MANAGEMENT CONTINUITY
AGREEMENT
This
Agreement dated as of this 30 th day of January, 2006 between J. Milton Childress
II (the “Executive”) and EnPro Industries, Inc., a
North Carolina corporation (the “Company”).
WHEREAS ,
the Company considers it essential to the best interests of its
shareholders to foster the continuous employment of key management
personnel in the event there is, or is threatened, a change in
control of the Company; and
WHEREAS,
the Company recognizes that the uncertainty and questions which may
arise among key management in connection with the possibility of a
change in control may result in the departure or distraction of key
management personnel to the detriment of the Company and its
shareholders; and
WHEREAS,
the Company desires to provide certain protection to Executive in
the event of a change in control of the Company as set forth in
this Agreement in order to induce Executive to remain in the employ
of the Company notwithstanding any risks and uncertainties created
by the possibility of a change in control of the
Company;
NOW,
THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties agree as follows:
1.
Term . The “Term” of this Agreement shall
mean the period commencing on the date hereof and ending
twenty-four (24) months after such date; provided ,
however , that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date
and each annual anniversary thereof shall be hereinafter referred
to as the “Renewal Date”), the Term shall be
automatically extended so as to terminate twenty-four
(24) months from such Renewal Date, unless at least sixty
(60) days prior to the Renewal Date the Company shall give
notice to the Executive that the Term shall not be so
extended.
2.
Period of Employment . Executive’s
“Period of Employment” shall commence on the date on
which a Change in Control occurs during the Term and shall end on
the date that is twenty-four (24) months after the date on
which such Change in Control occurs (subject to the provisions of
Section 20 below pursuant to which the Period of Employment
may be deemed to have commenced prior to the date of a Change in
Control in certain circumstances).
3.
Certain Definitions . For purposes of this
Agreement:
“
Board ” shall mean the Board of Directors of the
Company.
“
Cause ” shall mean Executive’s termination of
employment with the Company due to (A) the willful and
continued failure by Executive to substantially perform
Executive’s duties with the Company, which failure causes
material and demonstrable injury to the Company (other than any
such failure resulting from Executive’s incapacity
due to physical
or mental illness), after a demand for substantial performance is
delivered to Executive by the Board which specifically identifies
the manner in which the Board believes that Executive has not
substantially performed Executive’s duties, and after
Executive has been given a period (hereinafter known as the
“Cure Period”) of at least thirty (30) days to
correct Executive’s performance, or (B) the willful
engaging by Executive in other gross misconduct materially and
demonstrably injurious to the Company. For purposes hereof, no act,
or failure to act, on Executive’s part shall be considered
“willful” unless conclusively demonstrated to have been
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 Company. Notwithstanding the
foregoing, Executive shall not be deemed to have been terminated
for Cause unless and until there shall have been delivered to
Executive a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable
notice to Executive and an opportunity for Executive, together with
Executive’s counsel, to be heard before the Board), finding
that in the good faith opinion of the Board Executive was guilty of
conduct set forth above in clause (A) (including the expiration of
the Cure Period without the correction of Executive’s
performance) or clause (B) above and specifying the
particulars thereof in detail.
“ Change
in Control ” shall mean:
(i) The
acquisition by any individual, entity or group (within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities 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% or more of either
(A) the then outstanding shares of common stock of the Company
(the “Outstanding Company Common Stock”) or
(B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the “Outstanding Company Voting
Securities”); provided , however , that the
following acquisitions shall not constitute a Change in Control:
(A) any acquisition directly from the Company (other than by
exercise of a conversion privilege), (B) any acquisition by
the Company or any of its subsidiaries, (C) any acquisition by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or
(D) any acquisition by any company with respect to which,
following such acquisition, more than 70% of, respectively, the
then outstanding shares of common stock of such company and the
combined voting power of the then outstanding voting securities of
such company entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such acquisition in substantially the same proportions as
their ownership, solely in their capacity as shareholders of the
Company, immediately prior to such
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acquisition, of
the Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(ii) individuals
who, as of the Distribution Date (as such term is defined in the
Distribution Agreement among Goodrich Corporation, EnPro
Industries, Inc. and Coltec Industries Inc), constitute the Board
(the “Incumbent Board”) cease for any reason to
constitute at least a majority of the Board; provided ,
however , that any individual becoming a director subsequent
to the Distribution Date whose election, or nomination for election
by the Company’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 were a member
of the Incumbent Board, but excluding, for this purpose, any such
individual whose initial assumption of office occurs as a result of
either an actual or threatened election contest; or
(iii) consummation
of a reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such reorganization, merger or
consolidation, do not, following such reorganization, merger or
consolidation, beneficially own, directly or indirectly, solely in
their capacity as shareholders of the Company, more than 70% 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 company resulting from such reorganization,
merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger
or consolidation of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be;
or
(iv) consummation
of (A) a complete liquidation or dissolution of the Company or
(B) a sale or other disposition of all or substantially all of
the assets of the Company, other than to a company, with respect to
which following such sale or other disposition, more than 70% of,
respectively, the then outstanding shares of common stock of such
company and the combined voting power of the then outstanding
voting securities of such company entitled to vote generally in the
election of directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individuals and
entities, solely in their capacity as shareholders of the Company,
who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately
prior to such sale or other disposition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be.
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“ Date of
Termination ” is as defined in Section 8
below.
“ Good
Reason ” shall mean:
(i) without
Executive’s express written consent, (A) the assignment
to Executive of any new duties or responsibilities substantially
inconsistent in character with Executive’s duties and
responsibilities within the Company immediately prior to a Change
in Control, (B) any substantial adverse change in
Executive’s duties and responsibilities as in effect
immediately prior to a Change in Control, including, but not
limited to, a reduction in duties or responsibilities which occurs
because the Company is no longer an independent publicly-held
entity, (C) any removal of Executive from or any failure to
re-elect Executive to any director position of the Company,
(D) a change in the annual or long term incentive plan in
which Executive currently participates such that Executive’s
opportunity to earn incentive compensation is impaired, (E) a
material reduction in the aggregate value of Company perquisites
made available to Executive, (F) an elimination or material
impairment of Executive’s ability to participate in
retirement plans comparable to those in which Executive currently
participates, (G) any substantial increase in
Executive’s obligation to travel on the Company’s
business over Executive’s present business travel
obligations, or (H) an elimination or material impairment of
Executive’s ability to receive stock options with values
comparable to those Executive was granted within the one year
period preceding the commencement of the Period of
Employment;
(ii) the failure
of the Company to comply with any other of its obligations under
Section 4 herein;
(iii) the
relocation of the offices of the Company at which Executive was
employed immediately prior to the Change in Control to a location
which is more than fifty (50) miles from such prior location,
or the failure of the Company to (A) pay or reimburse
Executive, in accordance with the Company’s relocation policy
for its employees in existence immediately prior to a Change in
Control, for all reasonable costs and expenses; plus “gross
ups” referred to in such policy incurred by Executive
relating to a change of Executive’s principal residence in
connection with any relocation of the Company’s offices to
which Executive consents, and (B) indemnify Executive against
any loss (defined as the difference between the actual sale price
of such residence and the higher of (1) Executive’s
aggregate investment in such residence or (2) the fair market
value of such residence as determined by the relocation management
organization used by the Company immediately prior to the Change in
Control (or other real estate appraiser designated by Executive and
reasonably satisfactory to the Company)) realized in the
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sale of
Executive’s principal residence in connection with any such
change of residence;
(iv) the failure
of the Company to obtain the assumption of and the agreement to
perform this Agreement by any successor as contemplated in
Section 11 hereof; or
(v) any purported
termination of Executive’s employment during the Period of
Employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7
hereof.
“
Incapacity Discharge ” means Executive’s
termination of employment with the Company if, as a result of
Executive’s incapacity due to physical or mental illness,
Executive shall have been absent from Executive’s duties with
the Company on a full-time basis for one-hundred twenty
(120) consecutive business days, and within thirty
(30) days after a written Notice of Termination is given,
Executive shall not have returned to the full-time performance of
Executive’s duties.
“
Mandatory Retirement Date ” shall mean the compulsory
retirement date, if any, established by the Company for those
executives of the Company who, by reason of their positions and the
size of their nonforfeitable annual retirement benefits under the
Company’s pension, profit-sharing, and deferred compensation
plans, are exempt from, the provisions of the Age Discrimination in
Employment Act, 29 U.S.C. Sections 621, et seq, which date
shall not in any event be earlier for any executive than the last
day of the month in which such Executive reaches age 65.
“ Notice
of Termination ” is as defined in Section 7
below.
“ Payment
Period ” shall mean twenty-four (24) months,
provided that the Payment Period shall not exceed the number of
whole calendar months between the Executive’s Date of
Termination and Mandatory Retirement Date (if
applicable).
4.
Compensation During Period of Employment . For so
long during Executive’s Period of Employment as Executive is
an employee of the Company, the Company shall be obligated to
compensate Executive as follows:
(a) Executive
shall continue to receive Executive’s full base salary at the
rate in effect immediately prior to the Change in Control.
Executive’s base salary shall be increased annually, with
each such increase due on the anniversary date of Executive’s
most recent previous increase. Each such increase shall be no less
than an amount which at least equals on a percentage basis the mean
of the annualized percentage increases in base salary for all
elected officers of the Company during the two full calendar years
immediately preceding the Change in Control.
(b) Executive
shall continue to participate in all benefit and compensation plans
(including but not limited to the Equity Compensation Plan,
Long-Term Incentive Program, Performance Share Deferred
Compensation Plan, Annual Performance Plan,
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Executive Life
Insurance Program, Deferred Compensation Plan, Defined Benefit
Restoration Plan, Supplemental Executive Retirement Plan, pension
plan, savings plan, flexible benefits plan, life insurance plan,
health and accident plan or disability plan) in which Executive was
participating immediately prior to the Change in Control, or in
plans providing substantially similar benefits, in either case upon
terms and conditions and at levels at least as favorable as those
provided to Executive under the plans in which Executive was
participating immediately prior to the Change in
Control;
(c) Executive
shall continue to receive all fringe benefits, perquisites, and
similar arrangements which Executive was entitled to receive
immediately prior to the Change in Control; and
(d) Executive
shall continue to receive annually the number of paid vacation days
and holidays Executive was entitled to receive immediately prior to
the Change in Control.
5.
Compensation upon Termination of Employment . The
following provisions set forth the benefits that may become payable
to Executive upon termination of employment with the Company during
the Period of Employment in accordance with, and subject to, the
provisions of Section 6 below:
(a) By
not later than the fifth business day following the Date of
Termination, the Company shall pay Executive in a lump sum an
amount equal to the sum of the following:
(i) any base
salary that is earned but unpaid as of the Date of
Termination;
(ii) a pro rata
portion of the “target incentive amount” under the
Annual Performance Plan for the calendar year in which the Date of
Termination occurs (based on the number of calendar days in such
calendar year completed through the Date of Termination);
and
(iii) a pro rata
portion of the “calculated market value” of the phantom
Performance Shares, if any, awarded to Executive under the
Company’s Long-Term Incentive Program (the
“LTIP”) for each Plan Cycle under the LTIP that has not
been completed as of the Date of Termination, determined as
follows:
(A) The
performance for each such Plan Cycle under the applicable LTIP
award agreement shall be determined based on (x) for any
completed calendar year of the Plan Cycle as of the Date of
Termination, actual performance for the calendar year, (y) for
the calendar year in which the Date of Termination occurs if at
least one calendar quarter has been completed during such calendar
year, the greater of target performance for the calendar year or
actual performance for the completed calendar quarter(s) for the
calendar year annualized for the year, and (z) for any other
calendar years of the Plan Cycle, target performance for the
calendar year.
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(B) The number of
phantom Performance Shares for each such Plan Cycle shall be
adjusted in accordance with the formula set forth in the applicable
LTIP award agreement based on the performance for the Plan Cycle
determined under paragraph (A) above.
(C) The pro rata
portion of the “calculated market value” of the number
of phantom Performance Shares adjusted in accordance with paragraph
(B) above shall be based on the number of calendar days in the Plan
Cycle completed through the Date of Termination.
Section 5(c) below sets for the method for
determining the “target incentive amount” under the
Annual Performance Plan and the “calculated market
value” of phantom Performance Shares under the LTIP. Any
amounts payable under Sections 5(a)(ii) or (iii) above
shall be offset dollar-for-dollar by any pro rata payments
otherwise provided for under the Annual Performance Plan or the
LTIP.
(b) In
lieu of any salary payments that Executive would have received if
he had continued in the employment of the Company during the
Payment Period, the Company shall pay to Executive in a lump sum,
by not later than the fifth business day following the Date of
Termination, an amount equal to one-twelfth of Executive’s
annualized base salary in effect immediately prior to the Date of
Termination, multiplied by the number of months in the Payment
Period.
(c) By
not later than the fifth day following the Date of Termination, the
Company shall pay Executive in a lump sum an amount equal to the
sum of:
(i) under the
Annual Performance Plan (and in lieu of any further awards under
the Annual Performance Plan that Executive would have received if
he had continued in the employment of the Company during the
Payment Period), the number of months in the Payment Period
multiplied by the greatest of one-twelfth of: (A) the amount
most recently paid to Executive for a full calendar year;
(B) Executive’s “target incentive amount”
for the calendar year in which his Date of Termination occurs; or
(C) Executive’s “target incentive amount” in
effect prior to the Change in Control for the calendar year in
which the Change in Control occurs; plus, if applicable,
(ii) under the
LTIP (and in lieu of any further grants under the LTIP that
Executive would have received if he had continued in the employment
of the Company during the Payment Period), sixteen
(16) multiplied by the greatest of: (A) with respect to
the most recently completed Plan Cycle as of the Date of
Termination, one-twelfth of the “calculated market
value” of the Performance Shares actually awarded Executive
(including the value of any Performance Shares Executive may have
elected to defer under the Performance Share Deferred Compensation
Program); (B) with respect to the most recently commenced Plan
Cycle under the LTIP (if Executive is a participant in such Plan
Cycle) prior to Executive’s Date of Termination, one-twelfth
of the “calculated
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market
value” of the phantom Performance Shares, if any, awarded to
Executive; or (C) with respect to the most recently commenced
Plan Cycle prior to the date of the occurrence of the Change in
Control, one-twelfth of the “calculated market value”
of the phantom Performance Shares, if any, awarded to
Executive.
For
purposes of this Section 5, Executive’s “target
incentive amount” under the Annual Performance Plan for a
given calendar year (i.e., the calendar year in which the Date of
Termination occurs or the Change in Control occurs, as applicable)
is determined by multiplying (i) Executive’s annualized total
gross base salary for the calendar year by (
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