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Exhibit
10.2
FORM OF
SEVERANCE
AGREEMENT
THIS AGREEMENT, dated July
, 2008, is made by and between
Lorillard, Inc. Corporation, a Delaware corporation (the
“Company”), and
(the “Executive”).
WHEREAS, the Company
considers it essential to the best interests of its stockholders to
foster the continued employment of key management personnel;
and
WHEREAS, the Board recognizes
that, as is the case with many publicly held corporations, the
possibility of a Change in Control exists and that such
possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its
stockholders; and
WHEREAS, the Board has
determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the
Company’s management, including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change
in Control;
NOW, THEREFORE, in
consideration of the premises and the mutual covenants herein
contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms . The
definitions of capitalized terms used in this Agreement are
provided in the last Section hereof.
2. Term of Agreement .
The Term of this Agreement shall commence on the date hereof and
shall continue in effect through December 31, 2010; provided,
however, that commencing on January 1, 2010 and each
January 1 thereafter, the Term shall automatically be extended
for one additional year unless, not later than September 30 of
the preceding year, the Company or the Executive shall have
given
notice not to extend the Term; and
further provided , however , that if a Change
in Control shall have occurred during the Term, the Term shall
expire no earlier than twenty-four (24) months beyond the
month in which such Change in Control occurred.
3. Company’s
Covenants Summarized . In order to induce the Executive to
remain in the employ of the Company and in consideration of the
Executive’s covenants set forth in Section 4 hereof, the
Company agrees, under the conditions described herein, to pay the
Executive the Severance Payments and the other payments and
benefits described herein. No Severance Payments shall be payable
under this Agreement unless there shall have been (or, under the
terms of the second sentence of Section 6.1 hereof, there
shall be deemed to have been) a termination of the
Executive’s employment with the Company following a Change in
Control and during the Term. This Agreement shall not be construed
as creating an express or implied contract of employment and,
except as otherwise agreed in writing between the Executive and the
Company, the Executive shall not have any right to be retained in
the employ of the Company.
4. The Executive’s
Covenants . The Executive agrees that, subject to the terms and
conditions of this Agreement, in the event of a Potential Change in
Control during the Term, the Executive will remain in the employ of
the Company until the earliest of (i) the last day of the
Potential Change in Control Period, (ii) the date of a Change
in Control, (iii) the date of termination by the Executive of
the Executive’s employment for Good Reason or by reason of
death, Disability or Retirement, or (iv) the termination by
the Company of the Executive’s employment for any
reason.
5. Compensation Other Than
Severance Payments .
5.1 Following a Change in
Control and during the Term, and during any period that the
Executive fails to perform the Executive’s full-time duties
with the Company as a result of incapacity due to physical or
mental illness, the Company shall pay the Executive’s full
salary to the Executive at the rate in effect at the commencement
of any such period, together with all compensation and
benefits
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payable to the Executive under the terms
of any compensation or benefit plan, program or arrangement
maintained by the Company during such period (other than any
disability plan), until the Executive’s employment is
terminated by the Company for Disability.
5.2 If the Executive’s
employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay the
Executive’s full salary to the Executive through the Date of
Termination at the rate in effect immediately prior to the Date of
Termination or, if higher, the rate in effect immediately prior to
the first occurrence of an event or circumstance constituting Good
Reason, together with all compensation and benefits payable to the
Executive through the Date of Termination under the terms of the
Company’s compensation and benefit plans, programs or
arrangements as in effect immediately prior to the Date of
Termination or, if more favorable to the Executive, as in effect
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason.
5.3 If the Executive’s
employment shall be terminated for any reason following a Change in
Control and during the Term, the Company shall pay to the Executive
the Executive’s normal post-termination compensation and
benefits as such payments become due. Such post-termination
compensation and benefits shall be determined under, and paid in
accordance with, the Company’s retirement, insurance and
other compensation or benefit plans, programs and arrangements as
in effect immediately prior to the Date of Termination or, if more
favorable to the Executive, as in effect immediately prior to the
occurrence of the first event or circumstance constituting Good
Reason.
6. Severance Payments
.
6.1 Subject to
Section 6.2 hereof, if the Executive’s employment is
terminated following a Change in Control and during the Term, other
than (A) by the Company for Cause, (B) by reason of death
or Disability, or (C) by the Executive without Good Reason,
then the Company shall pay the Executive the amounts,
and
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provide the Executive the benefits,
described in this Section 6.1 (“Severance
Payments”) and Section 6.2, in addition to any payments
and benefits to which the Executive is entitled under
Section 5 hereof. For purposes of this Agreement, the
Executive’s employment shall be deemed to have been
terminated following a Change in Control by the Company without
Cause or by the Executive with Good Reason, if (i) the
Executive’s employment is terminated by the Company without
Cause prior to a Change in Control (whether or not a Change in
Control ever occurs) and such termination was at the request or
direction of a Person who has entered into an agreement with the
Company the consummation of which would constitute a Change in
Control, (ii) the Executive terminates his employment for Good
Reason prior to a Change in Control (whether or not a Change in
Control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of such
Person, or (iii) the Executive’s employment is
terminated by the Company without Cause or by the Executive for
Good Reason and such termination or the circumstance or event which
constitutes Good Reason is otherwise in connection with or in
anticipation of a Change in Control (whether or not a Change in
Control ever occurs).
(A) In lieu of any further
salary payments to the Executive for periods subsequent to the Date
of Termination and in lieu of any severance benefit otherwise
payable to the Executive, the Company shall pay to the Executive a
lump sum severance payment, in cash, equal to three (3) times
the sum of (i) the Executive’s base salary as in effect
immediately prior to the Date of Termination or, if higher, in
effect immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (ii) the
Executive’s target annual bonus under any annual bonus or
incentive plan maintained by the Company in respect of the fiscal
year in which occurs the Date of Termination or, if higher, the
fiscal year in which occurs the first event or circumstance
constituting Good Reason.
(B) For the thirty-six
(36) month period immediately following the Date of
Termination, the Company shall arrange to provide the
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Executive and his dependents life,
accident and health insurance benefits substantially similar to
those provided to the Executive and his dependents immediately
prior to the Date of Termination or, if more favorable to the
Executive, those provided to the Executive and his dependents
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, at no greater after-tax cost
to the Executive than the after-tax cost to the Executive
immediately prior to such date or occurrence; provided ,
however , that, unless the Executive consents to a different
method, such health insurance benefits shall be provided through a
third-party insurer. Benefits otherwise receivable by the Executive
pursuant to this Section 6.1(B) shall be reduced to the extent
benefits of the same type are received by or made available to the
Executive during the thirty-six (36) month period following
the Executive’s termination of employment (and any such
benefits received by or made available to the Executive shall be
reported to the Company by the Executive); provided ,
however , that the Company shall reimburse the Executive for
the excess, if any, of the after-tax cost of such benefits to the
Executive over such cost immediately prior to the Date of
Termination or, if more favorable to the Executive, the first
occurrence of an event or circumstance constituting Good Reason. If
the Severance Payments shall be decreased pursuant to
Section 6.2 hereof, and the Section 6.1(B) benefits which
remain payable after the application of Section 6.2 hereof are
thereafter reduced pursuant to the immediately preceding sentence,
the Company shall, no later than five (5) business days
following such reduction, pay to the Executive the least of
(a) the amount of the decrease made in the Severance Payments
pursuant to Section 6.2 hereof, (b) the amount of the
subsequent reduction in these Section 6.1(B) benefits, or
(c) the maximum amount which can be paid to the Executive
without being, or causing any other payment to be, nondeductible by
reason of section 280G of the Code.
(C) Notwithstanding any
provision of any annual incentive plan to the contrary, the Company
shall pay to the Executive a lump sum amount, in cash, equal to the
sum of (i) any unpaid incentive compensation which has
been
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allocated or awarded to the Executive
for a completed fiscal year preceding the Date of Termination under
any such plan and which, as of the Date of Termination, is
contingent only upon the continued employment of the Executive to a
subsequent date, and (ii) a pro rata portion to the Date of
Termination of the annual incentive bonus the Executive would have
received for the year in which the Date of Termination occurs,
calculated by multiplying the award that the Executive would have
earned on the last day of such year, assuming achievement at the
target level of the individual and corporate performance goals
established with respect to such award, by the fraction obtained by
dividing the number of full months and any fractional portion of a
month during such year through the Date of Termination by twelve
(12).
(D) In addition to the
retirement benefits to which the Executive is entitled under each
DB Pension Plan or any successor plan thereto, the Company shall
pay the Executive a lump sum amount, in cash, equal to the excess
of (i) the actuarial equivalent of the aggregate retirement
pension (taking into account any early retirement subsidies
associated therewith and determined as a straight life annuity
commencing at the date (but in no event earlier than the third
anniversary of the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive would
have accrued under the terms of all DB Pension Plans (without
regard to any amendment to any DB Pension Plan made subsequent to a
Change in Control, which amendment adversely affects in any manner
the computation of retirement benefits thereunder), determined as
if the Executive were fully vested thereunder and had accumulated
(after the Date of Termination) thirty-six (36) additional
months of service credit thereunder and had been credited under
each DB Pension Plan during such period with compensation equal to
the Executive’s compensation (as defined in such DB Pension
Plan) during the twelve (12) months immediately preceding Date
of Termination or, if higher, during the twelve months immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason, over (ii) the actuarial equivalent
of the aggregate
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retirement pension (taking into account
any early retirement subsidies associated therewith and determined
as a straight life annuity commencing at the date (but in no event
earlier than the Date of Termination) as of which the actuarial
equivalent of such annuity is greatest) which the Executive had
accrued pursuant to the provisions of the DB Pension Plans as of
the Date of Termination. For purposes of this Section 6.1(D),
“actuarial equivalent” shall be determined using the
same assumptions utilized under the Retirement Plan for Employees
of Lorillard Tobacco Company immediately prior to the Date of
Termination or, if more favorable to the Executive, immediately
prior to the first occurrence of an event or circumstance
constituting Good Reason. In addition to the benefits to which the
Executive is entitled under each DC Pension Plan, the Company shall
pay the Executive a lump sum amount, in cash, equal to the sum of
(i) the amount that would have been contributed thereto by the
Company on the Executive’s behalf during the three years
immediately following the Date of Termination, determined
(x) as if the Executive made the maximum permissible
contributions thereto during such period, (y) as if the
Executive earned compensation during such period at a rate equal to
the Executive’s compensation (as defined in the DC Pension
Plan) during the twelve (12) months immediately preceding the
Date of Termination or, if higher, during the twelve months
immediately prior to the first occurrence of an event or
circumstance constituting Good Reason, and (z) without regard
to any amendment to the DC Pension Plan made subsequent to a Change
in Control, which amendment adversely affects in any manner the
computation of benefits thereunder, and (ii) the excess, if
any, of (x) the Executive’s account balance under the DC
Pension Plan as of the Date of Termination over (y) the
portion of such account balance that is nonforfeitable under the
terms of the DC Pension Plan.
(E) If the Executive would
have become entitled to benefits under the Company’s
post-retirement health care or life insurance plans, as in effect
immediately prior to the Date of Termination or, if more favorable
to the Executive, as in effect immediately prior to the first
occurrence of an event or
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circumstance constituting Good Reason,
had the Executive’s employment terminated at any time during
the period of thirty-six (36) months after the Date of
Termination, the Company shall provide such post-retirement health
care or life insurance benefits to the Executive and the
Executive’s dependents commencing on the later of
(i) the date on which such coverage would have first become
available and (ii) the date on which benefits described in
subsection (B) of this Section 6.1 terminate.
(F) The Company shall provide
the Executive with $25,000 of outplacement services suitable to the
Executive’s position for a period of one year immediately
following the Date of Termination or, if earlier, until the first
acceptance by the Executive of an offer of employment.
6.2 (A) Whether or not the
Executive becomes entitled to the Severance Payments, if any
payment or benefit received or to be received by the Executive in
connection with a Change in Control or the termination of the
Executive’s employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any Person whose actions result in a Change in Control or
any Person affiliated with the Company or such Person) (all such
payments and benefits, including the Severance Payments, being
hereinafter called “Total Payments”) will be subject
(in whole or part) to the Excise Tax, then, subject to the
provisions of subsection (B) of this Section 6.2, the
Company shall pay to the Executive an additional amount (the
“Gross-Up Payment”) such that the net amount retained
by the Executive, after deduction of any Excise Tax on the Total
Payments and any federal, state and local income and employment
taxes and Excise Tax upon the Gross-Up Payment, shall be equal to
the Total Payments.
(B) In the event that the
amount of the Total Payments does not exceed 110% of the largest
amount that would result in no portion of the Total Payments being
subject to the Excise Tax (the “Safe Harbor”), then
subsection (A) of this Section 6.2 shall not apply and
the cash Severance Payments shall first be reduced, if necessary,
to zero (with amounts not subject to Section 409A of the
Code
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being reduced prior to amounts that are
subject to Section 409A of the Code), and all other Severance
Payments shall thereafter be reduced, if necessary, to zero (with
amounts not subject to Section 409A of the Code being reduced
prior to amounts that are subject to Section 409A of the
Code), so that the amount of the Total Payments is equal to the
Safe Harbor; provided , however , that, to the extent
permitted by Section 409A of the Code, the Executive may elect
to have the non-cash Severance Payments reduced (or eliminated)
prior to any reduction of the cash Severance Payments.
Notwithstanding the above, to the extent the Executive is
terminated (i) following a Change in Control but prior to a
change in ownership or control of the Company within the meaning of
Section 409A of the Code or (ii) prior to a Change in
Control in a manner described in Section 6.1, to the extent
required to avoid accelerated taxation and/or tax penalties under
Section 409A of the Code, amounts payable to the Executive
hereunder, to the extent not in excess of the amount that the
Executive would have received under any other pre-Change in Control
severance plan or arrangement with the Company had such plan or
arrangement been applicable, shall be paid at the time and in the
manner provided by such plan or arrangement and the remainder shall
be paid to the Executive in accordance with the provisions of
Section 6.3.
(C) For purposes of
determining whether any of the Total Payments will be subject to
the Excise Tax and the amount of such Excise Tax, (i) all of
the Total Payments shall be treated as “parachute
payments” within the meaning of Section 280G(b)(2) of
the Code, unless in the opinion of tax counsel (“Tax
Counsel”) reasonably acceptable to the Executive and selected
by the accounting firm which was, immediately prior to the Change
in Control, the Company’s independent auditor (the
“Auditor”), such other payments or benefits (in whole
or in part) do not constitute parachute payments, including by
reason of Section 280G(b)(4)(A) of the Code, (ii) all
“excess parachute payments” within the meaning of
Section 280G(b)(l) of the Code shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or
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in part) represent reasonable
compensation for services actually rendered, within the meaning of
Section 280G(b)(4)(B) of the Code, in excess of the Base
Amount allocable to such reasonable compensation, or are otherwise
not subject to the Excise Tax, and (iii) the value of any
non-cash benefits or any deferred payment or benefit shall be
determined by the Auditor in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. Prior to the payment
date set forth in Section 6.3 hereof, the Company shall
provide the Executive with its calculation of the amounts referred
to in this Section 6.2(C) and such supporting materials as are
reasonably necessary for the Executive to evaluate the
Company’s calculations. If the Executive disputes the
Company’s calculations (in whole or in part), the reasonable
opinion of Tax Counsel with respect to the matter in dispute shall
prevail.
(I) In the event that
(1) amounts are paid to the Executive pursuant to
Section 6.2(A), (2) there is a Final Determination that
the Excise Tax is less than the amount taken into account hereunder
in calculating the Gross-Up Payment, and (3) after giving
effect to such Final Determination, the Severance Payments are to
be reduced pursuant to Section 6.2(B), the Executive shall
repay to the Company, within five (5) business days following
the date of the Final Determination, the Gross-Up Payment, the
amount of the reduction in the Severance Payments, plus interest on
the amount of such repayments at 120% of the rate provided in
Section 1274(b)(2)(B) of the Code.
(II) In the event that
(1) amounts are paid to the Executive pursuant to
Section 6.2(A), (2) there is a Final Determination that
the Excise Tax is less than the amount taken into account hereunder
in calculating the Gross-Up Payment, and (3) after giving
effect to such Final Determination, the Severance Payments are not
to be reduced pursuant to Section 6.2(B), the Executive shall
repay to the Company, within five (5) business days following
the date of the Final Determination, the portion of the Gross-Up
Payment attributable to such reduction (plus that portion of
the
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Gross-Up Payment
attributa
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