SEVERANCE
AGREEMENT
THIS AMENDED AND
RESTATED SEVERANCE AGREEMENT (this “Agreement”), dated
as of
___, 2008 is made and entered by and between Brush Engineered
Materials Inc., an Ohio corporation (the “Company”),
and
(the “Executive”).
WHEREAS, the
American Jobs Creation Act of 2004, P.L. 108-357 (the
“AJCA”) added a new Section 409A to the Internal
Revenue Code of 1986, as amended (the “Code”), which
significantly changed the Federal tax law applicable to
“amounts deferred” under nonqualified deferred
compensation plans after December 31, 2004; and
WHEREAS, pursuant
to the AJCA, the Secretary of the Treasury and the Internal Revenue
Service has issued proposed and final regulations and other
guidance with respect to the provisions of new Section 409A of
the Code and will issue additional guidance with respect to
Section 409A of the Code (collectively, the “AJCA
Guidance”); and
WHEREAS, the
Company and the Executive desire for this Agreement to take into
account the AJCA Guidance issued to date and to amend and supersede
the Severance Agreement, dated
___, 200_, between the Company and the Executive and any other
Severance Agreements entered into prior to the date
hereof;
NOW, THEREFORE,
the Company and the Executive agree as follows:
1.
Certain Defined Terms . In addition to terms defined
elsewhere herein, the following terms have the following meanings
when used in this Agreement with initial capital
letters:
(a) “Affiliate”
means with respect to any Person, any holder of more than 10% of
the outstanding shares or equity interests of such Person or any
other Person which directly or indirectly controls, is controlled
by or is under common control with such Person. A Person shall be
deemed to control another Person if such Person possesses, directly
or indirectly, the power to direct or cause the direction of the
management and policies of the “controlled” Person,
whether through ownership of voting securities, by contract or
otherwise.
(b) “Base
Pay” means the Executive’s annual base salary rate as
in effect from time to time.
(c) “Board”
means the Board of Directors of the Company.
(d) “Cause”
means that, prior to any termination pursuant to
Section 3(a)(iii), Section 3(b) or Section 3(c), the
Executive shall have:
(i) been convicted
of a criminal violation involving fraud, embezzlement, theft or
violation of federal antitrust statutes or federal securities laws
in connection with his duties or in the course of his employment
with the Company or any Affiliate of the Company;
(ii) committed
intentional wrongful damage to property of the Company or any
Affiliate of the Company;
(iii) committed
intentional wrongful disclosure of secret processes or confidential
information of the Company or any Affiliate of the Company;
or
(iv) intentionally
engaged in any activity in violation of Section 8;
and any such
act shall have been demonstrably and materially harmful to the
Company. For purposes of this Agreement, no act or failure to act
on the part of the Executive shall be deemed
“intentional” if it was due primarily to an error in
judgment or negligence, but shall be deemed
“intentional” only if done or omitted to be done by the
Executive not in good faith and without reasonable belief that the
Executive’s action or omission was in the best interest of
the Company. Notwithstanding the foregoing, the Executive shall not
be deemed to have been terminated for “Cause” hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the Board then in office at a meeting
of the Board called and held for such purpose, after reasonable
notice to the Executive and an opportunity for the Executive,
together with the Executive’s counsel (if the Executive
chooses to have counsel present at such meeting), to be heard
before the Board, finding that, in the good faith opinion of the
Board, the Executive had committed an act constituting
“Cause” as herein defined and specifying the
particulars thereof in detail. Nothing herein will limit the right
of the Executive or his beneficiaries to contest the validity or
propriety of any such determination.
(e) “Change
in Control” means
(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”)) (a
“Person”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of voting
securities of the Company where such acquisition causes such Person
to own (X) 20% or more of 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”) without the approval of the
Incumbent Board as defined in (ii) below or (Y) 35% or
more of the Outstanding Voting Securities of the Company with the
approval of the Incumbent Board; provided, however , that
for purposes of this subsection (i), the following acquisitions
shall not be deemed to result in a Change of Control: (A) any
acquisition directly from the Company that is approved by the
Incumbent Board (as defined in
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subsection
(ii), below), (B) any acquisition by the Company or a
subsidiary of the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company, (D) any
acquisition by any Person pursuant to a transaction described in
clauses (A), (B) and (C) of subsection (iii) below,
or (E) any acquisition by, or other Business Combination (as
defined in (iii) below) with, a person or group of which employees
of the Company or any subsidiary of the Company control a greater
than 25% interest (a “MBO”) but only if the Executive
is one of those employees of the Company or any subsidiary of the
Company that are participating in the MBO; provided, further
, that if any Person’s beneficial ownership of the
Outstanding Company Voting Securities reaches or exceeds 20% or
35%, as the case may be, as a result of a transaction described in
clause (A) or (B) above, and such Person subsequently
acquires beneficial ownership of additional voting securities of
the Company, such subsequent acquisition shall be treated as an
acquisition that causes such Person to own 20% or 35% or more, as
the case may be, of the Outstanding Company Voting Securities; and
provided, further , that if at least a majority of the
members of the Incumbent Board determines in good faith that a
Person has acquired beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of the Outstanding Company Voting Securities inadvertently, and
such Person divests as promptly as practicable a sufficient number
of shares so that such Person beneficially owns (within the
meanings of Rule 13d-3 promulgated under the Exchange Act)
less than 20% of the Outstanding Company Voting Securities, then no
Change of Control shall have occurred as a result of such
Person’s acquisition; or
(ii) individuals
who, as of the date hereof, constitute the Board (the
“Incumbent Board” (as modified by this clause (ii))
cease for any reason to constitute at least a majority of the
Board; provided, however , that any individual becoming a
director subsequent to the date hereof 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 (either by a specific vote or by
approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such
nomination) 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 an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person
other than the Board; or
(iii) the
consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of
the Company or the acquisition of assets of another corporation, or
other transaction (“Business Combination”) excluding,
however, such a Business Combination pursuant to which (A) the
individuals and entities who were the ultimate beneficial owners of
voting securities of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 65%
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 entity resulting from such Business
3
Combination
(including, without limitation, an entity that as a result of such
transaction owns the Company or all or substantially all of the
Company’s assets either directly or through one or more
subsidiaries), (B) no Person (excluding any employee benefit
plan (or related trust) of the Company, the Company or such entity
resulting from such Business Combination) beneficially owns,
directly or indirectly (X) 20% or more, if such Business
Combination is approved by the Incumbent Board or (Y) 35% or
more, if such Business Combination is not approved by the Incumbent
Board, of the combined voting power of the then outstanding
securities entitled to vote generally in the election of directors
of the entity resulting from such Business Combination and
(C) at least a majority of the members of the board of
directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) approval by
the shareholders of the Company of a complete liquidation or
dissolution of the Company except pursuant to a Business
Combination described in clauses (A), (B) and (C) of
subsection (iii), above.
(f) “Employee
Benefits” means the perquisites, benefits and service credit
for benefits as provided under any and all employee retirement
income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate,
including without limitation any stock option, performance share,
performance unit, stock purchase, stock appreciation, savings,
pension, supplemental executive retirement, or other retirement
income or welfare benefit, deferred compensation, incentive
compensation, group or other life, health, medical/hospital or
other insurance (whether funded by actual insurance or self-insured
by the Company or an Affiliate of the Company), disability, salary
continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements.
(g) “Incentive
Pay” means the annual bonus, incentive or other payment of
compensation under the Management Performance Compensation Plan or,
if such Management Performance Compensation Plan is no longer in
effect, the annual bonus, incentive or other payment of
compensation in addition to Base Pay, made or to be made in regard
to services rendered in any year or other period pursuant to any
bonus, incentive, profit-sharing, performance, discretionary pay or
similar agreement, policy, plan, program or arrangement (whether or
not funded) of the Company or an Affiliate of the Company, or any
successor thereto.
(h) “LTIP”
means the incentive compensation, in addition to Base Pay and
Incentive Pay, earned in regard to services rendered in any year or
other period pursuant to any incentive, performance or similar
agreement, policy, plan, program or arrangement (whether or not
funded) of the Company or an Affiliate of the Company, or any
successor thereto, including, without limitation, (i) the
earnout of restricted performance shares that vest upon achievement
of specified performance goals, (ii) the payout of performance
shares or (iii) the payout of incentive compensation under the
Long Term Cash Incentive Plan.
(i) “Retirement
Plans” means the benefit plans (including the defined
contribution and defined benefit plans) of the Company that are
intended to be qualified under Section 401(a)
4
of the Internal
Revenue Code if the Executive was a participant in such Retirement
Plan on the date of the occurrence of the Change in
Control.
(j) “Severance
Period” means the period of time commencing on the date of
the first occurrence of a Change in Control and continuing until
the earlier of (i) the third anniversary of the occurrence of
the Change in Control, or (ii) the Executive’s death;
provided, however , that commencing on each anniversary of
the Change in Control, the Severance Period will automatically be
extended for an additional year unless, not later than 90 calendar
days prior to such anniversary date, either the Company or the
Executive shall have given written notice to the other that the
Severance Period is not to be so extended.
(k) “Subsidiary”
means an entity in which the Company directly or indirectly
beneficially owns 50% or more of the Outstanding Company Voting
Securities.
(l) “Term”
means the period commencing as of the date hereof and expiring on
the close of business on December 31, 20___; provided,
however , that (i) commencing on January 1, 20___ and
each January 1 thereafter, the term of this Agreement will
automatically be extended for an additional year unless, not later
than September 30 of the immediately preceding year, the
Company or the Executive shall have given notice that it or the
Executive, as the case may be, does not wish to have the Term
extended; (ii) if a Change in Control occurs during the Term,
the Term shall expire and this Agreement will terminate at the
expiration of the Severance Period; and (iii) subject to the
last sentence of Section 9, if, prior to a Change in Control,
the Executive ceases for any reason to be an employee of the
Company and any Affiliate of the Company, thereupon without further
action the Term shall be deemed to have expired and this Agreement
will immediately terminate and be of no further effect. For
purposes of this Section 1(k), the Executive shall not be
deemed to have ceased to be an employee of the Company and any
Affiliate of the Company by reason of the transfer of
Executive’s employment between the Company and any Affiliate
of the Company, or among any Affiliates of the Company.
(m) “Termination
Date” means the date on which the Executive’s
employment is terminated (the effective date of which shall be the
date of termination, or such other date that may be specified by
the Executive if the termination is pursuant to Section 3(b) or
Section 3(c)), provided that in each case such date
constitutes a “separation from service,” as defined for
purposes of Section 409A of the Code.
2.
Operation of Agreement . This Agreement will be effective
and binding immediately upon its execution, but, anything in this
Agreement to the contrary notwithstanding, except as provided in
Section 9, this Agreement will not be operative unless and
until a Change in Control occurs. Upon the occurrence of a Change
in Control at any time during the Term, without further action,
this Agreement shall become immediately operative.
3.
Termination Following a Change in Control .
(a) In the
event of the occurrence of a Change in Control, the
Executive’s employment may be terminated by the Company or an
Affiliate of the Company during the Severance Period and the
Executive shall be entitled to the benefits provided by
Section 4 unless such termination is the result of the
occurrence of one or more of the following events:
5
(i) The
Executive’s death;
(ii) If the
Executive becomes permanently disabled within the meaning of, and
begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(b) In the
event of the occurrence of a Change in Control, if (but only if)
the Board determines that this Section 3(b) shall be operative
following such Change in Control, the Executive may terminate
employment with the Company and any Affiliate of the Company during
the Severance Period with the right to severance compensation as
provided in Section 4 upon the occurrence of one or more of
the following events (regardless of whether any other reason, other
than Cause as hereinabove provided, for such termination exists or
has occurred, including without limitation other
employment):
(i) Failure to
elect or reelect or otherwise to maintain the Executive in the
office or the position, or a substantially equivalent or better
office or position, of or with the Company and/or an Affiliate of
the Company (or any successor thereto by operation of law or
otherwise), as the case may be, which the Executive held
immediately prior to a Change in Control, or the removal of the
Executive as a Director of the Company and/or an Affiliate of the
Company (or any successor thereto) if the Executive shall have been
a Director of the Company and/or an Affiliate of the Company
immediately prior to the Change in Control;
(ii) (A) A
significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached
to the position with the Company and any Affiliate of the Company
which the Executive held immediately prior to the Change in
Control, (B) a reduction in the aggregate of the
Executive’s Base Pay and Incentive Pay received from the
Company and any Affiliate of the Company, or (C) the
termination or denial of the Executive’s rights to Employee
Benefits or a reduction in the scope or value thereof, any of which
is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
change, reduction or termination, as the case may be;
(iii) The
liquidation, dissolution, merger, consolidation or reorganization
of the Company or the transfer of all or substantially all of its
business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (by operation of law or otherwise)
assumed all duties and obligations of the Company under this
Agreement pursuant to Section 11(a);
(iv) The Company
relocates its principal executive offices (if such offices are the
principal location of Executive’s work), or requires the
Executive to have his principal location of work changed, to any
location that, in either case, is in excess of 50 miles from the
location thereof immediately prior to the Change in Control, or
requires the Executive to travel away from his office in the course
of discharging his
6
responsibilities or duties hereunder at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than was required of Executive in any of the three full
years immediately prior to the Change in Control without, in either
case, his prior written consent; or
(v) Without
limiting the generality or effect of the foregoing, any material
breach of this Agreement by the Company or any successor thereto
which is not remedied by the Company within 10 calendar days after
receipt by the Company of written notice from the Executive of such
breach.
(c) Notwithstanding
anything contained in this Agreement to the contrary, in the event
of a Change in Control, the Executive may terminate employment with
the Company and any Affiliate of the Company for any reason, or
without reason, during the 30-day period immediately following the
first anniversary of the first occurrence of a Change in Control
with the right to severance compensation as provided in
Section 4.
(d) A
termination by the Company pursuant to Section 3(a) or by the
Executive pursuant to Section 3(b) or Section 3(c) will not affect
any rights that the Executive may have pursuant to any agreement,
policy, plan, program or arrangement of the Company or an Affiliate
of the Company providing Employee Benefits (except as provided in
Section 4(a) and Annex A), which rights shall be governed by the
terms thereof.
4.
Severance Compensation .
(a) If,
following the occurrence of a Change in Control, the Company or an
Affiliate of the Company terminates the Executive’s
employment during the Severance Period other than pursuant to
Section 3(a)(i), 3(a)(ii) or 3(a)(iii), or if the Executive
terminates his employment pursuant to Section 3(b) (if Section 3(b)
is operative) or Section 3(c), the Company (subject to
Section 4(e)) will pay to the Executive the lump sum payment
amounts described in Annex A within five business days after the
Termination Date (the “Payment Date”) and will continue
to provide to the Executive the benefits described in Annex A for
the periods described therein.
(b) Without
limiting the rights of the Executive at law or in equity, if the
Company fails to make any payment or provide any benefit required
to be made or provided hereunder on a timely basis, the Company
will pay interest on the amount or value thereof at an annualized
rate of interest equal to the so-called composite “prime
rate” as quoted from time to time during the relevant period
in the Midwest Edition of The Wall Street Journal, plus 4%. Such
interest will be payable as it accrues on demand. Any change in
such prime rate will be effective on and as of the date of such
change.
(c) Notwithstanding
any provision of this Agreement to the contrary, the parties’
respective rights and obligations under this Section 4 and
under Sections 5, 7, 8, 9 and 13 will survive any termination
or expiration of this Agreement or the termination of the
Executive’s employment following a Change in Control for any
reason whatsoever.
(d) Unless
otherwise expressly provided by the applicable plan, program or
agreement, after the occurrence of a Change in Control, the Company
shall pay in cash to the Executive a lump sum amount equal to the
value of any annual bonus (including, without
7
limitation,
incentive-based annual cash bonuses and performance units, but not
including any equity-based compensation or compensation provided
under a qualified plan) earned or accrued with respect to the
Executive’s service during the performance period or periods
that includes the date on which the Change in Control occurred,
disregarding any applicable vesting requirements; provided that
such amount shall be calculated at the plan target or payout rate,
but prorated to base payment only on the portion of the
Executive’s service that had elapsed during the applicable
performance period. Such payment shall take into account service
rendered through the payment date and shall be made on the Payment
Date.
(e) Notwithstanding
the foregoing provisions of this Section 4 and Annex A, if the
Executive is a “specified employee,” determined
pursuant to procedures adopted by the Company in compliance with
Section 409A of the Code, on his Termination Date, amounts
that would otherwise be payable pursuant to this Agreement during
the six-month period immediately following the Executive’s
Termination Date (the “Delayed Payments”) and benefits
that would otherwise be provided pursuant to this Agreement (except
for the benefits described in Paragraph 9 of Annex A) (the
“Delayed Benefits”) during the six-month period
immediately following the Executive’s Termination Date (such
period, the “Delay Period”) will instead be paid or
made available on the earlier of (i) the first business day of
the seventh month after Executive’s Termination Date, or
(ii) the Executive’s death
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