GRACE CORPORATE HEADQUARTERS
X. X. Xxxxx & Co.
0000 Xxxxx Xxxxx Xxxx
Xxxx Xxxxx, XX 00000-0000
Tel: (000)000-0000
October 26, 1998
Xx. Xxxx X. Xxxxxx
0 Xxxxxxxxxxx Xxxx
Xxxxxxx, Xxx Xxxxxx 00000
Dear Xxxx:
This letter agreement specifies the terms of your employment with X.
X. Xxxxx & Co. (the "Company") as President & Chief Executive Officer
(collectively, the "CEO"), which have been approved by the Company's Board of
Directors (the "Board") and/or the Compensation Committee of the Board, as
applicable. As you know, the Board is extremely pleased that you will be
joining the Company and believes you will make a valuable contribution to the
Company's future.
If you agree with the terms of this letter agreement, please sign
where indicated below and return one fully executed copy to me. An additional
copy of this letter is also enclosed for your records.
Responsibilities
Your employment with the Company as CEO will begin November 1, 1998.
The Board will also elect you as a member of the Board commencing that date.
Your title will be "President & Chief Executive Officer" of the Company; until
the current Chairman retires (expected to be March 1, 1999), at which time it
is the Board's intention that you will be elected Chairman and your title will
become "Chairman, President & Chief Executive Officer".
Your principal obligations, duties and responsibilities will be those
that are generally inherent in the office and title of CEO. In this regard, all
employees of the Company (and its subsidiaries) will report directly or
indirectly to you. Your office will be located at the Company's Headquarters.
Term Of Agreement
The initial term of your employment under this agreement will be for a
period of three years, beginning on the date your employment with the Company
commences, November 1, 1998, and ending on October 31, 2001 (such period is
referred to in this
agreement as your "Initial Employment Term"). Of course, you and the Board may
agree to extend the term of your employment beyond your Initial Employment
Term, under the same or different arrangements as those described in this
agreement. Any such extension must be in writing, signed by you and an
authorized member of the Board.
If your employment as CEO of the Company continues after the Initial
Employment Term, and no other arrangements have been mutually agreed in writing
between you and the Board, then the arrangements described in this agreement
will continue until changed by such mutual agreement, except as provided under
the following section entitled "Severance Pay Arrangements".
In any event, however, the Board will notify you of its intention
regarding renewal or non-renewal of your employment as CEO beyond your Initial
Employment Term, by no later than the end of December 2000.
Compensation
During your Initial Employment Term, the following compensation
provisions will apply:
1. Your annual base salary will be $725,000.00 (subject to annual review
by the Board and the Committee), which will accrue and be paid to you
in 24 semi-monthly regular payroll installments during each 12-month
period. Your salary will cease to accrue immediately upon your
termination of employment with the Company, whether you voluntarily
cease performing services or otherwise. (Note, however, the severance
provisions described below will apply if your employment terminates
under certain circumstances during the Initial Employment Term.)
2. You will be eligible to participate in the Company's Annual Incentive
Compensation Program beginning with the 1998 calendar year. The awards
under this Program are in cash, are contingent upon individual
performance, are paid on a calendar year basis and will be determined
by the financial results of the Company as a whole. In addition, all
annual incentive compensation awards are subject to approval by the
Compensation Committee and the Board (except with respect to the
special provisions for 1998 and 1999 described in the following
paragraph).
As CEO, you will be eligible for a targeted award under the program of
65% of your annual base salary; provided, however, your actual award
for 1998 will be at a fixed amount of $250,000 and for 1999 your
actual award will not be less than $471,250. (Note, the awards for
each calendar year are currently scheduled to be paid in March of the
following calendar year.)
Annual incentive compensation awards are contingent upon your
remaining an employee of the Company through the date of actual
payment. However, with regard to the 1998 and 1999 award payments
described above, if your employment
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is terminated by the Company without "Cause" (as defined below) before
the date of payment (including termination of your employment by the
Company without "Cause" following a "change in control" of the
Company, within the meaning of your "Executive Severance Agreement"
described below), these payments (after reduced in accordance with the
following paragraph) will be made in March 1999 and March 2000,
respectively.
If you become qualified for severance payments under the section below
entitled "Severance Pay Arrangement", prior to the payment of the
incentive award for 1999, then the amount of that award will be
reduced to an amount equal to the percentage of 1999 that you were
employed by the Company prior to your last date of employment with the
Company. (For instance, if your last date of employment was March 31,
1999 - therefore you would have been employed for 25% of 1999 - then
your incentive award for 1999 under this section would be reduced so
that it would be equal to 25% of its orignal amount.)
3. You will receive a "non-statutory" stock option grant covering 439,026
shares of Grace Common Stock on November 1, 1998 with a strike price
equal to the fair market value as of October 30, 1998. That grant will
be made under the Company's 1998 Stock Incentive Plan, which will
govern the terms of the grant, except as provided in this agreement.
This option grant will vest in three equal installments, each covering
146,342 shares, on November 1, 1999, November 1, 2000 and November 1,
2001, respectively. However, if your are terminated by the Company
without "Cause" during your Initial Employment Term (including
termination of your employment by the Company without "Cause"
following a "change in control" of the Company, within the meaning of
your "Executive Severance Agreement" described below), or if the
Company fails to offer to extend your employment term beyond October
31, 2001 (on conditions no less favorable to you as described in this
agreement), or upon your death or disability as defined under the
Company's Long- Term Disability Income Plan, then: (i) all such
installments will vest immediately upon your termination of employment
with the Company and (ii) you will have a period of 3 years after the
date you cease such employment to exercise those options.
Of course, the Compensation Committee will consider you for future
stock option grants, at the time such grants are considered for other
officers of the Company or at other appropriate times, in the judgment
of the Committee.
4. You will be granted a restricted stock award covering 170,733 shares
of Grace Common Stock on November 1, 1998, with the provision that you
will vest in shares and the restrictions will lapse in three equal
installments, each covering 56,911 shares, on November 1, 1999,
November 1, 2000 and November 1, 2001 respectively; provided, however,
all such installments will vest immediately upon termination of your
employment by the Company without "Cause" (including termination of
your employment by the Company without "Cause" following a
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"change in control" of the Company, within the meaning of your
"Executive Severance Agreement" described below), or upon your death
or disability as defined under the Company's Long-Term Disability
Income Plan.
You will be eligible to vote such shares during the period of
restriction and receive applicable dividends, if any, on such shares.
Special Stock Appreciation Payment
The Company will make a stock appreciation payment to you calculated
as described in the next sentence, in the event that you exercise any portion
of the stock option granted to you under part 3 of the "Compensation" section
of this agreement that become vested (such vested options are referred to below
as the "Vested Initial Options"), at a time when the market value of a share of
Grace Common Stock is greater than the option price per share of the grant.
With regard to any such Vested Initial Options exercised by you, the stock
appreciation payment by the Company will be equal to the result of the
following equation: (i) the number of Vested Initial Options exercised,
multiplied by (ii) a dollar amount equal to the option price per share of the
grant minus $10.25.
Alternatively, the Company will make a stock appreciation payment to
you, if you cancel any portion of your Initial Vested Options, at a time when
the market value of a share of Grace Common Stock is less than (or equal to)
the option price per share of the grant, but greater than $10.25. In order to
receive such a payment for canceled options, you must inform the Company's
chief human resources officer in writing of your election to cancel any portion
of your Initial Vested Options, and such cancellation will be effective on the
date such writing is received by that officer. With regard to any Vested
Initial Options cancelled in accordance with that procedure, the payment by the
Company under this section will be equal to the result of the following
equation: (i) the number of Vested Initial Options that are canceled,
multiplied by (ii) a dollar amount equal to the "Fair Market Value" (as defined
in the 1998 Grace Stock Incentive Plan) of a share of Grace common stock on the
date that the cancellation is effective minus $10.25.
In the event of your death at a time when your estate (or other
authorized person) is entitled to exercise Vested Initial Options, in
accordance with the terms of the 1998 Stock Incentive Plan, then the payments
and procedures described in this section will apply with regard to such person.
Change In Control Severance Agreement
Consistent with your election as an officer of the Company, the
Company will enter into an "Executive Severance Agreement" (i.e., a so-called
"golden parachute" agreement) with you, effective your first date of employment
with the Company (i.e., November 1, 1998). The agreement will, in general,
provide for a severance payment of 3 times the sum of your annual base salary
plus your targeted annual incentive compensation award, and
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certain other benefits, in the event your employment terminates under certain
conditions following a "change in control" of the Company (within the meaning
of your Executive Severance Agreement).
The form of your Executive Severance Agreement will be the same as
applicable to other elected officers of the Company.
Severance Pay Arrangement
If your employment is terminated by the Company without "Cause" during
your Initial Employment Term, or if the Company does not, by the end of
December 2000, offer to extend your employment beyond October 31, 2001 (on
conditions no less favorable to you as described in this agreement) and you in
fact cease employment on October 31, 2001, then you will be entitled to the
severance payment described in the next sentence. The severance payment will be
2 times a dollar amount equal to 165% of your annual base salary at the time
your employment is terminated. The severance payment may be made to you in
installments, at the same time and in the same manner as salary continuation
payments, over a period of two years beginning as of the date you are
terminated. However, at your option, the entire severance payment may be paid
to you in a single lump sum as soon as practical after your termination (if
approved by the Compensation Committee). If you receive this severance payment,
you will not be entitled to any other severance pay from the Company.
You will not, in any event, however, be entitled to the severance
payment described above if, at the time your employment terminates, you are
entitled to payments under your Executive Severance Agreement described above,
or to disability income payments under the Grace "LTD Plan" and/or "ESP Plan"
described below.
Unless otherwise agreed by you and the Board (or as provided above),
on the date your Initial Employment Term expires (i.e., October 31, 2001), this
severance pay arrangement will no longer be applicable to you, and your
continued employment with the Company will be as an employee "at will", subject
to whatever other Company severance programs are applicable to senior officers
at the time your employment terminates.
Supplemental Pension Arrangement
You will be entitled to a supplemental pension from the Company, which
considers your prior service with X. X. Xxxxx & Co. (the successor of the
Company) and with AlliedSignal, as if such service had been continuous service
with the Company. The supplemental pension will be payable from the general
assets of the Company -- it will not be pre-funded in any manner.
The supplemental pension will be calculated by applying the Grace
Salaried Retirement Plan and SERP benefit formula to all such prior service and
all future service with the Company, and using your "final average
compensation" (as defined by those plans) to
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derive a total retirement benefit. Then, any retirement benefits to which you
are entitled to under the Grace Salaried Retirement Plan, the Grace SERP and
any AlliedSignal defined-benefit retirement plans will be subtracted from such
total retirement benefit. The supplemental pension that the Company provides
will be equal to the amount of the remaining total retirement benefit after
such subtraction.
The benefit payment option applicable to the supplemental pension
(e.g., a lifetime annuity, joint-and-spousal survivor annuity, etc.) will be
the same as the payment option applicable to you under the Grace Salaried
Retirement Plan.
This supplemental pension arrangement will be paid to you only if your
employment with the Company does not cease during your Initial Employment Term,
or if you are terminated during that Term without "Cause" (including
termination of your employment by the Company without "Cause" following a
"change in control" of the Company, within the meaning of your Executive
Severance Agreement). Thus, if you voluntarily terminate your employment before
your Initial Employment Term expires, or if you are terminated for "Cause"
prior to the expiration of that Term, you will not be entitled to the
supplemental pension.
For purposes of determining any supplemental pension that may be
payable to you if you cease employment with the Company prior to receiving
sixty consecutive months of compensation from the Company, your "final average
compensation" (used to determine the supplemental pension) will only utilize
compensation paid to you by the Company from November 1, 1998.
Note, if the Grace Salaried Retirement Plan is amended in a manner
that affects the calculation of benefits, while you are employed by the
Company, then the supplemental pension may be adjusted in an equitable manner
consistent with such amendment. Any such adjustment will be determined by the
actuary for the Salaried Retirement Plan; but such adjustment may not in any
event decrease your supplemental pension below an amount that would be
calculated based on your years of service and "final average compensation" as
of the day before the effective date of such amendment.
Definition Of Cause
"Cause", for purposes of this agreement, means:
(i) Commission by you of a criminal act (i.e., any act which, if
successfully prosecuted by the appropriate authorities would constitute a crime
under State or Federal law) or of significant misconduct, which has had or will
have a direct material adverse effect upon the business affairs, properties,
operations or results of operations or financial condition of Company,
(ii) Refusal or failure of you to comply with the mandates of the
Board, or failure by you to substantially perform your duties hereunder, other
than such failure resulting from
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your total or partial incapacity due to physical or mental illness, which
refusal or failure has not been cured within 30 days after notice has been
given to you, or
(iii) Breach of any of the terms of this agreement by you, which
breach has not been cured within 30 days after notice has been given to you.
Relocation Assistance
The Company will provide you with the relocation assistance under the
Headquarters Office Relocation Policy for current employees (copy attached),
except that the Company will provide you with 2 months salary, "grossed up" for
taxes, to cover incidental relocation expenses (instead of 1 monthly salary
provided by the Policy) and your "capital loss protection", if you sell your
current residence to relocate to the Company's Headquarters, will not be
limited to $25,000. In addition, appropriate temporary housing of your choice
will be provided by the Company.
Company-Sponsored Benefit Plans and Programs
As an employee and senior officer of the Company, you will be eligible
to participate in various Company-sponsored benefit plans and programs (subject
to their respective provisions and as they may be amended from time to time).
Following is a brief description of the principal plans and programs:
1. The Grace Deferred Compensation Program.
This Program provides that you may elect to defer a portion of your
base salary (from a minimum of $200 per month to a maximum of 25% of
base salary) and all or a portion of your annual incentive
compensation. Deferred amounts are credited with interest equal to the
greater of (i) the prime rate plus 2 percentage points or (ii) 120% of
the prime rate.
2. The X. X. Xxxxx & Co. Retirement Plan for Salaried Employees
("Salaried Retirement Plan").
This Plan is a "tax qualified" plan that provides a pension at
retirement equal to 1.50% of "final average compensation" (as defined
by the Plan, which includes annual base salary and annual incentive
compensation for the 60 consecutive highest-paid months during the
last 180 months of employment with the Company), less 1.25% of the
primary Social Security benefits, multiplied by years of credited
service.
Your participation in the Grace Salaried Retirement Plan will commence
on November 1, 1998 (i.e., your first date of employment) since you
already satisfy the 1 year of service plan participation requirement,
as a result of your prior eligible service with the Company. You have
also satisfied the vesting requirements under the Plan, as a result of
your prior service with the Company.
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3. The X. X. Xxxxx & Co. Supplemental Executive Retirement Plan ("SERP").
The SERP is an unfunded Company plan that supplements benefits under
the Grace Salaried Retirement Plan. The SERP pays retirement benefits
which would otherwise be paid under the terms of the Salaried
Retirement Plan, but for limits and exclusions imposed by tax law. For
example, pension benefits related to base salary or incentive
compensation awards, which an executive elects to defer, will be paid
under the provisions of the SERP (not the Grace Salaried Retirement
Plan). The SERP also pays any pension benefits that an executive
accrues in excess of the "tax qualified" plan limits (currently
$130,000 per year) and compensation limit (currently $160,000 per
year). Participation, vesting and payment options in the SERP follow
the same rules as the Grace Salaried Retirement Plan.
4. The X. X. Xxxxx & Co. Salaried Employee Savings & Investment Plan
("S&I Plan").
Since you already satisfy the 1 year of service participation
requirement, as a result of your prior eligible service with the
Company, the S&I Plan permits you (beginning on November 1, 1998) to
save a portion of your compensation up to a maximum permitted by law
by contributing such amount to the Plan by payroll deduction. With
respect to the first 6% you contribute, the Company will match $1 of
Grace stock for each $2 you save. Your contributions are invested in
one or more of seven funds at your option. Xxxxx's S&I Plan is a
so-called "401(k) plan" and, therefore, a portion of your contribution
can, at your election, be treated as deferred income for tax purposes.
Amounts of allowable contributions are subject to certain Internal
Revenue Code limits, one of which limits annual before-tax savings
amounts (for 1998, this limit is $10,000). The S&I Plan currently
permits an 8% maximum savings rate for before-tax amounts.
Note, however, your ability to contribute to the S&I Plan on a
before-tax basis for 1998 may be limited, based on tax law limits and
the contributions you may have already made during 1998 to an
AlliedSignal 401(k) plan.
5. The X. X. Xxxxx & Co. Savings & Investment Plan Replacement Payment
Program.
This Program is designed to "make-up" matching Company contributions
that are not paid due to the compensation threshold limit under the
Internal Revenue Code. To be eligible to receive a "make-up" payment
each year, an executive must participate in the S&I Plan at a rate of
at least 6% during the entire year until he or she reaches the
compensation limit. The replacement payment then equals 3% of the
year's plan compensation in excess of the legally-imposed compensation
limit (which is $160,000 for 1998).
You may elect to receive your replacement payment by check at the time
annual incentive compensation awards are paid or credited (which is
currently in March of the year following the year to which the payment
relates), or you may elect to defer the replacement payment you would
otherwise receive. If you choose to defer the
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payment, you will receive earnings credited under the Deferred
Compensation Program.
6. The X. X. Xxxxx & Co. Long-Term Disability Income Plan ("LTD Plan").
You will become eligible to participate in the LTD Plan on a voluntary
and contributory basis on the first of the month following or
coincident with your date of employment. (In your case, you will be
eligible to commence participation on November 1, 1998.) Generally,
the LTD Plan provides for a monthly income of 60% of base monthly
earnings should you become disabled, within the meaning of the Plan.
The maximum monthly benefit under the Plan is $30,000.
7. Executive Salary Protection Plan ("ESP Plan").
Consistent with your status as a senior officer of the Company,
beginning with the first date of your employment with the Company
(i.e., November 1, 1998), you will commence participation in the ESP
Plan. Under the ESP Plan, in the event of your death while employed by
the Company and prior to age 70, the Company will continue to pay a
portion of your base salary to your beneficiary(ies) for a period of
time depending upon your age at death. This Plan also provides certain
disability benefits which are supplemental to the Company's LTD Plan.
8. The X. X. Xxxxx & Co. Voluntary Group Accident Insurance Plan.
You will become eligible to participate in this Plan effective on the
first date of employment (i.e., November 1, 1998). Participation is
voluntary and requires employee contributions. Under the terms of the
Plan, you may elect coverage of $10,000 through $500,000. Coverage is
available on an individual basis or under a family plan.
9. The X. X. Xxxxx & Co. Business Travel Accident Insurance Plan.
You will become a participant in this Plan effective on the first date
of your employment with the Company (i.e., November 1, 1998). The Plan
provides protection against death, permanent total disability or
dismemberment. The principal sum is 5 times your annual base salary
(with a maximum principal sum of $1,500,000). In your case, as in the
case of other executives, the usual requirements that you be away from
home or normal place of work and that you be on Company business do
not apply in --- order to be eligible for coverage.
10. The X. X. Xxxxx & Co. Split-Dollar Life Insurance Program.
Commencing on August 1, 1999, you will have life insurance coverage
equal to 2 times your annual base salary rate under this Program. This
Program provides for split premiums between you and the Company with
life insurance coverage continuation into retirement and significant
accumulation of cash value after fifteen years of participation.
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Prior to the date you begin to participate in the Program, you will
participate in the Company's basic group term life insurance plan
under which coverage is 2 times your annual base salary.
Supplemental life insurance coverage, which is voluntary, is also
available at moderate rates based on your age, up to an additional 3
times your annual base salary (with a maximum of $1,500,000 of
supplemental coverage). Dependent life insurance is also available to
your spouse and unmarried dependent children to age 19 (or to age 23
if the child regularly attends school full-time).
11. The X. X. Xxxxx & Co. Group Medical and Dental Plans.
Your participation under these plans are effective for eligible claims
incurred commencing on the first day of your employment (i.e.,
November 1, 1998) and offers protection to you, your spouse and
unmarried children to age 19 (age 23 if the child regularly attends
school full-time). The Headquarters network medical plan utilizes an
established network of doctors and hospitals in the South Florida
area. Employees in the network area have a choice of two options: a
Point-of-Service (POS) option allows them the choice of a network
provider or the freedom to go outside the network for medical care; an
HMO-like option locks them into using network providers. The network
has been assembled by United Healthcare and includes Board Certified
or Board Eligible physicians and quality area hospitals. Employees and
their family get to choose a primary care physician who oversees all
of their medical needs. As the medical plan is currently designed,
your cost for participation will be 30% of the monthly cost of
coverage (the Company will pay the remaining 70%).
Also available is a flexible spending account plan (the "FSA Plan")
for certain healthcare expenses (which are not covered by the basic
medical or dental plan). By using the FSA Plan, you may pay those
healthcare expenses on a pretax basis, up to $5,000 per year.
Finally, the Company currently sponsors a plan that provides
post-retirement medical coverage for eligible former employees. Under
current plan provisions, you will qualify for that coverage, if you
retire from the Company after you reach age 55 (since you currently
satisfy the other eligibility requirement - i.e., you have 10 years of
prior eligible service with the Company). In addition, as an
alternative to the age 55 eligibility requirement, you will be deemed
to satisfy that requirement (and the Company will provide you that
coverage, or coverage that duplicates that coverage), if you are
terminated by the Company without "Cause" during your Initial
Employment Term (including termination of your employment by the
Company without "Cause" following a "change in control" of the
Company, within the meaning of your "Executive Severance Agreement).
The cost of post-retirement medical coverage will be shared by you and
the Company.
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12. Executive Registry Program.
Under this Program you will have access to a network of medical
services offered by leading hospitals and medical centers in large
cities throughout the U.S. and abroad. These hospitals and medical
centers serve as sources where members can obtain high-quality
emergency medical care while traveling or temporarily living away from
home either in the U.S. or abroad.
Financial Counseling Program
As an officer of the Company, you will be eligible to participate in
the Company's Financial Counseling Program. This Program provides you with
financial and estate planning and income tax preparation assistance. The
Company will pay up to $9,000 per calendar year for reasonable expenses
regarding such assistance.
Company Car
The Company will arrange for you to lease, at the Company's expense,
an automobile for use on Company business and for your personal use. The terms
of the coverage will be the same as those provided for other officers of the
Company, and you may elect either (i) to have the Company provide you with a
new automobile of your choice in the larger Cadillac/Lincoln category or (ii)
to have the Company purchase for you from AlliedSignal your current vehicle (a
Lexus LX 470).
Executive Physical Program
As an officer of the Company, you will be eligible to receive a
Company-paid annual executive physical examination through the Cleveland Clinic
of Florida.
Club Membership
The Company will provide you with a membership at a country and
luncheon club of your choice. The Company will pay your membership deposit; and
annual dues will be paid by you.
Vacation
As an officer of Grace, you will be entitled to four weeks paid
vacation per full calendar year during your Initial Employment Term. You will
be entitled to carryover unused vacation time in accordance with applicable
Company policy.
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Security
During your period of employment with the Company, the Company will
provide appropriate security for you, your spouse and your primary residence
(including your residence in New Jersey, until that residence is sold).
Indemnification Commitment
The Company shall, to the extent permitted by applicable law,
indemnify you and hold you harmless from and against any liability you may
incur as a result of your performance of duties hereunder in accordance with
the provisions of this agreement. The Company shall obtain such policy or
policies of insurance as it may deem appropriate to effect this
indemnification.
Air Travel
In addition to the usual Company policies regarding air travel by
senior officers on Company business, the Company will provide you with travel
by chartered aircraft or with travel on an aircraft fractionally owned by the
Company, at times requested by you, after the aircraft currently owned by the
Company is no longer available.
Miscellaneous
This Agreement may be amended, superseded or canceled only by a
written instrument specifically stating that it amends, supersedes or cancels
this Agreement, executed by you and the Company.
You and the Company acknowledge that this agreement supersedes any
other agreement between you and the Company concerning the subject matter
hereof.
If you have any questions regarding any expectations of your new
position, please call me.
If you have any questions regarding the compensation and Company
benefit plans and programs, please feel free to call Xxxx Xxxxxx, Vice
President, Human Resources, at (000) 000-0000.
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Xxxx, we are very excited about your joining the Grace organization
and look forward to a productive and mutually rewarding relationship.
Sincerely,
Xxxxxx X. Xxxxxxxx
Chairman, President
& Chief Executive Officer
Attachment
cc: X. X. Xxxxx
X. X. Xxxxxx
X. X. Xxxxxx
AGREED AND ACCEPTED:
-----------------------------
Xxxx X. Xxxxxx
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