Exhibit 10.1
EMPLOYMENT AGREEMENT
AGREEMENT by and between W. R. Grace & Co., a New York
corporation (the "COMPANY"), and Mr. Albert J. Costello (the "EXECUTIVE"), dated
as of the 1st day of May, 1995.
WHEREAS, the Board of Directors of the Company (the "BOARD")
has determined that it is in the best interests of the Company and its
shareholders to employ the Executive as Chairman, President and Chief Executive
Officer and the Executive desires to serve in that capacity;
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. EMPLOYMENT PERIOD. The Company shall employ the
Executive, and the Executive shall serve the Company, on the terms and
conditions set forth in this Agreement, for the period beginning on May 1, 1995
and ending on April 30, 1998 (together with any extensions or renewals of such
period, the "EMPLOYMENT PERIOD"). The Board shall provide the Executive with a
notice of its intentions regarding renewal of this Agreement no later than May
30, 1997; PROVIDED, HOWEVER, that if such notice is not provided to the
Executive by the Board by May 30, 1997, the Employment Period shall be auto-
matically extended until April 30, 1999 (unless the Executive gives notice to
the Company by June 30, 1997 that he elects not to extend the Employment
Period). At the conclusion of any renewal or
extension, the Employment Period shall be automatically extended without
further action of either party for ad-ditional one-year periods beginning on
May 1 of each calendar year, unless one party hereto has given written notice
of nonextension to the other party hereto at least six months prior to the
expiration of the Employment Period as then in effect.
2. POSITION AND DUTIES. (a) During the Employment Period,
the Executive shall be the Chairman, President and Chief Executive Officer of
the Company and shall have such duties and authority as are normally associated
with such offices. The Executive shall report directly to the Board.
(b) During the Employment Period, and excluding any periods
of vacation to which the Executive is entitled and reasonable periods of absence
due to illness or injury, the Executive shall devote his full attention and time
during normal business hours to the business and affairs of the Company and, to
the extent necessary to discharge the responsibilities assigned to the Executive
under this Agreement, use his best efforts to carry out such responsibilities
faithfully and efficiently. It shall not be considered a violation of the
foregoing for the Executive to (A) serve on corporate, civic or charitable
boards or committees or engage in charitable activities, (B) deliver lectures,
fulfill speaking engagements or teach on a part-time basis at educational
institutions and (C)
manage personal investments for himself and members of his "immediate family"
(as that term is defined in Item 404 of Regulation S-K of the Securities and
Exchange Commission), so long as such activities do not interfere with the
performance of the Executive's responsibilities to the Company as Chairman
and pursuant to this Agreement.
(c) The Executive's services shall be performed at the
Company's headquarters in Boca Raton, Florida, except for reasonably required
travel on Company business, and the Company shall pay his relocation
expenses, including, without limitation, temporary housing, closing costs and
moving expenses, in connection with the Executive's relocation to a residence
in the same vicinity as the Company's headquarters, in accordance with the
policies, practices and procedures of the Company (including any policies
concerning submission of reports, receipts and similar documentation of such
expenses).
(d) Promptly following the Company's 1995 Annual Meeting of
Shareholders, the Executive shall be elected as a director, and he shall stand
for reelection as such at the Company's 1996 Annual Meeting of Shareholders and
at any subsequent Annual Meeting of Shareholders occurring during the Employment
Period at which, pursuant to applicable law and/or the Company's Certificate of
Incorporation or By-Laws, the Executive is scheduled to stand for reelection.
3. COMPENSATION. (a) BASE SALARY. During the Employment
Period, the Executive shall receive an annual base salary ("ANNUAL BASE SALARY")
of no less than $900,000, payable at the same times and intervals at which
salary payments are made to other senior executives of the Company generally.
During the Employment Period, the Annual Base Salary shall be reviewed for
possible increase at such times and in such amounts as are in accordance with
the Company's policy for senior executives as in effect from time to time. Any
increase in the Annual Base Salary shall not limit or reduce any other
obligation of the Company under this Agreement. The Annual Base Salary shall
not be reduced after any such increase without the consent of the Executive, and
the term "ANNUAL BASE SALARY" shall thereafter refer to the Annual Base Salary
as so increased.
(b) INCENTIVE COMPENSATION. (i) ANNUAL BONUS. In
addition to the Annual Base Salary, the Executive shall be awarded (A) for the
period from May 1, 1995 to December 31, 1995, a bonus (the "1995 BONUS") of at
least $900,000, payable promptly following December 31, 1995, and (B) for each
subsequent calendar year ending during the Employment Period, an annual bonus
(each such bonus, including the 1995 Bonus, an "ANNUAL BONUS") based on the
performance of the Company under
the annual incentive compensation program or plan of the Company then in
effect for the benefit of its senior executives.
(ii) LONG-TERM INCENTIVE COMPENSATION. During the
Employment Period, except as otherwise specified in this Section 3(b)(ii), the
Executive shall participate in the Company's Long-Term Incentive Program or any
successor program or plan hereafter adopted by the Company (such program and any
such successor, the "LTIP") for the benefit of its senior executive officers, on
the same basis as other senior executives of the Company. With respect to the
LTIP performance periods for 1993-1995, 1994-1996 and 1995-1997, the Executive
shall receive targeted awards of performance units under the LTIP as follows:
Number of Performance
Performance Units Period
----------------- -----------
5,600 1993-1995
13,950 1994-1996
22,275 1995-1997
The objectives for the foregoing awards shall be as set forth on Exhibit A
hereto. Payments with respect to such awards shall be made no more than 50
percent in common stock of the Company. There shall be no awards of stock
options in connection with the grant of the foregoing targeted awards under the
LTIP. Beginning with the LTIP performance period that begins in 1996, the
Executive shall participate in the LTIP on the
same basis as other senior executives of the Company and shall be eligible to
receive grants of stock options ("COMPANION OPTIONS") in connection with the
grant of targeted awards under the LTIP on the same basis as other senior
executives of the Company, as more specifically set forth in paragraph (g) of
Section 3. Notwithstanding the foregoing, the Executive's participation in the
LTIP and the granting to him of Companion Options shall be subject,
respectively, to all requirements and limitations of the LTIP and the Company's
1989 Stock Incentive Plan (the "1989 PLAN"), the Company's 1994 Stock Incentive
Plan (the "1994 PLAN"), and the respective successors thereto, as applicable,
including without limitation the overall limitation on the number of shares of
stock with respect to which stock incentive awards may be granted under the
applicable stock incentive plan. The Company shall pay any awards earned by the
Executive under the LTIP in cash rather than stock to the extent necessary
because of a lack of available shares, but, to the extent necessary, the Company
shall use its best efforts to amend the 1994 Plan and obtain any shareholder
approvals necessary to permit the Executive to participate in the 1994 Plan on
the same basis as other senior executives of the Company. In the event of a
Non-renewal, as defined in Section 3(g)(iii) below, the Company shall pay to the
Executive in a lump sum in cash within 30 days after the expiration of the
Employment Period an amount equal to the value of the targeted performance
units granted to the Executive for each cycle under the LTIP that includes the
last day of the Employment Period, computed based on the assumption that the
performance goals for each such cycle are met at the target levels and based on
the fair market value of the Company's common stock on the last day of the
Employment Period, and multiplying such amount by a fraction, the numerator of
which is the number of days in the relevant cycle through the last day of the
Employment Period, and the denominator of which is the total number of days in
such cycle (the "NON-RENEWAL FRACTION"). If the value of the performance units
that the Executive would have earned for any such cycle if his employment had
continued through the end of such cycle, multiplied by the Non-renewal Fraction,
exceeds the amount paid to him pursuant to the preceding sentence, then the
Company shall pay him such excess in a lump sum in cash at the time when awards
are first paid to participants generally with respect to such cycle.
(c) OTHER BENEFITS. During the Employment Period: (i) the
Executive shall be entitled to participate in all equity, incentive, savings and
retirement plans, practices, policies and programs of the Company to the same
extent as other senior executives of the Company; and (ii) the Executive and/or
the Executive's family, as the case may be, shall be eligible for participation
in, and shall receive all benefits under, all
welfare benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life insurance, group life
insurance, accidental death and travel accident insurance plans and programs)
to the same extent as other senior executives of the Company.
(d) EXPENSES. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in carrying out the Executive's duties under this
Agreement, in accordance with the policies, practices and procedures of the
Company (including any policies concerning submission of expense re-
ports, receipts and similar documentation of such expenses).
(e) FRINGE BENEFITS. During the Employment Period, the
Executive shall be entitled to fringe benefits provided by the Company on the
same basis and to the same extent as other senior executives of the Company.
The Executive's entitlement to such benefits will be in accordance with and
subject to the terms and provisions of the applicable Company policy.
(f) VACATION. During the Employment Period, the Executive
shall be entitled to paid vacation of not less than four weeks during each
twelve-month period, and shall be entitled to carry over unused vacation time in
accordance with applicable Company policy.
(g) STOCK OPTIONS. (i) The Executive will be granted,
effective as of May 1, 1995, non-statutory stock options covering 300,000 shares
(the "INITIAL OPTIONS") under the 1994 Plan, with an exercise price equal to the
Fair Market Value (as defined in such plan) on May 1, 1995, such options to vest
and become exercisable as to 100,000 shares on each of May 2, 1996, May 2, 1997
and May 2, 1998.
(ii) As specified in paragraph (b)(ii) of Section 3, the
Executive shall be granted Companion Options on the same terms and conditions
as other senior executives (including without limitation the vesting
schedule), beginning with the LTIP cycle that begins in 1996. Because of
limitations on the number of options permitted to be granted to any
individual under the 1994 Plan, the Company shall be permitted to utilize
shares available under the 1989 Plan, as needed, to accomplish the grant of
Companion Options to the Executive. In the event of a merger or consolidation
of the Company in which the Company's common stock is converted into the
right to receive a specified amount of cash per share (the "MERGER PRICE"),
then each of the Executive's Companion Options that were granted under the
1989 Plan that are outstanding immediately prior to the effective time of
such merger or consolidation (the "EFFECTIVE TIME") shall be treated as
follows: each such Companion Option having a per share exercise price that
is less than
the Merger Price shall terminate at the Effective Time and be of no further
force and effect, and the Executive shall be paid in cash, as promptly as
practicable following the Effective Time, an amount equal to the product of
(A) the excess of the Merger Price over the per share exercise price of such
option times (B) the number of shares covered by such option immediately
prior to the Effective Time.
(iii) The Initial Options and the Companion Options (and
any other options granted to the Executive under any stock incentive or
similar plan of the Company) shall become exercisable in full (A) upon
termination of the Executive's employment by the Company without Cause or by
the Executive for Good Reason (as those terms are defined in Section 4
hereof), or by reason of the Executive's death or Disability (as defined
below), (B) upon termination of the Executive's employment at the end of the
Employment Period, if such termination follows a failure by the Company to
renew this Agreement (as opposed to a decision by the Executive not to
continue his employment) beyond April 30, 1998, as provided in Section 1 (a
"Non-renewal"), or (C) on the Change in Con-trol Date (as defined below), to
the extent they are not then exercisable, and shall remain exercisable for
the lesser of (i) the remainder of the option term and (ii) a period of three
years after such event described in clause (A), (B) or (C) (or such longer
period as may be provided under the terms of such option). For purposes
of the preceding sentence, "CHANGE IN CONTROL DATE" means the earliest of (i)
the date on which a Change in Control of the Company (as defined in Section
6(c) hereof) occurs, (ii) the date on which the Company executes an
agreement, the consummation of which would result in the occurrence of a
Change in Control of the Company, (iii) the date the Board ap-proves a
transaction or series of transactions, the consummation of which would result
in a Change in Control of the Company and (iv) the date on which a tender or
exchange offer for 20% or more of the outstanding common stock of the Company
is made.
(h) LIFE INSURANCE. During the Employment Period, the
Company shall pay all premiums necessary to maintain in effect a policy of whole
life insurance (the "LIFE INSURANCE POLICY") on the life of the Executive with a
death benefit payable to a beneficiary designated by the Executive equal to not
less than two times the Annual Base Salary. The terms and conditions of the
Life Insurance Policy shall be similar to the terms and conditions of the split-
dollar life insurance policies provided by the Company to other senior ex-
ecutives, or such other mutually agreeable terms and conditions as the Company
and the Executive may agree; PROVIDED, that the Life Insurance Policy shall be
put in place not later than July 31, 1995, or such later date as may be agreed
by the Company and the Executive.
4. TERMINATION OF EMPLOYMENT. (a) DEATH OR DISABILITY.
The Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period.
The Company shall be entitled to terminate the Executive's employment because of
the Executive's Disability during the Employment Period. "DISABILITY" means
that the Executive has become "disabled" within the meaning of Grace's Long Term
Disability Income Plan. In the event there is a dispute as to whether the
Executive has become Disabled, the opinion of a physician mutually selected by
the Company and the Executive (who shall apply the foregoing definition) shall
be final and binding on both parties. A termination of the Executive's em-
ployment by the Company for Disability shall be communicated to the Executive by
written notice, and shall be effective on the 30th day after receipt of such
notice by the Executive (the "DISABILITY EFFECTIVE DATE"), unless the Executive
returns to full-time performance of the Executive's duties before the Disability
Effective Date.
(b) BY THE COMPANY. (i) The Company may terminate the
Executive's employment during the Employment Period for Cause or without Cause.
For purposes of this Agreement, "CAUSE" means (A) the continued refusal by the
Executive to substantially carry out the duties and responsibilities assigned to
him that are consistent with the title and status assigned to him pursuant to
Section 2(a) hereof (other than any
such refusal resulting from his incapacity due to Disability or other
physical or mental illness) after a written demand for substantial
performance is delivered to the Executive as authorized by the Board, which
demand specifically identifies the manner in which the Board believes that
the Executive has not substantially carried out his duties and
responsibilities, (B) the engaging by the Executive in misconduct that is
mate-rially injurious to the Company, monetarily or otherwise, or (C) the
violation by the Executive of any material provision of this Agreement. Any
act or omission based upon authority given by or pursuant to an action of the
Board or upon the advice of counsel for the Company shall be conclusively
presumed either not to be willful or to constitute a refusal or misconduct on
the part of the Executive and to be done or omitted by the Ex-ecutive in good
faith and in the best interest of the Company.
(ii) A termination of the Executive's employment for
Cause shall be effected in accordance with the following procedures. The
Company shall give the Executive written notice ("NOTICE OF TERMINATION FOR
CAUSE") of its intention to terminate the Executive's employment for Cause,
setting forth in reasonable detail the specific conduct of the Executive that it
considers to constitute Cause and the specific provision(s) of this Agreement on
which it relies, and stating the date, time and place of the Special Board
Meeting. The "SPECIAL BOARD MEETING" means a meeting of the Board called and
held specifically for the purpose of considering the Executive's termination
for Cause, that takes place not less than 15 and not more than 20 business
days after the Executive receives the Notice of Termination for Cause.
During the period before the Special Board Meeting, the Executive will have
the opportunity to cure such conduct to the reasonable satisfaction of the
Board (if such conduct is capable of cure). The Executive shall be given an
opportunity, together with counsel, to be heard at the Special Board Meeting.
The Executive's termination for Cause shall be effective when and if a
resolution is duly adopted at the Special Board Meeting by affirmative vote
of three-quarters of the entire membership of the Board (excluding any
vacancies), stating that in the good faith opinion of the Board, the
Executive has engaged in the conduct described in the Notice of Termination
for Cause and has not cured such conduct, and that such conduct constitutes
Cause under this Agreement.
(c) GOOD REASON. (i) The Executive may terminate his
employment for Good Reason or without Good Reason. "GOOD REASON" means:
A. the assignment to the Executive
of any duties inconsistent in any respect
with Section 2(a) of this Agreement, or
any other action by the Company that
results in a diminution in the Executive's
position, authority, duties, status or
responsibilities, or any failure to elect
the Executive, or maintain the Executive's
status as a director, or any requirement
by the Company
that the Executive report
to any person other than the members of
the Board, unless such action or failure
is remedied by the Company within 15
business days after receipt of notice
thereof from the Executive;
B. any failure by the Company to
comply with any provision of Section 3 or
other material provision of this
Agreement, or any failure by the Company
to pay to the Executive any portion of the
Executive's then current compensation when
due, or any failure by the Company (and
any trust of which the Company is the
grantor) to pay to the Executive any
portion of an installment of deferred
compensation under any deferred
compensation program of the Company within
seven days after the date such deferred
compensation is due, unless such action or
failure is remedied by the Company within
15 business days after receipt of notice
thereof from the Executive;
C. any requirement by the Company
that the Executive's services be rendered
at a location or locations other than as
provided for in paragraph (c) of Section 2
of this Agreement; or
D. any failure by the Company to
comply with paragraph (c) of Section 10 of
this Agreement;
PROVIDED, HOWEVER, that following a Change in Control of the Company (as
defined below, "GOOD REASON" shall also mean:
E. any failure of the Company to
increase the Executive's Annual Base
Salary in accordance with increases given
to other senior officers of the Company;
F. any failure by the Company to
continue in effect any compensation plan
in which the Executive participates
immediately prior to the Change in Control
of the Company which is material to the
Executive's total compensation, including
but not limited to the Company's annual
incentive compensation, long-term
incentive compensation, stock incentive
and deferred compensation plans and
programs or any substitute
plans or programs adopted prior to such
Change in Control of the Company, unless an
equitable arrangement (embodied in an
ongoing substitute or alternative plan or
program) has been made with respect to
such plan or program, or any failure by
the Company to continue the Executive's
participation therein (or in such sub-
stitute or alternative plan or program) on
a basis not materially less favorable,
both in terms of the amount of benefits
provided and the level of the Executive's
participation relative to other
participants, as existed at the time of
such Change in Control of the Company;
G. any failure by the Company to
continue to provide the Executive with any
benefits substantially similar to those
enjoyed by the Executive under any of the
Company's retirement, welfare, survivor
benefit or salary protection plans or
arrangements in which the Executive was
participating at the time of the Change in
Control of the Company, the taking of any
action by the Company which would directly
or indirectly materially reduce any of
such benefits or deprive the Executive of
any material fringe benefit enjoyed by the
Executive at the time of the Change in
Control of the Company, or the failure by
the Company to provide the Executive with
the number of paid vacation days to which
the Executive is entitled under this
Agreement; or
H. any purported termination by the
Company of the Executive's employment
which is not in compliance with the
requirements of this Agreement.
(ii) A termination of employment by the Executive for Good Reason
shall be effectuated by giving the Company written notice ("NOTICE OF
TERMINATION FOR GOOD REASON") of the termination, setting forth in reasonable
detail the specific conduct of the Company that constitutes Good Reason and
the specific provision(s) of this Agreement on which the Executive relies. A
termination of employment by the Executive for Good
Reason shall be effective on the 15th business day following the date when
the Notice of Termination for Good Reason is given, unless the notice sets
forth a later date (which date shall in no event be later than 30 days after
the notice is given).
(iii) A termination of the Executive's employment by the
Executive without Good Reason shall be effected by giving the Company written
notice of the termination.
(d) NO WAIVER. The failure to set forth any fact or circumstance in
a Notice of Termination for Cause or a Notice of Termination for Good Reason
shall not constitute a waiver of the right to assert, and shall not preclude
the party giving notice from asserting, such fact or circumstance in an
attempt to enforce any right under or provision of this Agreement.
(e) ARBITRATION. This paragraph shall apply in the event that (i)
the Executive's employment is terminated for Cause pursuant to paragraph (b),
but the Executive disputes that he has engaged in the conduct found by the
Board to constitute Cause, maintains that he has timely cured such conduct,
or disputes that such conduct constitutes Cause, or (ii) the Executive
terminates his employment for Good Reason pursuant to paragraph (c), but the
Company disputes that it has committed the act or failure determined by the
Executive to be Good Reason, maintains that it has timely cured such act or
failure, or
disputes that such act or failure constitutes Good Reason. In any such event,
the Executive or the Company, as the case may be, shall be entitled to submit
the matter to a single arbitrator, who shall be mutually acceptable to the
Executive and the Company, and the arbitrator will determine the facts and
resolve all disputes regarding the effect thereof under this Agreement. The
arbitration shall be conducted in either the city and state in which the
Executive resides, the city and state in which the Company maintains its
principal offices or the city and state in which the Executive was employed
at the time the dispute or controversy arose, as designated by the Executive,
and shall be conducted according to the rules of the American Arbitration
Association. The fees of the arbitrator and other expenses (including
attorneys' fees, as provided in Section 9 of this Agreement) incurred by the
Executive as a result of the arbitration or the dispute or controversy giving
rise to the arbitration shall be paid directly by the Company.
(f) DATE OF TERMINATION. The "DATE OF TERMINATION" means (i) the
date of the Executive's death, the Disability Effective Date, the date on
which the termination of the Executive's employment by the Company for Cause
or by the Executive for Good Reason is effective, (ii) the date on which the
Executive gives the Company notice of a termination of employment without
Good Reason, or (iii) the fifth business day following
the date on which the Company gives the Executive notice of a termination
without Cause, as the case may be.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION. (a) OTHER THAN
FOR CAUSE, DEATH OR DISABILITY; GOOD REASON. If, during the Employment
Period, the Company terminates the Executive's employment, other than for
Cause, death or Disability, or the Executive terminates employment for Good
Reason, then except as set forth in Section 6 hereof, the Company shall pay
the amounts described in Section 5(a)(i) below to the Executive in a lump sum
in cash within 30 days after the Date of Termination; shall pay the Executive
the additional cash amounts described in Section 5(a)(ii) below (if any) as
set forth therein; shall continue the benefits described in Section 5(a)(iii)
below until the end of the Employment Period; and shall, at its sole expense
as incurred, provide the Executive with outplacement services, for six months
following the Date of Termination. The payments provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for claims
arising under this Agreement as a result of a termination of the Executive's
employment by the Company other than for Cause, death or Disability or by the
Executive for Good Reason, and shall, subject to Section 7 hereof, be the
sole and exclusive remedy therefor.
(i) The amounts to be paid in a lump sum as described above are:
A. The Executive's accrued but unpaid cash compensation (the
"ACCRUED OBLIGATIONS"), which shall equal the sum of (1) any portion of the
Executive's Annual Base Salary through the Date of Termination that has not
yet been paid, (2) the amount of the Annual Bonus for the year that includes
the Date of Termination, computed based upon the assumption that the
performance goals for such Annual Bonus are met at the target levels (the
"ANNUAL BONUS AMOUNT"), mul-tiplied by a fraction, the numerator of which is
the number of days in such year through the Date of Termination, and the
denominator of which is the total number of days in such year (the "ANNUAL
FRACTION"), (3) an amount equal to the value of the targeted performance
units awarded to the Executive under the LTIP for each LTIP performance cycle
that includes the Date of Termination, computed based on the assumption that
the per-formance goals for each such cycle are met at the target levels and
based on the fair market value of the Company's common stock on the Date of
Termination, multiplied by a fraction, the numerator of which is the number
of days in the relevant cycle through the end of the Employment Period, and
the denominator of which is the total number of days in such cycle (the "LTIP
FRACTION"), (4) any compensation pre-viously deferred by the Executive
(to-gether with any accrued interest or earnings thereon) that has not yet
been paid; and (5) any earned but unpaid Annual Bonuses and awards under the
LTIP, and (6) vacation pay for the year in which the Date of Termination
occurs; and
B. Severance pay equal to the sum of (1) the Annual Base Salary and (2)
the Annual Bonus
Amount times the greater of (x) the number of years and portions
thereof remaining in the Employment Period after the Date of
Termination and (y) one.
(ii) The additional cash amounts referred to above are:
A. The excess, if any, of (1) the amount of the Annual Bonus
that the Executive would have earned for the year that includes the
Date of Termination if his employment had continued until the earlier
of the end of such year or the end of the Employment Period,
multiplied by the Annual Fraction, over (2) the amount described in
clause (2) of Section 5(a)(i)A above (such amount to be paid in a lump
sum in cash at the time when annual incentive awards are paid to
participants generally under the applicable annual incentive plan);
B. With respect to each LTIP performance cycle that includes the
Date of Termination, the excess, if any, of (1) the value of the
performance units under the LTIP (which performance units will be
fully vested) that the Executive would have earned for such cycle if
his employment had continued until the earlier of the end of such
cycle or the end of the Employment Period, multiplied by the
applicable LTIP Fraction, over (2) the amount described in clause (3)
of Section 5(a)(i)A above (each such amount to be paid in a lump sum
in cash at the time when awards are first paid to participants
generally under the LTIP with respect to the applicable cycle); and
C. The amount described in Clause A above (calculated without
multiplication by the Annual Fraction) times the greater of (A) the
number of years and portions thereof remaining in the Employment
Period after the Date of Termination and (B) one (such amount to be
paid in a lump sum in cash at the time when annual incentive awards
are paid to participants generally under the applicable annual
incentive plan).
(The amounts described in Clauses A and B above are hereinafter referred to as
the "ADDITIONAL ACCRUED OBLIGATIONS.")
(iii) The benefits to be continued as described
above are the benefits described in clause (ii) of Section 3(c) of this
Agreement and Section 3(h) of this Agreement (which benefits will be provided
under a substitute arrangement established by the Company that is comparable in
all material respects to the arrangement that the Executive participated in
immediately prior to such termination of employment if the Executive is
ineligible to continue to participate therein); PROVIDED that any disability or
salary continuance coverage shall cease as of the Date of Termination, and,
PROVIDED, further, during any period when the Executive is eligible to receive
any benefit described in clause (ii) of Section 3(c) under a plan or policy
provided by another employer, the benefits provided by the Company under this
subparagraph may be made secondary to those provided under such other plan.
(b) DEATH OR DISABILITY. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment Period,
then the Company shall pay to the Executive or the Executive's estate or legal
representative, as applicable, (i) the Accrued Obligations in a lump sum in cash
within 30 days after the Date of Termination, and (ii) the Additional Accrued
Obligations at the times prescribed by Section 5(a)(ii), and the Company shall
have no further obligations under this Agreement, except as set forth in Section
7 hereof.
(c) CAUSE; OTHER THAN FOR GOOD REASON. If the Executive's
employment is terminated by the Company for Cause during the Employment
Period, or if the Executive voluntarily terminates employment during the
Employment Period, other than for Good Reason, then the Company shall pay the
Executive the Annual Base Salary through the Date of Termination and the
amount of any compensation previously deferred by the Executive (together
with any accrued interest or earnings thereon), in each case to the extent
not yet paid, and the Company shall have no further obligations under this
Agreement, except as set forth in Section 7 hereof.
6. CHANGE IN CONTROL. (a) If on or before the Date of Termination,
there has been a "Change in Control of the Company" (as defined below) and the
Company terminates the Executive's employment, other than for Cause, death or
Disability, or the Executive terminates employment for Good Reason, then, in
lieu of the payments provided for in Section 5(a)(i) and 5(a)(ii), the Company
shall pay the Executive the amounts described in the next sentence at the times
set forth therein, and shall provide the benefits described in Section 5(a)(iii)
until the later of the second anniversary of the Date of Termination and the end
of the Employment Period. The amounts referred to in the preceding sentence
are:
(i) in lieu of the amounts described in Section 5(a)(i), the sum of
(A) the product of (x) the Annual Base Salary plus the highest Annual
Bonus for the three calendar years immediately preceding the year of
the Change in Control of the Company, times (y) the greater of (1) the
number of years and portions thereof remaining in the Employment
Period after the Date of Termination and (2) two; and (B) the Accrued
Obligations (which amount shall be paid in a lump sum in cash within
10 days after the Date of Termination); and
(ii) in lieu of the amounts described in Section 5(a)(ii), with
respect to each LTIP performance cycle that includes the Date of
Termination, the excess, if any, of (1) the value of the performance
units under the LTIP (which performance units will be fully vested)
that the Executive would have earned for such cycle if his employment
had continued until the earlier of (A) the end of the cycle or (B) the
later of (x) the end of the Employment Period or (y) the second
anniversary of the Date of Termination, multiplied by the applicable
LTIP Fraction, over (2) the amount described in clause (3) of Section
5(a)(i)A above (each such amount to be paid in a lump sum in cash at
the time when awards are first paid to participants generally with
respect to such cycle);
PROVIDED that no amount payable pursuant to this sentence with respect to any
LTIP performance cycle that includes the date of the Change in Control of the
Company (the "TRANSACTION DATE") shall be duplicative of (i.e., include,
represent or compensate for) any amount paid or payable with respect to such
cycle pursuant to Section 6(b) below.
(b) If a Change in Control of the Company occurs during the
Employment Period, then the Company shall pay the Executive in a lump sum in
cash within 10 days after the Transaction Date (whether or not the Executive's
employment
with the Company is terminated on or after the Transaction Date) an amount
equal to the value of the targeted performance units awarded to the Executive
for each LTIP performance cycle that includes the Transaction Date, computed
based on the assumption that the performance goals for each such cycle are
met at the target levels, and based on the fair market value of the Company's
Common Stock on the Transaction Date, which amount shall not be pro rated.
(c) In the event that (i) the transaction resulting in a Change in
Control of the Company occurs at such a time or is structured in such a manner
so as to make it reasonably likely that the Executive would be subject to
liability for short-swing profits under Section 16 of the Exchange Act (as
defined in Section 6(e)(i) below) ("SHORT-SWING PROFIT LIABILITY") if the
Executive were to exercise, tender, sell, cash out or otherwise dispose of
(including through a merger) any of the Initial Options or any shares of stock
acquired by exercise of the Initial Options (collectively, the "INITIAL EQUITY
AWARDS") as part of, or prior to, such transaction and (ii) the
Executive's inability to exercise, tender, sell, cash
out or otherwise dispose of the Initial Equity Awards on or prior to the
Transaction Date eliminates or reduces the value of some or all of the
Initial Equity Awards (based on the difference between the value (the
"REALIZABLE VALUE") that could have been realized absent such inability to
exercise, tender, sell, cash out or otherwise dispose of such Initial Equity
Awards, and the consideration, if any, received for such Initial Equity
Awards) by an amount in excess of five percent of the aggregate Realizable
Value of all of the outstanding Initial Equity Awards then, on the
Transaction Date, the Company shall pay the Executive in a cash lump sum the
amount of $3,900,000. The provisions of this Section 6(c) shall not apply if
(A) prior to the Change in Control of the Company, the Company provides the
Executive at its expense with an opinion from a nationally recognized law
firm stating that the exercise, tender, sale, cash out or other disposition
of the Initial Equity Awards as part of, or prior to, the transaction
resulting in the Change in Control of the Company will not subject the
Executive to Short-Swing Profit Liability and (B) following the Executive's
receipt of such opinion there is sufficient time for the Executive to
exercise, tender, sell, cash out or otherwise dispose of the Initial Equity
Awards on or prior to the Change in Control of the Company.
(d) (i) If it is determined that any payment or benefit received or
to be received by the Executive under this Agreement or any other plan,
arrangement or agreement of the Company or any person whose actions result in a
Change in Control of the Company or any affiliate of any thereof (all such
payments and benefits, collectively, the "PAYMENTS" or, individually, a
"PAYMENT") would be subject to the excise tax imposed by Section 4999 of the
Code (as defined below) or any interest or penalties with respect to such excise
tax (such excise tax, together with any interest or penalties thereon, is herein
referred to as an "EXCISE TAX"), then the Executive shall be entitled to an
additional payment (a "GROSS-UP PAYMENT") in an amount that will place the
Executive in the same after-tax economic position that the Executive would have
enjoyed if the Excise Tax had not been applied to the Payment.
(ii) Subject to the provisions of subsection (iii) below, all
determinations required under this Section 6(d), including whether a Gross-Up
Payment is required, the amount of the Payments constituting excess parachute
payments, and the amount of the Gross-Up Payment, shall be made by the Tax
Advisor, which shall provide detailed supporting calculations both to the
Executive and the Company within thirty days after the date on which a Change in
Control of the Company occurs (with respect to Payments that are required to be
made upon the Change of Control or are otherwise then fixed and determinable),
the Executive's Date of Termination after the Change in Control of the Company
or any other date reasonably requested by the Executive or the Company on which
a determination under this Section 6(d) is necessary or advisable. All such
determinations shall be made based upon the assumption
that the Executive is at all times subject to income tax at the highest
marginal rates that could be applicable to him for the relevant periods. The
Company shall pay to the Executive the initial Gross-Up Payment within five
days of the receipt by the Executive and the Company of the Tax Advisor's
determination. If the Tax Advisor determines that no Excise Tax is payable
by the Executive, the Company shall cause the Tax Advisor to provide the
Executive with an opinion that the Tax Advisor has substantial authority
under the Code and the regulations thereunder not to report an Excise Tax on
the Executive's federal income tax return. Any determination by the Tax
Advisor shall be binding upon the Executive and the Company. If the initial
Gross-Up Payment is insufficient to cover the amount of the Excise Tax that
is ultimately determined to be owing by the Executive with respect to any
Payment (hereinafter an "UNDERPAYMENT"), the Company, after exhausting its
remedies under subsection (iii) below (in the event of a claim by the
Internal Revenue Service), shall promptly pay to the Executive an additional
Gross-Up Payment in respect of the Underpayment.
(iii) The Executive shall notify the Company in writing of any
claims by the Internal Revenue Service that, if successful, would require the
payment by the Company of a Gross-Up Payment. Such notice shall be given as
soon as practicable after the Executive knows of such claim and shall apprise
the Company of the nature of the claim and the date on
which the claim is requested to be paid. The Executive agrees not to pay the
claim until the expiration of the thirty-day period following the date on
which the Executive notifies the Company, or such shorter period ending on
the date the Taxes (as defined below) with respect to such claim are due (the
"NOTICE PERIOD"). If the Company notifies the Executive in writing prior to
the expiration of the Notice Period that it desires to contest the claim, the
Executive shall: (i) give the Company any information reasonably requested
by the Company relating to the claim; (ii) cooperate with the Company in good
faith in contesting the claim; and (iii) permit the Company to participate in
any proceedings relating to the claim. If the Executive pays such claim and
pursues a refund, the Company shall advance the amount of such payment to the
Executive on an after-tax and interest-free basis (the "ADVANCE"). If the
Company does not notify the Executive in writing prior to the end of the
Notice Period of its desire to contest the claim, the Company shall pay to
the Executive an additional Gross-Up Payment in respect of the excess
parachute payments that are the subject of the claim, and the Executive
agrees to pay the amount of the Excise Tax that is the subject of the claim
to the applicable taxing authority in accordance with applicable law.
(iv) If, after receipt by the Executive of an Advance, the
Executive becomes entitled to a refund with respect to the claim to which such
Advance relates, the Executive shall pay the Company the amount of the refund
(together with any interest paid or credited thereon after Taxes applicable
thereto). If, after receipt by the Executive of an Advance, a determination is
made by a competent authority that the Executive shall not be entitled to any
refund with respect to the claim and the Company does not promptly notify the
Executive of its intent to contest the denial of such refund, then the amount of
the Advance shall not be required to be repaid by the Executive and the amount
thereof shall offset the amount of the additional Gross-Up Payment then owing to
the Executive.
(v) The Company shall indemnify and hold harmless the Executive,
on an after-tax basis, from and against any costs, expenses, penalties, fines,
interest or other liabilities ("LOSSES") incurred by the Executive with respect
to the exercise by the Company of any of its rights under this Section 6(d),
including, without limitation, any Losses related to the
Company's decision to contest a claim or participate in such contest or any
imputed income to the Executive resulting from any Advance or action taken on
the Executive's behalf by the Company hereunder. The Company shall pay all of
the fees and expenses of the Tax Advisor, including, without limitation, the
fees and expenses related to the opinion referred to in subsection (ii) above.
(e) CERTAIN DEFINITIONS. (i) "CHANGE IN CONTROL OF THE COMPANY"
means and shall be deemed to have occurred if (i) the Company determines that
any "person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT")), other than a trustee or
other fiduciary holding securities under an employee benefit plan of the Company
or a corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock of the
Company, has become the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 20% or more of the outstanding common
stock of the Company; (ii) individuals who are Continuing Directors cease to
constitute a majority of any class of directors of the Board; or (iii) there
occurs a reorganization, merger, consolidation or other corporate transaction
involving the Company (a "TRANSACTION"), in each case, with respect to which the
stockholders of the Company immediately prior to such Transaction do not,
immediately after the Transaction, own more than 50 percent of the combined
voting power of the corporation resulting from such Transaction.
(ii) "CODE" means the Internal Revenue Code of 1986, as amended,
and any successor thereto.
(iii) "CONTINUING DIRECTOR" means any member of the Board who is
such a member on the date hereof and any successor to a Continuing Director who
is approved as a nominee or elected to succeed a Continuing Director by a
majority of Continuing Directors who are then members of the Board.
(iv) "TAX ADVISOR" means a tax advisor selected by the Company
and reasonably acceptable to the Executive.
(v) "TAXES" means the federal, state and local income taxes to
which the Executive is subject at the time of determination, calculated on the
basis of the highest marginal rates than in effect, plus any additional payroll
or withholding taxes to which the Executive is then subject.
7. NON-EXCLUSIVITY OF RIGHTS; FULL SETTLEMENT. (a) Nothing in this
Agreement shall prevent or limit the Executive's participation in any plan,
program, policy or practice provided by the Company for which the Executive may
qualify, nor, subject to Section 11(f) and Section 5(a)(iii), shall anything in
this Agreement limit or otherwise affect such rights as the Executive may have
under any other contract or agreement with the Company. Vested benefits and
other amounts that the Executive is otherwise entitled to receive under any
plan, policy, practice or program of, or any contract or agreement with, the
Company on or after the Date of Termination shall be
payable in accordance with such plan, policy, practice, program, contract or
agreement, as the case may be.
(b) The Company's obligation to make the payments provided for in,
and otherwise to perform its obligations under, this Agreement shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action that the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other employment or take
any other action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement and, except as specifically
provided in subparagraph (iii) of paragraph (a) of Section 5, such amounts
shall not be reduced, regardless of whether the Executive obtains other
employment.
8. CONFIDENTIAL INFORMATION. (a) The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret, confidential or
proprietary information, knowledge or data relating to the Company or any of its
subsidiaries and their respective businesses that the Executive obtains during
the Executive's employment by the Company or any of its subsidiaries and that is
not public knowledge (other than as a result of the Executive's violation of
this paragraph (a) of Section 8) ("CONFIDENTIAL INFORMATION"). The Executive
shall not communicate, divulge or disseminate Confidential Information at any
time during or after the Executive's employment with the Company, except with
the prior written consent of the Company or as otherwise required by law or
legal process. If the Executive is served with legal process or any other
notification pursuant to which he may be required to divulge Confidential
Information, he shall promptly notify the Company and shall cooperate with the
Company, if so requested, in connection therewith.
(b) During the Noncompetition Period (as defined below), the
Executive shall not, without the prior written consent of the Board, engage
in or become associated with a Competitive Activity. For purposes of this
paragraph (b) of Section 8: (i) the "NONCOMPETITION PERIOD" means the period
of the Executive's employment under this Agreement and the period of one year
thereafter; (ii) a "COMPETITIVE ACTIVITY" means any business or other
endeavor that engages in any business which competes with a business or
product of the Company or any of its subsidiaries; and (iii) the Executive
shall be considered to have become "ASSOCIATED WITH A COMPETITIVE ACTIVITY"
if he becomes directly or indirectly involved as an owner, employee, officer,
independent contractor, agent, partner or advisor,
with any individual, partnership, corporation or other organization that is
engaged in a Competitive Activity. Notwithstanding the foregoing, the
Executive may make and retain investments during the Noncompetition Period in
not more than two percent (or such higher percentage as may be permitted
under the applicable Company policy as in effect from time to time) of the
equity of any entity engaged in a Competitive Activity, if such equity is
listed on a national securities exchange or regularly traded in an
over-the-counter market.
(c) The Executive shall promptly disclose to the Company (and to
no one else) all improvements, discoveries and inventions relating to the
present and planned future activities of the Company or any of its
subsidiaries made or conceived alone or in conjunction with others (whether
or not patentable, whether or not made or conceived at the request of or upon
the suggestion of the Company during or out of his usual hours of work or in
or about the premises of the Company or elsewhere) while in the employ of the
Company, or made or conceived within six months after the termination of his
employment by the Company, if directly resulting from or relating to such
employment. All such improvements, discoveries and inventions shall, to the
extent that they are patentable, be the sole and exclusive property of the
Company and are hereby assigned to the Company. At the request of the
Company and at its cost and without liability to the Executive, the Executive
shall assist the Company, or any person or persons from time to time
designated by it, in obtaining the grant of patents in the United States
and/or in such other country or countries as may be designated by the Company
covering such improvements, discoveries and inventions and shall in
connection therewith execute such applications, statements or other
documents, furnish such information and data and take all such other action
(including, but not limited to, the giving of testimony) as the Company may
from time to time request.
(d) The Executive shall have no right, title or interest in any
reports, studies, memoranda, correspondence, manuals, records, plans, or other
written, printed or otherwise recorded materials of any kind belonging to or in
the possession of the Company or any of its subsidiaries, or in any copies,
pictures, duplicates, facsimiles or other reproductions, recordings, abstracts
or summaries thereof and the Executive will promptly surrender to the Company
any such materials (other than materials which have been published or otherwise
have lawfully been made available to the public generally and materials not
containing or embodying Confidential Information, of a type customarily deemed
to be the personal copies of the Executive) in his possession upon the
termination of his employment or any time prior thereto upon request of the
Company.
(e) The obligations of the Executive set forth in this Section 8
are in addition to and not in limitation of any obligations which would
otherwise exist as a matter of law. The provisions of this Section shall
survive the termination of the Executive's employment hereunder.
9. ATTORNEYS' FEES. (a) The Company agrees to pay, as incurred, to
the fullest extent permitted by law, all legal fees and expenses that the
Executive may reasonably incur as a result of any contest (regardless of the
outcome) by the Company, the Executive or others of the validity or
enforceability of or liability under, or otherwise involving, any provision of
this Agreement, or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment or
benefit provided hereunder, together with interest on any delayed payment at the
applicable federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) The Company agrees to pay all legal fees and expenses that the
Executive may reasonably incur in connection with the negotiation, execution and
delivery of this Agreement.
10. SUCCESSORS. (a) This Agreement is personal to the Executive
and, without the prior written consent of the Company, shall not be assignable
by the Executive. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform it if no such
succession had taken place. As used in this Agreement, "COMPANY" shall mean
both the Company as defined above and any such successor that assumes and agrees
to perform this Agreement, by operation of law or otherwise.
11. MISCELLANEOUS. (a) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York applicable to
agreements made and performed in such state. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified except by a written agreement executed
by the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid, or by
facsimile with a confirming copy by hand or mail, in each case addressed as
follows:
IF TO THE EXECUTIVE:
Albert J. Costello
417 Devonshire Drive
Franklin Lakes, NJ 07417
Facsimile:
IF TO THE COMPANY:
W. R. Grace & Co.
One Town Center Road
Boca Raton, FL 33486
Facsimile: (407) 362-1635
Attention: Secretary
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 11.
Notices and communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement. If any provision of this Agreement shall be held
invalid or unenforceable in part, the remaining portion of such provision,
together with all other provisions of this Agreement, shall
remain valid and enforceable and continue in full force and effect to the
fullest extent consistent with law.
(d) The Company may withhold from amounts payable under
this Agreement all federal, state, local and foreign taxes that are required to
be withheld by applicable laws or regulations.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision of, or to assert any right under, this
Agreement (including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to paragraph (c) of Section 4 of
this Agreement) shall not be deemed to be a waiver of such provision or right or
of any other provision of or right under this Agreement.
(f) The Executive and the Company acknowledge that this
Agreement supersedes any other agreement between them concerning the subject
matter hereof.
(g) This Agreement may be executed in several counterparts,
each of which shall be deemed an original, and said counterparts shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization of the Board, the Company
has caused this Agreement to be executed in its name on its behalf, all as of
the day and year first above written.
------------------------------
Albert J. Costello
W. R. GRACE & CO.
By________________________________
Chairman of the Compensation,
Employee Benefits and Stock
Incentive Committee