<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 28, 1998
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from __________________ to __________________
Commission file number: 1-7568
COLTEC INDUSTRIES INC
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 13-1846375
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217 28217
(Address of principal executive offices) (Zip code)
(704)423-7000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
----------------------------------------
On July 31, 1998, there were outstanding 65,208,754 shares of common stock,
par value $.01 per share.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1998 1997 1998 1997
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 394,754 $ 322,227 $ 769,195 $ 631,399
Cost of sales 311,862 217,137 572,010 428,812
---------- ----------- ---------- ----------
Gross profit 82,892 105,090 197,185 202,587
Selling and administrative 64,124 56,336 125,123 108,905
---------- ----------- ---------- ----------
Operating income 18,768 48,754 72,062 93,682
Gain on divestiture 56,194 - 56,194 -
Interest expense and other, net (13,230) (12,682) (28,310) (25,046)
---------- ----------- ---------- ----------
Earnings before income taxes, minority
interest and extraordinary item 61,732 36,072 99,946 68,636
Income taxes (20,989) (12,264) (33,982) (23,336)
Minority interest in net loss of
subsidiaries (1,085) - (1,085) -
---------- ----------- ---------- ----------
Earnings before extraordinary item 39,658 23,808 64,879 45,300
Extraordinary item (net of tax) (4,326) - (4,326) -
---------- ----------- ---------- ----------
Net earnings $ 35,332 $ 23,808 $ 60,553 $ 45,300
========== =========== ========== ==========
Basic earnings per common share
Before extraordinary item $ .60 $ .36 $ .98 $ .68
Extraordinary item (.06) - (.06) -
---------- ----------- ---------- ----------
Net earnings $ .54 $ .36 $ .92 $ .68
========== =========== ========== ==========
Basic weighted-average common
shares 65,986 65,718 65,934 66,252
========== =========== ========== ==========
Diluted earnings per common share
Before extraordinary item $ .57 $ .36 $ .95 $ .67
Extraordinary item (.06) - (.06) -
---------- ----------- ---------- ----------
Net earnings $ .51 $ .36 $ .89 $ .67
========== =========== ========== ==========
Diluted weighted-average common
and common equivalent shares 71,304 66,695 69,220 67,213
========== =========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 3
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 28 Dec. 31
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 20,073 $ 14,693
Accounts and notes receivable, net of
allowance of $2,686 in 1998 and $2,394 in 1997 163,448 120,311
Inventories
Finished goods 48,952 53,748
Work in process and finished parts 150,564 158,937
Raw materials and supplies 43,073 44,051
---------- ---------
242,589 256,736
Deferred income taxes 17,172 15,195
Other current assets 15,460 20,508
---------- ---------
Total current assets 458,742 427,443
Property, plant and equipment, net 300,123 287,619
Costs in excess of net assets acquired, net 209,670 157,751
Other assets 92,617 60,221
---------- ---------
$1,061,152 $ 933,034
========== =========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 28 Dec. 31
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,191 $ 1,811
Accounts payable 98,815 93,799
Accrued expenses 193,099 138,969
Current portion of liabilities of
discontinued operations 4,999 4,999
---------- ---------
Total current liabilities 301,104 239,578
Long-term debt 601,352 757,578
Deferred income taxes 86,813 79,229
Other liabilities 84,054 60,892
Liabilities of discontinued operations 148,024 154,918
Commitments and contingencies - -
Company-obligated, mandatorily redeemable convertible preferred securities of
subsidiary Coltec Capital Trust holding solely convertible
junior subordinated debentures of the Company 144,770 -
Shareholders' equity:
Preferred stock, $.01 par value,
2,500,000 shares authorized,
shares outstanding - none - -
Common stock, $.01 par value,
100,000,000 shares authorized, 70,541,139 and 70,501,948 shares issued at
June 28, 1998 and December 31, 1997, respectively (excluding 25,000,000
shares held by a wholly-owned
subsidiary) 705 705
Capital surplus 643,266 642,828
Retained deficit (851,774) (912,029)
Unearned compensation (2,150) (2,721)
Minimum pension liability (1,646) (1,646)
Foreign currency translation adjustments (15,152) (6,745)
---------- ---------
(226,751) (279,608)
Less cost of 4,611,185 and 4,666,406 shares of common stock in treasury at June
28, 1998 and December 31, 1997,
respectively (78,214) (79,553)
---------- ---------
(304,965) (359,161)
---------- ---------
$1,061,152 $ 933,034
========== =========
</TABLE>
See notes to consolidated financial statements.
4
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COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 28 June 29
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 60,553 $ 45,300
Adjustments to reconcile net earnings to cash
provided by operating activities:
Extraordinary item 6,554 -
Depreciation and amortization 24,611 16,589
Deferred income taxes 5,607 14,184
Gain on divestiture (56,194) -
Payments of liabilities of discontinued
operations (6,894) (12,717)
Other operating items (11,046) (20,248)
Changes in assets and liabilities (net of effects
from acquisitions and divestitures):
Accounts and notes receivable (42,911) (3,537)
Inventories 11,169 (18,060)
Other current assets 1,908 (1,532)
Accounts payable 4,361 10,002
Accrued expenses 42,456 (7,615)
----------- ----------
Cash provided by operating activities 40,174 22,366
----------- ----------
Cash flows from investing activities:
Capital expenditures (27,187) (29,267)
Proceeds from divestiture 100,000 -
Acquisition of businesses, net (80,518) -
----------- ----------
Cash used in investing activities (7,705) (29,267)
----------- ----------
Cash flows from financing activities:
Increase (decrease) in revolving facility, net (440,000) 49,500
Repayment of long-term debt (18,847) (7,177)
Issuance of long-term debt, net 292,151 -
Issuance of convertible preferred securities, net 144,472 -
Purchase of treasury stock (994) (41,919)
Payments for unclaimed stock (3,871) -
----------- ----------
Cash provided by (used in)
investing activities (27,089) 404
----------- ----------
Increase (decrease) in cash and cash equivalents 5,380 (6,497)
Cash and cash equivalents - beginning of period 14,693 15,029
----------- ----------
Cash and cash equivalents - end of period $ 20,073 $ 8,532
=========== ==========
Supplemental cash flow data:
Cash paid for interest $ 25,226 $ 22,438
Cash paid for income taxes 13,645 1,268
</TABLE>
See notes to consolidated financial statements.
5
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COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1998 1997 1998 1997
--------- -------- ----------- --------
<S> <C> <C> <C> <C>
Net earnings $ 35,332 $ 23,808 $ 60,553 $ 45,300
--------- -------- ----------- --------
Other comprehensive income/(loss, net of
tax):
Foreign currency translation adjustment (6,002) (443) (8,407) (1,553)
Unearned compensation 549 363 571 (329)
Amortization of preferred stock issuance
costs (298) - (298) -
--------- -------- ----------- --------
Other comprehensive income/(loss),
net of tax (5,751) (80) (8,134) (1,882)
--------- -------- ----------- --------
Comprehensive income $ 29,581 $ 23,728 $ 52,419 $ 43,418
========= ======== =========== ========
</TABLE>
See notes to consolidated financial statements.
6
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COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
1. SUMMARY OF ACCOUNTING POLICIES
Financial Information: The unaudited consolidated financial statements
included herein reflect in the opinion of the management of Coltec
Industries Inc (the Company) all normal recurring adjustments necessary
to present fairly the consolidated financial position and results of
operations for the periods indicated. The unaudited consolidated
financial statements have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. The Consolidated Balance Sheet as of
December 31, 1997 has been extracted from the audited consolidated
financial statements as of that date. For further information, refer to
the consolidated financial statements and footnotes included in the
Company's annual report to shareholders for the year ended December 31,
1997.
2. ACQUISITIONS AND DIVESTITURES
On January 30, 1998, the Company acquired certain Marine and Petroleum
Mfg. Inc.'s manufacturing facilities based in Texas for approximately
$17,000. The plants acquired produce flexible graphite and
polytetrafluoroethylene (PTFE) fluid sealing products used in the
petrochemical industry. Combined annual sales for these facilities are
expected to approximate $18,000. The Company also acquired Tex-o-Lon
and Repro-Lon for approximately $25,000. These two Texas businesses
have combined annual sales of $15,000. Tex-o-Lon manufactures, machines
and distributes PTFE products, primarily for the semiconductor
industry. Repro-Lon reprocesses PTFE compounds for the chemical and
semiconductor industries. The acquisitions were accounted for as
purchases; accordingly, the purchase price, which was financed through
available cash resources, was allocated to the acquired assets based
upon their fair market values.
On February 2, 1998, the Company purchased the Sealing Division of
Groupe Carbone Lorraine for $45,600. This division, with facilities in
France and South Carolina, produces high-technology metallic gaskets
used in the nuclear, petroleum and chemical industries. Sales are
expected to approximate $38,000. This acquisition was accounted for as
a purchase and the purchase price, also financed through available cash
resources, was allocated to the acquired assets based upon their fair
market values.
In May 1998, the Company sold the capital stock of its Holley
Performance Products subsidiary to Kohlberg & Co., L.L.C., a private
merchant banking firm located in Mount Kisco, New York, for $100
million in cash. The sale resulted in a pre-tax gain of $56,194, net of
liabilities retained.
3. FINANCINGS
In April 1998, the Company privately placed, with institutional
investors, $300,000 principal amount of 7 1/2% Senior Notes due 2008
("Senior Notes") and $150,000 (3,000,000 shares at liquidation value of
$50 per Convertible Preferred Security) of 5 1/4% Trust Convertible
Preferred Securities ("Convertible Preferred Securities"). The
placement of the Convertible Preferred Securities was made through the
Company's wholly-owned subsidiary, Coltec Capital Trust ("Trust"), a
newly-formed Delaware business trust. The Convertible Preferred
Securities represent undivided beneficial ownership interests in the
Trust.
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Substantially all the assets of the Trust are the 5 1/4% Convertible
Junior Subordinated Deferrable Interest Debentures Due April 15, 2028
which were acquired with the proceeds from the private placement of the
Convertible Preferred Securities. The Company's obligations under the
Convertible Junior Subordinated Debentures, the Indenture pursuant to
which they were issued, the Amended and Restated Declaration of Trust
of the Trust, and the Guarantee of Coltec, taken together, constitute a
full and unconditional guarantee by Coltec of amounts due on the
Convertible Preferred Securities. The Convertible Preferred Securities
are convertible at the option of the holders at any time into the
common stock of Coltec at an effective conversion price of $29 5/16 per
share and are redeemable at Coltec's option after April 20, 2001 at
102.63% of the liquidation amount declining ratably to 100% after April
20, 2004.
The net proceeds of the Senior Notes and the Convertible Preferred
Securities of approximately $436,623 were used by the Company to reduce
indebtedness under its credit facility. Dividends on the Convertible
Preferred Securities were $1.1 million after tax, in the three months
and six months ended June 28, 1998.
4. EXTRAORDINARY ITEM
The Company incurred an extraordinary charge of $4,326, net of income
taxes of $2,228, in the second quarter of 1998 in connection with early
debt repayment.
5. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings per Share, effective December 15,
1997. The Company's reported earnings per common share for the three
months and six months ended June 29, 1997 equaled diluted earnings per
share as set forth in SFAS No. 128. As a result, the Company's reported
earnings per share for the three months and six months ended June 29,
1997 were not restated.
Basic earnings per common share are computed by dividing net income by
the weighted-average number of shares of common stock outstanding
during the year.
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Diluted earnings per common share is computed by using the treasury
stock method to determine shares related to stock options and
restricted stock.
<TABLE>
<CAPTION>
(In Thousands) Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1998 1997 1998 1997
------------------ ---------- ---------------- ---------
<S> <C> <C> <C> <C>
Income available to common
shareholders before
extraordinary item $ 39,658 $ 23,808 $ 64,879 $ 45,300
Dividends on convertible
preferred securities, net
of tax 1,085 - 1,085 -
-------- -------- -------- --------
Income available to common
shareholders before extraordinary item
plus assumed conversions 40,743 23,808 65,964 45,300
Extraordinary item, net of
tax (4,326) - (4,326) -
-------- -------- -------- --------
Net income available to common
shareholders plus assumed conversions
$ 36,417 $ 23,808 $ 61,638 $ 45,300
======== ======== ======== ========
Basic weighted-average
common shares 65,986 65,718 65,934 66,252
Stock options and
restricted stock issued 1,054 977 1,154 961
Convertible preferred
securities 4,264 - 2,132 -
-------- -------- -------- --------
Diluted weighted-average
common and common
equivalent shares 71,304 66,695 69,220 67,213
======== ======== ======== ========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Asbestos
The Company and certain of its subsidiaries are defendants in various
lawsuits, including actions involving asbestos-containing products and
certain environmental proceedings.
With respect to asbestos product liability and related litigation
costs, as of June 28, 1998 two subsidiaries of the Company were among a
number of defendants (typically 15 to 40) in approximately 106,200
actions (including approximately 10,700 actions in advanced stages of
processing) filed in various states by plaintiffs alleging injury or
death as a result of exposure to asbestos fibers. During the first six
months of 1998, two subsidiaries of the Company received approximately
20,100 new actions compared to approximately 22,800 new actions
received during the first six months of 1997. Through June 28, 1998,
approximately 224,200 of the approximately 330,400 total actions
brought have been settled or otherwise disposed.
The damages claimed for personal injury or death vary from case to
case, and in many cases plaintiffs seek $1,000 or more in compensatory
damages and $2,000 or more in punitive damages from an extensive list
of defendants. Although the law
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in each state differs to some extent, it appears, based on advice of
counsel, that liability for compensatory damages would be shared among
all responsible defendants, thus limiting the potential monetary impact
of such judgments on any individual defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in
which neither the Company nor any or its subsidiaries were parties,
that held insurance carriers are obligated to cover asbestos-related
bodily injury actions if any injury or disease process, from first
exposure through manifestation, occurred during a covered policy period
(the "continuous trigger theory of coverage"), the Company settled
litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Court's ruling.
The Company has negotiated a final agreement with most of its excess
carriers that are in the layers of coverage immediately above its first
layer. The Company is currently receiving payments pursuant to this
agreement. The Company believes that, with respect to the remaining
carriers, a final agreement can be achieved without litigation and on
substantially the same basis that it has resolved the issues with its
other carriers.
Payments were made with respect to asbestos liability and related costs
aggregating $21,527 and $34,281 for the first six months of 1998 and
1997, respectively, substantially all of which were covered by
insurance. Settlements are generally made on a group basis with
payments made to individual claimants over periods of one to four
years. Related to payments not covered by insurance, the Company
recorded charges to operations amounting to $4,000 for the first six
months of 1998 and 1997, respectively. The average cost to the Company
for unreimbursed expenses and liability per case disposed was
approximately $ .4 for the six months ended June 28, 1998 and $.3 for
the six months ended June 29, 1997.
In accordance with the Company's internal procedures for the processing
of asbestos product liability actions and due to the proximity to trial
or settlement, certain outstanding actions have progressed to a stage
where the Company can reasonably estimate the cost to dispose of these
actions. As of June 28, 1998, the Company estimates that the aggregate
remaining cost of the disposition of the settled actions for which
payments remain to be made and actions in advanced stages of
processing, including associated legal costs, is approximately $99,400
and the Company expects that this cost will be substantially covered by
insurance.
With respect to the 95,500 outstanding actions as of June 28, 1998,
which are in preliminary procedural stages, the Company lacks
sufficient information upon which judgments can be made as to the
validity or ultimate disposition of such actions, thereby making it
difficult to estimate with reasonable certainty the potential liability
or costs to the Company. The lawsuits are disposed of over a period of
one year to more than five years, with the majority being disposed of
by the third year after filing. When asbestos actions are received,
they are typically forwarded to local counsel to ensure that the
appropriate preliminary procedural response is taken. The complaints
typically do not contain sufficient information to permit a reasonable
evaluation as to their merits at the time of receipt, and in
jurisdictions encompassing a majority of the outstanding actions, the
practice has been that little or no discovery or other action is taken
until several months prior to the date set for trial. Accordingly, the
Company generally does not have the information necessary to analyze
the actions in sufficient detail to estimate the ultimate liability or
costs to the Company, if any, until the actions appear on a trial
calendar. A determination to seek
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dismissal, to attempt to settle or proceed to trial is typically not
made prior to the receipt of such information.
The Company believes that it will continue to receive some number of
asbestos lawsuits into the foreseeable future. It is also difficult,
however, to predict the number of asbestos lawsuits that the Company's
subsidiaries will receive or the timeframe in which they will be
received. The Company has noted that, with respect to recently settled
actions in advanced stages of processing, the mix of the injuries
alleged and the mix of the occupations of the plaintiffs have been
changing from those traditionally associated with the Company's
asbestos-related actions. The Company is not able to determine with
reasonable certainty whether this trend will continue. Based upon the
foregoing, and due to the unique factors inherent in each of the
actions, including the nature of the disease, the occupation of the
plaintiff, the presence or absence of other possible causes of a
plaintiff's illness, the availability of legal defenses, such as the
statute of limitations or state of the art, the jurisdiction in which a
lawsuit is filed, the pendency of tort reform, and whether the lawsuit
is an individual one or part of a group, management is unable to
estimate with reasonable certainty the cost of disposing of outstanding
actions in preliminary procedural stages or of actions that may be
filed in the future. However, the Company believes that its
subsidiaries are in a favorable position compared to many other
defendants because, among other things, the asbestos fibers in its
asbestos-containing products were encapsulated. Subsidiaries of the
Company continue to distribute encapsulated asbestos-bearing product in
the United States with annual sales of less than $1,500. All sales are
accompanied by appropriate warnings. The end users of such product are
sophisticated users, who utilize the product for critical applications
where no known substitutes exist or have been approved.
Insurance coverage of a small non-operating subsidiary formerly
distributing asbestos-bearing products is nearly depleted. Considering
the foregoing, as well as the experience of the Company's subsidiaries
and other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, and the substantial
amount of insurance coverage that the Company expects to be available
from its solvent carriers, the Company believes that pending and
reasonably anticipated future actions are not likely to have a material
effect on the Company's consolidated results of operations and
financial condition. Although the insurance coverage, which the Company
has, is substantial, it should be noted that insurance coverage for
asbestos claims is not available to cover exposures initially occurring
on and after July 1, 1984. The Company's subsidiaries continue to be
named as defendants in new cases, some of which allege initial exposure
after July 1, 1984.
In addition to claims for personal injury, the Company's subsidiaries
have been involved in an insignificant number of property damage claims
based upon asbestos-containing materials found in schools, public
facilities and private commercial buildings. Based upon proceedings to
date, the overwhelming majority of these claims have been resolved
without a material adverse impact on the Company. Likewise, the
insignificant number of claims remaining to be resolved are not
expected to have a material effect on the Company's consolidated
results of operations and financial condition.
The Company has recorded an accrual for its liabilities for
asbestos-related matters that are deemed probable and can be reasonably
estimated (settled actions and actions in advanced stages of
processing), and has separately recorded an asset equal to the amount
of such liabilities that is expected to be recovered by insurance. In
addition, the Company has recorded a receivable for that portion of
payments previously made for asbestos product liability actions and
related
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litigation costs that is recoverable from its insurance carriers.
Liabilities for asbestos-related matters and the receivable from
insurance carriers included in the Consolidated Balance Sheets are as
follows:
<TABLE>
<CAPTION>
June 28 Dec. 31
1998 1997
------- -------
<S> <C> <C>
Accounts and notes receivable $80,432 $56,039
Other assets 35,456 16,249
Accrued expenses 80,175 50,688
Other liabilities 21,858 2,682
</TABLE>
Environmental
With respect to environmental proceedings, the Company has been
notified that it is among the Potentially Responsible Parties under
federal environmental laws, or similar state laws, relative to the
costs of investigating and in some cases remediating contamination by
hazardous materials at several sites. Such laws impose joint and
several liability for the costs of investigating and remediating
properties contaminated by hazardous materials. Liability for these
costs can be imposed on present and former owners or operators of the
properties or on parties who generated the wastes that contributed to
the contamination. The Company's policy is to accrue environmental
remediation costs when it is both probable that a liability has been
incurred and the amount can be reasonably estimated. The measurement of
liability is based on an evaluation of currently available facts with
respect to each individual situation and takes into consideration
factors such as existing technology, presently enacted laws and
regulations and prior experience in remediation of contaminated sites.
Investigations have been completed for approximately 17 sites and
continuing investigations are being done at approximately 11 sites.
Accruals are provided for all sites based on the factors discussed
above. As remediation plans are written and implemented, estimated
costs become more fact-based and less judgment-based. As assessments
and remediation progress at individual sites, these liabilities are
reviewed periodically and adjusted to reflect additional technical and
legal information. While it is often difficult to reasonably quantify
future environmental-related expenditures, the Company currently
estimates its future non-capital expenditures related to environmental
matters to range between $28,000 and $53,000. In connection with these
expenditures, the Company has accrued $38,000 at June 28, 1998
representing management's best estimate of probable non-capital
environmental expenditures.
These non-capital expenditures are estimated to be incurred over the
next 10 to 20 years. In addition, capital expenditures aggregating
$5,000 may be required during the next two years related to
environmental matters. Although the Company is pursuing insurance
recovery in connection with certain of these matters, no receivable has
been recorded with respect to any potential recovery of costs in
connection with any environmental matters.
Year 2000
As is the case with most other companies, the Company recognizes the
need to ensure its operations will not be adversely impacted by the
Year 2000 date transition and is faced with the task of addressing
related issues. With senior management accountability and corporate
staff guidance, the affected operating units have completed the
assessment phase and are in varying stages of plan implementation to
address the Company's Year 2000 issues. Overall, the Company has
targeted Year 2000 compliance primarily by the end of 1998, with
certain
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operating units targeting compliance by no later than mid-1999. The
Company recorded an expense of $5,000 in the three months ended June
28, 1998 for year 2000 compliance relating to its new computer systems.
The Company is also evaluating whether the effect of the Year 2000
transition issues resulting from relationships with customers,
suppliers and other constituents will have an impact on the Company's
results of operations or financial condition. The Company estimates
that expenditures over the next year for the remaining costs of
modifying its existing software for the Year 2000 date transition will
have an immaterial impact on consolidated operating results.
7. OTHER MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No 133 ("SFAS No. 133") Accounting
for Derivative Instruments and Hedging Activities. The Statement
established accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments
embedded in other contracts) be recorded in the balance sheet as either
an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are
met. Special accounting for qualifying hedges allows a derivative's
gains and losses to offset related results on the hedged item in the
income statement, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that receive
hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement the Statement as of the beginning of
any fiscal quarter after issuance. SFAS No. 133 cannot be applied
retroactively. The SFAS No. 133 must be applied to derivative
instruments and certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after
December 31, 1997.
The Company has not yet quantified the impacts of adopting SFAS No. 133
on its consolidated financial statements and has not determined the
timing of or method of adoption. However the statement could increase
volatility in earnings and other comprehensive income.
8. SUPPLEMENTAL GUARANTOR INFORMATION
Substantially all the Company's subsidiaries incorporated in the United
States (the "Subsidiary Guarantors") have fully and unconditionally
guaranteed, on a joint and several basis, the Company's obligations to
pay principal and interest with respect to the Senior Notes. Each
subsidiary guarantor is wholly owned and management has determined that
separate financial statements for the subsidiary guarantors are not
material to investors. The subsidiaries of the Company that are not
Subsidiary Guarantors are referred to in this note as the
"Non-Guarantor Subsidiaries".
The following supplemental consolidating condensed financial statements
present balance sheets as of June 28, 1998 and December 31, 1997 and
statements of earnings and of cash flows for the three months and six
months ended June 28, 1998 and June 29, 1997. In the consolidating
financial statements, Coltec Industries Inc (the "Parent") accounts for
its investments in wholly-owned subsidiaries using the equity method
and the Subsidiary Guarantors account for their investments in
Non-Subsidiary Guarantors using the equity method. Interest expense
related to the indebtedness under the Company's credit agreement and
its
13
<PAGE> 14
three series of senior notes is allocated to United States subsidiaries
based on net sales.
Consolidating Condensed Statement of Earnings
<TABLE>
<CAPTION>
Three Months Ended June 28, 1998
-------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 128,909 $ 163,431 $ 114,787 $ (12,373) $ 394,754
Cost of sales 128,899 110,687 84,649 (12,373) 311,862
--------------- --------------- ------------- ------------- -------------
Gross profit 10 52,744 30,138 - 82,892
Selling and administrative 11,291 35,094 17,739 - 64,124
--------------- --------------- ------------- ------------- -------------
Operating income (11,281) 17,650 12,399 - 18,768
Equity earnings of affiliates 19,302 10,409 - (29,711) -
Gain on divestiture 56,194 - - - 56,194
Interest expense and other, net (18,917) (627) 6,847 (533) (13,230)
--------------- --------------- ------------- ------------- -------------
Earnings before income taxes,
minority interest and
extraordinary item 45,298 27,432 19,246 (30,244) 61,732
Income taxes (5,640) (11,128) (4,221) - (20,989)
Minority interest in net loss
of subsidiaries - - (1,085) - (1,085)
--------------- --------------- -------------- ------------- --------------
Earnings before extraordinary
item 39,658 16,304 13,940 (30,244) 39,658
Extraordinary item (net of tax) (4,326) - - - (4,326)
--------------- --------------- ------------- ------------- -------------
Net earnings $ 35,332 $ 16,304 $ 13,940 $ (30,244) $ 35,332
=============== =============== ============= ============= =============
</TABLE>
Consolidating Condensed Statement of Earnings
<TABLE>
<CAPTION>
Six Months Ended June 28, 1998
-------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 244,008 $ 331,861 $ 217,255 $ (23,929) $ 769,195
Cost of sales 209,430 225,814 160,695 (23,929) 572,010
--------------- --------------- ------------- ------------- -------------
Gross profit 34,578 106,047 56,560 - 197,185
Selling and administrative 29,793 59,566 35,764 - 125,123
--------------- --------------- ------------- ------------- -------------
Operating income 4,785 46,481 20,796 - 72,062
Equity earnings of affiliates 39,983 17,423 - (57,406) -
Gain on divestiture 56,194 - - - 56,194
Interest expense and other, net (27,256) (18,157) 18,157 (1,054) (28,310)
--------------- --------------- ------------- ------------- -------------
Earnings before income taxes,
minority interest and
extraordinary item 73,706 45,747 38,953 (58,460) 99,946
Income taxes (8,827) (13,550) (11,605) - (33,982)
Minority interest in net loss
of subsidiaries - - (1,085) - (1,085)
--------------- --------------- ------------- ------------- -------------
Earnings before extraordinary item
64,879 32,197 26,263 (58,460) 64,879
Extraordinary item (net of tax) (4,326) - - - (4,326)
--------------- --------------- ------------- ------------- -------------
Net earnings $ 60,553 $ 32,197 $ 26,263 $ (58,460) $ 60,553
=============== =============== ============= ============= =============
</TABLE>
14
<PAGE> 15
Consolidating Condensed Statement of Earnings
<TABLE>
<CAPTION>
Three Months Ended June 29, 1997
-------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 102,793 $ 146,832 $ 84,472 $ (11,870) $ 322,227
Cost of sales 70,287 96,995 61,725 (11,870) 217,137
--------------- --------------- ------------- ------------- -------------
Gross profit 32,506 49,837 22,747 - 105,090
Selling and administrative 19,504 31,736 5,096 - 56,336
--------------- --------------- ------------- ------------- -------------
Operating income 13,002 18,101 17,651 - 48,754
Equity earnings of affiliates 21,891 5,204 - (27,095) -
Interest expense and other, net (12,721) 242 (203) - (12,682)
--------------- --------------- ------------- ------------- -------------
Earnings before income taxes 22,172 23,547 17,448 (27,095) 36,072
Income taxes 1,636 (5,703) (8,197) - (12,264)
--------------- --------------- ------------- ------------- -------------
Net earnings $ 23,808 $ 17,844 $ 9,251 $ (27,095) $ 23,808
=============== =============== ============= ============= =============
</TABLE>
Consolidating Condensed Statement of Earnings
<TABLE>
<CAPTION>
Six Months Ended June 29, 1997
------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 207,336 $ 281,623 $ 163,096 $ (20,656) $ 631,399
Cost of sales 143,482 186,597 119,389 (20,656) 428,812
--------------- --------------- ------------- ------------- -------------
Gross profit 63,854 95,026 43,707 - 202,587
Selling and administrative 34,615 61,660 12,630 - 108,905
--------------- --------------- ------------- ------------- -------------
Operating income 29,239 33,366 31,077 - 93,682
Equity earnings of affiliates 40,305 8,223 - (48,528) -
Interest expense and other, net (24,933) 191 (304) - (25,046)
--------------- --------------- ------------- ------------- -------------
Earnings before income taxes 44,611 41,780 30,773 (48,528) 68,636
Income taxes 689 (11,438) (12,587) - (23,336)
--------------- --------------- ------------- ------------- -------------
Net earnings $ 45,300 $ 30,342 $ 18,186 $ (48,528) $ 45,300
=============== =============== ============= ============= =============
</TABLE>
15
<PAGE> 16
Consolidating Condensed Balance Sheet
<TABLE>
<CAPTION>
June 28, 1998
------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 12,853 $ 4,599 $ 2,621 $ 20,073
Accounts and notes receivable,
net - 27,943 135,505 163,448
Inventory, net 80,895 61,616 100,078 242,589
Deferred income taxes 9,023 8,065 84 17,172
Other current assets 5,452 803 9,205 15,460
--------------- --------------- ----------- ------------- --------------
Total current assets 108,223 103,026 247,493 - 458,742
Intercompany, net (790,942) 258,369 532,573 -
Investments in affiliates 1,000,981 89,543 865 $ (1,091,389) -
Property, plant and equipment 95,786 116,399 87,938 300,123
Cost in excess of net assets
acquired, net 24,402 137,289 47,979 209,670
Other assets 50,755 2,722 39,140 92,617
--------------- --------------- ----------- ------------- --------------
Total assets $ 489,205 $ 707,348 $ 955,988 $ (1,091,389) $ 1,061,152
=============== =============== =========== ============= ==============
Total current liabilities $ 126,581 $ 37,954 $ 136,569 $ 301,104
Long-term debt 506,358 3,055 91,939 601,352
Deferred income taxes (30,499) 101,987 15,325 86,813
Other liabilities 43,706 12,052 27,892 $ 404 84,054
Liabilities of discontinued
operations 148,024 - - 148,024
Company-obligated mandatorily
redeemable convertible
preferred securities of
subsidiary Coltec Capital
Trust holding solely
convertible junior
subordinated debentures of - - 144,770 - 144,770
the Company
Shareholders' equity (304,965) 552,300 539,493 (1,091,793) (304,965)
--------------- --------------- ----------- ------------- --------------
Total liabilities and
shareholders' equity $ 489,205 $ 707,348 $ 955,988 $ (1,091,389) $ 1,061,152
=============== =============== =========== ============== ==============
</TABLE>
16
<PAGE> 17
Consolidating Condensed Balance Sheet
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 9,912 $ 722 $ 4,059 $ 14,693
Accounts and notes receivable,
net - 60,881 59,430 120,311
Inventory, net 99,100 71,958 85,678 256,736
Deferred income taxes 4,535 10,689 (29) 15,195
Other current assets 4,540 10,406 5,562 20,508
--------------- --------------- ------------- ------------- ---------------
Total current assets 118,087 154,656 154,700 - 427,443
Intercompany, net (741,897) 10,933 730,964 -
Investments in affiliates 1,057,890 355,399 2,688 $ (1,415,977) -
Property, plant and equipment 89,488 118,405 79,726 287,619
Cost in excess of net assets
acquired, net 21,820 133,441 2,490 157,751
Other assets 40,266 3,490 16,465 60,221
--------------- --------------- ------------- ------------- --------------
Total assets $ 585,654 $ 776,324 $ 987,033 $ (1,415,977) $ 933,034
=============== =============== ============= ============= ==============
Total current liabilities $ 93,669 $ 49,494 $ 96,415 $ 239,578
Long-term debt 689,302 1,611 66,665 757,578
Deferred income taxes (32,780) 101,871 10,138 79,229
Other liabilities 39,706 12,844 10,544 $ (2,202) 60,892
Liabilities of discontinued
operations 154,918 - - 154,918
Shareholders' equity (359,161) 610,504 803,271 (1,413,775) (359,161)
---------------- --------------- ------------- ------------- ---------------
Total liabilities and
shareholders' equity $ 585,654 $ 776,324 $ 987,033 $ (1,415,977) $ 933,034
=============== =============== ============= ============= ==============
</TABLE>
17
<PAGE> 18
Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 28, 1998
------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities $ 37,735 $ 3,877 $ (1,438) - $ 40,174
--------------- --------------- ------------- ------------- -----------
Cash flows from investing activities:
Capital expenditures (11,663) (10,288) (5,236) (27,187)
Proceeds from divestiture 100,000 100,000
Acquisition of business (25,000) (17,000) (38,518) (80,518)
Cash from (to) Parent (71,042) 27,288 43,754 - -
--------------- --------------- ------------- ------------- -----------
Cash used in investing activities (7,705) - - - (7,705)
--------------- --------------- ------------- ------------- ------------
Cash flows from financing activities:
Increase (decrease) in revolving
facility, net (480,000) 40,000 440,000)
Repayment of long-term debt (4,591) (154) (14,102) (18,847)
Issuance of long-term debt 292,151 292,151
Issuance of convertible preferred
securities - 144,472 144,472
Payments for unclaimed stock (3,871) (3,871)
Purchase of treasury stock (994) (994)
Cash from (to) Parent 170,216 154 (170,370) - -
--------------- --------------- -------------- ------------- -----------
Cash used in financing activities (27,089) - - - (27,089)
--------------- --------------- ------------- ------------- -----------
Cash and cash equivalents:
Increase (decrease) in cash and
cash equivalents 2,941 3,877 (1,438) 5,380
Cash and cash equivalents -
beginning of period 9,912 722 4,059 14,693
--------------- --------------- ------------- ------------- -----------
Cash and cash equivalents -
end of period $ 12,853 $ 4,599 $ 2,621 - $ 20,073
=============== =============== ============= ============= ===========
</TABLE>
18
<PAGE> 19
Consolidating Condensed Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 28, 1997
-------------------------------------------------------------------------------------
Guarantor Non-Guarantor
Parent Subsidiaries Subsidiaries Eliminations Consolidated
--------------- --------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used in)
operating activities $ 25,273 $ (182) $ (2,725) - $ 22,366
--------------- ---------------- ------------- ------------- ------------
Cash flows from investing activities:
Capital expenditures (11,538) (7,617) (10,112) (29,267)
Cash from (to) Parent (17,729) 7,617 10,112 - -
--------------- --------------- ------------- ------------- ------------
Cash used in investing activities (29,267) - - - (29,267)
--------------- --------------- ------------- ------------- -------------
Cash flows from financing activities:
Increase in revolving facility, net 49,500 49,500
Repayment of long-term debt (3,679) (3,498) (7,177)
Purchase of treasury stock (41,919) (41,919)
Cash from (to) Parent (3,498) 3,498 - -
--------------- --------------- ------------- ------------- ------------
Cash provided by financing
activities 404 - - - 404
--------------- --------------- ------------- ------------- ------------
Cash and cash equivalents:
Decrease in cash and cash
equivalents (3,590) (182) (2,725) (6,497)
Cash and cash equivalents -
beginning of period 5,475 570 8,984 15,029
--------------- --------------- ------------- ------------- ------------
Cash and cash equivalents -
end of period $ 1,885 $ 388 $ 6,259 - 8,532
=============== =============== ============= ============= ============
</TABLE>
19
<PAGE> 20
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following table shows financial information by industry segment for the
three months and six months ended June 28, 1998 and June 29, 1997.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 28 June 29 June 28 June 29
1998 1997 1998 1997
--------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Sales:
Aerospace $ 182,568 $128,617 $348,726 $247,757
Industrial 212,237 193,918 421,321 384,017
Intersegment elimination (51) (308) (852) (375)
--------- -------- -------- --------
Total $ 394,754 $322,227 $769,195 $631,399
========= ======== ======== ========
Operating income:
Aerospace (1) $ 1,384 $ 20,594 $ 27,486 $ 38,897
Industrial (2) 26,484 39,165 63,765 75,435
--------- -------- -------- --------
Total segments 27,868 59,759 91,251 114,332
Corporate unallocated (9,100) (11,005) (19,189) (20,650)
--------- -------- -------- --------
Operating income $ 18,768 $ 48,754 $ 72,062 $ 93,682
========= ======== ======== ========
</TABLE>
(1) Operating income in the Aerospace Segment for the three months and six
months ended June 28, 1998 included a charge of $25.0 million to
recognize program costs associated with the development of Boeing
programs and $2.0 million of expenses for Year 2000 compliance for new
computer systems. Excluding these charges, Aerospace Segment operating
income was $28.4 million and $54.5 million for the three and six months
ended June 28, 1998, respectively.
(2) Operating income in the Industrial Segment for the three months and six
months ended June 28, 1998 included charges of $12.0 million to record
additional warranty and legal reserves and $3.0 million of expenses for
Year 2000 compliance for new and existing computer systems. Excluding
these charges, Industrial Segment operating income was $41.5 million and
$78.8 million for the three and six months ended June 28, 1998,
respectively.
Results of Operations
Company Review
Net sales for the second quarter of 1998 increased 22.5% to $394.8 million from
$322.2 million for the second quarter of 1997 primarily driven by increases in
the Aerospace Segment. Gross profit decreased to $82.9 million for the second
quarter 1998 from $105.1 million in second quarter 1997. The decline in gross
profit resulted from a charge of $25.0 million to recognize program costs
associated with the development of Boeing programs and a charge of $12.0 million
to record additional warranty and legal reserves. Excluding these 1998 charges,
gross profit increased to $119.9 million in the second quarter of 1998. Selling
and administrative expenses totaled $64.1 million, or 16.2% of sales, in second
quarter 1998 compared to $56.3 million, or 17.5% of sales, in second quarter
1997. In the second quarter 1998, selling and administrative
20
<PAGE> 21
expenses included expenses of $5.0 million for Year 2000 compliance incurred in
the second quarter of 1998. After reviewing costs incurred for new computer
systems scheduled to start up in the second quarter of 1998, the Company
determined that approximately $5.0 million of such costs related to items that
should be expensed. These expenses primarily included certain consulting fees,
software maintenance fees and training and travel costs. The Company expects to
have future Year 2000 expenses; however, due to the Company's current stage of
implementation at its operating units, the amount of Year 2000 expenses recorded
in the second quarter of 1998 represents a significant amount of the Company's
estimated total Year 2000 expenses.
In the second quarter of 1998, the Company performed a study of total revenue
and costs for certain commercial aircraft programs. This study was performed on
the Boeing 777 as the program reached its 200th shipset milestone. Based on this
study which considered recent market conditions including normal market
uncertainties related to shipping schedules beyond five years, recent
cancellation of Asian jet aircraft orders and expected future program
efficiencies and related costs, the company revised its total estimated revenue
and costs for the Boeing 777 program. The primary revision to the program's
estimated revenue and costs resulted from a reduction of the number of shipsets
from 1,000 shipsets (based on customer-produced market projections and initial
and follow-on contracts with customer) to 500 shipsets (based on current firm
orders received by customer). In accordance with the Company's accounting policy
for commercial jet aircraft, the Company reduced inventory by $25.0 million
which resulted in a charge of $25.0 million to current operations in the three
months ended June 28, 1998.
Also in the second quarter of 1998, the Company recorded a $12.0 million charge
to establish additional warranty and legal reserves for claims and outstanding
cases. Based on first time production of commercial engine applications,
warranty claims have escalated during the first six months of 1998. Increased
reserve requirements primarily arose from the delivery of four large engines to
three projects between the years 1990 and 1994 for which long-term warranties
were provided. In each instance the projects involved specific performance
parameters and unique operating environments in which the Company has and will
continue to expend resources to insure optimum engine operation in excess of
normal warranty reserve levels. In the second quarter of 1998, the Company
negotiated settlements regarding these projects. The Company has recorded a
liability for these claims based on reviews by the Company's engineering and
service personnel of engine performance and future customer requirements,
settlements reached, and at the advice of the Company's legal counsel. None of
these claims or cases are expected to be individually material to the Company's
financial position or results of operations.
Net sales for the six months ended June 28, 1998 increased 21.8% to $769.2
million from $631.4 million for the six months ended June 29, 1997 as a result
of continued sales increases in the Aerospace Segment. Gross profit decreased to
$197.2 million for the first six months of 1998 from $202.6 million for the
first six months of 1997. This decrease resulted from a charge of $25.0 million
to recognize program costs associated with the development of Boeing programs
and a charge of $12.0 million to record additional warranty and legal reserves.
Excluding these charges, gross profit was $234.2 million for the six months
ended June 28, 1998. Although selling and administrative expenses totaled $125.1
million for year to date 1998 ($120.1 million excluding a $5.0 million expense
for Year 2000 compliance for new computer systems) compared to $108.9 million
for year to date 1997, selling and administrative expenses decreased as a
percentage of sales, 16.3% for year to date 1998 (15.6% excluding Year 2000
expense) as compared to 17.2% for year to date 1997.
Operating income decreased to $18.8 million in second quarter 1998 from $48.8
million in the second quarter of 1997. Operating margin was 4.8% for second
quarter 1998 resulting from total charges of $42.0 million in the second quarter
of 1998. Operating margin excluding the charges was 15.4% compared to 15.1% for
the second quarter 1997.
Operating income decreased to $72.1 million for the first six months of 1998
from $93.7 million for the first six months of 1997 as a result of $42.0 million
of charges in second quarter of 1998. Operating margin for year to date 1998 was
9.4% (14.8% excluding $42.0 million of charges) compared to 14.8% for year to
date 1997.
In May 1998, the Company sold the capital stock of its Holley Performance
Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm
located in Mount Kisco, New York, for $100 million in cash. The sale resulted in
a pre-tax gain of $56.2 million, net of liabilities retained.
21
<PAGE> 22
Interest expense increased slightly to $13.2 million in second quarter 1998 from
$12.7 million for second quarter 1997 and increased to $28.3 million for year to
date 1998 as compared to $25.0 million for year to date 1997.
In April 1998, the Company privately placed $300.0 million principal amount of
7 1/2% Senior Notes due 2008 and $150.0 million liquidation value of 5 1/4%
Trust Convertible Preferred Securities. Distributions on the Convertible
Preferred Securities were $1.1 million after-tax in the second quarter 1998,
which is classified as minority interest in net loss of subsidiaries in the
Company's consolidated statements of earnings.
As a result of the foregoing, earnings before extraordinary items for the three
months and six months ended June 28, 1998 were $39.7 million and $64.9 million,
respectively, as compared to $23.8 million and $45.3 million for the three
months and six months ended June 29, 1997, respectively. The Company incurred an
extraordinary charge of $4.3 million, net of taxes, or $.06 per share in second
quarter of 1998. Net earnings were $35.3 million in second quarter 1998, or
$0.51 per share (diluted), compared to net earnings of $23.8 million, or $0.36
per share (diluted), in second quarter 1997. 1998 year to date net earnings were
$60.6 million, or $0.89 per share (diluted), as compared to $45.3 million, or
$0.67 per share (diluted) for 1997.
Segment Review - Aerospace
Sales in second quarter 1998 for the Aerospace Segment totaled $182.6 million
increasing 42.0% from $128.6 million in the second quarter 1997. For the six
months ended June 28, 1998 Aerospace sales increased 40.7% to $348.7 million
from $247.8 million for the comparable 1997 period. At Menasco, sales increased
by $28.7 million for the second quarter 1998 and $52.1 million for the six
months ended June 28, 1998 due to rising commercial aircraft production as well
as improved military sales. Menasco deliveries of main landing gear systems for
the Boeing 737 increased from 49 and 82 shipsets in the three months and six
months ended June 29, 1997, respectively, to 74 and 143 shipsets in the three
months and six months ended June 28, 1998 respectively, while military sales
benefited primarily from higher shipset deliveries for the F-15 and F-16
programs. Sales increases in 1998 were also driven by higher sales volumes of
engine components. The acquisition of AMI, on June 30, 1997, was a significant
contributor to the increase in sales, both for the 1998 second quarter and 1998
year to date.
Operating income for the Aerospace Segment decreased to $1.4 million in second
quarter 1998 from $20.6 million in second quarter of 1997 as a result of 1998
second quarter charges totaling $27.0 million ($25.0 million to recognize
program costs associated with development of Boeing programs and $2.0 million
for Year 2000 compliance for new computer systems). Operating income excluding
charges was $28.4 million for the second quarter 1998. Operating income for year
to date 1998 was $27.5 million ($54.5 million excluding charges) as compared to
$38.9 million for year to date 1997. The increases, excluding charges, were also
driven by generally higher sales volumes for the Segment's other businesses.
Operating margins decreased slightly in the second quarter 1998 primarily due to
a slight change in product mix from higher margin after market products to
slightly lower margin original equipment manufactures.
Segment Review - Industrial
Industrial sales increased to $212.2 million and $421.3 million in the three
months and six months ended June 28, 1998, respectively, from $193.9 and $384.0
million in the three months and six months ended June 29, 1997, respectively.
The Garlock Bearings, FM Engine and Quincy Compressor divisions experienced
solid sales volume increases. Sales for Garlock Sealing Technologies increased
primarily due to selling price increases and new product sales. Sales were
favorably impacted by the Company's first
22
<PAGE> 23
quarter acquisitions by approximately $21.0 million and $32.0 million in the
three months and six months ended June 28, 1998, respectively, which more than
offset the effect of the second quarter divestiture of Holley Performance
Products.
Operating income for the Industrial Segment was $26.5 million and $63.8 million
in the three months and six months ended June 28, 1998, respectively, compared
to $39.2 million and $75.4 million in the three and six months ended June 29,
1997, respectively. Operating income for the three months and six months ended
June 28, 1998 included charges of $12.0 million to record additional warranty
and legal reserves and $3.0 million expense for Year 2000 compliance for new
computer systems. Excluding these charges, Industrial Segment operating income
increased slightly to $41.5 million and $78.8 million for the three and six
months ended June 28, 1998, respectively, as a result of increased sales.
Operating margin decreased slightly from prior periods due to lower operating
margins on the first quarter 1998 acquisitions although such acquisitions were
accretive.
Liquidity and Capital Resources
The Company generated $40.2 million of operating cash flows for the six months
ended June 28, 1998 compared with $22.4 million for the six months ended June
29, 1997. The higher operating cash flows in 1998 were primarily due to the
Company's initiatives to reduce working capital requirements.
The ratio of current assets to current liabilities at June 28, 1998 was 1.52,
decreasing from 1.78 at December 31, 1997. Cash and cash equivalents increased
to $20.1 million at June 28, 1998 from $14.7 million at December 31, 1997.
In the first six months of 1998, the Company invested $27.2 million in capital
expenditures compared to $29.3 million during the same prior year period. Debt
decreased by $153.8 million at June 28, 1998 compared to December 31, 1997. In
April 1998, the Company sold $150.0 million of 5 1/4% Convertible Preferred
Securities. The proceeds from the Convertible Preferred Securities, which are
effectively guaranteed by the Company, were used to reduce the Company's
indebtedness under its credit agreement.
23
<PAGE> 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. In addition, the Company has been
notified that it is among Potentially Responsible Parties under federal
environmental laws, or similar state laws, relative to the costs of
investigating and in some cases remediating contamination by hazardous
materials at several sites. See note 6 to consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the shareholders of the Company was
held on May 7, 1998.
(b) At the annual meeting of shareholders held on May 7, 1998,
shareholders voted for:
1. The election of Board Directors consisting of eight members.
2. Increase in the number of shares of common stock authorized to
be issued under the 1992 Stock Option and Incentive Plan.
3. Proposal to approve Amendment No. 3 to the 1994 Stock Option
Plan for Outside Directors.
4. Ratification of appointment of Arthur Andersen LLP as the
independent public accountants of the Company.
There were 65,943,010 shares of common stock, par value $.01 per share,
outstanding and entitled to one vote per share as of the record date for said
meeting. The voting results were as follows:
1. Election of Directors
<TABLE>
<CAPTION>
Number of Votes
--------------------------------
Name of Candidates For Withheld
------------------ --- --------
<S> <C> <C>
Joseph R. Coppola 61,861,064 237,050
William H. Grigg 61,869,881 228,233
John W. Guffey, Jr. 61,866,741 231,373
David D. Harrison 61,875,842 222,272
David I. Margolis 61,870,408 227,706
Joel Moses 61,870,557 227,557
Richard A. Stuckey 61,863,695 234,419
Nishan Teshoian 61,876,643 221,471
</TABLE>
24
<PAGE> 25
2. Increase in the number of shares of common stock authorized to be
issued under the 1992 Stock Option and Incentive Plan.
For Against Abstain
47,147,980 9,524,748 295,106
3. Proposal to approve Amendment No. 3 to the 1994 Stock Option Plan
for Outside Directors.
For Against Abstain
50,520,540 6,287,724 307,589
4. Ratification of appointment of Arthur Andersen LLP as the
independent public accountants of the Company.
For Against Abstain
61,994,660 46,425 57,029
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
4.1 Indenture dated April 16, 1998, between Coltec and
Bankers Trust Company as trustee, relating to the 7
1/2% Senior Secured Notes. (Incorporated by reference
to the Company's Registration Statement on Form S-4,
filed May 18, 1998.)
4.2 Form of 7 1/2% Series B Senior Secured Notes
(included in Exhibit 4.1 above). (Incorporated by
reference to the Company's Registration Statement on
Form S-4, filed May 18, 1998.)
4.3 Registration Rights Agreement, dated as of April 16,
1998, between Coltec and the Initial Purchasers named
therein. (Incorporated by reference to the Company's
Registration Statement on Form S-4, filed May 18,
1998.)
4.4 Fifth Amendment to the Credit Agreement, dated as of
March 16, 1998 among Coltec, Coltec Aerospace Canada
Ltd., the Subsidiary Guarantors named therein, the
financial institutions party thereto from time to
time, Bank of America National Trust and Savings
Association, as Documentation Agent, The Chase
Manhattan Bank, as Syndication Agent, Bankers Trust
Company, as Administrative Agent, and Bank of
Montreal, as Canadian Paying Agent. (Incorporated by
reference to the Company's Registration Statement on
Form S-4, filed May 18, 1998.)
4.5 Consent and Agreement, dated as of March 31, 1998,
with respect to the Credit Agreement among Coltec,
Coltec Aerospace Canada Ltd., the Subsidiary
Guarantors named therein, the financial institutions
party thereto from time to time, Bank of America
National Trust and Savings Association, as
Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, Bankers Trust Company, as
Administrative Agent, and Bank of Montreal, as
Canadian Paying Agent. (Incorporated by reference to
the Company's Registration Statement on Form S-4,
filed May 18, 1998.)
25
<PAGE> 26
4.6 Modification to Fifth Amendment to Credit Agreement,
dated as of April 20, 1998, among Coltec, Coltec
Aerospace Canada Ltd., the Subsidiary Guarantors
named therein, the financial institutions party
thereto from time to time, Bank of America National
Trust and Savings Association, as Documentation
Agent, The Chase Manhattan Bank, as Syndication
Agent, Bankers Trust Company, as Administrative
Agent, and Bank of Montreal, as Canadian Paying
Agent. (Incorporated by reference to the Company's
Registration Statement on Form S-4, filed May 18,
1998.)
4.7 Amended and Restated Company Pledge Agreement, dated
as of March 24, 1998, made Coltec in favor of Bankers
Trust Company as collateral agent. (Incorporated by
reference to the Company's Registration Statement on
Form S-4, filed May 18, 1998.)
4.8 Amended and Restated Company Security Agreement,
dated as of March 24, 1998, made by Coltec in favor
of Bankers Trust Company as collateral agent.
(Incorporated by reference to the Company's
Registration Statement on Form S-4, filed May 18,
1998.)
4.9 Amended and Restated Subsidiary Pledge Agreement,
dated March 24, 1998, made by the Subsidiary named
therein in favor of Bankers Trust Company as
collateral agent. (Incorporated by reference to the
Company's Registration Statement on Form S-4, filed
May 18, 1998.)
4.10 Amended and Restated Subsidiary Security Agreement,
dated March 24, 1998, made by the Subsidiary named
therein in favor of Bankers Trust Company as
collateral agent. (Incorporated by reference to the
Company's Registration Statement on Form S-4, filed
May 18, 1998.)
4.11 Second Amendment to Receivables Transfer and
Administration Agreement, dated January 26, 1998,
between Coltec and Coltec North Carolina Inc.
(Incorporated by reference to the Company's
Registration Statement on Form S-4, filed May 18,
1998.)
4.12 Certificate of trust of the Coltec Capital Trust.
(Incorporated by reference to the Company's
Registration Statement on Form S-3, filed May 18,
1998.)
4.13 Amended and Restated Declaration of Trust of Coltec
Capital Trust dated as of April 14, 1998, among
Coltec Industries Inc, as sponsor, The Bank of New
York, as Property Trustee, and The Bank of New York
(Delaware), as Delaware Trustee, and the individuals
named as Administrative Trusts therein (Incorporated
by reference to the Company's Registration Statement
on Form S-3, filed May 18, 1998.)
4.14 Indenture dated April 14, 1998, between Coltec
Industries Inc and The Bank of New York, as trustee,
relating to the 5 1/4%(Incorporated by reference to
the Company's Registration Statement on Form S-3,
filed May 18, 1998.)
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<PAGE> 27
4.15 Form of 5 1/4% Convertible Preferred Security.
(Incorporated by reference to the Company's
Registration Statement on Form S-3, filed May 18,
1998.)
4.16 Form of 5 1/4% Convertible Junior Subordinated
Deferrable Interest Debenture Due 2028. (Incorporated
by reference to the Company's Registration statement
on Form S-3, filed May 18, 1998.)
4.17 Guarantee Agreement, dated April 14, 1998, among
Coltec Industries Inc and The Bank of New York, as
trustee. ( Incorporated by reference to the Company's
Registration Statement on Form S-3, filed May 18,
1998.)
4.18 Registration Rights Agreement, dated as of April 14,
1998, among Coltec Industries Inc, Coltec Capital
Trust and the Initial Purchasers named therein.
(Incorporated by reference to the Company's
Registration Statement on Form S-3, filed May 18,
1998.)
4.19 Fifth Amendment to the Credit Agreement, dated as of
March 16, 1998, among Coltec, Coltec Aerospace Canada
Ltd., the Subsidiary Guarantors named therein, the
financial institutions party thereto from time to
time, Bank of America National Trust and Savings
Association, as Documentation Agent, the Chase
Manhattan Bank, as Syndication Agent, Bankers Trust
Company, as Administrative Agent, and Bank of
Montreal, as Canadian Paying Agent. (Incorporated by
reference to Coltec's Registration Statement on Form
S-4, filed May 18, 1998.)
4.20 Consent and Agreement, dated as of March 31, 1998,
with respect to the Credit Agreement among Coltec,
Coltec Aerospace Canada Ltd., the Subsidiary
Guarantors named therein, the financial institutions
party thereto from time to time, Bank of America
National Trust and Savings Association, as
Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, Bankers Trust Company, as
Administrative Agent, and Bank of Montreal, as
Canadian Paying Agent. (Incorporated by reference to
Coltec's Registration Statement on Form S-4, filed
May 18, 1998.)
4.21 Modification to Fifth Amendment to Credit Agreement,
dated as of April 20, 1998, among Coltec, Coltec
Aerospace Canada Ltd., the Subsidiary Guarantors
named therein, the financial institutions party
thereto from time to time, Bank of America National
Trust and Savings Association, as Documentation
Agent, The Chase Manhattan Bank, as Syndication
Agent, Bankers Trust Company, as Administrative
Agent, and Bank of Montreal, as Canadian Paying
Agent. (Incorporated by reference to Coltec's
Registration Statement on Form S-4, filed May 18,
1998.)
27
<PAGE> 28
4.22 Amended and Restated Company Pledge Agreement, dated
as of March 24, 1998, made by Coltec in favor of
Bankers Trust Company as collateral agent.
(Incorporated by reference to Coltec's Registration
Statement on Form S-4, filed May 18, 1998.)
4.23 Amended and Restated Company Security Agreement,
dated as of March 24, 1998, made by Coltec in favor
of Bankers Trust Company as collateral agent.
(Incorporated by reference to Coltec's Registration
Statement on Form S-4, filed May 18, 1998.)
4.24 Amended and Restated Subsidiary Pledge Agreement,
dated March 24, 1998, made by the Subsidiary named
therein in favor of Bankers Trust Company as
collateral agent. (Incorporated by reference to
Coltec's Registration Statement on Form S-4, filed
May 18, 1998.)
4.25 Amended and Restated Subsidiary Security Agreement,
dated March 24, 1998, made by the Subsidiary named
therein in favor of Bankers Trust Company as
collateral agent. (Incorporated by reference to
Coltec's Registration Statement on Form S-4, filed
May 18, 1998.)
4.26 Second Amendment to Receivables Transfer and
Administration Agreement, dated January 26, 1998,
between Coltec and Coltec North Carolina Inc.
(Incorporated by reference to Coltec's Registration
Statement on Form S-4, filed May 18, 1998.)
10.28 Employment Agreement dated July 15, 1998 between the
Company and John W. Guffey, Jr.
10.29 Employment Agreement dated July 15, 1998 between the
Company and Nishan Teshoian.
10.30 Employment Agreement dated July 15, 1998 between the
Company and David D. Harrison.
10.31 Employment Agreement dated July 15, 1998 between the
Company and Robert J. Tubbs.
10.32 Employment Agreement dated July 15, 1998 between the
Company and Laurence H. Polsky.
10.33 Employment Agreement dated July 15, 1998 between the
Company and Michael J. Burdulis.
27. Financial Data Schedules. (for SEC use only).
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<PAGE> 29
(b) Reports on Form 8-K
The following Current Reports on Form 8-K were filed by the
Company during the quarter ended June 30, 1998.
Current Report on Form 8-K dated March 30, 1998
(filed April 3, 1998) (Items 5 and 7).
Current Report on Form 8-K dated April 9, 1998 (filed
April 9, 1998) (Items 5 and 7).
Current Report on Form 8-K dated April 14, 1998
(filed April 16, 1998) (Items 5 and 7).
Current Report on Form 8-K dated May 15, 1998 (filed
May 15, 1998) (Items 5 and 7).
29
<PAGE> 30
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLTEC INDUSTRIES INC
(Registrant)
by /s/ David D. Harrison
-----------------------------
David D. Harrison
Executive Vice President
and Chief Financial Officer
Date: August 17, 1998
30
<PAGE> 1
EXHIBIT 10.28
EMPLOYMENT AGREEMENT
This Agreement dated as of this 15th day of July, 1998 between John W.
Guffey, Jr. ("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 until terminated in accordance with the
provisions set forth in Section 6 below (the "Contract Period").
2. Duties
2.1 The Executive shall serve, subject to the supervision and control of
the Corporation's Board of Directors (the "Board") as Chairman and Chief
Executive 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 current position, as shall from time to time
be assigned to him by the Board.
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) director
or officer of any trade association, civic, educational or charitable
organization or governmental entity, or 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.
<PAGE> 2
2.3 Executive shall carry out all responsibilities delegated in Section
2.1 above at the Corporation's headquarters at 3 Coliseum Centre, 2550
West Tyvola Rd. Charlotte, NC except for travel reasonably required in
the performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the Contract Period, 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 Effective Date 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 that 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
Effective Date. 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.
3.5 The Executive shall be entitled to receive reimbursement for all
reasonable out-of-pocket expenses incurred in performing his
responsibilities described in
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<PAGE> 3
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. Management of the Corporation
During the Contract Period and subject to its fiduciary duties, the
Board shall not interfere with Executive's responsibilities in
connection with the normal day to day management of the Corporation's
business matters and will involve Executive as a director, in
determining the strategic direction of the Corporation, consistent with
the Board's past practice and its fiduciary duties to the Corporation's
shareholders and its management.
6. Termination of Employment
The Contract Period shall terminate prior to the completion of its term
on the Date of Termination as defined in Sections 6.2 or 6.3 below
following receipt by the Executive or the Corporation, as the case may
be, of a Notice of Termination as defined in Section 6.1 below.
6.1 "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 9 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.
6.2 "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
3
<PAGE> 4
Good Reason in respect of a termination covered by Sections 7.6
or 7.7 below;
d. at least fifteen days (15) after Notice of Termination is
given by the Corporation for termination of employment for Cause;
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.
6.3 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 6.2(e) above
("Retirement Termination")
7. Compensation Upon Termination or During Disability
7.1 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;
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<PAGE> 5
iv. a willful material breach of an established written
policy or procedure of the Corporation, which breach is
materially injurious to the Corporation;
v. Executive's conviction for a crime involving moral
turpitude; or
vi. the breach of Executive's Agreement set forth in
Section 11.1 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 6.2 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 8 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 by
the Corporation which is not effected pursuant to a
Notice of Termination satisfying the requirements set
forth in Section 6 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 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 Board which demand specifically
identifies the manner in which Executive believes that
any Board members (or their agents or associates) have
harassed Executive or unreasonably interfered with
Executive's ability to perform his
5
<PAGE> 6
day-to-day duties); provided, however, that
appropriate involvement of Board members in regular
reviews of those items which have, consistent with the
Corporation's past practices, been normally within the
purview the Board's responsibilities 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 Charlotte, NC without the concurrence
of Executive;
vii. after a Change-in-Control, the corporation a)reduces
Executive's annual salary, b) impairs Executive's
opportunity to earn incentive compensation on a basis
comparable to that before the Change-in-Control, c)
reduces the Company Perquisites made available to
Executive before a Change-in-Control, or d) eliminates
or impairs Executive's ability to participate in
Retirement Plans, or
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:
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
6
<PAGE> 7
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.
7.2 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 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
7
<PAGE> 8
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.
7.3 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.
7.4 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 .
7.5 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 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.
8
<PAGE> 9
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.
7.6 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 7.7 below ("Section 7.7 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
three times (3x) the sum of Executive's annual base salary plus
the Executive's highest annual incentive bogey used in any of the
three years prior to the Date of Termination to calculate
Executive's award under the Coltec Annual Incentive Plan .
c. In accordance with a valid election on file with the
Corporation, the corporation shall pay to Executive a sum of
money equal to the value of Executive' s accrued balance of the
Benefits Equalization Plan ("BE Plan").
d. For a period of three years from the Date of Termination (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 7.9, 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
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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 7.6(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 7.6(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, and where applicable, any increases in benefits as a
result of increasing age, 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 7.6
(b) which would 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.
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7.7 If Executive's employment by the Corporation shall be terminated (1)
by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"),or (2) 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 7.6:
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 a lump sum equal to four times (4x) the
sum of Executive's annual base salary for one calendar year 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.
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.
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 7.9, 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
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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 7.7(e), 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.
iii. 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
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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 7.7(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,
and where applicable, any increases in benefits as a result of
increasing age, 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 for an additional four year
period, and (y) the compensation described in Section 7.7 (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.
i. If Executive's employment by the Corporation shall have been
terminated by the Corporation for other than Cause at any time
during a Pending Change-of-Control Period, and if Executive shall
have received any payments or benefits pursuant to Section 7.6,
then Executive shall be entitled to receive such additional
payments and benefits as he would have received if his employment
was terminated and he was entitled to receive payments or
benefits pursuant to this Section 7.7.
j. If at any time within two years following a Change-of-Control,
Executive shall, at the request of the Corporation, relocate his
principal place of personal residence or employment and if
Executive shall become entitled to receive payments or benefits
pursuant to this Section 7.7, then Executive shall also be
entitled, at his option, to relocate his personal residence one
time during the four year period following the Date of
Termination to any location within the continental United States,
in which event the Corporation will reimburse the Executive for
all relocation and home purchase and sale assistance costs
associated with such move in accordance with the Corporation's
policy and practice for its Executive Officers in effect at the
time of the execution of this Agreement.
7.8 In addition to the benefits set forth in Sections 7.6 and 7.7, 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 7.7 Good Reason, or (3) by Executive for Section 7.7 Good
Reason then:
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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) ("Severance Payments") if Executive 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 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
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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.
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).
7.9 Upon receipt of written notice from Executive that Executive has
been reemployed by another company or entity on a full-time basis,
benefits otherwise
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receivable by Executive pursuant to Subsections 7.6(d) or 7.7(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.
7.10 Any stock of the Corporation, which is delivered to the Executive
pursuant to Subsections 7.6 or 7.7, shall be delivered to him fully
registered for immediate sale to the public under all applicable
securities laws.
8. 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.
9. 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 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, 2550 West Tyvola Road,
Charlotte, NC 28217 to the attention of the Chairman of the Compensation
Committee 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.
10. 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
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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.
11. Non-competition
11.1 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 11.1 shall permit the
Corporation to terminate Executive's employment for Cause in accordance
with Section 7.l(b) hereof.
11.2 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 7.6(b) or 7.7(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 11.
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
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information without the approval of the Corporation except to the extent
such information becomes public or as may be required by law.
11.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 11 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 14 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.
12. 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.
13. 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.
14. Arbitration
Except as contemplated by Section 11.3 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.
15. Governing Law
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of North Carolina.
16. Entire Agreement; Survival of Certain Provisions
16.1 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
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either party which are not expressly set forth in this Agreement. This
Agreement supercedes and replaces all prior Employment Agreements,
Restated Employment Agreements and or Change in Control Agreements, if
any, between the Corporation and the Executive, each of which is hereby
expressly terminated.
16.2 The obligations of the Corporation under Section 7.8 above and the
Executive's obligations under Section 11 above shall survive the
expiration of the term of this Agreement.
17. 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/ Laurence H. Polsky
--------------------------------------
/s/ John W. Guffey, Jr
--------------------------------------
EXECUTIVE
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EXHIBIT 10.29
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of this 15th day of July, 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 until terminated in accordance with the
provisions set forth in Section 5 below (the "Contract Period").
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) 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
<PAGE> 2
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.
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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;
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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;
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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
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which have, consistent with the Corporation's past
practices, 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:
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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
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Disability occurs) under the Corporation ' s compensation and benefit
plans and programs in which Executive is participating at the
commencement of any such 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:
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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 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
two times (2x) the sum of Executive's annual base salary plus the
Executive's highest incentive bogey established at any time
during the three year period prior to the Date of Termination
pursuant to the Coltec Annual Incentive Plan .
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 a period of two years from the Date of Termination (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 6.9, be allowed to participate in all
applicable group, life, health, disability and accident insurance
plans and programs as well as any
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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, and where applicable, any increases in benefits as a
result of increasing age, 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
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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 (1)
by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"),or (2) 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 three
times (3x) 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.
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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.
e. For three 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 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.
iii. 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
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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,
and where applicable, any increases in benefits as a result of
increasing age, 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 for an additional three 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 three
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.
i. If Executive's employment by the Corporation shall have been
terminated by the Corporation for other than Cause at any time
during a Pending Change-of-Control Period and if Executive shall
have received any payments or benefits pursuant to Section 6.6,
then Executive shall be entitled to receive such additional
payments and benefits as he would have received if his employment
was terminated and he was entitled to receive payments or
benefits pursuant to this Section 6.7.
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j. If at any time within two years following a Change-of-Control,
Executive shall, at the request of the Corporation, relocate his
principal place of personal residence or employment and if
Executive shall become entitled to receive payments or benefits
pursuant to this Section 6.7, then Executive shall also be
entitled, at his option, to relocate his personal residence one
time during the four year period following the Date of
Termination to any location within the continental United States,
in which event the Corporation will reimburse the Executive for
all relocation and home purchase and sale assistance costs
associated with such move in accordance with the Corporation's
policy and practice for its Executive Officers in effect at the
time of the execution of this Agreement.
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-of-Control of the
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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 Corporation, any person whose actions result
in a Change-of-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
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respect to such excess) at the time that the amount of such
excess is finally determined.
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
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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 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, 2550 West Tyvola Road,
Charlotte, NC 28217 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
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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.
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.
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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.
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. This Agreement supercedes and replaces all prior Employment
Agreements between the Corporation and the Executive, each of which is
hereby expressly terminated.
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.
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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/ Laurence H. Polsky
--------------------------------
/s/ Nishan Teshoian
--------------------------------
EXECUTIVE
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EXHIBIT 10.30
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of this 15th day of July, 1998 between David D.
Harrison (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 until terminated in accordance with the
provisions set forth in Section 5 below (the "Contract Period").
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 Executive
Vice President and Chief Financial 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) director
or officer of any trade association, civic, educational or charitable
organization or governmental entity or, subject to approval by the
Chairman and Chief Executive Officer as (ii) a director of any
corporation which is not a
<PAGE> 2
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 such location within the continental United States as the
Chairman and Chief Executive Officer may from time to time, after
consultation with Executive, deem appropriate, 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 Effective Date 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
Effective Date. 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 Plan") 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.
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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;
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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 Chairman
and Chief Executive Officer;
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;
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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 by
the Corporation 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, the President and Chief Operating 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 President and
Chief Operating Officer, the Chairman and Chief
Executive Officer or to the Board which demand
specifically identifies the manner in which Executive
believes that such President and Chief Operating
Officer, 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);
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provided, however, that appropriate involvement of the
President and Chief Operating Officer, 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, been normally within the
purview of the President and Chief Operating Officer,
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 basis 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.
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d. Change-in-Control - A Change-in-Control shall be deemed to
occur as of the date on which any of the following occur:
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
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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 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:
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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 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
two times (2x) the sum of Executive's annual base salary plus the
Executive's highest annual incentive bogey used in any of the
three years prior to the Date of Termination to calculate
Executive's award under the Coltec Annual Incentive Plan.
c. In accordance with a valid election on file with the
Corporation, the Corporation shall pay to Executive a sum of
money equal to the value of Executive' s accrued balance of the
Benefits Equalization Plan (the "BE Plan").
d. For a period of two years from the Date of Termination (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, during the Relevant Damage Period
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
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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, and where applicable, any increases in benefits as a
result of increasing age 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
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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 (1)
by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"), or (2) 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 the 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 a lump sum equal to three times (3x) 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.
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.
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<PAGE> 12
e. For three 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 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.
iii. 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
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<PAGE> 13
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,
and where applicable, any increases in benefits as a result of
increasing age, 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 for an additional three 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 three
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.
i. If Executive's employment by the Corporation shall have been
terminated by the Corporation for other than Cause at any time
during a Pending Change-of-Control Period, and if Executive shall
have received any payments or benefits pursuant to Section 6.6,
then Executive shall be entitled to receive such additional
payments and benefits as he would have received if his employment
was terminated and he was entitled to receive payments or
benefits pursuant to this Section 6.7.
j. If at any time within two years following a Change-of-Control,
Executive shall, at the request of the Corporation, relocate his
principal place of personal residence or employment and if
Executive shall become entitled to receive payments or benefits
pursuant to this Section 6.7, then Executive shall also be
entitled, at his option, to relocate his personal residence one
time during the four year period following the Date of
Termination to any location within the continental United States,
in which
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<PAGE> 14
event the Corporation will reimburse the Executive for all
relocation and home purchase and sale assistance costs associated
with such move in accordance with the Corporation's policy and
practice for its Executive Officers in effect at the time of the
execution of this Agreement.
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 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 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
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<PAGE> 15
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.
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
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<PAGE> 16
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 Subsection 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 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, 2550 West Tyvola Road,
Charlotte, NC 28217 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.
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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 5.l(b) hereof.
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
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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.
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
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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. This Agreement supercedes and replaces all prior Employment
Agreements, Restated Employment Agreements and or Change-of-Control
Agreements, if any, between the Corporation and the Executive, each of
which is hereby expressly terminated.
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/ Laurence H. Polsky
--------------------------------
/s/ David D. Harrison
--------------------------------
EXECUTIVE
19
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of this 15th day of July, 1998 between Robert
J. Tubbs (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 until terminated in accordance with the
provisions set forth in Section 5 below (the "Contract Period").
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
Executive Vice President, General Counsel and Secretary 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)
director or officer of any trade association, civic, educational or
charitable organization or governmental entity or, subject to approval
by the Chairman and Chief Executive Officer as (ii) a director of any
corporation which is not a
<PAGE> 2
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 such location within the continental United States as the
Chairman and Chief Executive Officer may from time to time, after
consultation with Executive, deem appropriate, 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 Effective Date 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 Effective Date. 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 Plan") 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.
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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;
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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 Chairman and Chief Executive
Officer;
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;
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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 by the Corporation 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, the President and Chief
Operating 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 President and Chief
Operating Officer, the Chairman and Chief
Executive Officer or to the Board which demand
specifically identifies the manner in which
Executive believes that such President and Chief
Operating Officer, 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);
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provided, however, that appropriate involvement of
the President and Chief Operating Officer, 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, been normally within the purview of the
President and Chief Operating Officer, 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 basis 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.
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d. Change-in-Control - A Change-in-Control shall be deemed to
occur as of the date on which any of the following occur:
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
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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 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:
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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 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 two times (2x) the sum of Executive's annual base salary
plus the Executive's highest annual incentive bogey used in
any of the three years prior to the Date of Termination to
calculate Executive's award under the Coltec Annual Incentive
Plan.
c. In accordance with a valid election on file with the
Corporation, the Corporation shall pay to Executive a sum of
money equal to the value of Executive's accrued balance of
the Benefits Equalization Plan (the "BE Plan").
d. For a period of two years from the Date of Termination (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, during the Relevant Damage Period
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
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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, and where
applicable, any increases in benefits as a result of
increasing age 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
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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
(1) by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"), or (2) 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 the 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 a lump sum equal to three
times (3x) 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.
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.
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e. For three 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 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.
iii. 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
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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, and where applicable, any increases in benefits as a
result of increasing age, 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 for
an additional three 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 three 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.
i. If Executive's employment by the Corporation shall have
been terminated by the Corporation for other than Cause at any
time during a Pending Change-of-Control Period, and if
Executive shall have received any payments or benefits
pursuant to Section 6.6, then Executive shall be entitled to
receive such additional payments and benefits as he would have
received if his employment was terminated and he was entitled
to receive payments or benefits pursuant to this Section 6.7.
j. If at any time within two years following a
Change-of-Control, Executive shall, at the request of the
Corporation, relocate his principal place of personal
residence or employment and if Executive shall become entitled
to receive payments or benefits pursuant to this Section 6.7,
then Executive shall also be entitled, at his option, to
relocate his personal residence one time during the four year
period following the Date of Termination to any location
within the continental United States, in which
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event the Corporation will reimburse the Executive for all
relocation and home purchase and sale assistance costs
associated with such move in accordance with the Corporation's
policy and practice for its Executive Officers in effect at
the time of the execution of this Agreement.
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 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 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
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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.
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
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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 Subsection 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 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, 2550 West
Tyvola Road, Charlotte, NC 28217 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.
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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
5.l(b) hereof.
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
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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.
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
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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. This Agreement supercedes and replaces all
prior Employment Agreements, Restated Employment Agreements and or
Change-of-Control Agreements, if any, between the Corporation and the
Executive, each of which is hereby expressly terminated.
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/ Laurence H. Polsky
-------------------------------
/s/ Robert J. Tubbs
-------------------------------
EXECUTIVE
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<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of this 15th day of July, 1998 between Laurence
H. Polsky (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 until terminated in accordance with the
provisions set forth in Section 5 below (the "Contract Period").
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
Executive Vice President, Administration 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)
director or officer of any trade association, civic, educational or
charitable organization or governmental entity or, subject to approval
by the Chairman and Chief Executive Officer as (ii) a director of any
corporation which is not a
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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 such location within the continental United States as the
Chairman and Chief Executive Officer may from time to time, after
consultation with Executive, deem appropriate, 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 Effective Date 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 Effective Date. 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 Plan") 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.
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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;
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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 Chairman and Chief Executive
Officer;
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;
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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 by the Corporation 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, the President and Chief
Operating 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 President and Chief
Operating Officer, the Chairman and Chief
Executive Officer or to the Board which demand
specifically identifies the manner in which
Executive believes that such President and Chief
Operating Officer, 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);
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provided, however, that appropriate involvement of
the President and Chief Operating Officer, 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, been normally within the purview of the
President and Chief Operating Officer, 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 basis 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.
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d. Change-in-Control - A Change-in-Control shall be deemed to
occur as of the date on which any of the following occur:
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
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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 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:
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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 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 two times (2x) the sum of Executive's annual base salary
plus the Executive's highest annual incentive bogey used in
any of the three years prior to the Date of Termination to
calculate Executive's award under the Coltec Annual Incentive
Plan.
c. In accordance with a valid election on file with the
Corporation, the Corporation shall pay to Executive a sum of
money equal to the value of Executive's accrued balance of
the Benefits Equalization Plan (the "BE Plan").
d. For a period of two years from the Date of Termination (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, during the Relevant Damage Period
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
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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, and where
applicable, any increases in benefits as a result of
increasing age 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
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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
(1) by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"), or (2) 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 the 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 a lump sum equal to three
times (3x) 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.
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.
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e. For three 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 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.
iii. 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
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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, and where applicable, any increases in benefits as a
result of increasing age, 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 for
an additional three 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 three 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.
i. If Executive's employment by the Corporation shall have
been terminated by the Corporation for other than Cause at any
time during a Pending Change-of-Control Period, and if
Executive shall have received any payments or benefits
pursuant to Section 6.6, then Executive shall be entitled to
receive such additional payments and benefits as he would have
received if his employment was terminated and he was entitled
to receive payments or benefits pursuant to this Section 6.7.
j. If at any time within two years following a
Change-of-Control, Executive shall, at the request of the
Corporation, relocate his principal place of personal
residence or employment and if Executive shall become entitled
to receive payments or benefits pursuant to this Section 6.7,
then Executive shall also be entitled, at his option, to
relocate his personal residence one time during the four year
period following the Date of Termination to any location
within the continental United States, in which
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event the Corporation will reimburse the Executive for all
relocation and home purchase and sale assistance costs
associated with such move in accordance with the Corporation's
policy and practice for its Executive Officers in effect at
the time of the execution of this Agreement.
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 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 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
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<PAGE> 15
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.
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
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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 Subsection 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 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, 2550 West
Tyvola Road, Charlotte, NC 28217 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.
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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
5.l(b) hereof.
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
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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.
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.
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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. This Agreement supercedes and replaces all
prior Employment Agreements, Restated Employment Agreements and or
Change-of-Control Agreements, if any, between the Corporation and the
Executive, each of which is hereby expressly terminated.
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/ Robert J. Tubbs
-----------------------------
/s/ Laurence H. Polsky
-----------------------------
EXECUTIVE
19
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EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS AGREEMENT dated as of this 15th day of July, 1998 between Michael
J. Burdulis (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 until terminated in accordance with the
provisions set forth in Section 5 below (the "Contract Period").
2. Duties
2.1 The Executive shall serve, subject to the supervision and control
of the Corporation's President and Chief Operating Officer as the
Senior Vice President - Operations 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 President and
Chief Operating 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)
director or officer of any trade association, civic, educational or
charitable organization or governmental entity or, subject to approval
by the President and
<PAGE> 2
Chief Operating Officer 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 such location within the continental United States as the
President and Chief Operating Officer may from time to time, after
consultation with Executive, deem appropriate, 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 Effective Date 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 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 Effective Date. 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.
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3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its
employees.
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;
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d. at least fifteen days (15) after Notice of Termination is
given by the Corporation for termination of employment for
Cause;
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 President and Chief Operating
Officer;
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;
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iv. a willful material breach of an established
written policy or procedure of the Corporation
which breach is materially injurious to the
Corporation;
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 by the Corporation 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, the President and Chief
Operating 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 President and Chief
Operating Officer, the Chairman and Chief
Executive Officer or to the Board which demand
specifically
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identifies the manner in which Executive believes
that such President and Chief Operating Officer,
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 President and Chief Operating
Officer, 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, been normally within
the purview of the President and Chief Operating
Officer, 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 basis comparable to
that before the Change-in-Control, c) reduces the
Company perquisites made available to Executive
before e 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.
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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:
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,
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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 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
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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 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
Executive's highest annual incentive bogey used in any of the
three years prior to the Date of Termination to calculate
Executive's award under the Coltec Annual Incentive Plan.
c. In accordance with a valid election on file with the
Corporation the Corporation shall pay to Executive a sum of
money equal to the value of Executive's accrued balance of
the Benefits Equalization Plan (the "BE Plan").
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d. For a period of one year from the Date of Termination or
until the end of the Contract Period (the "Relevant Employment
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 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
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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, and where
applicable, any increases in benefits as a result of
increasing age, 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 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
(1) by the Corporation for other than Cause at any time during a period
commencing sixty (60) days prior to a the public announcement of a
Change-of-Control which does, in fact, later occur and ending on the
happening of such Change-of-Control ("Pending Change-of-Control
Period"),or (2) 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 a lump sum equal to 2.25
times 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
(or if the Executive has not received an annual bonus while
serving as a Senior Vice President, Group Operations, any
individual serving as Senior Vice President, Group Operations
for the Corporation) during any of the three preceding
calendar years.
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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.
e. For two years and three months 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 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
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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.
iii. 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, and where applicable, any increases in benefits as a
result of increasing age, 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 for
an additional two year and three month 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 two year and three
month 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.
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i. If Executive's employment by the Corporation shall have
been terminated by the Corporation for other than Cause at any
time during a Pending Change-of-Control Period, and if
Executive shall have received any payments or benefits
pursuant to Section 6.6, then Executive shall be entitled to
receive such additional payments and benefits as he would have
received if his employment was terminated and he was entitled
to receive payments or benefits pursuant to this Section 6.7.
j. If at any time within two years following a
Change-of-Control, Executive shall, at the request of the
Corporation, relocate his principal place of personal
residence or employment and if Executive shall become entitled
to receive payments or benefits pursuant to this Section 6.7,
then Executive shall also be entitled, at his option, to
relocate his personal residence one time during the four year
period following the Date of Termination to any location
within the continental United States, in which event the
Corporation will reimburse the Executive for all relocation
and home purchase and sale assistance costs associated with
such move in accordance with the Corporation's policy and
practice for its Executive Officers in effect at the time of
the execution of this Agreement.
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
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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 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
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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.
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 Subsection 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
16
<PAGE> 17
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 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, 2550 West
Tyvola Road, Charlotte, NC 28217 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
17
<PAGE> 18
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.
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.
18
<PAGE> 19
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.
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. This Agreement supercedes and replaces all
prior Employment Agreements, Restated Employment Agreements and or
Change in Control Agreements, if any, between the Corporation and the
Executive, each of which is hereby expressly terminated.
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.
19
<PAGE> 20
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/ Laurence H. Polsky
------------------------------
Michael J. Burdulis
------------------------------
EXECUTIVE
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 28,
1998 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE SIX MONTHS
ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-28-1998
<CASH> 20,073
<SECURITIES> 0
<RECEIVABLES> 166,134
<ALLOWANCES> 2,686
<INVENTORY> 242,589
<CURRENT-ASSETS> 458,742
<PP&E> 704,668
<DEPRECIATION> 404,545
<TOTAL-ASSETS> 1,061,152
<CURRENT-LIABILITIES> 301,104
<BONDS> 601,352
144,770
0
<COMMON> 705
<OTHER-SE> (305,670)
<TOTAL-LIABILITY-AND-EQUITY> 1,061,152
<SALES> 769,195
<TOTAL-REVENUES> 769,195
<CGS> 572,010
<TOTAL-COSTS> 697,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,310
<INCOME-PRETAX> 99,946
<INCOME-TAX> 33,982
<INCOME-CONTINUING> 64,879
<DISCONTINUED> 0
<EXTRAORDINARY> (4,326)
<CHANGES> 0
<NET-INCOME> 60,553
<EPS-PRIMARY> .92
<EPS-DILUTED> .89
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