Exhibit 10.3
TRANSITIONAL COMPENSATION
AGREEMENT
THIS AGREEMENT made and
entered into as of November 20, 2002 and amended and restated
as of December , 2008 by and between Woodward
Governor Company, a Delaware corporation, (hereinafter called the
“Corporation”) and Thomas A. Gendron (hereinafter
called the “Executive”).
WITNESSETH
THAT:
WHEREAS, the Board of
Directors of the Corporation (the “Board”) has
determined that it is in the best interests of the Corporation and
its shareholders to assure that the Corporation will have the
continued dedication of the Executive, despite the possibility,
threat or occurrence of a Change in Control (as defined below) of
the Corporation; and
WHEREAS, the Board
believes that it is imperative to diminish the inevitable
distraction of the Executive which would result from the personal
uncertainties and risks created by a threatened or pending Change
in Control and to encourage the Executive’s full attention
and dedication to the business of the Corporation currently and in
the event of any threatened or pending Change in Control and to
provide the Executive with appropriate compensation and benefit
protection upon a Change in Control;
NOW, THEREFORE, the
Corporation and the Executive, each intending to be legally bound,
hereby mutually covenant and agree as follows:
1.
Term. This Agreement shall become effective upon
the occurrence of a Change in Control (as defined in
Paragraph 4(d), below) (hereinafter called the
“Effective Date”) and shall remain in effect for a term
continuing until the end of the twenty-fourth (24th) calendar month
following the month in which the Effective Date occurs; provided,
however, that, anything in this Agreement to the contrary
notwithstanding, if a Change in Control occurs and if the
Executive’s employment with the Corporation was terminated
prior to the date on which the Change in Control occurs, and if it
is reasonably demonstrated by the Executive that such termination
of employment (a) was at the request of a third party who was
taking steps reasonably calculated to effect a Change in Control or
(b) otherwise arose in connection with or anticipation of a
Change in Control, then for all purposes of this Agreement the
“Effective Date” shall mean the date immediately prior
to the date of such termination of employment.
2.
Employment. After the Effective Date, the
Corporation shall employ the Executive to, and the Executive shall,
exercise such authority and perform such executive duties as are
commensurate with the authority being exercised and performed by
the Executive during the ninety-day period immediately prior to the
Effective Date, which services shall be performed at the location
where the Executive was employed immediately prior to the Effective
Date. The Executive shall also continue to serve as a member of the
Board of Directors of the Corporation, if serving as such as of the
Effective Date. The Executive shall devote substantially his entire
time during reasonable business hours (reasonable sick leave and
vacations excepted) and reasonable best efforts to fulfill
faithfully and responsibly his duties hereunder. During the period
of employment after the Effective Date, it shall not be a violation
of this Agreement for the Executive to serve on corporate, civic or
charitable boards or committees, or be involved in civic,
charitable or educational endeavors, or manage personal
investments, so long as such activities do not significantly
interfere with the performance of Executive’s
responsibilities as an employee of the Corporation hereunder. It is
expressly agreed and understood that to the extent any such
activities were conducted by the Executive prior to the Effective
Date, the continued conduct of such or similar activities
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive’s
responsibilities to the Corporation.
3. Compensation
and Benefits. For the Executive’s employment
with the Corporation after the Effective Date, the Executive shall
be compensated as follows:
(a) The Executive
shall receive an annual base salary at a rate not less than the
highest aggregate annual base salary and seniority-based vacation
plan amount paid or payable to the Executive by the Corporation
during the 24 month period immediately prior to the Effective
Date, to be paid in accordance
the Corporation’s regular
payroll practices. Such amount, or such greater annual base salary
rate which may be paid or payable to the Executive after the
Effective Date, is hereinafter referred to as the “Annual
Base Salary.”
(b) The Executive
shall be eligible to participate on a reasonable basis in the
Corporation’s bonus and incentive compensation plans and
programs which provide opportunities to receive compensation which
are not less than opportunities provided by the Corporation for
executives with comparable annual base salary.
(c) The Executive
shall be entitled to receive executive and employee benefits and
perquisites which are not less than the executive and employee
benefits and perquisites provided by the Corporation to executives
with comparable annual base salary.
For purposes of this
Paragraph 3, “executives with comparable annual base
salary” shall mean those executives of the Corporation whose
annual base salary falls within a range the low end of which is 90%
of the Executive’s Annual Base Salary and the high end of
which is 110% of the Executive’s Annual Base
Salary.
4.
Termination. Unless earlier terminated in
accordance with the following provisions of this Paragraph 4,
the Corporation shall continue to employ the Executive and the
Executive shall remain employed by the Corporation from the
Effective Date through the end of the term of this Agreement as set
forth in Paragraph 1, above. Paragraph 6 hereof sets
forth certain obligations of the Corporation in the event that the
Executive’s employment hereunder is terminated prior to the
expiration of such term. Certain capitalized terms used in this
Paragraph 4 and in Paragraphs 5 and 6 hereof are defined
in Paragraph 4(d), below.
(a) Death or
Disability. The Executive’s employment shall
terminate immediately as of the Date of Termination in the event of
the Executive’s death or in the event that the Executive
becomes disabled. The Executive will be deemed to be disabled upon
the earlier of (i) the end of a six (6)-consecutive month
period during which, by reason of physical or mental injury or
disease, the Executive has been unable to perform substantially all
of his usual and customary duties under this Agreement or
(ii) the date that a reputable physician selected by the
Board, and as to whom the Executive has no reasonable objection,
determines in writing that the Executive will, by reason of
physical or mental injury or disease, be unable to perform
substantially all of the Executive’s usual and customary
duties under this Agreement for a period of at least six
(6) consecutive months. If any question arises as to whether
the Executive is disabled, upon reasonable request therefor by the
Board, the Executive shall submit to reasonable medical examination
for the purpose of determining the existence, nature and extent of
any such disability. The Board shall promptly give the Executive
written notice of any such determination of the Executive’s
disability and of any decision of the Board to terminate the
Executive’s employment by reason thereof. Until the Date of
Termination for disability, the base salary payable to the
Executive shall be reduced dollar-for-dollar by the amount of any
disability benefits paid to the Executive in accordance with any
disability policy or program of the Corporation.
(b) Discharge
for Cause. In accordance with the procedures
hereinafter set forth, the Board may discharge the Executive from
his employment hereunder for Cause. Any discharge of the Executive
for Cause shall be communicated by a Notice of Termination to the
Executive given in accordance with Paragraph 14 of this
Agreement. For purposes of this Agreement, a “Notice of
Termination” means a written notice which (i) indicates
the specific termination provision in this Agreement relied upon,
(ii) sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
Executive’s employment under the provision so indicated and
(iii) specifies the termination date, which may be as early as
the date of the giving of such notice. No purported termination of
the Executive’s employment for Cause shall be effective
without a Notice of Termination.
(c) Termination
for Other Reasons. The Corporation may discharge
the Executive without Cause by giving written notice to the
Executive in accordance with Paragraph 14 at least fifteen
(15) days prior to the Date of Termination. The Executive may
resign from his employment, without liability to the Corporation,
by giving written notice to the Corporation in accordance with
Paragraph 14 at least fifteen (15) days prior to the Date
of Termination.
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(d)
Definitions. For purposes of this Agreement, the
following capitalized terms shall have the meanings set forth
below:
(i)
“Accrued Obligations” shall mean, as of the Date
of Termination, the sum of (A) the Executive’s Annual
Base Salary through the Date of Termination to the extent not
theretofore paid, (B) the amount of any bonus, incentive
compensation, deferred compensation and other cash compensation
accrued by the Executive as of the Date of Termination to the
extent not theretofore paid and (C) any vacation pay, expense
reimbursements and other cash entitlements accrued by the Executive
as of the Date of Termination to the extent not theretofore paid.
For the purpose of this Paragraph 4(d)(i), amounts shall be
deemed to accrue ratably over the period during which they are
earned, but no discretionary compensation shall be deemed earned or
accrued until it is specifically approved by the Board or the
Compensation Committee in accordance with the applicable plan,
program or policy.
(ii)
“Cause” shall mean: (A) the
Executive’s commission of an act materially and demonstrably
detrimental to the financial condition and/or goodwill of the
Corporation or any of its subsidiaries, which act constitutes gross
negligence or willful misconduct by the Executive in the
performance of his material duties to the Corporation or any of its
subsidiaries, or (B) the Executive’s commission of any
material act of dishonesty or breach of trust resulting or intended
to result in material personal gain or enrichment of the Executive
at the expense of the Corporation or any of its subsidiaries, or
(C) the Executive’s conviction of a felony involving
moral turpitude, but specifically excluding any conviction based
entirely on vicarious liability. No act or failure to act will be
considered “willful” unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief
that his action or omission was in the best interests of the
Corporation. In addition, no act or omission will constitute Cause
unless (A) a resolution finding that Cause exists has been
approved by a majority of all of the members of the Board at a
meeting at which the Executive is allowed to appear with his legal
counsel and (B) the Corporation has given detailed written
notice thereof to the Executive and, where remedial action is
feasible, he then fails to remedy the act or omission within a
reasonable time after receiving such notice.
(iii) A
“Change in Control” shall be deemed to have
occurred if:
(A) Any
“person” (as defined in Section 13(d) and 14(d) of
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”)), excluding for this purpose the
Corporation or any subsidiary of the Corporation, or any employee
benefit plan of the Corporation or any subsidiary of the
Corporation, or any person or entity organized, appointed or
established by the Corporation for or pursuant to the terms of such
plan which acquires beneficial ownership of voting securities of
the Corporation, is or becomes the “beneficial owner”
(as defined in Rule 13d-3 under the Exchange Act) directly or
indirectly of securities of the Corporation representing fifteen
percent (15%) or more of the combined voting power of the
Corporation’s then outstanding securities; provided, however,
that no Change in Control shall be deemed to have occurred
(1) as the result of an acquisition of securities of the
Corporation by the Corporation which, by reducing the number of
voting securities outstanding, increases the direct or indirect
beneficial ownership interest of any person to fifteen percent
(15%) or more of the combined voting power of the
Corporation’s then outstanding securities, but any subsequent
increase in the direct or indirect beneficial ownership interest of
such a person in the Corporation shall be deemed a Change in
Control, or (2) as a result of the acquisition directly from
the Corporation of securities of the Corporation representing less
than 50% of the voting power of the Corporation, or (3) if the
Board of Directors of the Corporation determines in good faith that
a person who has become the beneficial owner directly or indirectly
of securities of the Corporation representing fifteen percent (15%)
or more of the combined voting power of the Corporation’s
then outstanding securities has inadvertently reached that level of
ownership interest, and if such person divests as promptly as
practicable a sufficient amount of securities of the Corporation so
that the person no longer has a direct or indirect beneficial
ownership interest in fifteen percent (15%) or more of the combined
voting power of the Corporation’s then outstanding
securities; or
(B) During any
period of two (2) consecutive years (not including any period
prior to the Effective Date of this Agreement), individuals who at
the beginning of such two-year period constitute the Board of
Directors of the Corporation and any new director or directors
(except for any
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director designated by a person who
has entered into an agreement with the Corporation to effect a
transaction described in subparagraph (A), above, or subparagraph
(C), below) whose election by the Board or nomination for election
by the Corporation’s shareholders was approved by a vote of
at least two-thirds 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,
cease for any reason to constitute at least a majority of the Board
(such individuals and any such new directors being referred to as
the “Incumbent Board”); or
(C) Consummation of
(1) an agreement for the sale or disposition of the
Corporation or all or substantially all of the Corporation’s
assets, (2) a plan of merger or consolidation of the
Corporation with any other corporation, or (3) a similar
transaction or series of transactions involving the Corporation
(any transaction described in parts (1) through (3) of
this subparagraph (C) being referred to as a “Business
Combination”), in each case unless after such a Business
Combination (x) the shareholders of the Corporation
immediately prior to the Business Combination continue to own,
directly or indirectly, more than fifty-one percent (51%) of the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors of the new
(or continued) entity (including, but not by way of limitation, an
entity which as a result of such transaction owns the Corporation
or all or substantially all of the Corporation’s former
assets either directly or through one or more subsidiaries)
immediately after such Business Combination, in substantially the
same proportion as their ownership of the Corporation immediately
prior to such Business Combination, and (y) at least a
majority of the members of the board of directors of the entity
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
(D) Approval by the
shareholders of the Corporation of a complete liquidation or
dissolution of the Corporation.
(iv)
“Date of Termination” shall mean (A) in the
event of a discharge of the Executive by the Board for Cause, the
date specified in such Notice of Termination, (B) in the event
of a discharge of the Executive without Cause or a resignation by
the Executive, the date specified in the written notice to the
Executive (in the case of discharge) or the Corporation (in the
case of resignation), which date shall be no less than fifteen
(15) days and no more than thirty-one (31) days from the
date of such written notice; provided however, if the written
notice is received in December, the fifteen (15) days notice
period may be shortened so that in no event will the Date of
Termination occur in the year following the year in which the
written notice is received by either party, (C) in the event
of the Executive’s death, the date of the Executive’s
death, and (D) in the event of termination of the
Executive’s employment by reason of disability pursuant to
Paragraph 4(a), the date the Executive receives written notice
of such termination.
(v) “Good
Reason” shall mean any of the following without the
written consent of the Executive: (A) (1) assignment of duties
inconsistent with the Executive’s position, authority, duties
or responsibilities referred to in Paragraph 2, or any action
by the Corporation which results in a substantial diminution of
such position, authority, duties or responsibilities, other than an
isolated, insubstantial and inadvertent action not taken in bad
faith and which is remedied by the Corporation promptly after
receipt of notice thereof given by the Executive, or (2) if
applicable, removal or other failure to continue Executive as a
member of the Board as required by Paragraph 2, (B) any
reduction in Executive’s Annual Base Salary, or bonus or
incentive opportunities from those referred to in
Paragraph 3(a) or 3(b), other than an isolated, insubstantial
and inadvertent reduction not made in bad faith and which is
remedied by the Corporation promptly after receipt of notice
thereof given by the Executive, or (c) a relocation of
Executive to an office location more than 30 miles from the
location referred to in Paragraph 2, or (D) failure by
the Corporation to provide Executive with the executive or employee
benefits and perquisites referred to in Paragraph 3(c), other
than an isolated, insubstantial and inadvertent reduction not made
in bad faith and which is remedied by the Corporation promptly
after receipt of notice thereof given by the Executive, or
(E) failure by any successor to enter into the assumption of
and agreement to perform this Agreement referred to in
Paragraph 13. For purposes of this Paragraph 4(d)(v), any
good faith determination by the Executive that one of the foregoing
events has occurred shall be conclusive. In
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addition, resignation for any
reason by the Executive, which resignation is to be effective at
any time during the 30 day period beginning twelve
(12) months after the Effective Date shall constitute a
resignation for Good Reason; provided, further, that if the
Executive dies or becomes disabled after the execution of a
definitive agreement for a transaction which will constitute a
Change in Control but before the expiration of such 30-day period,
then the Executive shall be deemed to have terminated employment
for Good Reason on the later of (1) the effective date of the
Change in Control or (2) the date of the Executive’s
death or termination of employment due to disability.
(vi)
“Qualifying Termination” shall mean termination
of the Executive’s employment after the Effective Date and
during the term of this Agreement as described in Paragraph 1,
above, (A) by reason of the discharge of the Executive by the
Corporation other than for Cause or disability or (B) by
reason of the resignation of the Executive for Good Reason within
six (6) months after an event constituting Good Reason or
(C) in accordance with the last sentence of the definition of
Good Reason in subparagraph (v), above.
5. Vesting of
Equity Awards Upon a Change in Control. Immediately
upon a Change in Control, all stock options, restricted stock and
other equity awards to the Executive which are not otherwise vested
shall vest in full, and all options shall remain exercisable for
the period provided for in the applicable plan or award
agreement.
6. Obligations
of the Corporation Upon Termination. The following
provisions describe certain obligations of the Corporation to the
Executive under this Agreement upon termination of his employment.
However, except as explicitly provided in this Agreement, nothing
in this Agreement shall limit or otherwise adversely affect any
rights which the Executive may have under applicable
law,
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