EXHIBIT 10.3
EMPLOYMENT, TRANSITION AND
CONSULTING AGREEMENT
THIS EMPLOYMENT, TRANSITION AND
CONSULTING AGREEMENT is entered into May 22, 2008, effective
as of May 7, 2008 (“Employment Agreement”), by and
between QUAKER CHEMICAL CORPORATION, a Pennsylvania corporation
(the “Company”), and RONALD J. NAPLES
(“Executive”).
BACKGROUND:
Executive has been employed by the
Company as its Chairman of the Board and Chief Executive Office
pursuant to an employment agreement dated March 11, 1999, as
amended in part effective July 21, 2004 (“Prior
Agreement”). The term of employment under the Prior Agreement
automatically extended effective January 1, 2008. Executive
has informed the Company of his intention to retire in 2008. The
Company and Executive desire to provide for the continuation of the
employment relationship between Executive and the Company until the
date of Executive’s retirement, to provide certain retirement
benefits and to provide for continued services in a consulting
capacity following retirement, all to ensure smooth transition. The
Company and Executive intend, by this Employment Agreement, to
establish the terms and conditions of Executive’s continued
employment and retirement.
NOW, THEREFORE, in consideration of
the mutual promises and covenants herein contained and intending to
be legally bound hereby, the Company and Executive amend and
restate the Prior Agreement to read as follows:
1. Employment . The Company
hereby continues to employ Executive and Executive hereby accepts
continued employment with the Company as the Chairman of the Board
and Chief Executive Officer of the Company upon the terms and
conditions contained herein.
2. Duties .
(a) During the Term of Employment,
Executive shall perform all duties consistent with the position of
Chairman of the Board and Chief Executive Officer of the Company,
as well as any other duties which are assigned to him by the Board
which are commensurate with his position. Executive will devote his
entire time and best efforts to fulfill faithfully, responsibly and
satisfactorily those duties and to further the Company’s best
interests.
(b) During the Term of Employment,
Executive shall not engage in any commercial activities which are
in any way in competition with the activities of the Company
(provided, however, that this shall not restrict Executive from
holding up to 1% of the outstanding capital stock or other
securities of any publicly traded entity which conducts activities
in competition with the activities of the Company) or which may in
any way interfere with the performance of his duties or
responsibilities to the Company.
(c) Subject to Paragraph 8, nothing
contained in this Employment Agreement shall restrict or prohibit
Executive from serving on boards of eleemosynary institutions or on
the boards of up to two publicly traded entities.
3. Term . The term of
Executive’s employment hereunder shall commence on
May 7, 2008 and shall end on the Retirement Date (the
“Term of Employment”) unless either the Company or
Executive shall have given the other at least ninety days’
notice of a desire to terminate before the Retirement
Date.
4. Base Salary and Bonuses .
In exchange for Executive’s promises contained herein, the
Company shall compensate him in the following manner:
(a) Base Salary . Effective
March 1, 2008 the Company shall compensate Executive at the
Base Salary of $682,500 per annum, payable in equal installments on
the same basis as other senior salaried officers of the Company for
services prior to Executive’s Separation from
Service.
(b) Bonuses . During the Term
of Employment, Executive will continue to participate in the Quaker
Global Annual Incentive Plan (“GAIP”); for the purposes
of Executive’s participation under GAIP as currently in
effect, he will have a mid/target award percentage of 75% of base
salary, with a maximum potential award equal to 140% of base
salary. Executive shall participate in such other bonus and annual
incentive plans applicable to senior salaried officers of the
Company as may be hereafter adopted by the Company. The Company may
pay Executive such other bonus or bonuses, if any, as the Board, in
its sole discretion, shall determine.
(c) Special Bonuses . A
one-time bonus of $565,000 shall be paid on the date this
Employment Agreement is executed in 2008 and a one-time bonus of
$77,326 shall be paid on December 30, 2008.
(d) Withholding . The amounts
set forth herein are subject to appropriate withholdings and
deductions as required by law.
5. Long-Term Performance
Incentive Plan . During the Term of Employment, Executive shall
continue to be eligible for continued participation in the
Company’s Long-Term Performance Incentive Plan (the
“Incentive Plan”). The Compensation Committee may grant
Executive awards under the Incentive Plan in the Compensation
Committee’s sole discretion. Executive shall be eligible to
participate in such other long-term incentive based compensation
plans as may be hereafter adopted by the Company.
6. Retirement and Other Benefit
Plans .
(a) During the Term of Employment,
Executive shall be entitled to participate in the Company’s
employee benefit plans as they are in existence on the date of this
Employment Agreement or as they may be amended hereafter. At the
present time, Executive is entitled to participate in various
plans, including, without limitation, the following plans to the
same extent as other senior salaried officers of the Company: Group
Medical Insurance Plan, Dental Plan, Disability (short and long
term) Plan, Group Term Life Insurance, and Retirement Savings
Plan.
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Notwithstanding the foregoing,
Executive may elect that the Company provide him with insured
“indemnity type” medical insurance coverage (as opposed
to the type of coverage which would otherwise have been provided)
and, in that event, Executive shall reimburse the Company in the
amount he would have been required to pay for HMOQPOS
coverage.
(b) The Quaker Chemical Corporation
1995 Naples Supplemental Retirement Income Program and Agreement,
as amended and restated effective May 14, 2004 (the
“Naples SURP”), shall continue in effect, subject to
amendment as hereinafter provided. The Naples SURP may be amended
in a manner consistent with any amendments made to the Quaker
Chemical Corporation Supplemental Retirement Income Program;
provided, however, no such amendment will reduce or limit any of
the benefits thereunder. In addition, the Naples SURP shall be
amended to (i) comply with Section 409A of the Code,
(ii) provide that Executive’s March 2001 award of
100,000 restricted shares shall be taken into account as a bonus
payment of $343,200 (20,000 shares at $17.16 per share) in each
year beginning with 1997 and ending with 2001 (and not when income
was recognized), (iii) provide that the annual incentive
bonuses in the highest three of the last ten years (not five years)
will be taken into account, and (iv) provide that in the event
of Executive’s Separation from Service on account of
Retirement or a Severance Event, (A) there shall be no
reduction in the benefit payable under the Naples SURP because
Executive completes fewer than 15 years of employment with the
Company or commences payment of the benefit prior to attainment of
age 65, and (B) for the right of Executive to elect, in 2008
and on or before the earlier of the Retirement Date or a Severance
Event (the “Applicable Date”), to receive his benefit
under the Naples SURP in the form of three approximately equal
installments. The first such installment shall be paid to Executive
on the Delayed Payment Date and the remaining two installments
shall be paid to Executive on the first and second anniversaries of
the Applicable Date (or the next business day if such date or
anniversary is not a business day). For purposes of determining the
amount of the installments, the actuarial equivalent present value
as of the Applicable Date of the benefit otherwise payable to
Executive under the Naples SURP in the form of a single life
annuity commencing at the Applicable Date shall be determined, and
the installments shall be the actuarial equivalent of such present
value. Actuarial equivalent shall be determined using the
applicable interest rate under Section 417(e)(3) of the Code
and, for purposes of determining present value (and not the amount
of the installments), the applicable mortality table under
Section 417(e)(3) of the Code, in both cases prior to
amendment by the Pension Protection Act of 2006 if the Applicable
Date is prior to December 1, 2008, consistent with the
methodology shown in the example attached hereto as Exhibit A. In
the event Executive makes a timely election to receive the Naples
SURP benefit in the form of three installments and dies after the
Applicable Date and before the three installments have been paid,
the installments not paid to Executive shall be paid to
Executive’s Beneficiary. Exhibit A shows the amount payable
to Executive under the Naples SURP in the event the Applicable Date
is the Retirement Date and Executive makes a timely election to
receive the Naples SURP benefit in the form of three installments.
Executive continues to waive any rights he may have to participate
in or to receive benefits under the Quaker Chemical Corporation
Supplemental Retirement Income Program. Executive shall be fully
vested in the benefits accrued under the Naples SURP and such
benefits shall be nonforfeitable, notwithstanding the termination
of his employment with the Company prior to his reaching normal
retirement age.
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7. Other Benefits . During
the Term of Employment, Executive shall be provided with the
following additional benefits:
(a) The Company shall reimburse
Executive for the cost of his membership in one country club for
his business related use thereof.
(b) The Company shall reimburse
Executive, upon proper accounting, for reasonable expenses and
disbursements incurred by him in the course of his performance of
the duties hereunder.
(c) Executive shall be entitled to
five weeks of vacation each year without reduction in
salary.
(d) The Company shall reimburse
Executive up to $8,000 per calendar year for annual tax preparation
and financial planning services.
(e) The Company shall make available
to Executive an automobile (and appropriate insurance thereon) for
business related use, said vehicle to be of his choosing up to a
vehicle cost of $45,000.
8. Executive Covenants . In
order to induce the Company to enter into this Employment
Agreement, Executive hereby agrees as follows:
(a) Except for and on behalf of the
Company and except with the consent of or as directed by the Board,
Executive will keep confidential and shall not divulge to any other
person or entity during the Term of Employment or thereafter any of
the business or trade secrets, names and purchase histories of
customers, formulae and processes of manufacture, or other
confidential information regarding the Company which has not
otherwise become public knowledge.
(b) All papers, books and records of
every kind and description relating to the business and affairs of
the Company, whether or not prepared by Executive, shall be the
sole and exclusive property of the Company, and Executive shall
surrender them to the Company at any time upon the request by the
Board.
(c) During the Term of Employment
and for a period of two years after the termination of
Executive’s employment, regardless of the reason for such
termination, Executive will not (i) participate, directly or
indirectly, as a director, stockholder or partner, or have any
direct or indirect financial interest as creditor, in any business
which, directly or indirectly, competes with the Company; provided,
however, that this subparagraph (c) shall not restrict
Executive from holding up to 1% of the outstanding capital stock or
other securities of any publicly traded entity which conducts
activities in competition with the activities of the Company, or
(ii) solicit any customers of the Company on behalf of himself
or any other person, firm or company; or (iii) within any
place in the world (the Company being global in nature and its
business being international), directly or indirectly, individually
or jointly, as employee or in any other capacity enter into or
become engaged in the exploitation, development, manufacture or
sale of any products used or capable of use in competition with the
products of the Company or in any process, method, or apparatus
which would facilitate the manufacture or sale of products used or
capable of use in competition with the Company’s
products.
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(d) The Company shall, in addition
to other remedies provided by law, have the right and remedy to
have the provisions of this Paragraph 8 specifically enforced by
any court having equity jurisdiction. Executive acknowledges that
any breach or threatened breach of the provisions of this Paragraph
8 will cause irreparable injury to the Company and that money
damages will not provide an adequate remedy. Nothing contained
herein shall be construed as prohibiting the Company from pursuing
any other remedies available to it for such breach or threatened
breach, including any recovery of damages from
Executive.
9. Definitions . As used in
this Employment Agreement, the following capitalized words and
terms shall have the following meanings:
“Beneficial Owner” shall
have the meaning ascribed to it in Rule 13(d)-3 under the Exchange
Act.
“Beneficiary” shall mean
(a) the person or persons designated by Executive to receive
benefits payable to a beneficiary under this Employment Agreement
as a result of Executive’s death, such designation to be in a
writing filed by Executive with the Company’s human resources
department on or before Executive’s death, or (b) if
Executive fails to so designate a beneficiary or the designated
beneficiary predeceases Executive, Executive’s surviving
spouse or, if Executive has no surviving spouse, his
estate.
“Benoliel Family” shall
mean Peter A. Benoliel, his wife, his children and their respective
spouses and children, and all trusts created by or for the benefit
of any of them.
“Board” means the
Company’s Board of Directors.
“Cause”
means:
(i) The willful and continued
neglect (after having received notice thereof and a reasonable
opportunity to cure or correct from the Board) by Executive of
Executive’s duties under this Employment Agreement;
or
(ii) The willful engaging by
Executive in a continued course of misconduct (after having
received notice thereof and a reasonable opportunity to cure or
correct from the Board) which is materially injurious to the
Company, monetarily or otherwise;
and Executive shall have been given
notice thereof from the Board and an opportunity (with counsel) to
be heard by the Board and the Board shall have made a reasonable
and good faith finding that Executive was guilty of the conduct set
forth in subparagraph (i) or (ii) hereof.
“Code” means the
Internal Revenue Code of 1986, as amended.
“Compensation Committee”
means the Compensation/Management Development Committee of the
Board.
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“Delayed Payment Date”
means (i) in the case of a payment or benefit due on account
of a Severance Event, the date that is six months after the
Severance Event (or, if such day is not a business day, the next
business day), or (ii) in the case of a payment or benefit due
on account of Retirement, the date that is six months after the
Retirement Date (or, if such day is not a business day, the next
business day).
“Disability” shall have
the definition contained in Paragraph 11(b).
“Effective Date” means
the date on which a Significant Transaction occurs.
“Escrow Agent” means
Wachovia Bank, National Association, or such other national banking
association designated by the Company on or before the Effective
Date.
“Exchange Act” means the
Securities Exchange Act of 1934, as amended.
“Good Reason” means any
of the following which occurs or is effective before the Retirement
Date:
(i) Other than in connection with
Executive’s retirement as contemplated in Paragraph 11(f),
the failure of Executive to be elected as a director of the
Company, or the failure of Executive to be elected the Chairman of
the Board of the Company, or the failure of the Company to elect
Executive as, or to permit Executive to perform the duties of, the
Chief Executive Officer of the Company, which failure is not
remedied within thirty (30) days after the receipt by the
Company of notice thereof from Executive; or
(ii) A breach by the Company of any
material provision of this Employment Agreement, which breach is
not remedied within thirty (30) days after the receipt by the
Company of notice thereof from Executive; or
(iii) An amendment of the
Company’s By-Laws (which amendment is not approved by
Executive), the effect of which is a material adverse change in the
duties and responsibilities of the Company’s Chief Executive
Officer; or
(iv) The relocation of the principal
executive offices of the Company (including the principal office of
Executive) to a location outside the continental United States,
which relocation is not initiated or proposed by Executive;
or
(v) The Company is not or ceases to
be a corporation with stock registered pursuant to Sections 12(b)
or 12(g) of the Exchange Act; or
(vi) A determination to terminate
employment for any reason whatsoever is made by Executive during
the period beginning nine (9) and ending eighteen
(18) months after the occurrence of a Significant
Transaction.
“In-Kind Benefits Rule”
means, with respect to in-kind benefits subject to
Section 409A of the Code, that in-kind benefits provided
during any calendar year shall not affect the in-kind benefits to
be provided in any other calendar year.
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“Person” shall have the
meaning ascribed to it in Sections 13(d) and 14(d) of the Exchange
Act.
“Reimbursement Rule”
means, with respect to reimbursements subject to Section 409A
of the Code, that (i) the amount of expenses eligible for
reimbursement during any calendar year shall not affect the
expenses eligible for reimbursement in any other calendar year, and
(ii) the reimbursement of an eligible expense shall be made as
soon as practicable after Executive requests such reimbursement,
but not later than the December 31 following the calendar year
in which the expense was incurred and not earlier than the Delayed
Payment Date.
“Retirement” means
Executive’s Separation from Service on the Retirement Date
which shall occur automatically pursuant to the terms of this
Employment Agreement in the event Executive’s Separation from
Service has not occurred before the Retirement Date.
“Retirement Date” means
October 3, 2008.
“Separation from
Service” means Executive’s separation from service with
the Company and its affiliates within the meaning of Treas. Reg.
§1.409A-1(h) or any successor thereto.
“Severance Allowance”
means:
(i) For the purposes of Paragraph
10(a)(i) (i.e., with respect to a Severance Event following a
Significant Transaction), an amount equal to 300% of the sum of
(x) Executive’s then current annual rate of Base Salary,
plus (y) the greatest of the annual amounts paid to Executive
by the Company under all bonus and annual incentive plans and
discretionary bonuses during any of the three (3) calendar
years immediately preceding the year in which the Significant
Transaction occurred, but in no event shall the amount under
(y) be less than the amount of a mid-level bonus which would
otherwise have been payable to Executive for the calendar year in
which the Significant Transaction occurred.
(ii) For the purposes of Paragraph
11(e) (i.e., with respect to all other Severance Events), an amount
equal to 300% of the sum of (x) Executive’s then current
annual rate of Base Salary plus (y) the greater of the average
of the amounts paid to Executive by the Company under all bonus and
annual incentive plans and discretionary bonuses for the two
(2) calendar years immediately preceding the year in which the
Severance Event occurred or the amount of a mid-level bonus which
would otherwise have been payable to Executive for the calendar
year in which the Severance Event occurred.
“Severance Event” means
Executive’s Separation from Service before the Retirement
Date for any reason other than (i) Executive’s death or
Disability, (ii) by the Company for Cause, (iii) by
Executive for other than Good Reason, or (iv) by reason of
Executive having given the Company notice of intention to terminate
pursuant to Paragraph 3. A Severance Event shall include
Executive’s Separation from Service by reason of the Company
having given Executive notice of termination pursuant to Paragraph
3, but shall not include Executive’s Separation from Service
on the Retirement Date.
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“Significant
Transaction” means the occurrence of any of the following
before the Retirement Date:
(i) A Person (other than the Company
or its wholly-owned subsidiaries; or any ESOP or other employee
benefit plan of the Company and any trustee or other fiduciary in
such capacity holding securities under such plan; any corporation
owned, directly or indirectly, by the shareholders of the Company
in substantially the same proportions as their ownership of capital
stock of Company; or any other Person who is as of the date of this
Employment Agreement an executive officer of the Company or any
group of Persons of which he or she voluntarily is a part) is or
becomes the Beneficial Owner of securities of the Company
representing 30% or more of the combined voting power of the
Company’s then outstanding securities or such lesser
percentage of voting power, but not less than 15%, as determined by
the members of the Board who are independent directors (as defined
in the New York Stock Exchange, Inc. Listed Company Manual);
provided, however, that a Significant Transaction shall not be
deemed to have occurred under the provisions of this subparagraph
(i) by reason of the Beneficial Ownership of voting securities
by members of the Benoliel Family unless the Beneficial Ownership
of all members of the Benoliel Family (including any other
individuals or entities who or which, together with any member or
members of the Benoliel Family are deemed to constitute a Person)
exceeds 50% of the combined voting power of the Company’s
then outstanding securities; or
(ii) During any
two-year period during the Term of Employment, directors of the
Company in office at the beginning of such period plus any new
director (other than a director designated by a Person who has
entered into an agreement with the Company to effect a transaction
described in subparagraphs (i) or (iii) hereof) whose
election to the Board or whose 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 at the beginning of the period or
whose election or nomination for election was previously so
approved, shall cease for any reason to constitute at least a
majority of the Board; or
(iii) The consummation of
(1) any consolidation or merger of the Company in which the
Company is not the continuing or surviving corporation or pursuant
to which the Company’s Common Stock would be converted into
cash, securities or other property, other than a merger of the
Company in which holders of the Company’s Common Stock
immediately prior to the merger have the same proportionate
ownership of voting shares of the surviving corporation immediately
after merger as they had in the Common Stock immediately before, or
(2) any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets or earning power of the Company;
or
(iv) The Company’s
shareholders or the Board shall approve the liquidation or
dissolution of the Company.
10. Significant Transaction
.
(a) (i) On or before the Effective
Date, the Company shall deliver to Escrow Agent a sum
(“Escrow Fund”) equal to the applicable Severance
Allowance; provided, however, that notwithstanding any provision of
this Employment
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Agreement to the contrary
(A) such transfer shall not be made if it would result in the
imposition of additional tax under Section 409A(b)(5) of the
Code, and (B) after such transfer, the funds shall remain
available to satisfy claims of the Company’s general
creditors. The Escrow Fund shall be invested by Escrow Agent in
certificates of deposit with duration not more than thirty
(30) days issued by any bank (including Escrow Agent) or
savings institution the accounts of which are insured by the FDIC
(and, unless otherwise agreed by the Company and Executive, with a
maximum of $100,000 in any single such institution). Any cash
accumulation with respect to the Escrow Fund in the form of
interest shall be the property of and shall be payable by Escrow
Agent to the Company (or to any successor to the Company) as
received by Escrow Agent and are not part of the Escrow
Fund.
(ii) In the event of the occurrence
of a Severance Event during the three (3) year period
following a Significant Transaction, Executive shall send Escrow
Agent and the Company (or its successor) a demand, within thirty
(30) days of the Severance Event, that the Escrow Fund be paid
to him in accordance with this subparagraph (ii) and
subparagraph (vi) (a “Demand”). If the Company (or
its successor) does not send an objection to the Demand which
states that a Severance Event has not occurred and sets forth
specific and detailed facts for the reason for said statement (an
“Objection”) to Escrow Agent and Executive prior to the
end of the Objection Period (hereafter defined), Escrow Agent shall
pay (or commence to pay) the Escrow Fund to Executive on the
Delayed Payment Date. The Objection Period shall begin on the date
of the Demand and shall end at 5:00 p.m. Philadelphia time, on the
tenth calendar day following the date of the Demand, or if such day
is not a day when Escrow Agent is generally open for business in
Philadelphia, the Objection Period shall end at 5:00 p.m.
Philadelphia time on the next day after such tenth day that Escrow
Agent is generally open for business in Philadelphia. For purposes
of this Paragraph 10(a), notwithstanding the provisions of
Paragraph 18, a Demand and an Objection shall not be deemed
received until Escrow Agent shall have actually received the Demand
or Objection, as the case may be, and all time frames specified in
this subparagraph (ii) shall be measured from the actual date
of Escrow Agent’s receipt.
(iii) If Escrow Agent receives an
Objection before the end of the Objection Period, Escrow Agent
shall not pay (or commence to pay) the Escrow Fund to Executive,
and, except as provided herein, shall not comply with any claims,
demands or instructions from Executive and/or the Company (or its
successor) with respect to the Escrow Fund. Escrow Agent shall not
be or become liable in any way to the Company (or its successor),
Executive or any other person or entity for its failure or refusal
to comply with such conflicting claims or demands. Escrow Agent
shall be entitled to refuse to act until (1) such conflicting
claims or demands shall have been finally determined by an award in
an arbitration proceeding (pursuant to Paragraph 17), or settled by
agreement between the conflicting parties as evidenced in a writing
satisfactory to Escrow Agent, or (2) Escrow Agent shall have
received security or indemnity satisfactory to Escrow Agent
sufficient to save it harmless from and against any and all loss,
liability or expense which it may incur by reason of its acting.
Escrow Agent may, in addition, elect to commence an interpleader
action or seek other judicial relief or orders as it may deem
necessary. All of Escrow Agent’s reasonable costs and
expenses of bringing and maintaining such action, including but not
limited to reasonable fees and expenses of separate counsel for
Escrow Agent, shall be paid by the Company (or its successor).
Escrow Agent shall pay (or commence to pay) the Escrow Fund to
Executive as soon as practicable after, but no later than the end
of the first calendar year in which, Executive and the Company
enter into a legal binding settlement of the dispute, the Company
concedes that the Escrow Fund is payable to Executive, or the
Company is required to make such payment pursuant to a final and
nonappealable judgment or other binding decision.
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(iv) If an arbitration proceeding or
an interpleader action is commenced by reason of the Company having
sent an Objection to a Demand and if said proceeding or action
results in a finding or decision in favor of Executive (i.e., that
the Objection was improper or inappropriate), then (A) the
amount the Company shall pay to Executive under Paragraph
10(a)(iii) shall be increased by (I) interest earned on the
Escrow Fund from the date of the Objection to the date the Escrow
Fund is paid to Executive, and (II) an amount equal to 25% of the
Escrow Fund, and (B) the Company shall reimburse Executive for
Executive’s costs and expenses (including counsel fees) in
said proceeding or action, subject to the Reimbursement
Rule.
(v) If Escrow Agent does not receive
a timely Demand from Executive by November 30, 2008, Escrow
Agent shall pay the Escrow Fund to the Company (or its successor)
with ten (10) business days of such date.
(vi) The Escrow Fund
(and any other amounts due to Executive under this Paragraph 10(a))
shall be paid (A) in a single sum if (I) the Significant
Transaction also constitutes a “change in control
event” within the meaning of Treas. Reg. §1.409A-3(i)(5)
or any successor thereto, and (II) the Severance Event occurs
within two (2)&nb
