Fringe Benefits include, but are not limited to club dues or automobile
reimbursement and do not include welfare benefits, such as medical coverage
(including prescription
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drug coverage), dental coverage, life insurance, disability insurance and
accidental death and dismemberment benefits.
(l) 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(b), 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; or
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(vii) failure by the Company to obtain the Agreement referred to
in Section 17(a) as provided therein.
(m) 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.
(n) 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.
(o) 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 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
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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 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 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
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Executive is fully and immediately vested in the Executive's restricted stock
upon such a Change in Control of the Company; and (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.
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, an 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, 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 (including prescription drug coverage), 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
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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 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 the amount of the Executive's maximum 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
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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
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," 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 (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
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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.
(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 (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. 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
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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.
(c) 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 any supplemental executive
retirement plan of the Employer providing benefits for the Executive (the
"SERP") and in any defined contribution retirement plan of the Employer. In
addition, the Company shall cause the Executive to be deemed to have
satisfied any minimum years of service requirement under the SERP for
subsidized early retirement benefits regardless of the Executive's age and
service at the Termination Date; provided, however, that SERP benefits will
be based on service to date with no additional credit for service or age
beyond such Termination Date.
(v) On the Termination Date, for purposes of determining
Executive's eligibility for post-retirement benefits under any welfare
benefit plan (as defined in Section 3(1) of the Employee Retirement
Security Act of 1974, as
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amended) maintained by the Company immediately prior to the Change in
Control of the Company and in which Executive participated, immediately
prior to the Change in Control of the Company, Executive shall be credited
with the excess of three (3) years of participation in the applicable
medical plan and three (3) years of age over the actual years and
fractional years of participation and age credited to Executive as of the
Change in Control of the Company. If after taking into account such
participation and age, Executive would have been eligible to receive such
post-retirement benefits had Executive retired immediately prior to the
Change in Control of the Company, Executive shall receive, commencing on
the Termination Date, post-retirement benefits based on the terms and
conditions of the applicable plans in effect immediately prior to the
Change in Control of the Company.
(vi) For purposes of determining the Executive's retirement
benefits under the various retirement benefits plans of the Company,
Executive shall be deemed to be an active employee receiving his Annual
Base Salary and shall accordingly continue to earn service and accrue
benefits under such plans for an additional period of three (3) years
following the Termination Date.
(vii) The Company shall cause all performance plan awards granted
to the Executive pursuant to any long-term incentive plan maintained by the
Company to be paid out at target, as if all performance requirements had
been satisfied, on a pro rata basis based on the completed portion of each
award cycle.
(viii) The Executive shall, after the Termination Date, retain
all rights to indemnification under applicable law or under the Company's
Certificate of Incorporation or By-Laws, as they may be amended or restated
from time to time, to the extent any such amendment or restatement expands
the Executive's rights to indemnification. In addition, the Company shall
maintain Director's and Officer's liability insurance on behalf of the
Executive, provided the Executive is eligible to be covered and has in fact
been covered by such insurance, at the highest level in effect 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)
including any such insurance that was reduced prior to a Change in Control
of the Company at the request of the person or entity acquiring control of
the Company or reasonably shown to be related to the Change in Control of
the Company, for the seven (7) year period following the Termination Date.
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
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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.
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.
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(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 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, 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 ____________________________,
from time to time at its prime or base lending rate from the date
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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
20. Executive shall not be required to mitigate damages or the amount of any
payment provided for under this Agreement by seeking other employment or
otherwise, and compensation earned from such employment or otherwise shall not
reduce the amounts otherwise payable under this Agreement. 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 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
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modify any terms of any benefit plan of the Employer, as such terms are in
effect on 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 supercedes, 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 without limitation, the Change of
Control Agreement dated January 1997, as amended, 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 Wisconsin. 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 Milwaukee, Wisconsin or, at the
Executive's election, if the Executive is not then residing or working in the
Milwaukee, Wisconsin 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 Milwaukee, Wisconsin 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.
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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 Regal-Beloit Corporation, Attention: Secretary (or President, if the
Executive is then Secretary), 000 Xxxxx Xxxxxx, Xxxxxx, Xxxxxxxxx 00000-0000, 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.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
REGAL-BELOIT CORPORATION
By:
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Name:
Title:
Attest:
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Name:
Title:
EXECUTIVE:
(SEAL)
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Address:
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