EXHIBIT (10)-3
Other Executive Form
CHANGE-IN-CONTROL SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED CHANGE-IN-CONTROL SEVERANCE AGREEMENT (this
"Agreement") by and between AEROQUIP-▇▇▇▇▇▇▇, INC., an Ohio corporation (the
"Company"), and ____________________________ (the "Executive"), dated this
_______ day of June, 1998.
WITNESSETH THAT:
WHEREAS, the Company recognizes that today's business environment makes
it difficult to attract and retain highly qualified executive and key
professional personnel unless a degree of security can be offered to those
individuals against organizational and personnel changes which frequently
follow a change in control of a corporation; and
WHEREAS, even rumors of change-in-control transactions may cause key
employees to consider major career changes in an effort to assure financial
security for themselves and their families; and
WHEREAS, the Company desires to assure fair treatment of its key
employees in the event of a change in control and to allow them to make
critical career decisions without undue time pressure and financial
uncertainty, increasing their willingness to remain with the Company
notwithstanding the outcome of a possible change-in-control transaction; and
WHEREAS, the Company recognizes that many of its key management
employees will be involved in evaluating or negotiating any offers, proposals,
or other transactions which could result in a change in control of the Company
and, recognizing the fiduciary obligations of such executives, believes that
it is in the best interests of the Company and its shareholders to provide
additional assurance that such key employees are in a position, free from
personal economic and employment considerations, to be able as a practical
matter to objectively assess and aggressively pursue the interests of the
Company's shareholders in making these evaluations and carrying on such
negotiations;
NOW THEREFORE, the parties agree as follows:
1. Definitions. When used herein, the following terms
shall have the meanings set forth below:
A. "Average Total Compensation" shall mean the sum
of the amounts determined under clauses (i) and (ii) below.
(i) The higher of the Executive's
annual base salary (without giving effect to any
elected deferrals to a plan under Section 401(k) of
the Internal Revenue Code of 1986, as amended (the
"Code") or any
-45-
similar qualified or nonqualified plan)
in effect on (x) the day immediately prior to the
day on which the Change in Control occurred, or (y)
the Executive's Termination Date.
(ii)(a) If the Executive has been
employed by the Company for the last three full
consecutive calendar years, the average of the two
highest aggregate short-term annual incentive
awards received by the Executive under the
Incentive Compensation Plan attributable to
services performed by the Executive during any
calendar year in the last five full calendar years
(without regard to when such awards were paid or
accrued); or
(ii)(b) If the Executive has been
employed by the Company for at least one, but less
than three full consecutive calendar years, the
average of the aggregate short-term annual
incentive awards received by the Executive under
the Incentive Compensation Plan attributable to
services performed by the Executive during each
full calendar year he has been employed by the
Company (without regard to when such awards were
paid or accrued); or
(ii)(c) If the Executive has been
employed by the Company for less than one full
calendar year, the greater of (x) his guaranteed
annual incentive compensation or (y) the aggregate
short-term annual incentive awards to which the
Executive would have been entitled under the
Incentive Compensation Plan of which the Executive
was a participant on the Termination Date, if he
had worked for one full calendar year at the base
salary determined under clause (i) above.
B. A "Beneficial Owner" of Voting Stock is any
Person who would be deemed to beneficially own such Voting
Stock within the meaning of Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor rules or regulations thereto.
C. "Benefit Period" shall mean a period of one
year, commencing with the Termination Date, except that if
the Executive will reach age 65 within one year after the
Termination Date, the Benefit Period shall mean a period of
a fractional year, commencing with the Termination Date and
ending on the Executive's 65th birthday.
D. "Cause" shall mean that, prior to any
Termination, the Executive shall have committed:
(i) an intentional act of fraud,
embezzlement or theft in connection with his duties or
in the course of his employment with the Company or
any Operating Company;
-46-
(ii) intentional wrongful damage to
property of the Company or any Operating Company;
(iii) intentional wrongful disclosure of
secret processes or confidential information of the
Company or any Operating Company; or
(iv) intentional wrongful engagement in
any Competitive Activity;
and any such act shall have been materially
harmful to the Company. For purposes of this Agreement, no
act, or failure to act, on the part of the Executive shall
be deemed "intentional" if it was due primarily to an error
in judgment or negligence, but shall be deemed "intentional"
only if done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that his action or
omission was in the best interest of the Company.
Notwithstanding anything in this Agreement to the contrary,
the Executive shall not be deemed to have been terminated
for "Cause" hereunder unless and until there shall have been
delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-
quarters of the Board of Directors of the Company (the
"Board") then in office at a meeting of the Board called and
held for such purpose (after reasonable notice to the
Executive and an opportunity for the Executive, together
with his counsel, to be heard before the Board), finding
that, in the good faith opinion of the Board, the Executive
had committed an act set forth above in this Paragraph 1.D
and specifying the particulars thereof in detail. Nothing
herein shall limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any
such determination.
E. A "Change in Control" shall have occurred if
there is a report filed on Schedule 13D or Schedule 14D-1
(or any successor, schedule, form or report), each as
promulgated pursuant to the Exchange Act, disclosing that
any Person has become the Beneficial Owner of 20% or more of
the Voting Stock; provided, however, that in the event that
prior to Termination Date, such Person files a report on
Schedule 13D or Schedule 14D-1 (or any successor schedule,
form or report) disclosing that it is no longer a Beneficial
Owner of 20% or more of the Voting Stock, then a "Change in
Control" shall not be deemed to have occurred for the
purposes of this Agreement.
Notwithstanding the foregoing provisions of
Paragraph 1.E, a "Change in Control" shall not be deemed to
have occurred for purposes of this Agreement solely because
(i) the Company, (ii) an entity in which the Company
directly or indirectly beneficially owns 50% or more of the
voting securities, or (iii) any Company-sponsored employee
stock ownership plan or any other employee benefit plan of
the Company or any
-47-
Operating Company, either files or becomes
obligated to file a report or a proxy statement under or in
response to Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report or item therein) under the Exchange
Act, disclosing beneficial ownership by it of shares of
Voting Stock, whether in excess of 20% or otherwise, or
because the Company reports that a change in control of the
Company has or may have occurred or will or may occur in the
future by reason of such beneficial ownership.
F. "Competitive Activity" means the Executive's
participation, without the written consent of an officer of
the Company, in the management of any business enterprise if
such enterprise engages in substantial and direct
competition with the Company and such enterprise's sales of
any product or service competitive with any product or
service of the Company amounted to 10% of such enterprise's
net sales for its most recently completely fiscal year and
if the Company's consolidated net sales of said product or
service amounted to 10% of the Company's consolidated net
sales for its most recently completed fiscal year.
"Competitive Activity" will not include (i) the mere
ownership of securities in any such enterprise and the
exercise of rights appurtenant thereto or (ii) participation
in the management of any such enterprise other than in
connection with the competitive operations of such
enterprise.
G. "Incentive Compensation Plan" shall mean the
plan approved by shareholders of the Company on April 19,
1984 (or any Operating Company Incentive Plan) and any
amendments thereto and restatements thereof, or any
successor plan that may become effective subsequent to the
date of this Agreement and prior to a Change in Control.
H. "Operating Company" shall mean any corporation
of which the Company owns directly or indirectly more than
50% of the outstanding stock having by its terms ordinary
voting power to elect a majority of the board of directors
of such corporation, irrespective of whether at the time
stock of any other class or classes of such corporation
shall have or might have voting power by reason of the
happening of any contingency.
I. "Person" shall mean any "person," as the term
"person" is used and defined in Section 14(d)(2) of the
Exchange Act, and any "affiliate" or "associate" of any such
person, as the terms "affiliate" and "associate" are defined
in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act as in effect on the date of this Agreement.
-48-
J. "Savings Plans" shall mean the Aeroquip-▇▇▇▇▇▇▇
Savings and Profit Sharing Plan and the Aeroquip-▇▇▇▇▇▇▇
Supplemental Benefit Plan and any amendments thereto and
restatements thereof, or any successor plans that may become
effective subsequent to the date of this agreement and prior
to a Change in Control.
K. "Termination" shall mean termination by the
Company of the Executive's employment for any reason other
than the following:
(i) death;
(ii) Total Disability, as defined in the
Company's long-term disability plan then in effect,
and the Executive begins actually to receive
disability benefits pursuant to such disability plan;
or
(iii) Cause.
The Executive may also deem himself to have been
terminated under this Paragraph 1.K if the aggregate cash
compensation (including base salary) (without giving effect
to any elected deferrals to a plan under Section 401(k) of
the Code) plus awards under the Incentive Compensation Plan)
received by the Executive in any calendar year following a
Change in Control is an amount less than the aggregate cash
compensation (including base salary (without giving effect
to any elected deferrals to a plan under Section 401(k) of
the Code) plus awards under the Incentive Compensation Plan)
received by the Executive in the full calendar year
immediately preceding the Change in Control; provided
however, if the Executive was not employed by the Company
during all of the full calendar year immediately preceding
the Change in Control, the amount referred to above with
respect to the full calendar year immediately preceding the
Change in Control shall be the sum of the amounts determined
pursuant to Paragraphs 1.A(i) and 1.A(ii)(c).
L. "Termination Date" shall be the last day worked
by an Executive whose employment with the Company is
terminated by the Company other than for the reasons set
forth in Subparagraphs 1.K(i), (ii) or (iii) of this
Agreement.
M. "Voting Stock" means all outstanding securities
of the Company entitled to vote generally in the election of
directors of the Company at the time in question.
2. Operation of Agreement. This Agreement will be effective
and binding immediately upon its execution, but, anything in this
Agreement to the contrary notwithstanding, this Agreement will not
be operative unless and until a Change in Control occurs. Upon
the occurrence of a Change in Control at any time during the Term,
without further action, this Agreement shall become immediately
operative.
-49-
3. Payments Upon Termination. In the event of Termination
within three years after the Change in Control, the Executive
shall receive:
A. An amount equal to the Executive's Average Total
Compensation, multiplied by the length, by a year or a
fractional year, of the Benefit Period. This payment shall
be made by the Company within thirty calendar days after the
Executive's Termination Date.
B. A payment by the Company (or, if applicable, the
Company shall cause the appropriate Operating Company to
make a payment) in an amount equal to one times the
Company's average aggregate contribution to the Executive's
accounts in the Savings Plans for the last three full years
preceding the Change in Control, to be made within thirty
calendar days after the Executive's Termination Date.
C. During the Benefit Period, the benefits
associated with continued participation in the employee
health, life insurance, disability income and other welfare
benefit plans of the Company and/or any Operating Company in
which he was participating immediately prior to the Change
in Control, upon provisions substantially similar to one or
more favorable to the Executive than those contained in the
respective plans as of the Termination Date; provided,
however, that if participation by the Executive in any of
such plans is not permitted, due to the requirements for
eligibility for participation contained therein, the Company
shall (or shall cause the applicable Operating Company to)
pay or provide for the payment of the benefits described in
those plans to the Executive and/or his dependents, or if
applicable, to his beneficiaries or estate as if he were
employed by the Company during the Benefit Period in the
position held by him immediately prior to the Change in
Control.
D. Reimbursement for the cost of outplacement
services rendered to the Executive as part of efforts made
by the Executive to obtain employment following his
Termination Date.
E. If the Executive is a Disqualified Individual
(as the term "Disqualified Individual" is defined in Section
280G of the Code, or any successor provision thereto) and if
any payment to the Executive, whether under this Agreement
or otherwise, would be an Excess Parachute Payment (as the
term "Excess Parachute Payment" is defined in Section 280G
of the Code or any successor provision thereto) but for the
application of this sentence, then the amount of the
payments otherwise payable to the Executive pursuant to this
Agreement shall be reduced to the minimum extent necessary
(but in no event to less than zero) so that no portion of
the payments made to the Executive, as so reduced,
constitutes an Excess Parachute Payment. The reduction, if
any, contemplated by the immediately preceding sentence
shall be effected by
-50-
reducing to the extent necessary the benefits
otherwise to be provided by Paragraph 2.C hereof, and then,
if necessary, by reducing the benefits otherwise to be
provided by Paragraph 2.B hereof, and then, if necessary, by
reducing the benefits provided by Paragraph 2.A hereof.
F. The determinations under Paragraph 2.E hereof
shall be made by the Company's independent accounting firm.
4. Interest. Without limiting the rights of the Executive at
law or in equity, if the Company fails to make any payment or
provide any benefit required to be made or provided hereunder on a
timely basis, the Company will pay interest on the amount or value
thereof at an annualized rate of interest equal to the so-called
composite "prime rate" as quoted from time to time during the
relevant period in the Midwest Edition of The Wall Street Journal.
Such interest will be payable as it accrues on demand. Any change
in such prime rate will be effective on and as of the date of such
change.
5. No Mitigation Obligation. The Company hereby acknowledges
that it will be difficult, and may be impossible, for the
Executive to find reasonably comparable employment following the
Termination Date, and the parties desire to avoid possible
disputes with respect to mitigation and offset matters. The
Company also acknowledges that, particularly in light of Paragraph
3.E hereof, its Board of Directors has, following due
consideration of the matter, determined that the benefits provided
by Paragraph 3 hereof are reasonable. Accordingly, the parties
hereto expressly agree that the payment of the amounts specified
in Paragraph 3 hereof by the Company to the Executive in
accordance with the terms of this Agreement will be liquidated
damages, and that the Executive shall not be required to mitigate
the amounts provided for in Paragraph 3 of this Agreement by
seeking other employment or otherwise, nor shall nay profits,
income, earnings or other benefits from any source whatsoever
create any mitigation, offset, reduction or any other obligation
on the part of the Executive hereunder or otherwise, except that
the welfare benefits provided by Paragraph 3.C hereof shall be
reduced to the extent comparable welfare benefits are actually
received by the Executive from another employer following the
Executive's Termination Date until the expiration of the Benefit
Period.
6. Arbitration and Legal Expenses. Any controversy or claim
arising out of or relating to this Agreement or the breach
thereof, shall be settled by arbitration in the City of Toledo,
Ohio, in accordance with the laws of the State of Ohio by three
arbitrators, one of whom shall be appointed by the Company, one by
the Executive and the third of whom shall be appointed by the
first two arbitrators. If the first two arbitrators cannot agree
on the appointment of a third arbitrator, then the third
arbitrator shall be appointed by the Chief Judge of the United
States District Court for the Northern District of Ohio. The
-51-
arbitration shall be conducted in accordance with the rules
of the American Arbitration Association, except with respect to
the selection of arbitrators, which shall be as provided in this
Paragraph 6. Judgment upon the award rendered by the arbitrators
may be entered in any court having jurisdiction thereof. In the
event that the Executive determines in good faith to retain legal
counsel and/or incur other reasonable costs or expenses in
connection with any such arbitration or to enforce any or all of
the Executive's rights under this Agreement or under any
arbitration award, the Company shall pay 50% of the first $10,000
of attorneys' fees, costs and expenses incurred by the Executive
in connection with the enforcement of his rights, including the
enforcement of any arbitration award in court, regardless of the
final outcome. The Company shall pay all such costs and expenses
in excess of $10,000 incurred by the Executive.
7. Competitive Activity. During a period ending one year
following the Termination Date, if the Executive shall have
received or shall be receiving benefits under Section 3, the
Executive shall not, without the prior written consent of the
Company, which consent shall not be unreasonably withheld, engage
in any Competitive Activity.
8. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city or
other taxes as the Company is required to withhold pursuant to any
law or government regulation or ruling.
9. Notices. Any notices, requests, demands and other
communications, provided for in or pertinent to this Agreement
shall be sufficient if delivered to the other party hereto by
means of a written notice, mailed by United States registered or
certified mail, return receipt requested, postage prepaid to
either the Executive's last known address, or to the Company's
principal executive offices, as the case may be.
10. Governing Law. The provisions of this Agreement shall be
construed and governed in accordance with the laws of the State of
Ohio without giving effect to the principles of conflict laws of
such State.
11. Amendment. This Agreement may be amended or canceled by
mutual agreement of the parties in writing without the consent of
any other person and, so long as the Executive lives, no person,
other than the parties hereto shall have any rights under or
interest in this Agreement or the subject matter hereof.
12. Successors and Binding Agreement.
A. The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of
the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, expressly
to assume and agree to perform this Agreement in the same
manner and to the same extent the Company would be required
to perform
-52-
if no such succession had taken place. This
Agreement shall be binding upon and inure to the benefit of
the Company and any successor to the Company, including
without limitation any persons acquiring directly or
indirectly all or substantially all of the business and/or
assets of the Company whether by purchase, merger,
consolidation, reorganization or otherwise (and such
successor shall thereafter be deemed the "Company" for the
purposes of this Agreement), but shall not otherwise be
assignable, transferable or delegable by the Company.
B. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal
representatives, executors administrators, successors,
heirs, distributees and/or legatees.
C. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the
other, assign, transfer or delegate this Agreement or any
rights or obligations hereunder except as expressly provided
in Paragraph 12.A hereof. Without limiting the generality
of the foregoing, the Executive's right to receive payments
hereunder shall not be assignable, transferrable or
delegable, whether by pledge, creation of a security
interest or otherwise, other than by a transfer by his will
or by the laws of descent and distribution and, in the event
of any attempted assignment or transfer contrary to this
Paragraph 12.C, the Company shall have no liability to pay
any amount so attempted to be assigned, transferred or
delegated.
13. Validity. If any provision of this Agreement or the
application of any provision hereof to any person or circumstances
is held invalid, unenforceable or otherwise illegal, the remainder
of this Agreement and the application of such provision to any
other person or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent (and only to the extent)
necessary to make it enforceable, valid and legal.
14. Scope of Agreement. This Agreement is not a contract for
employment for any period of time, does not constitute a guarantee
of employment and shall not be deemed to confer any benefit on the
Executive in the absence of a Change in Control.
15. Survival. Notwithstanding any provision of this Agreement
to the contrary, the parties' respective rights and obligations
under Sections 3, 4 and 6 will survive any termination or
expiration of this Agreement or the termination of the Executive's
employment following a Change in Control for any reason
whatsoever.
16. Term. The period during which this Agreement shall be in
effect (the "Term") shall commence as of the date hereof and shall
expire as of the latest of (i) December 31 of the second calendar
year after the calendar year in which this Agreement is executed;
(ii) the expiration of the Benefit Period; and (iii) three years
after
-53-
the date of the first Change in Control; provided, however,
in the absence of a Change in Control that (A) commencing on
January 1 of the calendar year after the calendar year in which
this Agreement is executed and each January 1 thereafter, the date
specified in clause (i) above shall be automatically extended for
an additional year unless, not later than September 30 of the
immediately preceding year, the Company or the Executive shall
have given notice that it or he, as the case may be, does not wish
to have the Term extended and (B) subject to Paragraph 14 hereof,
if, prior to a Change in Control, the Executive ceases for any
reason to be an employee of the Company, whether or not the
Executive then becomes or continues to be an employee of an
Operating Company, thereupon the Term shall be deemed to have
expired and this Agreement shall immediately terminate and be of
no further effect.
IN WITNESS WHEREOF, the Executive has hereunto set his hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, and its
corporate seal to be hereunto affixed and attested by its assistant secretary,
all as of the day and year first above written.
___________________________________
Executive
ATTEST: AEROQUIP-▇▇▇▇▇▇▇, INC.
________________________________ By: ________________________________
Secretary ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Chairman, President &
Chief Executive Officer
(Seal)
-54-