Exhibit
10.6
SEVERANCE
AGREEMENT
THIS AMENDED AND RESTATED SEVERANCE
AGREEMENT (this “Agreement”), dated as of
,
, is made
and entered into by and between OMNOVA Solutions Inc., an Ohio
corporation (the “Company”), and
(the “Executive”).
WITNESSETH
:
WHEREAS, the Executive is a senior
executive or a key employee of the Company or one or more of its
Affiliates and has made and is expected to continue to make major
contributions to the short- and long-term profitability, growth and
financial strength of the Company;
WHEREAS, the Company recognizes
that, as is the case for most publicly held companies, the
possibility of a Change in Control (as defined below)
exists;
WHEREAS, the Company desires to
assure itself of both present and future continuity of management
and desires to establish certain minimum severance benefits for
certain of its senior executives and key employees, including the
Executive, applicable in the event of a Change in
Control;
WHEREAS, the Company wishes to
ensure that its senior executives and key employees are not
practically disabled from discharging their duties in respect of a
proposed or actual transaction involving a Change in
Control;
WHEREAS, the Company desires to
provide additional inducement for the Executive to continue to
remain in the ongoing employ of the Company; and
WHEREAS, the Company has determined
that it is necessary to amend and restate this Agreement, as
originally effective October 1, 1999, and now effective as of
the date first set forth above in order to bring its provisions
into compliance with Section 409A of the Internal Revenue Code
of 1986, as amended, including the regulations issued
thereunder.
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 a
corporation, partnership, joint venture, sole proprietorship or
other trade or business that is considered a single employer with
the Company by application of Section 414 of the Code, such
that it (i) is part of a ‘controlled group of
corporations’ (within the meaning of Section 414(b) of
the Code) with the Company, (ii) is ‘under common
control’ (within the meaning of Section 414(c) of the
Code) with the Company, or (iii) is a member of an
‘affiliated service group’ (within the meaning of
Section 414(m) of the Code) with the Company.
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(b) “Base Pay” means the
Executive’s annual base salary at a rate not less than the
Executive’s annual fixed or base compensation as in effect
for Executive immediately prior to the occurrence of a Change in
Control or such higher rate as may be determined from time to time
by the Board or a committee thereof or as specified in Annex
A.
(c) “Board” means the
Board of Directors of the Company.
(d) “Cause” means that,
prior to any Separation from Service pursuant to Good Reason, the
Executive shall have been determined to have committed:
(i) a criminal violation involving
fraud, embezzlement or theft in connection with his duties or in
the course of his employment with the Company or any
Subsidiary;
(ii) intentional wrongful damage to
property of the Company or any Subsidiary;
(iii) intentional wrongful
disclosure of secret processes or confidential information of the
Company or any Subsidiary; or
(iv) intentional wrongful engagement
in any Competitive Activity;
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 his 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 two-thirds 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 his 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.
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(e) “Change in Control”
means the occurrence during the Term of any of the following
events, subject to the provisions of Section 1(e)(v)
hereof:
(i) All or substantially all of the
assets of the Company are sold or transferred to another
corporation or entity, or the Company is merged, consolidated or
reorganized into or with another corporation or entity, with the
result that upon conclusion of the transaction less than 51% of the
outstanding securities entitled to vote generally in the election
of directors or other capital interests of the acquiring
corporation or entity are owned directly or indirectly, by the
shareholders of the Company generally prior to the transaction;
or
(ii) There is a report filed on
Schedule 13D or Schedule 14D-1 (or any successor schedule, form or
report), each as promulgated pursuant to the Exchange Act,
disclosing that any person (as the term “person” is
used in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act (a “Person”)) has become the beneficial
owner (as the term “beneficial owner” is defined under
Rule 13d-3 or any successor rule or regulation promulgated
under the Exchange Act (a “Beneficial Owner”)) of
securities representing 20% or more of the combined voting power of
the then-outstanding voting securities of the Company;
or
(iii) The individuals who, at the
beginning of any period of two consecutive calendar years,
constituted the Directors of the Company cease for any reason to
constitute at least a majority thereof unless the nomination for
election by the Company’s stockholders of each new Director
of the Company was approved by a vote of at least two-thirds of the
Directors of the Company still in office who were Directors of the
Company at the beginning of any such period; or
(iv) The Board determines that
(A) any particular actual or proposed merger, consolidation,
reorganization, sale or transfer of assets, accumulation of shares
or tender offer for shares of the Company or other transaction or
event or series of transactions or events will, or is likely to, if
carried out, result in a Change in Control falling within
Section 1(e)(i), (ii) or (iii) and (B) it is in
the best interests of the Company and its shareholders, and will
serve the intended purposes of this Agreement, if this Agreement
shall thereupon become immediately operative.
(v) Notwithstanding the foregoing
provisions of this Section 1(e):
(A) If the Board has made the
determination mentioned in Section 1(e)(iv) and any such
merger, consolidation, reorganization, sale or transfer of assets,
or tender offer, or other transaction or event, or series of
transactions or events, mentioned in Section 1(e)(iv) shall be
abandoned, or any such accumulations of shares shall be dispersed
or otherwise resolved, then a majority of the Board members who
made such determination may, by notice to the Executive, nullify
the effect thereof and reinstate this Agreement as previously in
effect, but without prejudice to any action that may have been
taken prior to such nullification.
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(B) Unless otherwise determined in a
specific case by the Board, a “Change in Control” shall
not be deemed to have occurred for purposes of
Section (1)(e)(ii) solely because (X) the Company,
(Y) a Subsidiary, or (Z) any Company-sponsored employee
stock ownership plan or any other employee benefit plan of the
Company or any Subsidiary either files or becomes obligated to file
a report or a proxy statement under or in response to
Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A
(or any successor schedule, form or report or item therein) under
the Exchange Act disclosing Beneficial Ownership by it of shares of
the then-outstanding voting securities of the Company, whether in
excess of 20% or otherwise, or because the Company reports that a
change in control of the Company has occurred or will occur in the
future by reason of such beneficial ownership.
(f) “Code” means the
Internal Revenue Code of 1986, as amended.
(g) “Competitive
Activity” means the Executive’s participation, without
the written consent of an officer of the Company, in the management
of any business enterprise if such enterprise engages in
substantial and direct competition with the Company and such
enterprise’s sales of any product or service competitive with
any product or service of the Company amounted to 25% of such
enterprise’s net sales for its most recently completely
fiscal year and if the Company’s net sales of said product or
service amounted to 25% of the Company’s net sales for its
most recently completed fiscal year. “Competitive
Activity” will not include (i) the mere ownership of
securities in any such enterprise and the exercise of rights
appurtenant thereto or (ii) participation in the management of
any such enterprise other than in connection with the competitive
operations of such enterprise.
(h) “Director” means a
member of the Board.
(i) “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),
disability, salary continuation, expense reimbursement and other
employee benefit policies, plans, programs or arrangements that may
now exist or any equivalent successor policies, plans, programs or
arrangements that may be adopted hereafter by the Company or a
Subsidiary.
(j) “Exchange Act” means
the Securities Exchange Act of 1934, as amended.
(k) “Good Reason” shall
have the meaning set forth in Section 3(b).
(l) “Incentive Pay”
means an annual amount equal to not less than the average of the
annual bonus made or to be made in regard to services rendered in
any fiscal year during the three fiscal years immediately
preceding, or, if greater, 75% of the maximum bonus opportunity
for, the fiscal year in which the Change in Control occurs pursuant
to the Executive Incentive Compensation Program or similar annual
bonus plan, program or arrangement (whether or not funded) of the
Company, or any successor thereto.
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(m) “Involuntary Separation
from Service” shall mean (i) a Separation from Service
due to the independent exercise by the Company or a Subsidiary (or
any successor company) of the unilateral authority to terminate the
Executive’s services, other than due to the Executive’s
implicit or explicit request (except in the case of a Separation
from Service due to Good Reason), where the Executive was willing
and able to continue performing services, or (ii) a Separation
from Service due to Good Reason.
(n) “Separation from
Service” means the Executive’s termination from
employment with the Company and all Affiliates on account of the
Executive’s death, retirement or other termination of
employment, as determined in accordance with Section 409A of
the Code and the regulations thereunder. The Executive will not be
deemed to have experienced a Separation from Service if the
Executive is on military leave, sick leave or other bona fide leave
of absence, to the extent such leave does not exceed a period of
six months or, if longer, such longer period of time as is
protected by either statute or contract. The Executive will not be
deemed to have experienced a Separation from Service if the
Executive provides continuing services that average more than 20
percent of the services provided by the Executive to the Company or
its Affiliates (whether as an employee or an independent
contractor) during the immediately preceding 36-month period of
services (or such shorter period of services to the Company and its
Affiliates if the Executive has provided services to the Company or
its Affiliates for less than 36 months). If the Executive provides
services both as an employee and as an independent contractor of
the Company, the Executive must cease services in both capacities
to be treated as having experienced a Separation from Service. If
the Executive ceases providing services as an independent
contractor and begins providing services as an employee, or vice
versa, the Executive will not be considered to have a Separation
from Service until the Executive has ceased providing services in
both capacities. If the Executive provides services both as an
employee of the Company and a member of the Board, the services
provided as a Director are not taken into account in determining
whether the Executive has a Separation from Service under this
Agreement unless this Agreement is aggregated with any plan in
which the Executive participates as a Director under
Section 409A of the Code and the regulations
thereunder.
(o) “Separation from Service
Date” means the date upon which the Executive experiences a
Separation from Service.
(p) “Severance Period”
means the period of time commencing on the date of the first
occurrence of a Change in Control and continuing until the earliest
of (i) the second anniversary of the occurrence of the Change
in Control, (ii) the Executive’s death, or
(iii) the Executive’s attainment of age 65.
(q) “Specified Employee”
means an employee of the Company or a Subsidiary who meets the
requirements of Section 416(i)(1)(A)(i), (ii) or
(iii) of the Code (applied in accordance with the Treasury
Regulations thereunder and disregarding Section 416(i)(5) of
the Code). The identification of Specified Employees shall be
conducted by the Company
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using a method (i) reasonably
designed to include all Specified Employees, (ii) applying an
objectively determinable standard providing no direct or indirect
election by the Executive, and (iii) resulting in no more than
200 employees being treated as Specified Employees for any given
date. A Specified Employee determination shall take effect four
months after the Company’s identification of the employees
satisfying such requirements and shall be valid for the next
following 12-month period.
(r) “Subsidiary” means a
corporation, company or other entity (i) more than 50 percent
of whose outstanding shares or securities (representing the right
to vote for the election of directors or other managing authority)
are, or (ii) which does not have outstanding shares or
securities (as may be the case in a partnership, joint venture or
unincorporated association), but more than 50 percent of whose
ownership interest representing the right generally to make
decisions for such other entity is, now or hereafter, owned or
controlled, directly or indirectly, by the Company except that for
purposes of determining whether any person may be a Participant for
purposes of any grant of incentive stock options,
“Subsidiary” means any corporation in which at the time
the Company owns or controls, directly or indirectly, more than 50
percent of the total combined voting power represented by all
classes of stock issued by such corporation.
(s) “Term” means the
period commencing as of the date hereof and expiring as of the
later of (i) the close of business on December 31, 2009,
or (ii) the expiration of the Severance Period;
provided , however , that (A) commencing on
January 1, 2010, and each January 1 thereafter, the term
of this Agreement under (i) above 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, and
(B) 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 Subsidiary, 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(s), the Executive shall not be
deemed to have ceased to be an employee of the Company and any
Subsidiary by reason of the transfer of Executive’s
employment between the Company and any Subsidiary, or among any
Subsidiaries.
2. Operation of Agreement .
This Agreement will be effective and binding immediately upon its
execution, but no benefits hereunder will be payable unless and
until a Change in Control occurs.
3. Involuntary Separation from
Service Following a Change in Control .
(a) If the Executive experiences an
Involuntary Separation from Service during the Severance Period,
the Executive shall be entitled to the benefits provided by
Sections 4 and 5 unless such Separation from Service is the
result of the occurrence of one or more of the following
events:
(i) The Executive’s
death;
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(ii) The Executive becomes
permanently disabled, but only if (A) such disability is
within the meaning of the long-term disability plan in effect for,
or applicable to, Executive immediately prior to the Change in
Control, and (B) Executive has begun and reasonably expects to
continue to receive disability benefits pursuant to such plan;
or
(iii) Cause.
(b) “Good Reason” means
the Executive terminates his employment with the Company and its
Subsidiaries during the Severance Period following 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 office or position, of or with the
Company and/or a Subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or the
failure to reelect or the removal of the Executive as a Director of
the Company (or any successor thereto) if the Executive shall have
been a Director 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 Subsidiary which the Executive held immediately
prior to the Change in Control, (B) a reduction in the
Executive’s Base Pay, (C) a reduction in the
Executive’s opportunities for Incentive Pay (including but
not limited to a reduction in target bonus percentage or target
award opportunity (whether measured by dollar amount or management
objectives)) provided by the Company, or (D) the termination
or denial of the Executive’s rights to Employee Benefits or a
reduction in the scope or aggregate value thereof, any of which is
not remedied by the Company within ten 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) A determination by the
Executive (which determination will be conclusive and binding upon
the parties hereto provided it has been made in good faith and in
all events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing evidence)
that a change in circumstances has occurred following a Change in
Control, including, without limitation, a change in the scope of
the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable to carry out, has
substantially hindered Executive’s performance of, or has
caused Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached
to the position held by the Executive immediately prior to the
Change in Control, which situation is not remedied within ten
calendar days after written notice to the Company from the
Executive of such determination;
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(iv) The liquidation, dissolution,
merger, consolidation or reorganization of the Company or 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 (directly or by operation of law) assumed all duties
and obligations of the Company under this Agreement pursuant to
Section 12(a);
(v) The Company relocates its
principal executive offices, or requires the Executive to have his
principal location of work changed, to any location that is in
excess of thirty 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 responsibilities
or duties of his employment more than fourteen consecutive calendar
days or an aggregate of more than ninety calendar days in any
consecutive 365 calendar-day period, without, in either case, his
prior written consent; or
(vi) 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 ten calendar days after receipt by the Company
of written notice from the Executive of such breach.
(c) A termination by the Company
pursuant to Section 3(a) (other than as described in
Section 3(a)(i), (ii) or (iii)) or by Executive due to
Good Reason, will not affect any rights that the Executive may have
pursuant to any agreement, policy, plan, program or arrangement of
the Company providing Employee Benefits, which rights shall be
governed by the terms thereof.
4. Severance Compensation
.
(a) Severance benefits to which the
Executive is entitled pursuant to Section 3 are described on
Annex A. The Company will pay to the Executive those amounts
described in Paragraph (1) of Annex A within five business
days following both receipt of the Release described in
Section 10 (attached as Annex C) and expiration of the
relevant revocation period described therein. The benefits and
perquisites described in Paragraphs (3) (4), (5) and
(6) of Annex A will be provided to the Executive as described
therein.
The Company will pay or provide to
the Executive the amounts described in Paragraph (2) of Annex
A within three business days following both receipt of the Release
described in Section 10 (and attached as Annex C) and
expiration of the relevant revocation period described therein;
provided that, if the Executive is a Specified Employee, to the
extent that the amount described in Paragraph (2) of Annex A
exceeds the lesser of two times (i) the Executive’s
annualized compensation for the preceding calendar year, or
(ii) the limit
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on compensation set forth in
Section 401(a)(17) of the Code (the “Section 409A
Severance Limit”), then payment under Paragraph (2) of
Annex A shall be temporarily reduced by such amount as is necessary
to ensure that the Section 409A Severance Limit is not
exceeded (the unpaid amount the “Section 409A Severance
Reduction Amount”) and will be paid within three business
days following both receipt of the Release described in
Section 10 (and attached as Annex C) and expiration of the
relevant revocation period described therein. The Section 409A
Severance Reduction Amount shall be paid to the Executive in a
single lump sum payment six months following the Separation from
Service Date. Notwithstanding the foregoing to the contrary, in the
event that the Executive is a Specified Employee and
Executive’s Involuntary Separation from Service occurs due to
Good Reason, the Company will pay to the Executive the amounts
described in Paragraph (2) of Annex A in a single lump sum
payment six months following the Separation from Service
Date.
(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 Wall Street
Journal . 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, 6 and 7 will survive any termination or expiration of this
Agreement or the Executive’s termination of employment
following a Change in Control for any reason whatsoever.
5. Certain Additional Payments by
the Company .
(a) Anything in this Agreement to
the contrary notwithstanding, in the event that this Agreement
shall become operative and it shall be determined (as hereafter
provided) that any payment or distribution by the Company or any of
its Affiliates to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without
limitation any stock option, performance share, performance unit,
stock appreciation right or similar right, or the lapse or
termination of any restriction on, or the vesting or exercisability
of, any of the foregoing (a “Payment”), would be
subject to (i) the excise tax imposed by Section 4999 of
the Code (or any successor provision thereto) by reason of being
considered “contingent on a change in ownership or
control” of the Company, within the meaning of
Section 280G of the Code (or any successor provision thereto)
or to any similar tax imposed by state or local law, or
(ii) the tax imposed by Section 409A of the Code (or any
successor provision thereto) including the applicable treasury
regulations, by reason of being considered “deferred
compensation” as defined thereby, or any interest or
penalties with respect to such taxes (such tax or taxes, together
with any such interest and penalties, being hereafter collectively
referred to as the “Excise Tax”), then the Executive
shall be entitled to receive an additional payment or payments
(collectively, a “Gross-Up Payment”); provided ,
however , that no Gross-Up Payment shall be
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made with respect to the Excise Tax,
if any, attributable to (A) any incentive stock option, as
defined by Section 422 of the Code (“ISO”) granted
prior to the execution of this Agreement, or (B) any stock
appreciation or similar right, whether or not limited, granted in
tandem with any ISO described in clause (A). The Gross-Up Payment
shall be in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of
Section 5(f), all determinations required to be made under
this Section 5, including whether an Excise Tax is payable by
the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be
made by a nationally recognized accou
