THIS EMPLOYMENT AGREEMENT (this
“Agreement”) was originally entered into on
March 23, 2007, and became effective on March 26, 2007
(the “Effective Date”), by and between KAYDON
CORPORATION, a Delaware corporation (the “Company”),
and JAMES O’LEARY, an individual (“Executive”),
was amended effective February 14, 2008, and is hereby further
amended and restated, effective October 23, 2008, to reflect
the final regulations under Section 409A of the Internal
Revenue Code of 1986, as amended (the “Code”), and to
make certain other clarifying changes.
WHEREAS, the Company has employed the Executive
as its President and Chief Executive Officer, and the Executive
desires to continue his employment on the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the premises
and of the mutual covenants and agreements herein contained, the
Company and Executive hereby agree as follows:
1.
Employment and Duties .
(a) The Company hereby agrees to employ
Executive for the Term (as hereinafter defined) as its President
and Chief Executive Officer. The Executive shall have such
management and oversight responsibilities and authority as are
necessary to efficiently administer the affairs of the Company and
as are customary of a President and Chief Executive Officer. All
powers herein granted to the Executive are subject to supervisory
approval of the Board, and the Executive may be given such further
reasonably related supervisory duties, powers and prerogatives as
may be delegated to him from time to time by said Board. The
Executive shall report exclusively to the Board and further shall
render such advice to the Board as said Board may from time to time
request. In addition, during the Term the Company will cause the
Executive to be nominated for re-election as a Director of the
Company.
(b) During the Term, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, Executive shall devote substantially all of his business
time and efforts to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to
the Executive hereunder, use the Executive’s reasonable best
efforts to perform faithfully such responsibilities. Executive is
required to work those business hours customarily necessary to
perform properly such duties and responsibilities normally
associated with the position of President and Chief Executive
Officer. In performing such duties hereunder, Executive shall
comply with the policies and procedures as adopted from time to
time by the Board, shall give the Company the benefit of his
special knowledge, skills, contacts and business experience, shall
perform his duties and carry out his responsibilities hereunder in
a diligent manner. For a transition period to extend no later than
May 1, 2007, the Executive may provide advisory services to
Beazer Homes USA, Inc. so as to expedite and facilitate his full
time transition into the Company with the prior approval of the
Board. Such advisory services shall not unreasonably interfere with
the services to be rendered by the Executive hereunder.
(c) During the Term, it shall not be a
violation of this Agreement for the Executive to (i) with the prior
approval of the Board in each case (which approval shall not be
unreasonably withheld or delayed), serve on corporate, civic or
charitable boards or committees, (ii) with the prior approval
of the Board in each case, deliver lectures, fulfill speaking
engagements or teach at educational institutions, and
(iii) manage personal investments, so long as such activities
do not significantly interfere or constitute a conflict of interest
with the performance of the Executive’s responsibilities as
an employee of the Company in accordance with this
Agreement.
(d) The principal location for performance
of Executive’s services hereunder shall be at the offices of
the Company in Ann Arbor, Michigan, subject to reasonable travel
requirements during the course of such performance. Executive shall
not be required, without his consent, to regularly report to any
office of the Company which is located more than fifty
(50) miles from the Company’s current office location,
provided Executive shall be expected to travel to the extent
reasonably necessary to fulfill his responsibilities.
2.
Employment Term . The term of Executive’s employment
hereunder (the “Term”) shall commence effective as of
the date hereof and shall continue thereafter until terminated in
accordance with Section 4 below.
3.
Compensation and Benefits .
(a) Base Salary . During the Term,
the Executive shall receive an annual base salary (“Annual
Base Salary”) in the amount of at least Seven Hundred
Thousand ($700,000.00) Dollars, payable in accordance with the
Company’s normal payroll practices (but not less frequently
than monthly). During the Term, the Annual Base Salary shall be
reviewed by the Compensation Committee (for purposes of increase
only) at least annually. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive
under this Agreement. Annual Base Salary shall not be reduced after
any such increase and the term Annual Base Salary as utilized in
this Agreement shall refer to Annual Base Salary as so
increased.
(b) Bonuses; Stock Incentive Plans
. Executive shall be eligible to and shall participate in the
Company’s bonus, stock option, restricted stock and other
stock incentive plans at the discretion of the Compensation
Committee of the Board. The amount and terms of, and the targets,
conditions and restrictions applicable to each bonus or other
incentive award shall be subject to the provisions of any such plan
and of the applicable award by the Company. Notwithstanding the
foregoing:
(i) under the Company’s Executive
Management Bonus Program (the “EMBP”), Executive shall
be entitled to a performance bonus equal to 100% of annual base
salary in any year of the Term during which the Company’s
EBITDA performance achieves 100% of the Target EBITDA goal
established by the Compensation Committee pursuant to the EMBP (the
“Target Bonus”), and a supplemental bonus equal to 100%
of annual base salary, pro-rated for each percentage that the
Company’s EBITDA performance exceeds the Target EBITDA goal
established by the Compensation Committee pursuant to the EMBP but
is less than the maximum limit set by the Compensation Committee,
until the total of Target Bonus and the supplemental bonus equals
200% of the Executive’s annual base salary. Anything
contained herein to the contrary notwithstanding, in the event that
the EMBP is no longer in effect (or is reduced or modified downward
in any material respect), the Company will establish a comparable
performance incentive plan that will provide for annual cash
bonuses to Executive resulting in total payments to Executive not
less than those which Executive is currently entitled to receive
under this provision.
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(ii) within ten (10) business days
from the Effective Date, upon action by the Compensation Committee,
the Company shall grant Executive non-qualified stock options to
acquire 250,000 shares of common stock of the Company in accordance
with the terms and conditions of the Kaydon Corporation 1999
Long-Term Stock Incentive Plan (the “1999 Plan”). The
option agreement relating to such options shall provide that
(A) such options shall vest and become exercisable with
respect to 50,000 shares on each anniversary of the date of grant,
subject to acceleration as provided in Sections 4(f)(v) and
5(e) below, (B) the strike price for all such options shall be
the closing price of the Company’s common stock on the New
York Stock Exchange on the date of grant and (C) such options
shall expire on the day prior to the tenth anniversary of the date
of grant. In the event of any conflict between the terms of the
1999 Plan and this Agreement, this Agreement shall govern and
control and shall be deemed to be an amendment to the 1999
Plan.
(iii) within ten (10) business days
from the Effective Date, upon action by the Compensation Committee,
the Company shall grant Executive a restricted stock award for
100,000 shares of common stock of the Company in accordance with
all of the terms and conditions of the 1999 Plan. The agreement
relating to such shares of restricted stock shall provide that
(A) the restrictions pertaining to such shares shall terminate
with respect to 20,000 shares on each anniversary of the date of
grant, subject to acceleration as provided in Sections 4(f)(v)
and 5(e) below, and (B) so long as the Executive is employed
by the Company, the Executive shall be entitled to receive any
dividends declared and payable by the Company with respect to such
restricted stock held by the Executive, regardless of whether said
stock has vested or become unrestricted at such time. In the event
of any conflict between the terms of the 1999 Plan and this
Agreement, this Agreement shall govern and control and shall be
deemed to be an amendment to the 1999 Plan.
(iv) within ten (10) business days
from the Effective Date, upon action by the Compensation Committee,
the Company shall grant Executive a restricted stock award for
10,000 shares of common stock of the Company in accordance with all
of the terms and conditions of the 1999 Plan. The agreement
relating to such shares of restricted stock shall provide that
(A) the restrictions pertaining to such shares shall terminate
on the first anniversary of the date of grant, subject to
acceleration as provided in Sections 4(f)(v) and 5(e) below and
(B) so long as the Executive is employed by the Company, the
Executive shall be entitled to receive any dividends declared and
payable by the Company with respect to such restricted stock held
by the Executive, regardless of whether said stock has vested or
become unrestricted at such time. In the event of any conflict
between the terms of the 1999 Plan and this Agreement, this
Agreement shall govern and control and shall be deemed to be an
amendment to the 1999 Plan. The Executive shall purchase an equal
number of shares of the Company’s common stock within thirty
(30) days of the Effective Date and shall retain ownership of
at least 10,000 shares of Company common stock during the
Term.
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(c) Incentive, Savings and Retirement
Plans . During the Term, the Executive shall be entitled to
participate in all incentive, savings and retirement plans,
practices, policies and programs (the “Programs”)
applicable generally to other most senior executives of the Company
and its affiliated companies. The Programs currently include,
without limitation, the Kaydon Corporation Retirement Plan (the
“Retirement Plan”), the Kaydon Corporation Supplemental
Executive Retirement Plan (the “SERP”) and the Kaydon
Corporation Executive Management Bonus Plan (the “Bonus
Plan”). Notwithstanding the foregoing or anything contained
in the applicable Programs to the contrary, the Company agrees
that, with respect to the Executive’s participation in the
SERP, the Executive shall be entitled to the following (and the
SERP shall be amended, as of the Effective Date, to provide for the
following):
(i) the Executive shall be eligible for
benefits under the SERP on the Effective Date (i.e., for all
purposes of the SERP, the Executive shall be deemed to be
sixty-five (65) years of age on the Effective Date) and the
Executive shall remain a participant in the SERP during the
Term;
(ii) the Executive shall be 100% vested
under the SERP on the Effective Date, regardless of whether the
Executive is vested under the Retirement Plan;
(iii) the Executive shall be entitled to a
lump sum payment from the SERP upon a Separation from Service (as
defined below) from the Company within two years following a Change
in Control (as defined in Section 5(h)(iv)), said payment to
be made in cash and, subject to Section 11 below, shall be
paid within thirty (30) days following the Date of
Termination. The payment described in this paragraph
(iii) shall be in lieu of any other benefit that Executive
would otherwise receive under the SERP.
(iv) the Executive shall be entitled to ten
(10) years of additional credited service on the Effective
Date and, thereafter, each day of the Executive’s actual
credited service shall entitle the Executive to one (1) day of
additional credited service, subject to a maximum of thirty
(30) years of credited service. By way of example, after two
years of actual credited service with the Company, the Executive
shall have fourteen (14) years of credited service under the
SERP (i.e., 10 + 2 + 2);
(v) the Executive shall be deemed to be a
person identified in Appendix C to the SERP as eligible for
additional credited service; and
(vi) the definition of a “Change in
Control” shall be as set forth in Section 5(h)(iv)
below.
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For purposes of this Agreement, the term
“Separation from Service” shall mean the
Executive’s termination of Employment with the Company,
whether voluntarily or involuntarily, as determined by the
Committee in accordance with Treas. Reg. § 1.409A-1(h).
Executive shall be considered to have experienced a termination of
employment when the facts and circumstances indicate that Executive
and the Company reasonably anticipate that either (i) no
further services will be performed for the Company after a certain
date, or (ii) that the level of bona fide services Executive
will perform for the Company after such date (whether as an
employee or as an independent contractor) will permanently decrease
to no more than 20% of the average level of bona fide services
performed by Executive (whether as an employee or independent
contractor) over the immediately preceding 36-month period (or the
full period of services to the Company if the Executive has been
providing services to the Company for less than 36 months). If
the Executive is on military leave, sick leave, or other bona fide
leave of absence, the employment relationship between Executive and
the Company shall be treated as continuing intact, provided that
the period of such leave does not exceed six months, or if longer,
so long as Executive retains a right to reemployment with the
Company under an applicable statute or by contract. If the period
of a military leave, sick leave, or other bona fide leave of
absence exceeds six months and Executive does not retain a right to
reemployment under an applicable statute or by contract, the
employment relationship shall be considered to be terminated for
purposes of this Agreement as of the first day immediately
following the end of such six-month period. In applying the
provisions of this paragraph, a leave of absence shall be
considered a bona fide leave of absence only if there is a
reasonable expectation that Executive will return to perform
services for the Company.
As used in the definition of “Separation
from Service,” the term Company shall mean the entity for
which the Executive performs services and with respect to which the
legally binding right to compensation deferred or contributed under
this Agreement arises, and shall include all other entities with
which the Company would be aggregated and treated as a single
employer under Code Section 414(b) (controlled group of
corporations) and Code Section 414(c) (a group of trades or
businesses, whether or not incorporated, under common control), as
applicable, provided that an ownership threshold of 50% shall be
substituted for the 80% minimum ownership threshold that appears
in, and otherwise must be used when applying, the applicable
provisions of (i) Code Section 1563 for determining a
controlled group of corporations under Code Section 414(b),
and (ii) Treas. Reg. § 1.414(c)-2 for determining the
trades or businesses that are under common control under Code
Section 414(c).
(d) Welfare Benefit Plans . During
the Term, the Executive and/or the Executive’s family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription,
dental, disability, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent
applicable generally to other most senior executives of the Company
and its affiliated companies.
(e) Expenses . The Company shall
pay or reimburse Executive for all reasonable and necessary
out-of-pocket expenses incurred in the performance of his duties
under this Agreement, subject to approval in accordance with the
Company’s standard reimbursement policies. Executive shall
keep detailed and accurate records of expenses incurred in
connection with the performance of his duties hereunder and
reimbursement therefore shall be in accordance with policies and
procedures to be established from time to time by the Board. If the
Company determines that such an expense qualifies for
reimbursement, the Company will reimburse Executive for that
expense within 30 days following such determination and in any
event no later than the end of the calendar year following the
calendar year in which the expense is incurred.
5
(f) Office and Support Staff .
During the Term, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and
to secretarial and other assistance, consistent with the
Executive’s position and title.
(g) Vacation . During the Term,
Executive shall be entitled to twenty (20) working days of
compensated vacation in each fiscal year, to be taken at times
which do not unreasonably interfere with the performance of
Executive’s duties hereunder. Any unused vacation time from
any fiscal year shall be subject to accumulation or forfeiture in
accordance with Company policy as in effect from time to time.
Executive also shall be entitled to such periods of sick leave as
is customarily provided by the Company to its senior executive
employees.
(h) Relocation . The Company shall
reimburse Executive for reasonable and actual relocation expenses
incurred in moving from his present primary residence in the
Atlanta, Georgia area to the Ann Arbor, Michigan area. The
following reasonable expenses shall be reimbursed, provided
Executive submits adequate documentation (for example, receipts,
closing documents, etc.) substantiating the expenses: costs for
packing, moving and insuring household goods and automobiles; costs
for storage of household goods prior to moving into a new
residence; costs associated with house hunting trips to Ann Arbor;
costs associated with temporary housing (a small, furnished
apartment in the Ann Arbor area) for Executive; costs associated
with the purchase of a new home in the Ann Arbor area (including,
without limitation, closing costs, legal fees, home inspections,
title insurance, mortgage broker fees and transfer taxes,
“points” or “origination fees” not to
exceed 1%); costs associated with the sale of Executive’s
current residence (including, without limitation, closing costs,
legal fees, transfer taxes, any real estate broker commissions and
mortgage prepayment penalties). All of the foregoing (Subsections
(i) through (viii) above) and Section 3(i) below shall be
“grossed-up”, so-called, to the extent not otherwise
tax deductible to the Executive, to take into account income tax
consequences to Executive.
(i) Attorneys’ Fees . The
Company shall reimburse Executive for the actual and reasonable
expenses incurred by Executive for having this Agreement prepared
and/or reviewed by an attorney.
(j) Life Insurance . During the
Term, the Company shall maintain a term life insurance policy
covering the life of Executive in the face amount of not less than
$2,000,000.00 with respect to which the Executive shall have the
right to designate the beneficiary. Upon the Executive’s
Separation from Service for any reason, the Company shall, within
thirty (30) days after such Separation from Service (unless
delayed in accordance with Section 11 of this Agreement),
transfer (without cost to the Executive), free and clear of liens
and security interests, the ownership of said life insurance to
Executive or his designee.
The Company warrants and represents to the
Executive that this Agreement, including, without limitation, the
grants and amendments to the 1999 Plan and the SERP contemplated
hereby, have been duly authorized and approved by the Compensation
Committee of the Board and the Board.
6
4.
Termination of Employment for Death or Disability; Other
Termination Absent any Change in Control .
(a) Death or Disability . The
Executive’s employment shall terminate automatically upon the
Executive’s death during the Term. If the Disability of the
Executive occurs during the Term (pursuant to the definition of
Disability set forth below), the Company may give to the Executive
written notice in accordance with Section 10(c) of this Agreement
of its intention to terminate the Executive’s employment. In
such event, the Executive’s employment with the Company shall
terminate effective on the 30th day after receipt of such notice by
the Executive (the “Disability Effective Date”),
provided that, within the thirty (30) days after such receipt,
the Executive shall not have returned to full-time performance of
the Executive’s duties. For purposes of this Agreement,
“Disability” shall mean the absence of the Executive
from the Executive’s duties with the Company on a full-time
basis for one hundred and twenty (120) consecutive business
days as a result of incapacity due to mental or physical illness
which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the
Executive or the Executive’s legal representative.
(b) Cause . The Company may
terminate the Executive’s employment for Cause. For purposes
of this Agreement, “Cause” shall mean:
(i) any act or failure to act by Executive
done with the intent to harm in any material respect the financial
interests or reputation of the Company or any affiliated
companies;
(ii) Executive being convicted of (or
entering a plea of guilty or nolo contendere to) a felony
(other than a felony involving a motor vehicle not involving
alcohol or drugs);
(iii) Executive’s dishonesty,
misappropriation or fraud with regard to the Company or any
affiliated companies, including (but not limited to) any
falsification of company records or reports (other than good faith
expense account disputes);
(iv) a grossly negligent act or failure to
act by Executive which has a material adverse affect on the Company
or any affiliated companies;
(v) the material breach by Executive of his
agreements or obligations under this Agreement which has a material
adverse effect on the Company, which breach, if curable, is not
cured by Executive within fifteen (15) days (i.e., calendar
days) after written notice from the Company which specifically
identifies the material breach which the Company believes that
Executive has committed; or
(vi) the continued refusal to follow the
directives of the Board or its designees which are consistent with
Executive’s duties and responsibilities identified in
Section 1 hereof; provided that the foregoing refusal shall
not be “cause” if Executive in good faith believes that
such direction is illegal, unethical or immoral and promptly so
notifies the Board in writing.
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(c) Good Reason . The
Executive’s employment may be terminated by the Executive for
Good Reason. For purposes of this Agreement, “Good
Reason” shall mean:
(i) the assignment to the Executive of any
duties inconsistent in any material respect with the
Executive’s position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 1 of this Agreement, or any other
action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not taken
in bad faith and which is remedied by the Company within fifteen
(15) days after receipt of notice thereof given by the
Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 3 of this Agreement,
other than an isolated, insubstantial and inadvertent failure not
occurring in bad faith and which is remedied by the Company within
fifteen (15) days after receipt of notice thereof given by the
Executive;
(iii) the Company’s requiring the
Executive to be based at any office or location other than as
provided in Section 1(e) hereof, which is not remedied by the
Company within fifteen (15) days after receipt of notice
thereof given by the Executive; or
(iv) the material breach by the Company of
any of its other material obligations under this Agreement, which
breach, if curable, is not cured by the Company within fifteen (15)
days after written notice from the Executive which specifically
identifies the material breach which the Executive believes that
the Company has committed permitted by this Agreement.
Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for any reason
during the 30 day period immediately preceding the twelve
(12) month anniversary of a Change in Control shall be deemed
to be a termination for Good Reason for all purposes of this
Agreement.
(d) Notice of Termination . Any
termination by the Company for Cause, or by the Executive for Good
Reason, shall be communicated by Notice of Termination to the other
party hereto given in accordance with Section 10(c) of this
Agreement. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of the Executive’s employment under the provision
so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies
the termination date (which date shall be not more than thirty
(30) days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination
any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of the Executive or the
Company, respectively, hereunder or preclude the Executive or the
Company, respectively, from asserting such fact or circumstance in
enforcing the Executive’s or the Company’s rights
hereunder.
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(e) Date of Termination .
“Date of Termination” means (i) if the
Executive’s employment is terminated by the Company for
Cause, or by the Executive for Good Reason, the date of receipt of
the Notice of Termination or, subject to applicable cure periods,
any later date specified therein, as the case may be, (ii) if
the Executive’s employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (iii) if the Executive’s employment is
terminated by reason of death or Disability, the Date of
Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be.
(f) Obligations of the Company .
If, during the Term, the Company shall terminate the
Executive’s employment other than for Cause or the Executive
shall terminate his employment for Good Reason, then:
(i) the Company shall pay to the Executive
in a lump sum in cash, subject to Section 11 below, within
thirty (30) days following the Date of Termination, the
aggregate of the following amounts: (1) the Executive’s
Annual Base Salary through the Date of Termination to the extent
not theretofore paid, (2) any accrued but unpaid annual bonus
(“Annual Bonus”) respecting any completed fiscal year
ending prior to the Date of Termination, (3) the product of
(x) the Highest Annual Bonus (hereinafter defined) and
(y) a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the
denominator of which is 365 and (4) any compensation
previously deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be
hereinafter referred to as the “Accrued Obligations”).
The timing of payment by the Company of any deferred compensation
shall remain subject to any payment election previously made by the
Executive. The term “Highest Annual Bonus” shall mean
the highest of the Executive’s aggregate bonuses (whether
paid or deferred) under all of the Company’s annual incentive
and/or bonus plans (including, without limitation, the Bonus Plan)
during the last three full fiscal years prior to the Date of
Termination or for such lesser period as the Executive has been
employed by the Company (annualized in the event that the Executive
was not employed by the Company for the whole of any such fiscal
year).
(ii) the Company shall pay to the Executive
in a lump sum in cash, subject to Section 11 below, within thirty
(30) days following the Date of Termination, an amount equal
to two (2) times the sum of (1) Executive’s Annual
Base Salary (at the rate in effect on the Date of Termination), and
(2) the Highest Annual Bonus;
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(iii) for a period two (2) years after
the Date of Termination, or such longer period as may be provided
by the terms of the appropriate plan, program, practice or policy,
but subject to applicable insurance company and other legal
requirements, the Company shall continue benefits to the Executive
and/or the Executive’s family at least equal to those which
would have been provided to them in accordance with the plans,
programs
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