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CHANGE OF CONTROL SEVERANCE AGREEMENT
THIS
AGREEMENT is executed and entered into as of this ___ day of July,
2007, by and between Twin Disc, Incorporated, a Wisconsin
corporation, with its principal offices located at 1328 Racine
Street, Racine, Wisconsin ("Corporation"), and Michael E. Batten
("Employee").
WITNESSETH:
WHEREAS,
the Board of Directors of the Corporation is aware of the
uncertainties created by the current business environment in which
tender offers for publicly-held corporations are increasingly
frequent, is aware that the possibility of a change in control of
the Corporation raises questions and uncertainties, and is aware
that these questions and uncertainties are cause for legitimate
concern among key Corporation employees about their future with the
Corporation; and WHEREAS, the Board of Directors of the Corporation
recognizes that the efforts of those employees identified by the
Board as key management employees have contributed and will
continue to contribute to the growth and success of the
Corporation; and WHEREAS, the Board of Directors of the Corporation
is concerned that the uncertainties associated with the current
business environment may adversely affect the morale of key
management employees of the Corporation, undermine the confidence
of such key management employees in the ability of the Corporation
to remain a viable and competitive entity and jeopardize the
ability of the Corporation to attract and retain the services of
key management employees in the future; and WHEREAS, the Board of
Directors of the Corporation believes that in the best interests of
the Corporation, it is essential that key management employees,
including Employee, be retained and that the Corporation be in a
position to rely on their ongoing dedication and commitment to
render services to the Corporation, irrespective of whether the
Corporation is or may be acquired or merged with or into another
corporation; WHEREAS, the Corporation previously entered into a
Change in Control Severance Agreement with Employee that provided
for payments upon a change in control to the Employee if the change
in control occurred before the Employee’s normal retirement
age; and WHEREAS, the Corporation wishes to continue the terms of
the Change in Control Severance Agreement beyond Employee’s
normal retirement age; and
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WHEREAS,
the Corporation wishes to further modify the Change in Control
Severance Agreement to formally comply with the final regulations
issued under section 409A of the Internal Revenue Code.
NOW,
THEREFORE, in consideration of, and as a specific inducement for,
the continued services of Employee, the parties hereto agree as
follows:
1.
Term of Agreement; Replacement of Prior Agreement
. This Agreement shall commence as of the date hereof and shall
continue in effect until November 1 st , 2007;
provided, however, that commencing on November 1, 2007, and each
November 1st thereafter, the term of this Agreement shall
automatically be extended for one additional year unless, not later
than August 1 of that year, the Corporation shall have given notice
that it does not wish to extend this Agreement; provided, further,
if a Change in Control (as defined in Section 2 below) of the
Corporation shall have occurred during the original or extended
term of this Agreement, this Agreement shall continue in effect for
a period of twenty-four (24) months beyond the month in which such
Change in Control of the Corporation occurred.
The prior
Change in Control Severance Agreement entered into between the
Corporation and Employee, dated as of July ___, 2005,, is hereby
terminated and replaced with this Agreement.
2. Change in
Control of the Corporation .
(a) No benefits shall be payable
hereunder unless there shall have been a Change in Control
of the Corporation, as set forth below. For purposes of this
Agreement, a "Change in Control of the Corporation" shall mean a
change in control of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") whether or not the Corporation is then subject
to such reporting requirement; provided that without limitation,
such a change in control shall be deemed to have occurred
if:
(i) any "person" (as defined in
Sections 13(d) and 14(d) of the Exchange Act) other than Michael
Batten or any member of his family (the "Batten Family"), is or
becomes the "beneficial owner' (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing thirty percent (30%) or more of the
combined voting power of the Corporation's then outstanding
securities;
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(ii)
during any period of two (2) consecutive years (not including any
period prior to the execution of this Agreement) there shall cease
to be a majority of the Board comprised as follows: individuals who
at the beginning of such period constitute the Board and any new
director(s) whose election by the Board or nomination for election
by the Corporation's shareholders was approved by a vote of at
least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose
election or nomination for election was previously so approved;
or
(iii) the shareholders of the
Corporation approve a merger or consolidation of the Corporation
with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Corporation
outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80% of the combined
voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation, or the shareholders of the Corporation approve a
plan of complete liquidation of the Corporation or an agreement for
the sale or disposition by the Corporation of all or substantially
all the Corporation's assets.
(b) For
purposes of this Agreement a "Potential Change in Control of the
Corporation" shall be deemed to have occurred if (i) the
Corporation enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control of the
Corporation, (ii) any person (including the Corporation) publicly
announces an intention to take or to consider taking actions which
if consummated would constitute a Change in Control of the
Corporation, (iii) any person, other than a member of the Batten
Family or a trustee or other fiduciary holding securities under an
employee benefit plan of the Corporation or a corporation owned,
directly or indirectly, by the shareholders of the Corporation in
substantially the same proportions as their ownership of stock of
the Corporation, who is or becomes the beneficial owner, directly
or indirectly, of securities of the Corporation representing 9.5%
or more of the combined voting power of the Corporation's then
outstanding securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such
person on the date hereof; or (iv) the Board adopts a resolution to
the effect that, for purposes of this Agreement, a Potential Change
in Control of the Corporation has occurred. Employee agrees that,
subject to the terms and
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conditions
of this Agreement, in the event of a Potential Change in Control of
the Corporation, Employee shall not terminate his employment with
the Corporation until the earliest of (i) a date which is six (6)
months from the occurrence of such Potential Change in Control of
the Corporation, (ii) the termination by Employee of his employment
by reason of Disability, as defined in Subsection 3(a) hereof, or
(iii) the occurrence of a Change in Control of the
Corporation.
3.
Termination Following a Change in Control of the
Corporation . If any
of the events described in Section 2 hereof constituting a change
in control of the Corporation shall have occurred, Employee shall
be entitled to the benefits provided in Subsection 4(d) hereof
immediately upon a termination of his employment which occurs
during the term of this Agreement unless such termination is (i)
due to Employee's death; (ii) due to Employee’s Disability as
defined in Section 3(a) below, (iii) by the Corporation for Cause,
as that term is defined in Section 3(b) below, or (iv) by Employee
other than for Good Reason, as that term is defined in Section 3(c)
below.
(a)
Disability . If, as a
result of Employee's incapacity due to physical or mental illness,
Employee shall have been absent from the full-time performance of
his duties with the Corporation for six (6) consecutive months, and
within thirty (30) days after written notice of termination is
given, Employee shall not have returned to the full-time
performance of his duties, the Corporation may terminate Employee's
employment for "Disability."
(b) Cause .
Termination by the Corporation of Employee's employment for "Cause"
shall mean termination upon (i) the willful and continued failure
by Employee to substantially perform his duties with the
Corporation (other than any such failure resulting from termination
for Good Reason) after a demand for substantial performance is
delivered to Employee that specifically identifies the manner in
which the Corporation believes that Employee has not substantially
performed his duties, and Employee has failed to resume substantial
performance of his duties on a continuous basis within fourteen
(14) days of receiving such demand, (ii) the willful engaging by
Employee in conduct which is demonstrably and materially injurious
to the Corporation, monetarily or otherwise or (iii) Employee's
conviction of a felony or conviction of a misdemeanor which
materially impairs Employee's ability substantially to perform his
duties with the Corporation or (iv) commission of an act of fraud
or material dishonesty involving the Corporation. For purposes of
this Subsection, no act or failure to act, on Employee's part shall
be
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deemed
"willful" unless done, or omitted to be done, by Employee not in
good faith and without reasonable belief that his action or
omission was in the best interest of the Corporation.
(c)
Good Reason . Employee
shall be entitled to terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean, without
Employee's express written consent, the occurrence after a Change
in Control of the Corporation of any one or more of the
following:
(i) the assignment to Employee of
duties, responsibilities or status inconsistent with his present
duties, responsibilities and status as Chief Executive Officer of
the Corporation or a reduction or alteration in the nature or
status of Employee's duties and responsibilities from those in
effect as of the date hereof;
(ii) a reduction by the Corporation in
Employee's base salary as in effect on the date hereof or as the
same shall be increased from time to time ("Base
Salary");
(iii) the Corporation's requiring
Employee to be based at an office location other than in
southeastern Wisconsin;
(iv) the failure by the Corporation to
continue in effect the Corporation's Salaried Retirement Plan,
Supplemental Retirement Plan, Choice Plan (Cafeteria plan under
section 125 for qualified group insurance benefits), Incentive
Bonus Program, The Accelerator 401(k) Savings Plan, Executive Life
Insurance Program, Travel Accident Insurance, Qualified and
Non-Qualified Stock Option Plans or any other of the Corporation's
employee benefit plans, policies, practices or arrangements in
which Employee participates or the failure by the Corporation to
continue Employee's participation therein on substantially the same
basis, both in terms of the amount of benefits provided and the
level of Employee's participation relative to other participants,
as existed as of the date hereof;
(v) the failure of the Corporation to
obtain a satisfactory agreement from any successor to the
Corporation to assume and agree to perform this Agreement as
contemplated in Section 5 hereof; and
(vi) any purported termination by the
Corporation of Employee's employment that is not effected pursuant
to a Notice of Termination satisfying the requirements of
Subsection (d) below, and for purposes of this Agreement, no such
purported termination shall be effective. Employee's right to
terminate his employment pursuant to this Subsection shall not
be
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affected by his
incapacity due to physical or mental illness. Employee's continued
employment shall not constitute consent to, or a waiver of rights
with respect to, any circumstance constituting Good Reason
hereunder.
(d)
Notice of
Termination . Any termination
by the Corporation for Cause or by Employee for Good Reason shall
be communicated by Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall
mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of Employee's employment under the provision
so indicated.
(e)
Date of
Termination . "Date of
Termination" shall mean the date as of which Employee’s
expected services permanently decrease to no more than 20 percent
of the average level of bona fide services performed over the
immediately-preceding 36-month period.
4.
Compensation Upon
Termination or During Disability . Following a
Change in Control of the Corporation, as defined in Section 2
hereof, upon termination of Employee's employment or during a
period of disability Employee shall be entitled to the following
benefits: (a) During any period that Employee fails to perform his
full-time duties with the Corporation as a result of incapacity due
to Disability as that term is defined in Section 3(a) herein,
Employee shall continue to receive his Base Salary at the rate in
effect at the commencement of any such period, until Employee's
employment is terminated pursuant to Subsection 3(a) hereof.
Thereafter, Employee's benefits shall be determined in accordance
with the Corporation's retirement, insurance and other applicable
programs and plans then in effect.
(b) If Employee's
employment shall be terminated by the Corporation for Cause or by
Employee other than for Good Reason, the Corporation shall pay
Employee his full Base Salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given or on
the Date of Termination if no Notice of Termination is required
hereunder, plus all other amounts to which Employee is entitled
under any compensation plan of the Corporation at the time such
payments are due, and the Corporation shall have no further
obligations to Employee under this Agreement.
(c) If Employee's
employment terminates by reason of his death, then Employee's
benefits shall be determined in accordance with the
Corporation's
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