EMPLOYMENT AGREEMENT
Agreement dated January 1, 1998 between Nishan Teshoian (the "Executive")
and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation").
WHEREAS, the Executive and the Corporation desire to set forth the terms
and conditions upon which the Executive shall be employed by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the Executive agrees to
be employed by the Corporation, upon the terms and conditions contained in
this Agreement, for a period of four years commencing on the date hereof
and terminating on the fourth anniversary of the date hereof (the "Contract
Period") The Contract Period shall be subject to earlier termination in
accordance with the provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Chairman and Chief Executive Officer as the President and
Chief Operating Officer of the Corporation with the responsibilities and
authority, and status and perquisites which have, consistent with past
practice, been delegated or granted by the Corporation to an employee
holding such position(s) or which are customarily delegated or granted by
similarly situated corporations to an employee holding similar position(s).
If Executive is appointed to additional offices by the Corporation during
the Contract Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past practices of
the Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such position(s). Executive
shall also perform any additional lawful services and assume any reasonable
additional responsibilities, not inconsistent with his then current
position, as shall from time to time be assigned to him by the Board of
Directors of the Corporation (the "Board") or by the Chairman and Chief
Executive Officer of the Corporation
2.2 Executive agrees that during the Contract Period, he shall devote
substantially all of his full working time and attention and give his best
effort, skill and abilities exclusively to the business and interests of
the Corporation; provided, however, that the foregoing shall not be
construed to prohibit Executive's service as a (i)
1
director or officer of any trade association, civic, educational or
charitable organization or governmental entity or, subject to approval by
the Board as (ii) a director of any corporation which is not a competitor
of the Corporation, provided that such service by Executive does not
materially interfere with the performance by Executive of the
responsibilities delegated under Section 2.1 above.
2.3 Executive shall carry out all responsibilities delegated in Section 2.1
above at the Corporation's headquarters, except for travel reasonably
required in the performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the contract period hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall receive an annual base salary which is not less than
his annual base salary on the date of this Agreement and shall have the
opportunity for periodic increases in accordance with the Corporation's
regular practices.
3.2 Executive shall be entitled to participate, to the extent determined by
the Board, in all currently existing and future incentive compensation
plans of the Corporation including, but not limited to: the Annual
Incentive Plan for Certain Employees of Coltec Industries Inc and Its
Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc
and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the
"Incentive Compensation Plans"), provided, however, that the Executive's
participation in all incentive compensation plans shall be at a level not
less than the level customarily approved by the Board for an employee with
Executive's responsibilities and shall not in any case be less than
Executive's level of participation in such plans on the date of this
Agreement. Any payment to Executive under an Incentive Compensation Plan
shall be calculated and made in accordance with the provisions of the
respective plan, except as elsewhere provided for in this Agreement.
3.3 Executive shall be entitled to receive all employee benefits, fringe
benefits and perquisites (including but not limited to the use of company
cars, club memberships and financial planning services ("Company
Perquisites")) customarily made available to an employee with Executive's
responsibilities, and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident insurance plans and
programs including, and not limited to, the Retirement Savings Plan, the
Retirement Program, the Benefits Equalization Plan (collectively the
"Retirement Plans") and the Family Protection Plan as well as any other
applicable Corporation benefit plans and programs maintained currently upon
terms and at levels no less favorable than now exist or that shall be
established or maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its employees.
2
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in Section 2.1 above, provided that the
Executive properly accounts for such expenses in accordance with the
Corporation's established policies.
4. Indemnification
The Executive shall be entitled to indemnification by the Corporation to
the fullest extent permitted by law and the By- Laws of the Corporation in
respect of any actions or omissions which Executive has taken or has failed
to take as an employee, officer or director of the Corporation while
carrying out the responsibilities delegated under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to the completion of its term on
the Date of Termination as defined in Sections 5.2 or 5.3 below following
receipt by the Executive or the Corporation, as the case may be, of a
Notice of Termination as defined in Section 5.1 below.
5.1 "Notice of Termination" shall mean any purported termination of
Executive's employment by the Corporation or by Executive which shall be
communicated by written notice to the other party hereto in accordance with
Section 8 of this Agreement, and which shall (1) indicate the specific
termination provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to provide a basis
for termination of Executive's employment under the provision so indicated,
and (3) set forth the date on which the Executive's employment with the
Corporation shall terminate.
5.2 "Date of Termination" shall mean:
a. thirty (30) days after Notice of Termination is given by the
Corporation for termination of employment due to Disability; provided
that Executive shall not have returned to the full-time performance of
his duties during such thirty (30) day period;
b. the date of death in the event of Executive's death;
c. at least thirty days (30) but not more than sixty (60) days after
Notice of Termination is given by Executive for termination of
employment for Good Reason in respect of a termination covered by
Sections 6.6 or 6.7 below;
d. at least fifteen days (15) after Notice of Termination is given by
the Corporation for termination of employment for Cause;
3
e. at least fifteen days (15) after Notice of Termination is given by
Executive for retirement after the age of 55 years but before the age
of 65 years to the extent such retirement is permitted under the
Retirement Savings Plan, the Retirement Program or the BE Plan ("Early
Retirement"); or
f. the date specified in the Notice of Termination for termination of
employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier of
Executive's 65th birthday or the date set forth in the Notice of
Termination for Early Retirement as provided in Paragraph 5.2(e) above
("Retirement Termination")
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason"
and "Change-in-Control" shall have the meanings set forth below:
a. Disability - If, as a result of Executive's incapacity due to
physical or mental illness, Executive shall have become eligible for
benefits under the applicable long-term disability plan or policy of
the Corporation, Executive's employment may be terminated by the
Corporation for "Disability".
b. Cause - Termination by the Corporation of Executive's employment
for "Cause" shall mean termination upon :
i. the prolonged or repeated absence from duty without the
consent of the Board for reasons other than the Executive's
incapacity due to physical or mental illness;
ii. the acceptance by Executive of a position with another
employer which conflicts with his duties as an employee of
the Corporation without the consent of the Board;
iii. the willful engaging by Executive in conduct relating to the
Corporation which is demonstrably and materially injurious
to the Corporation after a written demand for cessation of
such conduct is delivered to Executive by the Board, which
demand specifically identifies the manner in which the Board
believes the Executive has engaged in such conduct and the
injury to the Corporation;
iv. a willful material breach of an established written policy
or procedure of the Corporation which breach is materially
injurious to the Corporation;
4
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in Section
10.1 below.
For purposes of this Paragraph, no act, or failure to act, on
Executive's part shall be deemed "willful" unless knowingly done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in the best
interests of the Corporation.
c. Good Reason - Executive shall be entitled to terminate his
employment for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean the occurrence, without Executive's express written
consent, of any of the following circumstances unless such
circumstances are fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of Termination:
i. the terms of this Agreement are materially adversely altered
by action of the Corporation or the Corporation breaches in
any material respect any of its agreements set forth herein;
ii. the failure of the Corporation to obtain a satisfactory
agreement, required in Section 7 below, from any successor
to assume and perform this Agreement (a copy of the
agreement evidencing such assumption shall be provided by
the Corporation to Executive);
iii. any purported termination of Executive's employment which is
not effected pursuant to a Notice of Termination satisfying
the requirements set forth in Section 5 above; for purposes
of this Agreement, no such purported termination shall be
effective;
iv. Executive makes a determination in good faith that the
cumulative effect of actions by one or more of the members
of the Board, the Chairman and Chief Executive Officer or
their respective agents or associates constitutes harassment
or unreasonable interference with the performance of
Executive's day-to-day duties under this Agreement (after a
written demand for cessation of such actions is delivered by
Executive to the Chairman and Chief Executive Officer or to
the Board which demand specifically identifies the manner in
which Executive believes that the Chairman and Chief
Executive Officer or Board members (or their agents or
associates) have harassed Executive or unreasonably
interfered with Executive's ability to perform his
day-to-day duties); provided, however, that appropriate
involvement of the Chairman and Chief Executive Officer or
the Board members in regular reviews of those items which
have, consistent with the Corporation's past practices,
5
been normally within the purview of the Chairman and Chief
Executive Officer or the Board's responsibilities as well as
any bona fide business disagreements between the Executive
and the Corporation shall not be taken into account by
Executive in making his determination under this Agreement;
v. the Corporation or any successor during the two year period
following a Change-in-Control delivers to the Executive a
Notice of Termination other than for Cause or takes any
other action or actions, including, but not limited to, a
material decrease in duties or authority or change in
reporting relationships, which may have an adverse effect
upon Executive's employment or which purport to terminate
Executive's employment other than for Cause;
vi. relocation of the Executive's place of employment to a
location outside the continental United States or relocation
of the Executive's place of employment within the
continental United States without reimbursing Executive his
cost of relocation at a level at least as favorable as that
provided under the Corporation' s policy and practice in
effect on the date of this Agreement; or
vii. after a Change-in-Control as hereafter defined, the
Corporation a) reduces Executive's annual salary, b) impairs
Executive's opportunity to earn incentive compensation on a
bases comparable to that before the Change-in-Control, c)
reduces the Company Perquisites made available to Executive
before the Change-in-Control or d) eliminates or impairs
Executive's ability to participate in the Retirement Plans.
viii. the Executive chooses to terminate his employment with the
Corporation for any reason during the thirty (30) day period
immediately preceding either, at the option of the
Executive, the twelve (12) month anniversary or the
twenty-four (24) month anniversary of a Change-in-Control as
hereafter defined.
Executive's right to terminate his employment pursuant to this
Paragraph shall not be affected by his incapacity due to physical
illness. In addition, Executive's continued employment with the
Corporation shall not constitute a waiver of Executive's rights under
this Paragraph (c) nor constitute a consent to any act or omission by
the Corporation constituting Good Reason.
d. Change-in-Control - A Change-in-Control shall be deemed to occur as
of the date on which any of the following occur:
6
i. the acquisition, other than from the Corporation, by any
individual, entity or group (within the meaning of Section
13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act
of 1934, as amended (the "Exchange Act") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated
under the Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the Corporation
or the combined voting power of the then outstanding voting
securities of the Corporation entitled to vote generally in
the election of directors; or
ii. Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board,
provided that any individual becoming a director subsequent
to the date hereof whose election, or nomination for
election by the Corporation's shareholders, was approved by
a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though
such individual as a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose
initial assumption of office is in connection with an actual
or threatened election contest relating to the election of
the directors of the Corporation (as such terms are used in
Rule 14a-ll of Regulation 14A promulgated under the Exchange
Act); or
iii. Approval by the shareholders of the Corporation of (1) a
reorganization, merger or consolidation, in each case, with
respect to which the individuals and entities who were the
respective beneficial owners of the common stock and voting
securities of the Corporation immediately prior to such
reorganization, merger or consolidation do not, following
such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 50 percent of,
respectively, the then outstanding shares of common stock,
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting
from such reorganization, merger or consolidation; (2) a
complete liquidation or dissolution of the Corporation; or
of (3) the sale or other disposition of all or substantially
all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the end of the
Contract Period or Executive's death, Executive shall receive all accrued
but unpaid base salary plus all amounts or benefits payable or due to him
(including a pro rata share under Incentive Compensation Plans targeted for
the year in which the Disability occurs) under the Corporation's
compensation and benefit plans and programs in which Executive is
participating at the commencement of any such
7
period, plus an additional payment from the Corporation (if necessary) such
that the aggregate amount received by Executive in the nature of salary
continuation from all sources equals Executive's base salary at the rate in
effect at the commencement of any such period. Thereafter, Executive shall
be entitled to participate in all applicable group, life, Family Protection
Plan, health, disability and accident insurance plans and programs as well
as any other applicable Corporation benefit plans and programs (including,
but not limited to, the 1992 Stock Option and Incentive Plan) in accordance
with the terms of such plans and programs; provided that such terms shall
not be less advantageous to Executive than the terms in effect as of the
date hereof.
6.3 If Executive's employment shall be terminated by reason of Executive's
death, the Executive shall be entitled to the benefits provided below:
a. The Corporation shall pay to Executive's estate as soon as
practicable after the date of Executive's death, Executive's accrued
but unpaid base salary through the date of Executive's death, at the
rate in effect at the time of Executive's death, plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned during the
year in which Employee's death occurs.
b. After Executive's death, Executive's beneficiaries shall be
entitled to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs including, but
not limited to, the 1992 Stock Option and Incentive Plan, in
accordance with the terms of such plans and programs.
6.4 If Executive's employment shall be terminated as a result of a
Retirement Termination or as a result of a voluntary resignation for other
than Good Reason ("Resignation"), then Executive shall receive all accrued
but unpaid base salary plus all amounts payable to him under the
Corporation's compensation (including, but not limited to, a pro rata share
under Incentive Compensation Plans targeted for the year the Retirement
Termination or Resignation occurs) and benefit plans and programs in which
Executive is participating at the time the Retirement Termination or
Resignation becomes effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement and other
plans and programs effective on the Date of Termination to which he is
eligible in accordance with their terms .
6.5 If Executive's employment shall be terminated by the Corporation for
Cause, then Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive's full base salary through the
Date of Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which Executive is
entitled under any
8
benefit or compensation plan of the Corporation, excluding any bonus,
other incentive compensation and vacation pay, if any, otherwise
payable to Executive pursuant to the terms of the applicable plan or
program of the Corporation, at the time such payments are due.
b. Executive shall be entitled to participate in all applicable group,
life, health, disability and accident insurance plans and programs,
but only to the extent required by the terms of such plans, or only to
the extent specifically required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the Corporation
for other than Cause, (2) by Executive for Good Reason other than Good
Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then
Executive shall be entitled to the following benefits:
a. The Corporation shall pay Executive, as soon as practicable
following the Date of Termination a sum equal to Executive's accrued
but unpaid base salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit or
compensation plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans targeted for the
year in which Executive's employment is terminated).
b. The Corporation shall pay Executive as soon as practicable
following the Date of Termination an additional payment equal to the
sum of Executive's annual base salary plus the highest annual bonus
("Annual Bonus")received by the Executive during any of the three
previous calendar years multiplied by the higher of two (2) or the
number of years (including fractions thereof) remaining under the
Contract Period. If the Executive has not received an Annual Bonus
during the three (3) year period preceding the Date of Termination,
then the Annual Bonus for purposes of this section shall be calculated
by multiplying Executive's full base salary for one calendar year
times .8 and by further multiplying the result by 2.27.
c. In accordance with a valid election on file with the Corporation
the Corporation shall pay the Executive a sum of money equal to the
value of Executive' s accrued balance of the Benefits Equalization
Plan (the "BE Plan").
d. For the longer of two years from the Date of Termination or until
the end of the Contract Period (the "Relevant Damage Period"), the
Corporation shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation shall pay to
Executive as soon as practicable after the Date of Termination a sum
of money reasonably approximating the cash value of the Company
Perquisites. Additionally, for such period of time Executive shall,
subject to Section
9
6.9, be allowed to participate in all applicable group, life, health,
disability and accident insurance plans and programs as well as any
other applicable Corporation benefit plans and programs (including,
but not limited to, the 1992 Stock Option and Incentive Plan) as if he
were an active employee (limited, in the case of coverage under life
insurance plans, to the level of coverage that the Corporation is able
to obtain on Executive's behalf based upon the annual premium cost of
providing Executive with life insurance during Executive's last twelve
months of employment with the Corporation), in which Executive was
participating 30 days prior to the time Notice of Termination is given
or comparable plans substituted therefor; provided, however, that if
Executive is ineligible (e.g., by operation of law or the terms of the
applicable plan) to continue to participate in any such plan, the
Corporation will provide Executive with a comparable level of
compensation or benefit.
e. For purposes of Section 6.6(d), Executive's participation in
respect to the Corporation's 1994 Long Term Incentive Plan (the
"LTIP") shall be as follows (the defined terms within this section and
not otherwise defined within this Agreement being the same as defined
in the LTIP as in effect on the date hereof):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. the Corporation will pay the Executive as soon as
practicable following the Date of Termination an amount in
cash equal to three times the product of (x) the number of
Performance Units previously granted under the LTIP to the
Executive and still outstanding, times (y) the Award Value
at the Threshold Target level.
f. For purposes of Section 6.6(d), Executive's benefits with respect
to the Corporation's Retirement Plan for Salaried Employees and the BE
Plan or any equivalent or superior plans or arrangements in which the
Executive participated prior to the Date of Termination (any such Plan
or arrangement, the "Pension Plans") and the Corporation's welfare
benefit plans in which the Executive participates on the date hereof
or any equivalent or superior successor plans or arrangements in which
the Executive participates prior to the Date of Termination ("Welfare
Benefit Plans") the contemplated continued participation shall require
the Corporation to pay or provide the executive with the benefits,
earnings credits for benefits and service credits for benefits which
the Executive would have received under the Pension Plans and Welfare
Benefit Plans if (x) the Executive's employment and his coverage under
the Pension Plans and the Welfare Benefit Plans had continued during
the Relevant Damage Period, and (y) the compensation described in
Section 6.6 (b) which would
10
have been credited under the Pension Plans and/or the Welfare Plans
were paid to the Executive ratably over the Relevant Damage Period.
g. All restrictions, if any, on shares of restricted stock previously
granted to Executive which would have lapsed if Executive had been
employed throughout the Relevant Damage Period shall immediately lapse
as of the Date of Termination and Executive shall be entitled to the
possession of the shares of such stock as of such date upon the
payment of any applicable withholding taxes.
6.7 If Executive's employment by the Corporation shall be terminated by
Executive for Good Reason where Executive has given Notice of Termination
to the Corporation within two years from the occurrence of an event
constituting a Change-of-Control, then Executive shall be entitled to the
following benefits in lieu of the benefits under Section 6.6:
a. The Corporation shall pay Executive his accrued but unpaid base
salary through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts to which
Executive is entitled under any benefit or compensation plan of the
Corporation (including, but not limited to, a pro rata share under
Incentive Compensation Plans earned during the year in which
employment is terminated)
b. In lieu of any further base salary payments to Executive for period
subsequent to the Date of Termination, the Corporation shall pay to
Executive as severance pay a lump sum equal to four times (4x) the sum
of Executive's annual base salary at the rate in effect immediately
prior to the time Notice of Termination is given plus the highest
Annual Bonus received by the Executive during any of the three
preceding calendar years. If the Executive has not received an Annual
Bonus during the three (3) year period preceding the Date of
Termination, then the Annual Bonus for purposes of this section shall
be calculated by multiplying Executive's full base salary for one
calendar year times .8 and by further multiplying the result by 2.27.
c. In lieu of any further participation by Executive in the Family
Protection Plan, the Corporation shall transfer to Executive a fully
paid up insurance policy or policies then insuring the life of the
Executive pursuant to the terms of the Family Protection Plan, plus an
amount of money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income, employment or other
taxes which he may be liable as a result of receiving the insurance
policy or policies and the Tax Adjustment amount.
d. At Executive's option and as soon, as practicable after his
request, the Corporation shall pay Executive a sum of money equal to
the value of Executive's accrued balance of the BE Plan.
11
e. For four years from the Date of Termination, the Corporation shall
continue to make available to Executive all Company Perquisites, or,
in the alternative, the Corporation shall pay to Executive as soon as
practicable after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites. Additionally,
Executive shall, subject to Section 6.9, be allowed to participate in
all applicable group, life, health, disability and accident insurance
plans and programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992 Stock
Option and Incentive Plan) as if he were an active employee (limited,
in the case of coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive with life
insurance during Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30 days prior to
the time Notice of Termination is given or comparable plans
substituted therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the applicable
plan) to continue to participate in any such plan, the Corporation
will provide Executive with a comparable level of compensation or
benefit.
f. For purposes of Section 6.7(e), Executive's participation in
respect to the LTIP shall be as follows (the defined terms within this
section and not otherwise defined within this agreement being the same
as defined in the LTIP):
i. all of the Executive's Restricted Shares previously issued
under the LTIP and not yet vested by the Date of Termination
shall become 100% vested, nonforfeitable and fully
transferable as of such date; and
ii. all LTIP awards issued prior to the Date of Termination
("Existing Awards") of Performance Units ("Existing Units")
shall be deemed to have been outstanding throughout the
Performance Cycle to which each relates; and
iii. the Executive shall be deemed to have received an LTIP award
in each of the 4four years following the Date of Termination
("Deemed Awards") in an amount equal in units to the highest
number of Performance Units received by the Executive in any
of the three years prior to the Date of Termination ("Deemed
Units") and all of the Deemed Units shall be deemed to have
been outstanding throughout the Performance Cycle to which
each relates; and
iv. except as set forth in Section 6.7(f)(v), the Corporation
will pay the Executive as soon as practicable following the
Date of Termination an amount in cash equal to th e number
of Existing and Deemed Units to which he is entitled
multiplied by an Award Value the
12
result of which is further multiplied by 1.10 (the "LTIP
Payout"). The Operating Income Threshold Target for each
Deemed Award shall be that established for the Existing
Award issued just prior to the Date of Termination. The
Award Value shall be calculated in accordance with the
provisions of the LTIP applying actual operating profit of
the Corporation whenever such has actually been achieved and
applying those projections of operating profit contained in
the Corporation's Coltec 2000 Plan for those years which do
not have actual results. If any Performance Cycle of any
Existing or Deemed Unit shall extend beyond the projections
contained in the Corporation's Coltec 2000 Plan, then the
operating profit contained in the Coltec 2000 Plan for the
year ending December 31, 1999 shall be the operating profit
applied to each year of any Performance Cycle for which
actual operating profit cannot be calculated increased for
each year after 1999 at the average rate of annual increase
of operating profit actually realized for the period between
January 1, 1997 and December 31, 1999.
v. in the event that the independent accountants of the
Corporation shall determine that if the payment of the LTIP
Payout is made entirely in cash it shall prevent the
Corporation from consummating any business combination
approved by the Board of Directors which combination is
intended to be accounted for under the pooling of interests
method of accounting ("Pooling"), then the LTIP Payout shall
be made 2/3 in cash and 1/3 in the Corporation's Common
Stock (the "Share Portion"). If a merger or acquisition of
the Corporation has taken place prior to the time that the
Executive has given Notice of Termination setting forth his
intent to terminate his employment for Good Reason and the
Common Stock of the Corporation is no longer traded on a
national securities exchange then the Share Portion of the
LTIP Payout shall be made in the common stock of the
Corporation's parent or successor corporation (collectively,
a "Successor"), which stock is traded on a national
securities exchange or on an over the counter securities
market. The number of shares payable in respect to the Share
Portion shall be determined by dividing the dollar value of
the Share Portion by the price of a share of the Common
Stock of the Corporation, or a Successor, as the case may
be, on the last business day immediately preceding the date
of the Notice of Termination.
g. For purposes of Section 6.7(e), Executive's benefits with respect
to the Pension Plans and the Welfare Benefit Plans, the contemplated
continued participation shall require the Corporation to pay or
provide the Executive with the benefits, earnings credits for benefits
and service credits for benefits which the Executive would have
received under the Pension Plans and Welfare Benefit Plans if (x) the
Executive's employment and his coverage under the Pension Plans and
the Welfare Benefit Plans had
13
continued for an additional four year period, and (y) the compensation
described in Section 6.7 (b) which would have been credited under the
Pension Plans and/or the Welfare Plans were paid to the Executive
ratably over a four year period.
h. All restrictions, if any, on shares of restricted stock previously
granted to Executive shall immediately lapse as of the Date of
Termination and Executive shall be entitled to the possession of the
shares of such stock as of such date upon the payment of any
applicable withholding taxes.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the
event that Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good Reason other
than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good
Reason then:
a. The Company shall also pay to Executive all reasonable legal fees
and expenses incurred by Executive as a result of such termination
(including all such fees and expenses, if any, incurred in contesting
or disputing any such termination (including cost associated with
legal consultation even if no actual contest or dispute results) or in
seeking to obtain or enforce any right or benefit provided by this
Agreement or in connection with any tax audit or proceeding to the
extent attributable to the application of Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or expenses incurred
by Executive in seeking to enforce a claim which is determined by an
arbitrator, pursuant to Section 14 below, to have been frivolous in
nature or not brought or pursued in good faith.
b. In addition to all other benefits provided hereunder, in the event
that Executive becomes entitled to any payments or benefits from the
Corporation (whether or not provided under this Agreement) (the
"Severance Payments") that will be subject to the tax (the "Excise
Tax") imposed by Section 4999 of the Code, the Corporation shall pay
to Executive at the time or times specified in Paragraph (h) below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (I) any additional Excise
Tax payable by Executive as a result of Executive's receipt of the
Severance Payments, and (ii) any additional Federal, state and local
income and employment taxes and Excise tax payable by Executive as a
result of Executive's receipt of the Gross-Up Payments shall be equal
to the Severance Payments. For purposes of determining whether any of
the Severance Payments will be subject to the Excise Tax and the
amount of such Excise Tax, (i) the Severance Payments, payments
provided for in this paragraph and any other payments or benefits
received or to be received by Executive in connection with a
change-in-control of the Corporation (as defined in Section 280G of
the Code) or Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the
14
Corporation, any person whose actions result in a Change-in-Control or
any person affiliated with the Corporation or such person) shall be
treated as "parachute payments" within the meaning of Section 280G(b)
(2) of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b) (1) shall be treated as subject to the
Excise Tax, unless and to the extent that in the opinion of tax
counsel selected by the Corporation's independent auditors and
acceptable to Executive, such other payments or benefits (in whole or
in part) do not constitute parachute payments, or such excess
parachute payments (in whole or in part) and represent reasonable
compensation for services actually rendered within the meaning of
Section 280G(b) (4) of the Code in excess of the base amount within
the meaning of Section 280G(b) (3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the Severance Payments
which shall be treated as subject to the Excise Tax shall be equal to
the lesser of (x) the total amount of the Severance Payments or (y)
the amount of excess parachute payments within the meaning of Section
280G(b) (1) (after applying clause (i) above), (iii) any payment
pursuant to this Paragraph shall be treated as subject to the Excise
Tax in its entirety and (iv) the value of any non-cash benefits or any
deferred payment of benefit shall be determined by the Corporation's
independent auditors in accordance with the principles of Sections
280G(d) (3)and (4) of the Code. For purposes of determining the amount
of the Gross-Up Payment, Executive shall be deemed to pay federal
income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and
state and local income taxes at the highest marginal rate of taxation
in the state and locality of Executive residence on the Date of
Termination, not of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of
termination of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction in Excise
Tax is finally determined, the portion of the Gross-Up Payment
attributable to such reduction (plus the portion of the Gross-Up
Payment attributable to the Excise Tax and Federal and state and local
income tax imposed on the Gross-Up Payment being repaid by Executive)
plus interest accrued from the date such Gross-Up Payment is made to
Executive to the date of such repayment on the amount of such
repayment at the rate provided in Section 1274(b) (2) (B) of the Code.
In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Corporation shall make an additional gross-up
payment in respect of such excess (plus any interest payable with
respect to such excess) at the time that the amount of such excess is
finally determined.
15
c. The payments provided for in Paragraph (b) above shall be made at
any time during the 90-day period preceding each due date for making
payment of such Excise Taxes to the appropriate taxing authority;
provided, however, that if the amounts of such payments cannot be
finally determined on or before each such date, the Corporation shall
pay to Executive on such date an estimate, as determined in good faith
by the Corporation, of the minimum amount of such payments and shall
pay the remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have
been due, such excess shall constitute a loan by the Corporation to
Executive on the fifth day after demand by the Corporation (together
with interest at the rate provided in Section 1274 (b) (2) (B) of the
Code).
6.9 Upon receipt of written notice from Executive that Executive has been
reemployed by another company or entity on a full-time basis , benefits
otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e)
related solely to life, health disability and accident insurance plans and
programs and other similar benefits (but not Incentive Compensation , LTIP,
Pension Plans or other similar plans and programs) shall be reduced to the
extent comparable benefits are made available to Executive at his new
employment and any such benefits actually received by Executive shall be
reported to the Corporation. Nothing herein contained shall obligate
Executive to accept employment elsewhere .
6.10 Any stock of the Corporation which is delivered to the Executive
pursuant to Subsections 6.6 or 6.7 shall be delivered to him fully
registered for immediate sale to the public under all applicable securities
laws.
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Corporation to expressly assume and
agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession
had taken place. Failure of the Corporation to obtain such assumption and
agreement prior to the effectiveness of any such succession shall be a
breach of this Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement, "Corporation" shall
mean the Corporation and any successor to its business and or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law, or otherwise.
8. Notice
For the purpose of this Agreement, notices and all other communications
provided for in the Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by United States registered
mail, return
16
receipt requested, postage prepaid, addressed to the Executive's most
recent home address on file with the Corporation, and to the Corporation at
3 Coliseum Centre, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ to the
attention of the Chairman of the Board of Directors with a copy to the
Secretary of the Corporation or to such other address as either party may
have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon receipt.
9. Modification - Waiver
No provision of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing and signed
by Executive and such officer of the Corporation as may be specifically
designated by the Board. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition
or provision of this Agreement to be performed by such other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. In the event that the independent
accountants of the Corporation shall determine that anything contained
herein shall prevent the Corporation from consummating any business
combination approved by the Board of Directors which combination is
intended to be accounted for as a Pooling, then Executive agrees to
negotiate in good faith concerning amendments to such portions of this
Agreement as may be requested by the Corporation so as to allow such
business combination to be accounted for as a Pooling; provided, however,
that any such amendment shall: (a) be as limited in scope as is absolutely
necessary in the opinion of the Corporation's advisors to allow the
business combination to be accounted for as a Pooling, and (b) be designed
to have as minimal an economic detriment to the Executive as is possible
while still allowing the business combination to be accounted for as a
Pooling.
10. Non-competition
10.1 Until the Date of Termination, Executive agrees not to enter into
competitive endeavors and not to undertake any commercial activity which is
contrary to the best interests of the Corporation or its affiliates,
including becoming an employee, owner (except for passive investments of
not more than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of (a) any firm or person engaged in the operation of a
business engaged in the acquisition of industrial businesses or (b) any
firm or person which either directly competes with a line or lines of
business of the Corporation accounting for five percent (5%) or more of the
Corporation's gross revenues or earnings before taxes or derives five
percent (5%) or more of such firm's or person's gross revenues or earnings
before taxes from a line or lines of business which directly compete with
the Corporation. Notwithstanding any provision of this Agreement to the
contrary, Executive agrees that his breach of the provisions of this
Section 10.1 shall permit the Corporation to terminate Executive's
employment for Cause in accordance with Section 6.l(b) hereof.
17
10.2 After the Date of Termination and for a period of time equal in years
to the multiple of annual salary received by Executive pursuant to either
Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees
not to become an employee, owner (except for passive investments of not
more than three percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a national
securities exchange or in an over-the-counter securities market), officer,
agent or director of any firm or person which directly and substantially
competes with a business of the Corporation accounting for five percent
(5%) or more of the Corporation's gross revenues or earnings before taxes.
During the Non-Competition Period, Executive will be available to answer
questions and provide advice to the Corporation; provided, however, that
such requirement shall not unreasonably interfere with any other of
Executive's activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the Non-Competition
Period, Executive will retain in confidence any and all confidential
information known to him concerning the Corporation and its business and
shall not use or disclose such information without the approval of the
Corporation except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 10 will be difficult to determine
and will not afford a full and adequate remedy, and therefore Executive
agrees that the Corporation, in addition to seeking actual damages pursuant
to the procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of competent
jurisdiction, including, without limitation, by the issuance of a temporary
or permanent injunction, without the necessity of a bond. Executive and the
Corporation agree that the provisions of this covenant not to compete are
reasonable. However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable, either in period
of time, geographical area, or otherwise, the parties agree that this
covenant not to compete should be interpreted and enforced to the maximum
extent which such court or arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each of which shall
be deemed to be an original but all of which together will constitute one
and the same instrument.
18
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any dispute or
controversy arising under or in connection with this Agreement shall be
settled exclusively by arbitration in Charlotte, NC or such other location
mutually agreed upon by the parties to the arbitration, in accordance with
rules of the American Arbitration Association, and judgment upon such award
rendered by the arbitrator may be entered in any court having jurisdiction
over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
15. Entire Agreement; Survival of Certain Provisions
15.1 This Agreement constitutes the whole agreement of the Corporation and
the Executive. No agreements or representations, oral or otherwise, express
or implied, with respect to the subject matter of this Agreement have been
made by either party which are not expressly set forth in this Agreement
15.2 The obligations of the Corporation under Section 6.8 above and the
Executive's obligations under Section 10 above shall survive the expiration
of the term of this Agreement.
16. Withholding
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the Effective Date.
COLTEC INDUSTRIES INC
By /s/ ▇. ▇. ▇▇▇▇▇
-----------------------------
/s/ Nishan Teshoian
--------------------------------
EXECUTIVE