CHANGE IN
CONTROL AGREEMENT
THIS AGREEMENT,
(“this Agreement”), dated as of October 27, 2008
(the “Effective Date”), is made by and between,
Armstrong World Industries, Inc., a Pennsylvania corporation (the
“ Company ”), and Michael D. Lockhart (the
“ Executive ”).
WHEREAS, the Executive
and Armstrong Holdings, Inc. (“AHI”) are parties to
that certain Agreement dated as of August 7, 2000, (as
amended, the “Original Agreement”), which was assumed
by the Company upon its emergence from its Chapter 11 case
under the Bankruptcy Code; and
WHEREAS, the
Company’s emergence from its Chapter 11 case on
October 2, 2006, constituted a “Change in Control”
of the Company on such date for purposes of the Original Agreement;
and
WHEREAS, the Board
desires to supersede the Original Agreement with a change in
control severance agreement upon the terms set forth herein;
and
WHEREAS, the Board
recognizes that, as is the case with many publicly held
corporations, the possibility of a Change in Control exists and
that such possibility, and the uncertainty and questions which it
may raise among management, may result in the departure or
distraction of management personnel to the detriment of the
Company; and
WHEREAS, the Board has
determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the
Company’s management, including the Executive, to their
assigned duties without undue concern for their personal financial
and employment security arising from the possibility of a Change in
Control;
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein
contained, and intending to be legally bound hereby, the Company
and the Executive hereby agree as follows:
1. Defined
Terms . The definitions of capitalized terms used in this
Agreement are provided in the Last Section hereof.
2. Term of
Agreement . This Agreement shall commence on October 27,
2008 and shall continue in effect through October 31, 2009.
Notwithstanding the foregoing, if a Change in Control shall have
occurred after the Effective Date and during the term of this
Agreement, this Agreement shall continue in effect for a period of
not less than thirty-six (36) months beyond the month in which
the first such Change in Control occurred.
3.
Company’s Covenants Summarized . In order to induce
the Executive to remain in the employ of the Company and in
consideration of the Executive’s covenants set forth in
Section 4 hereof, the Company agrees, under the conditions
described herein, to pay the Executive the Severance Payments and
the other payments and benefits described herein. Except as
provided in Section 10.1 hereof, no amount or benefit shall be
payable under this Agreement unless there shall have been (or,
under the terms of the second sentence of Section 6.1 hereof,
there shall be deemed to have been) a termination of the
Executive’s employment with the Company following a Change in
Control and during the term of this Agreement. This Agreement shall
not be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the
Executive and the Company, the Executive shall not have any right
to be retained in the employ of the Company.
4. The
Executive’s Covenants . The Executive agrees that,
subject to the terms and conditions of this Agreement, in the event
of a Potential Change in Control during the term of this Agreement,
the Executive will remain in the employ of the Company until the
earliest of (i) a date which is six (6) months after the
date of such Potential Change in Control, (ii) the date of a
Change in Control, (iii)
the date of termination by
the Executive of the Executive’s employment for Good Reason
or by reason of death or Disability, or (iv) the termination
by the Company of the Executive’s employment for any
reason.
5. Compensation Other
Than Severance Payments .
5.1. Following a Change
in Control and during the term of this Agreement, during any period
that the Executive fails to perform the Executive’s full-time
duties with the Company as a result of incapacity due to physical
or mental illness, the Company shall pay the Executive’s full
salary to the Executive at the rate in effect at the commencement
of any such period, together with all compensation and benefits
payable to the Executive under the terms of any compensation or
benefit plan, program or arrangement maintained by the Company
during such period, until the Executive’s employment is
terminated by the Company for Disability.
5.2. If the
Executive’s employment shall be terminated for any reason
following a Change in Control and during the term of this
Agreement, the Company shall pay the Executive’s full salary
to the Executive through the Date of Termination at the rate in
effect immediately prior to the Change in Control or at the time
the Notice of Termination is given, whichever is greater, together
with all compensation and benefits to which the Executive is
entitled in respect of all periods preceding the Date of
Termination under the terms of the Company’s compensation and
benefit plans, programs or arrangements.
5.3. If the
Executive’s employment shall be terminated for any reason
following a Change in Control and during the term of this
Agreement, the Company shall pay to the Executive the
Executive’s normal post-termination compensation and benefits
as such payments become due. Such post-termination compensation and
benefits shall be determined under, and paid in accordance with,
the Company’s retirement, insurance and other compensation or
benefit plans, programs and arrangements as in effect immediately
prior to the Change in Control or, if more favorable to the
Executive, as in effect immediately prior to the Date of
Termination.
6.1. The Company shall
pay the Executive the payments described in this Section 6.1
(the “ Severance Payments ”) upon the
termination of the Executive’s employment following a Change
in Control and during the term of this Agreement, in addition to
any payment sand benefits to which the Executive is entitled under
Sections 5 and 8 hereof, unless such termination is
(i) by the Company for Cause, (ii) by reason of death or
Disability, or (iii) by the Executive without Good Reason. For
purposes of this Agreement, the Executive’s employment shall
be deemed to have been terminated by the Company without Cause or
by the Executive with Good Reason following a Change in Control if
(i) the Executive’s employment is terminated without
Cause prior to a Change in Control which actually occurs during the
term of this Agreement and such termination was at the request or
direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in
Control, (ii) the Executive terminates his employment with
Good Reason prior to a Change in Control which actually occurs
during the term of this Agreement and the circumstance or event
which constitutes Good Reason occurs at the request or direction of
such Person, (iii) the Executive’s employment is
terminated without Cause prior to a Change in Control and the
Executive reasonably demonstrates that such termination is
otherwise in connection with or in anticipation of a Change in
Control which actually occurs during the term of this Agreement, or
(iv) the Executive’s employment is terminated without
Cause after a Potential Change in Control of the type described in
paragraphs (I) or (IV) of the definition of
“Potential Change in Control.”
(A) In lieu of any
further salary payments to the Executive for periods subsequent to
the Date of Termination and in lieu of any severance benefit
otherwise payable to the Executive, the Company shall pay to the
Executive a lump sum severance payment, in cash, equal to three
(3) times the sum of (i) the higher of the
Executive’s annual base salary in effect immediately prior to
the occurrence of the event or circumstance upon which the Notice
of
Termination is based or
the Executive’s annual base salary in effect immediately
prior to the Change in Control (the “ Change in Control
Salary ”), plus (ii) the higher of (x) the highest
annual bonus earned by the Executive pursuant to any annual bonus
or incentive plan maintained by the Company in respect of the three
(3) years immediately preceding that year in which the Date of
Termination occurs or (y) the annual target bonus in respect
of the year in which the Change in Control occurs (the “
Change in Control Bonus ”).
(B) Notwithstanding
any provision of any annual incentive plan to the contrary, the
Company shall pay to the Executive a lump sum amount, in cash,
equal to a pro rata portion to the Date of Termination of the value
of the target incentive award under such plan for the then
uncompleted period under such plan, calculated by multiplying the
Executive’s target award by the fraction obtained by dividing
the number of full months and any fractional portion of a month
during such performance award period through the Date of
Termination by the total number of months contained in such
performance award period.
(C) In addition to
the retirement benefits to which the Executive is entitled under
each Pension Plan or any successor plan thereto, the Company shall
pay the Executive a lump sum amount, in cash, equal to the excess
of (i) the actuarial equivalent of the aggregate retirement
pension (taking into account any early retirement subsidies
associated therewith and determined as a straight life annuity
commencing at the date (but in no event earlier than the third
anniversary of the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive would
have accrued under the terms of all Pension Plans (without regard
to any amendment to any Pension Plan made subsequent to the earlier
of a Potential Change in Control or a Change in Control and on or
prior to the Date of Termination, which amendment adversely affects
in any manner the computation of retirement benefits thereunder),
determined as if the Executive were fully vested thereunder and had
accumulated (after the Date of Termination) thirty-six
(36) additional months of service credit thereunder and had
been credited under each Pension Plan during such period with
compensation at the higher of (1) the Executive’s
compensation (as defined in such Pension Plan) during the twelve
(12) months immediately preceding the Date of Termination or
(2) the Executive’s compensation (as defined in such
Pension Plan) during the twelve (12) months immediately preceding
the Change in Control, over (ii) the actuarial equivalent of
the aggregate retirement pension (taking into account any early
retirement subsidies associated therewith and determined as a
straight life annuity commencing at the date (but in no event
earlier than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive had
accrued pursuant to the provisions of the Pension Plans as of the
Date of Termination. For purposes of this Section 6.1(C),
“actuarial equivalent” shall be determined using the
same assumptions utilized under the aggregate retirement pension
(taking into account any early retirement subsidies associated
therewith and determined as a straight life annuity commencing at
the date (but in no event earlier than the Date of Termination) as
of which the actuarial equivalent of such annuity is greatest)
which the Executive had accrued pursuant to the provisions of the
Pension Plans as of the Date of Termination. For purposes of this
Section 6.1(C), “actuarial equivalent” shall be
determined using the same assumptions utilized under the
Company’s Retirement Income Plan immediately prior to the
Change in Control, to determine lump sum present values under
Article VI, Section (3) of the Company’s Retirement
Income Plan.
(D) For the
thirty-six (36) month period immediately following the Date of
Termination, the Company shall arrange to provide the Executive
(which includes the Executive’s eligible dependents for
purposes of this paragraph (D)) with life, disability, accident and
health insurance benefits substantially similar to those which the
Executive was receiving immediately prior to the Notice of
Termination (without giving effect to any amendment to such
benefits made subsequent to the earlier of a Potential Change in
Control or a Change in Control which amendment adversely affects in
any manner the Executive’s entitlement to or the amount of
such benefits); provided , however , that, unless the
Executive consents to a different method, such health insurance
benefits shall be provided through a third-party insurer. Benefits
otherwise receivable by the Executive pursuant to this
Section 6.1(D) shall be reduced to the extent
comparable benefits are
actually received by or made available to the Executive by a
subsequent employer without cost during the thirty-six
(36) month period following the Executive’s termination
of employment (and any such benefits actually received by or made
available to the Executive shall be reported to the Company by the
Executive).
(E) If the Executive
would have become entitled to benefits under the Company’s
post-retirement health care or life insurance plans (as in effect
immediately prior to a Potential Change in Control, the Change in
Control or the Date of Termination, whichever is most favorable to
the Executive) had the Executive’s employment terminated at
any time during the period of thirty-six (36) months after the
Date of Termination, the Company shall provide such post-retirement
health care or life insurance benefits to the Executive (subject to
any employee contributions required under the terms of such plans
at the level in effect immediately prior to the Change in Control
or the Date of Termination, whichever is more favorable to the
Executive) commencing on the later of (i) the date that such
coverage would have first become available or (ii) the date
that benefits described in subsection (D) of this
Section 6.1 terminate. From the end of the period described in
the preceding sentence until the Executive and his spouse (if any,
as of the Change in Control) become entitled to Medicare coverage,
the Company will permit them to purchase, at COBRA rates, any
health care coverage that they were receiving on the date of the
Change in Control.
(F) The Company will
pay the Executive, at a daily salary rate calculated from the
higher of the Executive’s annual base salary in effect
immediately prior to the occurrence of the event or circumstance
upon which the Notice of Termination is based or the
Executive’s annual base salary in effect immediately prior to
the Change in Control, an amount equal to all unused vacation days
which would have been earned had the Executive continued employment
through December 31 of the year in which the Date of
Termination occurs.
(G) The Company
shall, no later than the last day of the calendar year in which
they are incurred, pay the reasonable fees and expenses of a full
service nationally recognized executive outplacement firm until the
earlier of the date the Executive secures new employment or the
date which is thirty-six (36) months following the
Executive’s Date of Termination; provided, that in no event
shall the aggregate amount of such payment be greater than 20% of
the Executive’s Change in Control Salary.
6.2. Excise Tax
Gross-Up Payment .
(A) Anything in this
Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or
for the benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise) (a “ Payment ”) would be
subject to the excise tax imposed by Section 4999 of the Code
or any interest or penalties are incurred by the Executive with
respect to the excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as
the “ Excise Tax ”), then the Executive shall be
entitled to receive an additional payment (a “ Gross-Up
Payment ”) in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed
with respect to such taxes), including, without limitation, any
income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed on the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(B) Subject to the
provisions of Section 6.2(C), all determinations required to
be made under this Section 6.2, including whether and when a
Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by a nationally recognized accounting firm
designated by the Company (the “ Accounting Firm
”) which shall provide detailed supporting calculations both
to the Company and the Executive within fifteen (15) business
days after there has been a Payment, or such earlier time as
requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the individual, entity or
group effecting the
Change in Control, the
Company shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder).
All fees and expenses of the Accounting Firm shall be borne solely
by the Company. Any Gross-Up Payment, as determined pursuant to
this Section 6, shall be paid by the Company to the Executive
within five days of the receipt of the Accounting Firm’s
determination. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (“
Underpayment ”), consistent with the calculations
required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 6.2(C) and the
Executive thereafter is required to mare a payment of any Excise
Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
Executive.
(C) The Executive
shall notify the Company in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten
(10) business days after the Executive is informed in writing
of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to
the Company (or such shorter period ending on the date any payment
of taxes with respect to such claim is due). If the Company
notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive
shall:
(i) give the Company
any information reasonably requested by the Company relating to
such claim;
(ii) take such
action in connection with contesting such claim the Company shall
reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company;
(iii) cooperate with
the Company in good faith in order effectively to contest such
claim; and
(iv) permit the
Company to participate in any proceedings relating to such
claim;
provided, however, that
the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto)
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 6.2(C), the Company shall control all proceedings
taken in connection with such contest and, at its sole option, may
pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of
such claim and may, at its sole option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts,
as the Company shall determine; provided , however ,
that if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such payment
to the Executive, on an interest-free basis, and shall indemnify
and hold the Executive harmless, on an after-tax basis, from any
Excise Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect
to such advance; and
further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company’s control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service
or any other taxing authority.
(D) If, after the
receipt by the Executive of an amount advanced by the Company
pursuant to Section 6.2(C), the Executive becomes entitled to
receive any refund with respect to such claim, the Executive shall
(subject to the Company’s complying with the requirements of
Section 6.2(C)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after
taxes applicable thereto). A after the receipt by the Executive of
an amount advanced by the Company pursuant to Section 6.2(C), a
determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to
be paid.
6.3. Payment of
Severance Payments .
(A) Each payment
provided for in Section 6.1 hereof is intended to constitute a
separate payment within the meaning of Section 409A of the
Code. The payments provided for in subsections (A), (B),
(C) and (F) of Section 6.1 hereof shall be made not
later than the thirtieth (30th) day following the Date of
Termination subject to Section 6.3(B) below; provided ,
however , that (i) if the amounts of such payments
cannot be finally determined on or before such day, the Company
shall pay to the Executive on such day an estimate, as determined
in good faith by the Executive of the minimum amount of such
payments to which the Executive is clearly entitled and shall pay
the remainder of such payments (together with interest at 120% of
the rate provided in Section 1274(b)(2)(B) of the Code) as
soon as the amount thereof can be determined and (ii) in the
event the Executive becomes entitled to Severance Payments pursuant
to the second sentence of Section 6.1 (except for a termination
occurring with respect to clause (iv) of such sentence, which
shall
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