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 Supplemental
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