KEY EXECUTIVE EMPLOYMENT AND
SEVERANCE AGREEMENT
THIS AGREEMENT, made and entered into as of the ___ day of
___, 20___, by and between Pentair, Inc., a Minnesota corporation
(hereinafter referred to as the “Company”), and
(hereinafter referred to as the
“Executive”).
WHEREAS, the Executive is employed by the Company and/or a
subsidiary of the Company (hereinafter referred to collectively as
the “Employer”) in a key executive capacity and the
Executive’s services are valuable to the conduct of the
business of the Company;
WHEREAS, the Company desires to continue to attract and
retain dedicated and skilled management employees in a period of
industry consolidation, consistent with achieving the best possible
value for its shareholders in any change in control of the
Company;
WHEREAS, the Company recognizes that circumstances may arise
in which a change in control of the Company occurs, through
acquisition or otherwise, thereby causing a potential conflict of
interest between the Company’s needs for the Executive to
remain focused on the Company’s business and for the
necessary continuity in management prior to and following a change
in control, and the Executive’s reasonable personal concerns
regarding future employment with the Employer and economic
protection in the event of loss of employment as a consequence of a
change in control;
WHEREAS, the Company and the Executive are desirous that any
proposal for a change in control or acquisition of the Company will
be considered by the Executive objectively and with reference only
to the best interests of the Company and its
shareholders;
WHEREAS, the Executive will be in a better position to
consider the Company’s best interests if the Executive is
afforded reasonable economic security, as provided in this
Agreement, against altered conditions of employment which could
result from any such change in control or acquisition;
WHEREAS, the Executive possesses intimate knowledge of the
business and affairs of the Company and has acquired certain
confidential information and data with respect to the Company;
and
WHEREAS, the Company desires to insure, insofar as possible,
that it will continue to have the benefit of the Executive’s
services and to protect its confidential information and
goodwill.
NOW, THEREFORE, in consideration of the foregoing and of the
mutual covenants and agreements hereinafter set forth, the parties
hereto mutually covenant and agree as follows:
(a)
409A Affiliate . The term “409A Affiliate” means
each entity that is required to be included in the Company’s
controlled group of corporations within the meaning of
Section 414(b) of the Code, or that is under common control
with the Company within the meaning of Section 414(c) of the
Code; provided, however, that the phrase “at least
50 percent” shall be used
in place of the
phrase “at least 80 percent” each place it appears
therein or in the regulations thereunder.
(b)
Accrued Benefits . The Executive’s “Accrued
Benefits” shall include the following amounts, payable as
described herein: (i) all base salary for the time period
ending with the Termination Date; (ii) reimbursement for any
and all monies advanced in connection with the Executive’s
employment for reasonable and necessary expenses incurred by the
Executive on behalf of the Employer for the time period ending with
the Termination Date; (iii) any and all other cash earned
through the Termination Date and deferred at the election of the
Executive or pursuant to any deferred compensation plan then in
effect; (iv) notwithstanding any provision of any bonus or
incentive compensation plan applicable to the Executive, but
subject to any irrevocable deferral election then in effect, a lump
sum amount, in cash, equal to the sum of (A) any bonus or
incentive compensation that has been allocated or awarded to the
Executive for a fiscal year or other measuring period under the
plan that ends prior to the Termination Date but has not yet been
paid (pursuant to Section 5(f) or otherwise) and
(B) a pro rata portion to the Termination Date of the
aggregate value of all contingent bonus or incentive compensation
awards to the Executive for all uncompleted periods under the plan
calculated as to each such award as if the Goals with respect to
such bonus or incentive compensation award had been attained
reduced by any amounts paid to the Executive pursuant to
Section(b)(iii) and Section 3(b)(iv) under the
plan for the fiscal year in which the Termination Date occurs; and
(v) all other payments and benefits to which the Executive (or
in the event of the Executive’s death, the Executive’s
surviving spouse or other beneficiary) may be entitled on the
Termination Date as compensatory fringe benefits or under the terms
of any benefit plan of the Employer, excluding severance payments
under any Employer severance policy, practice or agreement in
effect on the Termination Date. Payment of Accrued Benefits shall
be made promptly in accordance with the Company’s prevailing
practice with respect to clauses (i) and (ii)
or, with respect to clauses (iii) , (iv) and
(v) , pursuant to the terms of the benefit plan or practice
establishing such benefits; provided that payments pursuant
to clause (iv)(B) shall be paid on the first day of the seventh
month following the month in which the Executive’s Separation
from Service occurs, unless the Executive’s Separation from
Service is due to death, in which event such payment shall be made
within ninety (90) days of the date of Executive’s
death.
(c)
Act . The term “Act” means the Securities
Exchange Act of 1934, as amended.
(d)
Affiliate and Associate . The terms “Affiliate”
and “Associate” shall have the respective meanings
ascribed to such terms in Rule l2b-2 of the General Rules and
Regulations under the Act.
(e)
Annual Cash Compensation . The term “Annual Cash
Compensation” shall mean the sum of (i) the
Executive’s Annual Base Salary (determined as of the time of
the Change in Control of the Company or, if higher, immediately
prior to the date the Notice of Termination is given) plus
(ii) an amount equal to the greater of the Executive’s
annual incentive target bonus for the fiscal year in which the
Termination Date occurs or the annual incentive bonus the Executive
received for the fiscal year prior to the Change in Control of the
Company (the aggregate amount set forth in clause (i)
and clause (ii) shall hereafter be referred to as the
“Annual Cash Compensation”),
(f)
Beneficial Owner . A Person shall be deemed to be the
“Beneficial Owner” of any securities:
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(i)
which such Person or any of such Person’s Affiliates or
Associates has the right to acquire (whether such right is
exercisable immediately or only after the passage of time) pursuant
to any agreement, arrangement or understanding, or upon the
exercise of conversion rights, exchange rights, rights, warrants or
options, or otherwise; provided, however, that a Person
shall not be deemed the Beneficial Owner of, or to beneficially
own, (A) securities tendered pursuant to a tender or exchange
offer made by or on behalf of such Person or any of such
Person’s Affiliates or Associates until such tendered
securities are accepted for purchase, or (B) securities
issuable upon exercise of Rights issued pursuant to the terms of
the Company’s Rights Agreement, dated as of December 10,
2004, as amended from time to time (or any successor to such Rights
Agreement), at any time before the issuance of such
securities;
(ii)
which such Person or any of such Person’s Affiliates or
Associates, directly or indirectly, has the right to vote or
dispose of or has “beneficial ownership” of (as
determined pursuant to Rule l3d-3 of the General Rules and
Regulations under the Act), including pursuant to any agreement,
arrangement or understanding; provided, however, that a
Person shall not be deemed the Beneficial Owner of, or to
beneficially own, any security under this clause (ii)
as a result of an agreement, arrangement or understanding to
vote such security if the agreement, arrangement or understanding:
(A) arises solely from a revocable proxy or consent given to
such Person in response to a public proxy or consent solicitation
made pursuant to, and in accordance with, the applicable rules and
regulations under the Act and (B) is not also then reportable
on a Schedule l3D under the Act (or any comparable or
successor report); or
(iii)
which are beneficially owned, directly or indirectly, by any other
Person with which such Person or any of such Person’s
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting (except
pursuant to a revocable proxy as described in clause (ii)
above) or disposing of any voting securities of the
Company.
(g)
Cause . “Cause” for termination by the Employer
of the Executive’s employment in connection with a Change in
Control of the Company shall be limited to (i) the engaging by
the Executive in intentional conduct that the Company establishes,
by clear and convincing evidence, has caused demonstrable and
serious financial injury to the Employer, as evidenced by a
determination in a binding and final judgment, order or decree of a
court or administrative agency of competent jurisdiction, in effect
after exhaustion or lapse of all rights of appeal, in an action,
suit or proceeding, whether civil, criminal, administrative or
investigative; (ii) conviction of a felony (as evidenced by
binding and final judgment, order or decree of a court of competent
jurisdiction, in effect after exhaustion of all rights of appeal);
or (iii) continuing willful and unreasonable refusal by the
Executive to perform the Executive’s duties or
responsibilities (unless significantly changed without the
Executive’s consent).
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(h)
Change in Control of the Company . A “Change in
Control of the Company” shall be deemed to have occurred if
an event set forth in any one of the following paragraphs shall
have occurred:
(i)
any Person (other than (A) the Company or any of its
subsidiaries, (B) a trustee or other fiduciary holding
securities under any employee benefit plan of the Company or any of
its subsidiaries, (C) an underwriter temporarily holding
securities pursuant to an offering of such securities or (D) a
corporation owned, directly or indirectly, by the shareholders of
the Company in substantially the same proportions as their
ownership of stock in the Company (“Excluded Persons”))
is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company (not including in the securities
beneficially owned by such Person any securities acquired directly
from the Company or its Affiliates after the date of this
Agreement, pursuant to express authorization by the Board that
refers to this exception) representing 20% or more of either the
then outstanding shares of common stock of the Company or the
combined voting power of the Company’s then outstanding
voting securities; or
(ii)
the following individuals cease for any reason to constitute a
majority of the number of directors of the Company then serving:
(A) individuals who, on the date of this Agreement constituted
the Board and (B) any new director (other than a director
whose initial assumption of office is in connection with an actual
or threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of the
Company, as such terms are used in Rule 14a-11 of
Regulation 14A under the Act) whose appointment or election by
the Board or nomination for election by the Company’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 on the
date of this Agreement, or whose appointment, election or
nomination for election was previously so approved (collectively
the “Continuing Directors”); provided, however,
that individuals who are appointed to the Board pursuant to or in
accordance with the terms of an agreement relating to a merger,
consolidation, or share exchange involving the Company (or any
direct or indirect subsidiary of the Company) shall not be
Continuing Directors for purposes of this Agreement until after
such individuals are first nominated for election by a vote of at
least two-thirds (2/3) of the then Continuing Directors and are
thereafter elected as directors by the shareholders of the Company
at a meeting of shareholders held following consummation of such
merger, consolidation, or share exchange; and, provided
further, that in the event the failure of any such persons
appointed to the Board to be Continuing Directors results in a
Change in Control of the Company, the subsequent qualification of
such persons as Continuing Directors shall not alter the fact that
a Change in Control of the Company occurred; or
(iii)
the consummation of a merger, consolidation or share exchange of
the Company with any other corporation or the issuance of voting
securities of the Company in connection with a merger,
consolidation or share exchange of the Company (or any direct or
indirect subsidiary of the Company), in each case, which requires
approval of the shareholders of the Company, other than (A) a
merger, consolidation or share exchange which would result in the
voting securities of the Company outstanding immediately prior to
such merger,
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consolidation
or share exchange continuing to represent (either by remaining
outstanding or by being converted into voting securities of the
surviving entity or any parent thereof) at least 50% of the
combined voting power of the voting securities of the Company or
such surviving entity or any parent thereof outstanding immediately
after such merger, consolidation or share exchange, or (B) a
merger, consolidation or share exchange effected to implement a
recapitalization of the Company (or similar transaction) in which
no Person (other than an Excluded Person) is or becomes the
Beneficial Owner, directly or indirectly, of securities of the
Company (not including in the securities beneficially owned by such
Person any securities acquired directly from the Company or its
Affiliates after the date of this Agreement, pursuant to express
authorization by the Board that refers to this exception)
representing 20% or more of either the then outstanding shares of
common stock of the Company or the combined voting power of the
Company’s then outstanding voting securities; or
(iv)
the consummation of a plan of complete liquidation or dissolution
of the Company or a sale or disposition by the Company of all or
substantially all of the Company’s assets (in one transaction
or a series of related transactions within any period of 24
consecutive months), in each case, which requires approval of the
shareholders of the Company, other than a sale or disposition by
the Company of all or substantially all of the Company’s
assets to an entity at least 75% of the combined voting power of
the voting securities of which are owned by Persons in
substantially the same proportions as their ownership of the
Company immediately prior to such sale.
Notwithstanding
the foregoing, no “Change in Control of the Company”
shall be deemed to have occurred if there is consummated any
transaction or series of integrated transactions immediately
following which the record holders of the common stock of the
Company immediately prior to such transaction or series of
transactions continue to own, directly or indirectly, in the same
proportions as their ownership in the Company, an entity that owns
all or substantially all of the assets or voting securities of the
Company immediately following such transaction or series of
transactions.
(i)
Code . The term “Code” means the Internal
Revenue Code of 1986, including any amendments thereto or successor
tax codes thereof.
(j)
Covered Termination . Subject to Section 2(b) ,
the term “Covered Termination” means any Termination of
Employment during the Employment Period where the Termination Date
or the date Notice of Termination is delivered is any date prior to
the end of the Employment Period.
(k)
Employment Period . Subject to Section 2(b) ,
the term “Employment Period” means a period commencing
on the date of a Change in Control of the Company, and ending at
11:59 p.m. Central Time on the earlier of the third
anniversary of such date or the Executive’s Normal Retirement
Date.
(l)
Good Reason . The Executive shall have “Good
Reason” for termination of employment in connection with a
Change in Control of the Company in the event of:
(i)
any breach of this Agreement by the Employer, including
specifically any breach by the Employer of the agreements contained
in Section 3 ,
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Section 4 , Section 5 , or
Section 6 , other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that the Employer
remedies promptly after receipt of notice thereof given by the
Executive;
(ii)
any reduction in the Executive’s base salary, percentage of
base salary available as incentive compensation or bonus
opportunity or benefits, in each case relative to those most
favorable to the Executive in effect at any time during the 180-day
period prior to the Change in Control of the Company or, to the
extent more favorable to the Executive, those in effect at any time
during the Employment Period;
(iii)
the removal of the Executive from, or any failure to reelect or
reappoint the Executive to, any of the positions held with the
Employer on the date of the Change in Control of the Company or any
other positions with the Employer to which the Executive shall
thereafter be elected, appointed or assigned, except in the event
that such removal or failure to reelect or reappoint relates to the
termination by the Employer of the Executive’s employment for
Cause or by reason of disability pursuant to Section 12
;
(iv)
a good faith determination by the Executive that there has been a
material adverse change, without the Executive’s written
consent, in the Executive’s working conditions or status with
the Employer relative to the most favorable working conditions or
status in effect during the 180-day period prior to the Change in
Control of the Company, or, to the extent more favorable to the
Executive, those in effect at any time during the Employment
Period, including but not limited to (A) a significant change
in the nature or scope of the Executive’s authority, powers,
functions, duties or responsibilities, or (B) a significant
reduction in the level of support services, staff, secretarial and
other assistance, office space and accoutrements, but in each case
excluding for this purpose an isolated, insubstantial and
inadvertent event not occurring in bad faith that the Employer
remedies within ten (10) days after receipt of notice thereof
given by the Executive;
(v)
the relocation of the Executive’s principal place of
employment to a location more than 50 miles from the
Executive’s principal place of employment on the date
180 days prior to the Change in Control of the
Company;
(vi)
the Employer requires the Executive to travel on Employer business
20% in excess of the average number of days per month the Executive
was required to travel during the 180-day period prior to the
Change in Control of the Company;
(vii)
failure by the Company to obtain the Agreement referred to in
Section 17(a) as provided therein; or
(viii)
any voluntary termination of employment by the Executive where the
Notice of Termination is delivered during the 30 days
following the first anniversary of the Change in Control of the
Company.
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(m)
Normal Retirement Date . The term “Normal Retirement
Date” means “Normal Retirement Date” as defined
in the primary qualified defined benefit pension plan applicable to
the Executive, or any successor plan, as in effect on the date of
the Change in Control of the Company.
(n)
Person . The term “Person” shall mean any
individual, firm, partnership, corporation or other entity,
including any successor (by merger or otherwise) of such entity, or
a group of any of the foregoing acting in concert.
(o)
Separation from Service . For purposes of this Agreement,
the term “Separation from Service” means the
Executive’s Termination of Employment, or if the Executive
continues to provide services following his or her Termination of
Employment, such later date as is considered a separation from
service from the Company and its 409A Affiliates within the meaning
of Code Section 409A. Specifically, if the Executive continues to
provide services to the Company or a 409A Affiliate in a capacity
other than as an employee, such shift in status is not
automatically a Separation from Service.
(p)
Termination of Employment . For purposes of this Agreement,
the Executive’s termination of employment shall be presumed
to occur when the Company and Executive reasonably anticipate that
no further services will be performed by the Executive for the
Company and its 409A Affiliates or that the level of bona fide
services the Executive will perform as an employee of the Company
and its 409A Affiliates will permanently decrease to no more than
20% of the average level of bona fide services performed by the
Executive (whether as an employee or independent contractor) for
the Company and its 409A Affiliates over the immediately preceding
36-month period (or such lesser period of services). Whether the
Executive has experienced a Termination of Employment shall be
determined by the Employer in good faith and consistent with
Section 409A of the Code. Notwithstanding the foregoing, if
the Executive takes a leave of absence for purposes of military
leave, sick leave or other bona fide reason, the Executive will not
be deemed to have incurred a Separation from Service for the first
6 months of the leave of absence, or if longer, for so long as
the Executive’s right to reemployment is provided either by
statute or by contract, including this Agreement; provided
that if the leave of absence is due to a medically determinable
physical or mental impairment that can be expected to result in
death or last for a continuous period of not less than six months,
where such impairment causes the Executive to be unable to perform
the duties of his or her position of employment or any
substantially similar position of employment, the leave may be
extended by the Employer for up to 29 months without causing a
Termination of Employment.
(q)
Termination Date . Except as otherwise provided in
Section 2(b) , Section 10(b) , and
Section 17(a) , the term “Termination Date”
means (i) if the Executive’s Termination of Employment
is by the Executive’s death, the date of death; (ii) if
the Executive’s Termination of Employment is by reason of
voluntary early retirement, as agreed in writing by the Employer
and the Executive, the date of such early retirement which is set
forth in such written agreement; (iii) if the
Executive’s Termination of Employment is, for purposes of
this Agreement, by reason of disability pursuant to
Section 12 , the earlier of thirty days after the
Notice of Termination is given or one day prior to the end of the
Employment Period; (iv) if the Executive’s Termination
of Employment is by the Executive voluntarily (other than for Good
Reason), the date the Notice of Termination is given; and
(v) if the Executive’s Termination of Employment is by
the Employer (other than by reason of disability pursuant to
Section 12 ) or by the Executive for Good Reason,
the
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earlier of
thirty days after the Notice of Termination is given or one day
prior to the end of the Employment Period. Notwithstanding the
foregoing,
(A)
If termination is for Cause pursuant to
Section 1(f)(iii) and if the Executive has cured the
conduct constituting such Cause as described by the Employer in its
Notice of Termination within such 30-day or shorter period, then
the Executive’s employment hereunder shall continue as if the
Employer had not delivered its Notice of Termination.
(B)
If the Executive shall in good faith give a Notice of Termination
for Good Reason and the Employer notifies the Executive that a
dispute exists concerning the termination within the 15-day period
following receipt thereof, then the Executive may elect to continue
his or her employment during such dispute and the Termination Date
shall be determined under this paragraph. If the Executive so
elects and it is thereafter determined that Good Reason did exist,
the Termination Date shall be the earliest of (1) the date on
which the dispute is finally determined, either (x) by mutual
written agreement of the parties or (y) in accordance with
Section 22 , (2) the date of the Executive’s
death or (3) one day prior to the end of the Employment
Period. If the Executive so elects and it is thereafter determined
that Good Reason did not exist, then the employment of the
Executive hereunder shall continue after such determination as if
the Executive had not delivered the Notice of Termination asserting
Good Reason and there shall be no Termination Date arising out of
such Notice. In either case, this Agreement continues, until the
Termination Date, if any, as if the Executive had not delivered the
Notice of Termination except that, if it is finally determined that
Good Reason did exist, the Executive shall in no case be denied the
benefits described in Section 9 (including a
Termination Payment) based on events occurring after the Executive
delivered his Notice of Termination.
(C)
Except as provided in Section 1(n)(B) , if the party
receiving the Notice of Termination notifies the other party that a
dispute exists concerning the termination within the appropriate
period following receipt thereof and it is finally determined that
the reason asserted in such Notice of Termination did not exist,
then (1) if such Notice was delivered by the Executive, the
Executive will be deemed to have voluntarily terminated his
employment and the Termination Date shall be the earlier of the
date 15 days after the Notice of Termination is given or one
day prior to the end of the Employment Period and (2) if
delivered by the Company, the Company will be deemed to have
terminated the Executive other than by reason of death, disability
or Cause.
2.
Termination or Cancellation Prior to Change in Control
.
(a) Subject
to Section 2(b) , the Employer and the Executive shall
each retain the right to terminate the employment of the Executive
at any time prior to a Change in Control of the Company. Subject to
Section 2(b) , in the event the Executive’s
employment is terminated prior to a Change in Control of the
Company, this Agreement shall be terminated and cancelled and of no
further force and effect, and any and all rights and obligations of
the parties hereunder shall cease.
(b) Anything
in this Agreement to the contrary notwithstanding, if a Change in
Control of the Company occurs and if the Executive’s
employment with the Employer is terminated
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(other than a
termination due to the Executive’s death or as a result of
the Executive’s disability) during the period of
180 days prior to the date on which the Change in Control of
the Company occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the
request of a third party who has taken steps reasonably calculated
to effect a Change in Control of the Company or (ii)
otherwise arose in connection with or in anticipation of a Change
in Control of the Company, then for all purposes of this Agreement
such termination of employment shall be deemed a “Covered
Termination,” “Notice of Termination” shall be
deemed to have been given, and the “Employment Period”
shall be deemed to have begun on the date of such termination which
shall be deemed to be the “Termination Date” and the
date of the Change in Control of the Company for purposes of this
Agreement.
3.
Employment Period; Vesting and Payment of Certain Benefits
.
(a) If
a Change in Control of the Company occurs when the Executive is
employed by the Employer, the Employer will continue thereafter to
employ the Executive during the Employment Period, and the
Executive will remain in the employ of the Employer in accordance
with and subject to the terms and provisions of this Agreement. Any
Termination of Employment during the Employment Period, whether by
the Company or the Employer, shall be deemed a termination by the
Company for purposes of this Agreement.
(b) If
a Change in Control of the Company occurs when the Executive is
employed by the Employer, (i) the Company shall cause all
restrictions on restricted stock awards made to the Executive prior
to the Change in Control of the Company to lapse such that the
Executive is fully and immediately vested in the Executive’s
restricted stock upon such a Change in Control of the Company;
(ii) the Company shall cause all stock options granted to the
Executive prior to the Change in Control of the Company pursuant to
the Company’s stock option plan(s) to be fully and
immediately vested upon such a Change in Control of the Company;
(iii) the Company shall cause all incentive compensation units
and p
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