-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IQVL21El5SQLgy8pvDfAh6aI49lZFUFbTaI1IhAc6I2MmFIYLBGX1As5o3evV1MP bx42AI/1OwTQIXzoSIZ4ZQ== 0000950144-98-010052.txt : 19980818 0000950144-98-010052.hdr.sgml : 19980818 ACCESSION NUMBER: 0000950144-98-010052 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980628 FILED AS OF DATE: 19980817 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLTEC INDUSTRIES INC CENTRAL INDEX KEY: 0000201493 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 131846375 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07568 FILM NUMBER: 98693016 BUSINESS ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: (704) 423 7000 MAIL ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 FORMER COMPANY: FORMER CONFORMED NAME: COLT INDUSTRIES INC DATE OF NAME CHANGE: 19900913 FORMER COMPANY: FORMER CONFORMED NAME: PENN TEXAS CORP DATE OF NAME CHANGE: 19680318 FORMER COMPANY: FORMER CONFORMED NAME: FAIRBANKS WHITNEY CORP DATE OF NAME CHANGE: 19680318 10-Q 1 COLTEC INDUSTRIES FORM 10-Q 6-28-1998 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 28, 1998 or ( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to __________________ Commission file number: 1-7568 COLTEC INDUSTRIES INC (Exact name of registrant as specified in its charter) PENNSYLVANIA 13-1846375 (State or other jurisdiction of incorporation (IRS Employer or organization) Identification No.) 3 Coliseum Centre 2550 West Tyvola Road Charlotte, North Carolina 28217 28217 (Address of principal executive offices) (Zip code) (704)423-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) ---------------------------------------- On July 31, 1998, there were outstanding 65,208,754 shares of common stock, par value $.01 per share. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
Three Months Ended Six Months Ended June 28 June 29 June 28 June 29 1998 1997 1998 1997 ---------- ----------- ---------- ---------- Net sales $ 394,754 $ 322,227 $ 769,195 $ 631,399 Cost of sales 311,862 217,137 572,010 428,812 ---------- ----------- ---------- ---------- Gross profit 82,892 105,090 197,185 202,587 Selling and administrative 64,124 56,336 125,123 108,905 ---------- ----------- ---------- ---------- Operating income 18,768 48,754 72,062 93,682 Gain on divestiture 56,194 - 56,194 - Interest expense and other, net (13,230) (12,682) (28,310) (25,046) ---------- ----------- ---------- ---------- Earnings before income taxes, minority interest and extraordinary item 61,732 36,072 99,946 68,636 Income taxes (20,989) (12,264) (33,982) (23,336) Minority interest in net loss of subsidiaries (1,085) - (1,085) - ---------- ----------- ---------- ---------- Earnings before extraordinary item 39,658 23,808 64,879 45,300 Extraordinary item (net of tax) (4,326) - (4,326) - ---------- ----------- ---------- ---------- Net earnings $ 35,332 $ 23,808 $ 60,553 $ 45,300 ========== =========== ========== ========== Basic earnings per common share Before extraordinary item $ .60 $ .36 $ .98 $ .68 Extraordinary item (.06) - (.06) - ---------- ----------- ---------- ---------- Net earnings $ .54 $ .36 $ .92 $ .68 ========== =========== ========== ========== Basic weighted-average common shares 65,986 65,718 65,934 66,252 ========== =========== ========== ========== Diluted earnings per common share Before extraordinary item $ .57 $ .36 $ .95 $ .67 Extraordinary item (.06) - (.06) - ---------- ----------- ---------- ---------- Net earnings $ .51 $ .36 $ .89 $ .67 ========== =========== ========== ========== Diluted weighted-average common and common equivalent shares 71,304 66,695 69,220 67,213 ========== =========== ========== ==========
See notes to consolidated financial statements. 2 3 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 28 Dec. 31 1998 1997 ---------- --------- ASSETS Current assets: Cash and cash equivalents $ 20,073 $ 14,693 Accounts and notes receivable, net of allowance of $2,686 in 1998 and $2,394 in 1997 163,448 120,311 Inventories Finished goods 48,952 53,748 Work in process and finished parts 150,564 158,937 Raw materials and supplies 43,073 44,051 ---------- --------- 242,589 256,736 Deferred income taxes 17,172 15,195 Other current assets 15,460 20,508 ---------- --------- Total current assets 458,742 427,443 Property, plant and equipment, net 300,123 287,619 Costs in excess of net assets acquired, net 209,670 157,751 Other assets 92,617 60,221 ---------- --------- $1,061,152 $ 933,034 ========== =========
See notes to consolidated financial statements. 3 4 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
June 28 Dec. 31 1998 1997 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 4,191 $ 1,811 Accounts payable 98,815 93,799 Accrued expenses 193,099 138,969 Current portion of liabilities of discontinued operations 4,999 4,999 ---------- --------- Total current liabilities 301,104 239,578 Long-term debt 601,352 757,578 Deferred income taxes 86,813 79,229 Other liabilities 84,054 60,892 Liabilities of discontinued operations 148,024 154,918 Commitments and contingencies - - Company-obligated, mandatorily redeemable convertible preferred securities of subsidiary Coltec Capital Trust holding solely convertible junior subordinated debentures of the Company 144,770 - Shareholders' equity: Preferred stock, $.01 par value, 2,500,000 shares authorized, shares outstanding - none - - Common stock, $.01 par value, 100,000,000 shares authorized, 70,541,139 and 70,501,948 shares issued at June 28, 1998 and December 31, 1997, respectively (excluding 25,000,000 shares held by a wholly-owned subsidiary) 705 705 Capital surplus 643,266 642,828 Retained deficit (851,774) (912,029) Unearned compensation (2,150) (2,721) Minimum pension liability (1,646) (1,646) Foreign currency translation adjustments (15,152) (6,745) ---------- --------- (226,751) (279,608) Less cost of 4,611,185 and 4,666,406 shares of common stock in treasury at June 28, 1998 and December 31, 1997, respectively (78,214) (79,553) ---------- --------- (304,965) (359,161) ---------- --------- $1,061,152 $ 933,034 ========== =========
See notes to consolidated financial statements. 4 5 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six Months Ended June 28 June 29 1998 1997 --------- --------- Cash flows from operating activities: Net earnings $ 60,553 $ 45,300 Adjustments to reconcile net earnings to cash provided by operating activities: Extraordinary item 6,554 - Depreciation and amortization 24,611 16,589 Deferred income taxes 5,607 14,184 Gain on divestiture (56,194) - Payments of liabilities of discontinued operations (6,894) (12,717) Other operating items (11,046) (20,248) Changes in assets and liabilities (net of effects from acquisitions and divestitures): Accounts and notes receivable (42,911) (3,537) Inventories 11,169 (18,060) Other current assets 1,908 (1,532) Accounts payable 4,361 10,002 Accrued expenses 42,456 (7,615) ----------- ---------- Cash provided by operating activities 40,174 22,366 ----------- ---------- Cash flows from investing activities: Capital expenditures (27,187) (29,267) Proceeds from divestiture 100,000 - Acquisition of businesses, net (80,518) - ----------- ---------- Cash used in investing activities (7,705) (29,267) ----------- ---------- Cash flows from financing activities: Increase (decrease) in revolving facility, net (440,000) 49,500 Repayment of long-term debt (18,847) (7,177) Issuance of long-term debt, net 292,151 - Issuance of convertible preferred securities, net 144,472 - Purchase of treasury stock (994) (41,919) Payments for unclaimed stock (3,871) - ----------- ---------- Cash provided by (used in) investing activities (27,089) 404 ----------- ---------- Increase (decrease) in cash and cash equivalents 5,380 (6,497) Cash and cash equivalents - beginning of period 14,693 15,029 ----------- ---------- Cash and cash equivalents - end of period $ 20,073 $ 8,532 =========== ========== Supplemental cash flow data: Cash paid for interest $ 25,226 $ 22,438 Cash paid for income taxes 13,645 1,268
See notes to consolidated financial statements. 5 6 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
Three Months Ended Six Months Ended June 28 June 29 June 28 June 29 1998 1997 1998 1997 --------- -------- ----------- -------- Net earnings $ 35,332 $ 23,808 $ 60,553 $ 45,300 --------- -------- ----------- -------- Other comprehensive income/(loss, net of tax): Foreign currency translation adjustment (6,002) (443) (8,407) (1,553) Unearned compensation 549 363 571 (329) Amortization of preferred stock issuance costs (298) - (298) - --------- -------- ----------- -------- Other comprehensive income/(loss), net of tax (5,751) (80) (8,134) (1,882) --------- -------- ----------- -------- Comprehensive income $ 29,581 $ 23,728 $ 52,419 $ 43,418 ========= ======== =========== ========
See notes to consolidated financial statements. 6 7 COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 1. SUMMARY OF ACCOUNTING POLICIES Financial Information: The unaudited consolidated financial statements included herein reflect in the opinion of the management of Coltec Industries Inc (the Company) all normal recurring adjustments necessary to present fairly the consolidated financial position and results of operations for the periods indicated. The unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Consolidated Balance Sheet as of December 31, 1997 has been extracted from the audited consolidated financial statements as of that date. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report to shareholders for the year ended December 31, 1997. 2. ACQUISITIONS AND DIVESTITURES On January 30, 1998, the Company acquired certain Marine and Petroleum Mfg. Inc.'s manufacturing facilities based in Texas for approximately $17,000. The plants acquired produce flexible graphite and polytetrafluoroethylene (PTFE) fluid sealing products used in the petrochemical industry. Combined annual sales for these facilities are expected to approximate $18,000. The Company also acquired Tex-o-Lon and Repro-Lon for approximately $25,000. These two Texas businesses have combined annual sales of $15,000. Tex-o-Lon manufactures, machines and distributes PTFE products, primarily for the semiconductor industry. Repro-Lon reprocesses PTFE compounds for the chemical and semiconductor industries. The acquisitions were accounted for as purchases; accordingly, the purchase price, which was financed through available cash resources, was allocated to the acquired assets based upon their fair market values. On February 2, 1998, the Company purchased the Sealing Division of Groupe Carbone Lorraine for $45,600. This division, with facilities in France and South Carolina, produces high-technology metallic gaskets used in the nuclear, petroleum and chemical industries. Sales are expected to approximate $38,000. This acquisition was accounted for as a purchase and the purchase price, also financed through available cash resources, was allocated to the acquired assets based upon their fair market values. In May 1998, the Company sold the capital stock of its Holley Performance Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm located in Mount Kisco, New York, for $100 million in cash. The sale resulted in a pre-tax gain of $56,194, net of liabilities retained. 3. FINANCINGS In April 1998, the Company privately placed, with institutional investors, $300,000 principal amount of 7 1/2% Senior Notes due 2008 ("Senior Notes") and $150,000 (3,000,000 shares at liquidation value of $50 per Convertible Preferred Security) of 5 1/4% Trust Convertible Preferred Securities ("Convertible Preferred Securities"). The placement of the Convertible Preferred Securities was made through the Company's wholly-owned subsidiary, Coltec Capital Trust ("Trust"), a newly-formed Delaware business trust. The Convertible Preferred Securities represent undivided beneficial ownership interests in the Trust. 7 8 Substantially all the assets of the Trust are the 5 1/4% Convertible Junior Subordinated Deferrable Interest Debentures Due April 15, 2028 which were acquired with the proceeds from the private placement of the Convertible Preferred Securities. The Company's obligations under the Convertible Junior Subordinated Debentures, the Indenture pursuant to which they were issued, the Amended and Restated Declaration of Trust of the Trust, and the Guarantee of Coltec, taken together, constitute a full and unconditional guarantee by Coltec of amounts due on the Convertible Preferred Securities. The Convertible Preferred Securities are convertible at the option of the holders at any time into the common stock of Coltec at an effective conversion price of $29 5/16 per share and are redeemable at Coltec's option after April 20, 2001 at 102.63% of the liquidation amount declining ratably to 100% after April 20, 2004. The net proceeds of the Senior Notes and the Convertible Preferred Securities of approximately $436,623 were used by the Company to reduce indebtedness under its credit facility. Dividends on the Convertible Preferred Securities were $1.1 million after tax, in the three months and six months ended June 28, 1998. 4. EXTRAORDINARY ITEM The Company incurred an extraordinary charge of $4,326, net of income taxes of $2,228, in the second quarter of 1998 in connection with early debt repayment. 5. EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, effective December 15, 1997. The Company's reported earnings per common share for the three months and six months ended June 29, 1997 equaled diluted earnings per share as set forth in SFAS No. 128. As a result, the Company's reported earnings per share for the three months and six months ended June 29, 1997 were not restated. Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the year. 8 9 Diluted earnings per common share is computed by using the treasury stock method to determine shares related to stock options and restricted stock.
(In Thousands) Three Months Ended Six Months Ended June 28 June 29 June 28 June 29 1998 1997 1998 1997 ------------------ ---------- ---------------- --------- Income available to common shareholders before extraordinary item $ 39,658 $ 23,808 $ 64,879 $ 45,300 Dividends on convertible preferred securities, net of tax 1,085 - 1,085 - -------- -------- -------- -------- Income available to common shareholders before extraordinary item plus assumed conversions 40,743 23,808 65,964 45,300 Extraordinary item, net of tax (4,326) - (4,326) - -------- -------- -------- -------- Net income available to common shareholders plus assumed conversions $ 36,417 $ 23,808 $ 61,638 $ 45,300 ======== ======== ======== ======== Basic weighted-average common shares 65,986 65,718 65,934 66,252 Stock options and restricted stock issued 1,054 977 1,154 961 Convertible preferred securities 4,264 - 2,132 - -------- -------- -------- -------- Diluted weighted-average common and common equivalent shares 71,304 66,695 69,220 67,213 ======== ======== ======== ========
6. COMMITMENTS AND CONTINGENCIES Asbestos The Company and certain of its subsidiaries are defendants in various lawsuits, including actions involving asbestos-containing products and certain environmental proceedings. With respect to asbestos product liability and related litigation costs, as of June 28, 1998 two subsidiaries of the Company were among a number of defendants (typically 15 to 40) in approximately 106,200 actions (including approximately 10,700 actions in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. During the first six months of 1998, two subsidiaries of the Company received approximately 20,100 new actions compared to approximately 22,800 new actions received during the first six months of 1997. Through June 28, 1998, approximately 224,200 of the approximately 330,400 total actions brought have been settled or otherwise disposed. The damages claimed for personal injury or death vary from case to case, and in many cases plaintiffs seek $1,000 or more in compensatory damages and $2,000 or more in punitive damages from an extensive list of defendants. Although the law 9 10 in each state differs to some extent, it appears, based on advice of counsel, that liability for compensatory damages would be shared among all responsible defendants, thus limiting the potential monetary impact of such judgments on any individual defendant. Following a decision of the Pennsylvania Supreme Court, in a case in which neither the Company nor any or its subsidiaries were parties, that held insurance carriers are obligated to cover asbestos-related bodily injury actions if any injury or disease process, from first exposure through manifestation, occurred during a covered policy period (the "continuous trigger theory of coverage"), the Company settled litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. The Company has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. The Company is currently receiving payments pursuant to this agreement. The Company believes that, with respect to the remaining carriers, a final agreement can be achieved without litigation and on substantially the same basis that it has resolved the issues with its other carriers. Payments were made with respect to asbestos liability and related costs aggregating $21,527 and $34,281 for the first six months of 1998 and 1997, respectively, substantially all of which were covered by insurance. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. Related to payments not covered by insurance, the Company recorded charges to operations amounting to $4,000 for the first six months of 1998 and 1997, respectively. The average cost to the Company for unreimbursed expenses and liability per case disposed was approximately $ .4 for the six months ended June 28, 1998 and $.3 for the six months ended June 29, 1997. In accordance with the Company's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where the Company can reasonably estimate the cost to dispose of these actions. As of June 28, 1998, the Company estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $99,400 and the Company expects that this cost will be substantially covered by insurance. With respect to the 95,500 outstanding actions as of June 28, 1998, which are in preliminary procedural stages, the Company lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty the potential liability or costs to the Company. The lawsuits are disposed of over a period of one year to more than five years, with the majority being disposed of by the third year after filing. When asbestos actions are received, they are typically forwarded to local counsel to ensure that the appropriate preliminary procedural response is taken. The complaints typically do not contain sufficient information to permit a reasonable evaluation as to their merits at the time of receipt, and in jurisdictions encompassing a majority of the outstanding actions, the practice has been that little or no discovery or other action is taken until several months prior to the date set for trial. Accordingly, the Company generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to the Company, if any, until the actions appear on a trial calendar. A determination to seek 10 11 dismissal, to attempt to settle or proceed to trial is typically not made prior to the receipt of such information. The Company believes that it will continue to receive some number of asbestos lawsuits into the foreseeable future. It is also difficult, however, to predict the number of asbestos lawsuits that the Company's subsidiaries will receive or the timeframe in which they will be received. The Company has noted that, with respect to recently settled actions in advanced stages of processing, the mix of the injuries alleged and the mix of the occupations of the plaintiffs have been changing from those traditionally associated with the Company's asbestos-related actions. The Company is not able to determine with reasonable certainty whether this trend will continue. Based upon the foregoing, and due to the unique factors inherent in each of the actions, including the nature of the disease, the occupation of the plaintiff, the presence or absence of other possible causes of a plaintiff's illness, the availability of legal defenses, such as the statute of limitations or state of the art, the jurisdiction in which a lawsuit is filed, the pendency of tort reform, and whether the lawsuit is an individual one or part of a group, management is unable to estimate with reasonable certainty the cost of disposing of outstanding actions in preliminary procedural stages or of actions that may be filed in the future. However, the Company believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Subsidiaries of the Company continue to distribute encapsulated asbestos-bearing product in the United States with annual sales of less than $1,500. All sales are accompanied by appropriate warnings. The end users of such product are sophisticated users, who utilize the product for critical applications where no known substitutes exist or have been approved. Insurance coverage of a small non-operating subsidiary formerly distributing asbestos-bearing products is nearly depleted. Considering the foregoing, as well as the experience of the Company's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the substantial amount of insurance coverage that the Company expects to be available from its solvent carriers, the Company believes that pending and reasonably anticipated future actions are not likely to have a material effect on the Company's consolidated results of operations and financial condition. Although the insurance coverage, which the Company has, is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. The Company's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. In addition to claims for personal injury, the Company's subsidiaries have been involved in an insignificant number of property damage claims based upon asbestos-containing materials found in schools, public facilities and private commercial buildings. Based upon proceedings to date, the overwhelming majority of these claims have been resolved without a material adverse impact on the Company. Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on the Company's consolidated results of operations and financial condition. The Company has recorded an accrual for its liabilities for asbestos-related matters that are deemed probable and can be reasonably estimated (settled actions and actions in advanced stages of processing), and has separately recorded an asset equal to the amount of such liabilities that is expected to be recovered by insurance. In addition, the Company has recorded a receivable for that portion of payments previously made for asbestos product liability actions and related 11 12 litigation costs that is recoverable from its insurance carriers. Liabilities for asbestos-related matters and the receivable from insurance carriers included in the Consolidated Balance Sheets are as follows:
June 28 Dec. 31 1998 1997 ------- ------- Accounts and notes receivable $80,432 $56,039 Other assets 35,456 16,249 Accrued expenses 80,175 50,688 Other liabilities 21,858 2,682
Environmental With respect to environmental proceedings, the Company has been notified that it is among the Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. Such laws impose joint and several liability for the costs of investigating and remediating properties contaminated by hazardous materials. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties who generated the wastes that contributed to the contamination. The Company's policy is to accrue environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The measurement of liability is based on an evaluation of currently available facts with respect to each individual situation and takes into consideration factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. Investigations have been completed for approximately 17 sites and continuing investigations are being done at approximately 11 sites. Accruals are provided for all sites based on the factors discussed above. As remediation plans are written and implemented, estimated costs become more fact-based and less judgment-based. As assessments and remediation progress at individual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical and legal information. While it is often difficult to reasonably quantify future environmental-related expenditures, the Company currently estimates its future non-capital expenditures related to environmental matters to range between $28,000 and $53,000. In connection with these expenditures, the Company has accrued $38,000 at June 28, 1998 representing management's best estimate of probable non-capital environmental expenditures. These non-capital expenditures are estimated to be incurred over the next 10 to 20 years. In addition, capital expenditures aggregating $5,000 may be required during the next two years related to environmental matters. Although the Company is pursuing insurance recovery in connection with certain of these matters, no receivable has been recorded with respect to any potential recovery of costs in connection with any environmental matters. Year 2000 As is the case with most other companies, the Company recognizes the need to ensure its operations will not be adversely impacted by the Year 2000 date transition and is faced with the task of addressing related issues. With senior management accountability and corporate staff guidance, the affected operating units have completed the assessment phase and are in varying stages of plan implementation to address the Company's Year 2000 issues. Overall, the Company has targeted Year 2000 compliance primarily by the end of 1998, with certain 12 13 operating units targeting compliance by no later than mid-1999. The Company recorded an expense of $5,000 in the three months ended June 28, 1998 for year 2000 compliance relating to its new computer systems. The Company is also evaluating whether the effect of the Year 2000 transition issues resulting from relationships with customers, suppliers and other constituents will have an impact on the Company's results of operations or financial condition. The Company estimates that expenditures over the next year for the remaining costs of modifying its existing software for the Year 2000 date transition will have an immaterial impact on consolidated operating results. 7. OTHER MATTERS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No 133 ("SFAS No. 133") Accounting for Derivative Instruments and Hedging Activities. The Statement established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance. SFAS No. 133 cannot be applied retroactively. The SFAS No. 133 must be applied to derivative instruments and certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. The Company has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated financial statements and has not determined the timing of or method of adoption. However the statement could increase volatility in earnings and other comprehensive income. 8. SUPPLEMENTAL GUARANTOR INFORMATION Substantially all the Company's subsidiaries incorporated in the United States (the "Subsidiary Guarantors") have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations to pay principal and interest with respect to the Senior Notes. Each subsidiary guarantor is wholly owned and management has determined that separate financial statements for the subsidiary guarantors are not material to investors. The subsidiaries of the Company that are not Subsidiary Guarantors are referred to in this note as the "Non-Guarantor Subsidiaries". The following supplemental consolidating condensed financial statements present balance sheets as of June 28, 1998 and December 31, 1997 and statements of earnings and of cash flows for the three months and six months ended June 28, 1998 and June 29, 1997. In the consolidating financial statements, Coltec Industries Inc (the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method and the Subsidiary Guarantors account for their investments in Non-Subsidiary Guarantors using the equity method. Interest expense related to the indebtedness under the Company's credit agreement and its 13 14 three series of senior notes is allocated to United States subsidiaries based on net sales. Consolidating Condensed Statement of Earnings
Three Months Ended June 28, 1998 ------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- ------------- ------------- Net sales $ 128,909 $ 163,431 $ 114,787 $ (12,373) $ 394,754 Cost of sales 128,899 110,687 84,649 (12,373) 311,862 --------------- --------------- ------------- ------------- ------------- Gross profit 10 52,744 30,138 - 82,892 Selling and administrative 11,291 35,094 17,739 - 64,124 --------------- --------------- ------------- ------------- ------------- Operating income (11,281) 17,650 12,399 - 18,768 Equity earnings of affiliates 19,302 10,409 - (29,711) - Gain on divestiture 56,194 - - - 56,194 Interest expense and other, net (18,917) (627) 6,847 (533) (13,230) --------------- --------------- ------------- ------------- ------------- Earnings before income taxes, minority interest and extraordinary item 45,298 27,432 19,246 (30,244) 61,732 Income taxes (5,640) (11,128) (4,221) - (20,989) Minority interest in net loss of subsidiaries - - (1,085) - (1,085) --------------- --------------- -------------- ------------- -------------- Earnings before extraordinary item 39,658 16,304 13,940 (30,244) 39,658 Extraordinary item (net of tax) (4,326) - - - (4,326) --------------- --------------- ------------- ------------- ------------- Net earnings $ 35,332 $ 16,304 $ 13,940 $ (30,244) $ 35,332 =============== =============== ============= ============= =============
Consolidating Condensed Statement of Earnings
Six Months Ended June 28, 1998 ------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- --------------- ------------- ------------- Net sales $ 244,008 $ 331,861 $ 217,255 $ (23,929) $ 769,195 Cost of sales 209,430 225,814 160,695 (23,929) 572,010 --------------- --------------- ------------- ------------- ------------- Gross profit 34,578 106,047 56,560 - 197,185 Selling and administrative 29,793 59,566 35,764 - 125,123 --------------- --------------- ------------- ------------- ------------- Operating income 4,785 46,481 20,796 - 72,062 Equity earnings of affiliates 39,983 17,423 - (57,406) - Gain on divestiture 56,194 - - - 56,194 Interest expense and other, net (27,256) (18,157) 18,157 (1,054) (28,310) --------------- --------------- ------------- ------------- ------------- Earnings before income taxes, minority interest and extraordinary item 73,706 45,747 38,953 (58,460) 99,946 Income taxes (8,827) (13,550) (11,605) - (33,982) Minority interest in net loss of subsidiaries - - (1,085) - (1,085) --------------- --------------- ------------- ------------- ------------- Earnings before extraordinary item 64,879 32,197 26,263 (58,460) 64,879 Extraordinary item (net of tax) (4,326) - - - (4,326) --------------- --------------- ------------- ------------- ------------- Net earnings $ 60,553 $ 32,197 $ 26,263 $ (58,460) $ 60,553 =============== =============== ============= ============= =============
14 15 Consolidating Condensed Statement of Earnings
Three Months Ended June 29, 1997 ------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- ------------- ------------- ------------- Net sales $ 102,793 $ 146,832 $ 84,472 $ (11,870) $ 322,227 Cost of sales 70,287 96,995 61,725 (11,870) 217,137 --------------- --------------- ------------- ------------- ------------- Gross profit 32,506 49,837 22,747 - 105,090 Selling and administrative 19,504 31,736 5,096 - 56,336 --------------- --------------- ------------- ------------- ------------- Operating income 13,002 18,101 17,651 - 48,754 Equity earnings of affiliates 21,891 5,204 - (27,095) - Interest expense and other, net (12,721) 242 (203) - (12,682) --------------- --------------- ------------- ------------- ------------- Earnings before income taxes 22,172 23,547 17,448 (27,095) 36,072 Income taxes 1,636 (5,703) (8,197) - (12,264) --------------- --------------- ------------- ------------- ------------- Net earnings $ 23,808 $ 17,844 $ 9,251 $ (27,095) $ 23,808 =============== =============== ============= ============= =============
Consolidating Condensed Statement of Earnings
Six Months Ended June 29, 1997 ------------------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- ------------- ------------- ------------- Net sales $ 207,336 $ 281,623 $ 163,096 $ (20,656) $ 631,399 Cost of sales 143,482 186,597 119,389 (20,656) 428,812 --------------- --------------- ------------- ------------- ------------- Gross profit 63,854 95,026 43,707 - 202,587 Selling and administrative 34,615 61,660 12,630 - 108,905 --------------- --------------- ------------- ------------- ------------- Operating income 29,239 33,366 31,077 - 93,682 Equity earnings of affiliates 40,305 8,223 - (48,528) - Interest expense and other, net (24,933) 191 (304) - (25,046) --------------- --------------- ------------- ------------- ------------- Earnings before income taxes 44,611 41,780 30,773 (48,528) 68,636 Income taxes 689 (11,438) (12,587) - (23,336) --------------- --------------- ------------- ------------- ------------- Net earnings $ 45,300 $ 30,342 $ 18,186 $ (48,528) $ 45,300 =============== =============== ============= ============= =============
15 16 Consolidating Condensed Balance Sheet
June 28, 1998 ------------------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- -------------- ------------ -------------- Cash and cash equivalents $ 12,853 $ 4,599 $ 2,621 $ 20,073 Accounts and notes receivable, net - 27,943 135,505 163,448 Inventory, net 80,895 61,616 100,078 242,589 Deferred income taxes 9,023 8,065 84 17,172 Other current assets 5,452 803 9,205 15,460 --------------- --------------- ----------- ------------- -------------- Total current assets 108,223 103,026 247,493 - 458,742 Intercompany, net (790,942) 258,369 532,573 - Investments in affiliates 1,000,981 89,543 865 $ (1,091,389) - Property, plant and equipment 95,786 116,399 87,938 300,123 Cost in excess of net assets acquired, net 24,402 137,289 47,979 209,670 Other assets 50,755 2,722 39,140 92,617 --------------- --------------- ----------- ------------- -------------- Total assets $ 489,205 $ 707,348 $ 955,988 $ (1,091,389) $ 1,061,152 =============== =============== =========== ============= ============== Total current liabilities $ 126,581 $ 37,954 $ 136,569 $ 301,104 Long-term debt 506,358 3,055 91,939 601,352 Deferred income taxes (30,499) 101,987 15,325 86,813 Other liabilities 43,706 12,052 27,892 $ 404 84,054 Liabilities of discontinued operations 148,024 - - 148,024 Company-obligated mandatorily redeemable convertible preferred securities of subsidiary Coltec Capital Trust holding solely convertible junior subordinated debentures of - - 144,770 - 144,770 the Company Shareholders' equity (304,965) 552,300 539,493 (1,091,793) (304,965) --------------- --------------- ----------- ------------- -------------- Total liabilities and shareholders' equity $ 489,205 $ 707,348 $ 955,988 $ (1,091,389) $ 1,061,152 =============== =============== =========== ============== ==============
16 17 Consolidating Condensed Balance Sheet
December 31, 1997 -------------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- -------------- ------------- -------------- Cash and cash equivalents $ 9,912 $ 722 $ 4,059 $ 14,693 Accounts and notes receivable, net - 60,881 59,430 120,311 Inventory, net 99,100 71,958 85,678 256,736 Deferred income taxes 4,535 10,689 (29) 15,195 Other current assets 4,540 10,406 5,562 20,508 --------------- --------------- ------------- ------------- --------------- Total current assets 118,087 154,656 154,700 - 427,443 Intercompany, net (741,897) 10,933 730,964 - Investments in affiliates 1,057,890 355,399 2,688 $ (1,415,977) - Property, plant and equipment 89,488 118,405 79,726 287,619 Cost in excess of net assets acquired, net 21,820 133,441 2,490 157,751 Other assets 40,266 3,490 16,465 60,221 --------------- --------------- ------------- ------------- -------------- Total assets $ 585,654 $ 776,324 $ 987,033 $ (1,415,977) $ 933,034 =============== =============== ============= ============= ============== Total current liabilities $ 93,669 $ 49,494 $ 96,415 $ 239,578 Long-term debt 689,302 1,611 66,665 757,578 Deferred income taxes (32,780) 101,871 10,138 79,229 Other liabilities 39,706 12,844 10,544 $ (2,202) 60,892 Liabilities of discontinued operations 154,918 - - 154,918 Shareholders' equity (359,161) 610,504 803,271 (1,413,775) (359,161) ---------------- --------------- ------------- ------------- --------------- Total liabilities and shareholders' equity $ 585,654 $ 776,324 $ 987,033 $ (1,415,977) $ 933,034 =============== =============== ============= ============= ==============
17 18 Consolidating Condensed Statement of Cash Flows
Six Months Ended June 28, 1998 ------------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- ------------- ------------- ------------ Cash provided by (used in) operating activities $ 37,735 $ 3,877 $ (1,438) - $ 40,174 --------------- --------------- ------------- ------------- ----------- Cash flows from investing activities: Capital expenditures (11,663) (10,288) (5,236) (27,187) Proceeds from divestiture 100,000 100,000 Acquisition of business (25,000) (17,000) (38,518) (80,518) Cash from (to) Parent (71,042) 27,288 43,754 - - --------------- --------------- ------------- ------------- ----------- Cash used in investing activities (7,705) - - - (7,705) --------------- --------------- ------------- ------------- ------------ Cash flows from financing activities: Increase (decrease) in revolving facility, net (480,000) 40,000 440,000) Repayment of long-term debt (4,591) (154) (14,102) (18,847) Issuance of long-term debt 292,151 292,151 Issuance of convertible preferred securities - 144,472 144,472 Payments for unclaimed stock (3,871) (3,871) Purchase of treasury stock (994) (994) Cash from (to) Parent 170,216 154 (170,370) - - --------------- --------------- -------------- ------------- ----------- Cash used in financing activities (27,089) - - - (27,089) --------------- --------------- ------------- ------------- ----------- Cash and cash equivalents: Increase (decrease) in cash and cash equivalents 2,941 3,877 (1,438) 5,380 Cash and cash equivalents - beginning of period 9,912 722 4,059 14,693 --------------- --------------- ------------- ------------- ----------- Cash and cash equivalents - end of period $ 12,853 $ 4,599 $ 2,621 - $ 20,073 =============== =============== ============= ============= ===========
18 19 Consolidating Condensed Statement of Cash Flows
Six Months Ended June 28, 1997 ------------------------------------------------------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated --------------- --------------- ------------- ------------- ------------ Cash provided by (used in) operating activities $ 25,273 $ (182) $ (2,725) - $ 22,366 --------------- ---------------- ------------- ------------- ------------ Cash flows from investing activities: Capital expenditures (11,538) (7,617) (10,112) (29,267) Cash from (to) Parent (17,729) 7,617 10,112 - - --------------- --------------- ------------- ------------- ------------ Cash used in investing activities (29,267) - - - (29,267) --------------- --------------- ------------- ------------- ------------- Cash flows from financing activities: Increase in revolving facility, net 49,500 49,500 Repayment of long-term debt (3,679) (3,498) (7,177) Purchase of treasury stock (41,919) (41,919) Cash from (to) Parent (3,498) 3,498 - - --------------- --------------- ------------- ------------- ------------ Cash provided by financing activities 404 - - - 404 --------------- --------------- ------------- ------------- ------------ Cash and cash equivalents: Decrease in cash and cash equivalents (3,590) (182) (2,725) (6,497) Cash and cash equivalents - beginning of period 5,475 570 8,984 15,029 --------------- --------------- ------------- ------------- ------------ Cash and cash equivalents - end of period $ 1,885 $ 388 $ 6,259 - 8,532 =============== =============== ============= ============= ============
19 20 COLTEC INDUSTRIES INC AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table shows financial information by industry segment for the three months and six months ended June 28, 1998 and June 29, 1997.
Three Months Ended Six Months Ended June 28 June 29 June 28 June 29 1998 1997 1998 1997 --------- -------- -------- -------- (in thousands) Sales: Aerospace $ 182,568 $128,617 $348,726 $247,757 Industrial 212,237 193,918 421,321 384,017 Intersegment elimination (51) (308) (852) (375) --------- -------- -------- -------- Total $ 394,754 $322,227 $769,195 $631,399 ========= ======== ======== ======== Operating income: Aerospace (1) $ 1,384 $ 20,594 $ 27,486 $ 38,897 Industrial (2) 26,484 39,165 63,765 75,435 --------- -------- -------- -------- Total segments 27,868 59,759 91,251 114,332 Corporate unallocated (9,100) (11,005) (19,189) (20,650) --------- -------- -------- -------- Operating income $ 18,768 $ 48,754 $ 72,062 $ 93,682 ========= ======== ======== ========
(1) Operating income in the Aerospace Segment for the three months and six months ended June 28, 1998 included a charge of $25.0 million to recognize program costs associated with the development of Boeing programs and $2.0 million of expenses for Year 2000 compliance for new computer systems. Excluding these charges, Aerospace Segment operating income was $28.4 million and $54.5 million for the three and six months ended June 28, 1998, respectively. (2) Operating income in the Industrial Segment for the three months and six months ended June 28, 1998 included charges of $12.0 million to record additional warranty and legal reserves and $3.0 million of expenses for Year 2000 compliance for new and existing computer systems. Excluding these charges, Industrial Segment operating income was $41.5 million and $78.8 million for the three and six months ended June 28, 1998, respectively. Results of Operations Company Review Net sales for the second quarter of 1998 increased 22.5% to $394.8 million from $322.2 million for the second quarter of 1997 primarily driven by increases in the Aerospace Segment. Gross profit decreased to $82.9 million for the second quarter 1998 from $105.1 million in second quarter 1997. The decline in gross profit resulted from a charge of $25.0 million to recognize program costs associated with the development of Boeing programs and a charge of $12.0 million to record additional warranty and legal reserves. Excluding these 1998 charges, gross profit increased to $119.9 million in the second quarter of 1998. Selling and administrative expenses totaled $64.1 million, or 16.2% of sales, in second quarter 1998 compared to $56.3 million, or 17.5% of sales, in second quarter 1997. In the second quarter 1998, selling and administrative 20 21 expenses included expenses of $5.0 million for Year 2000 compliance incurred in the second quarter of 1998. After reviewing costs incurred for new computer systems scheduled to start up in the second quarter of 1998, the Company determined that approximately $5.0 million of such costs related to items that should be expensed. These expenses primarily included certain consulting fees, software maintenance fees and training and travel costs. The Company expects to have future Year 2000 expenses; however, due to the Company's current stage of implementation at its operating units, the amount of Year 2000 expenses recorded in the second quarter of 1998 represents a significant amount of the Company's estimated total Year 2000 expenses. In the second quarter of 1998, the Company performed a study of total revenue and costs for certain commercial aircraft programs. This study was performed on the Boeing 777 as the program reached its 200th shipset milestone. Based on this study which considered recent market conditions including normal market uncertainties related to shipping schedules beyond five years, recent cancellation of Asian jet aircraft orders and expected future program efficiencies and related costs, the company revised its total estimated revenue and costs for the Boeing 777 program. The primary revision to the program's estimated revenue and costs resulted from a reduction of the number of shipsets from 1,000 shipsets (based on customer-produced market projections and initial and follow-on contracts with customer) to 500 shipsets (based on current firm orders received by customer). In accordance with the Company's accounting policy for commercial jet aircraft, the Company reduced inventory by $25.0 million which resulted in a charge of $25.0 million to current operations in the three months ended June 28, 1998. Also in the second quarter of 1998, the Company recorded a $12.0 million charge to establish additional warranty and legal reserves for claims and outstanding cases. Based on first time production of commercial engine applications, warranty claims have escalated during the first six months of 1998. Increased reserve requirements primarily arose from the delivery of four large engines to three projects between the years 1990 and 1994 for which long-term warranties were provided. In each instance the projects involved specific performance parameters and unique operating environments in which the Company has and will continue to expend resources to insure optimum engine operation in excess of normal warranty reserve levels. In the second quarter of 1998, the Company negotiated settlements regarding these projects. The Company has recorded a liability for these claims based on reviews by the Company's engineering and service personnel of engine performance and future customer requirements, settlements reached, and at the advice of the Company's legal counsel. None of these claims or cases are expected to be individually material to the Company's financial position or results of operations. Net sales for the six months ended June 28, 1998 increased 21.8% to $769.2 million from $631.4 million for the six months ended June 29, 1997 as a result of continued sales increases in the Aerospace Segment. Gross profit decreased to $197.2 million for the first six months of 1998 from $202.6 million for the first six months of 1997. This decrease resulted from a charge of $25.0 million to recognize program costs associated with the development of Boeing programs and a charge of $12.0 million to record additional warranty and legal reserves. Excluding these charges, gross profit was $234.2 million for the six months ended June 28, 1998. Although selling and administrative expenses totaled $125.1 million for year to date 1998 ($120.1 million excluding a $5.0 million expense for Year 2000 compliance for new computer systems) compared to $108.9 million for year to date 1997, selling and administrative expenses decreased as a percentage of sales, 16.3% for year to date 1998 (15.6% excluding Year 2000 expense) as compared to 17.2% for year to date 1997. Operating income decreased to $18.8 million in second quarter 1998 from $48.8 million in the second quarter of 1997. Operating margin was 4.8% for second quarter 1998 resulting from total charges of $42.0 million in the second quarter of 1998. Operating margin excluding the charges was 15.4% compared to 15.1% for the second quarter 1997. Operating income decreased to $72.1 million for the first six months of 1998 from $93.7 million for the first six months of 1997 as a result of $42.0 million of charges in second quarter of 1998. Operating margin for year to date 1998 was 9.4% (14.8% excluding $42.0 million of charges) compared to 14.8% for year to date 1997. In May 1998, the Company sold the capital stock of its Holley Performance Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm located in Mount Kisco, New York, for $100 million in cash. The sale resulted in a pre-tax gain of $56.2 million, net of liabilities retained. 21 22 Interest expense increased slightly to $13.2 million in second quarter 1998 from $12.7 million for second quarter 1997 and increased to $28.3 million for year to date 1998 as compared to $25.0 million for year to date 1997. In April 1998, the Company privately placed $300.0 million principal amount of 7 1/2% Senior Notes due 2008 and $150.0 million liquidation value of 5 1/4% Trust Convertible Preferred Securities. Distributions on the Convertible Preferred Securities were $1.1 million after-tax in the second quarter 1998, which is classified as minority interest in net loss of subsidiaries in the Company's consolidated statements of earnings. As a result of the foregoing, earnings before extraordinary items for the three months and six months ended June 28, 1998 were $39.7 million and $64.9 million, respectively, as compared to $23.8 million and $45.3 million for the three months and six months ended June 29, 1997, respectively. The Company incurred an extraordinary charge of $4.3 million, net of taxes, or $.06 per share in second quarter of 1998. Net earnings were $35.3 million in second quarter 1998, or $0.51 per share (diluted), compared to net earnings of $23.8 million, or $0.36 per share (diluted), in second quarter 1997. 1998 year to date net earnings were $60.6 million, or $0.89 per share (diluted), as compared to $45.3 million, or $0.67 per share (diluted) for 1997. Segment Review - Aerospace Sales in second quarter 1998 for the Aerospace Segment totaled $182.6 million increasing 42.0% from $128.6 million in the second quarter 1997. For the six months ended June 28, 1998 Aerospace sales increased 40.7% to $348.7 million from $247.8 million for the comparable 1997 period. At Menasco, sales increased by $28.7 million for the second quarter 1998 and $52.1 million for the six months ended June 28, 1998 due to rising commercial aircraft production as well as improved military sales. Menasco deliveries of main landing gear systems for the Boeing 737 increased from 49 and 82 shipsets in the three months and six months ended June 29, 1997, respectively, to 74 and 143 shipsets in the three months and six months ended June 28, 1998 respectively, while military sales benefited primarily from higher shipset deliveries for the F-15 and F-16 programs. Sales increases in 1998 were also driven by higher sales volumes of engine components. The acquisition of AMI, on June 30, 1997, was a significant contributor to the increase in sales, both for the 1998 second quarter and 1998 year to date. Operating income for the Aerospace Segment decreased to $1.4 million in second quarter 1998 from $20.6 million in second quarter of 1997 as a result of 1998 second quarter charges totaling $27.0 million ($25.0 million to recognize program costs associated with development of Boeing programs and $2.0 million for Year 2000 compliance for new computer systems). Operating income excluding charges was $28.4 million for the second quarter 1998. Operating income for year to date 1998 was $27.5 million ($54.5 million excluding charges) as compared to $38.9 million for year to date 1997. The increases, excluding charges, were also driven by generally higher sales volumes for the Segment's other businesses. Operating margins decreased slightly in the second quarter 1998 primarily due to a slight change in product mix from higher margin after market products to slightly lower margin original equipment manufactures. Segment Review - Industrial Industrial sales increased to $212.2 million and $421.3 million in the three months and six months ended June 28, 1998, respectively, from $193.9 and $384.0 million in the three months and six months ended June 29, 1997, respectively. The Garlock Bearings, FM Engine and Quincy Compressor divisions experienced solid sales volume increases. Sales for Garlock Sealing Technologies increased primarily due to selling price increases and new product sales. Sales were favorably impacted by the Company's first 22 23 quarter acquisitions by approximately $21.0 million and $32.0 million in the three months and six months ended June 28, 1998, respectively, which more than offset the effect of the second quarter divestiture of Holley Performance Products. Operating income for the Industrial Segment was $26.5 million and $63.8 million in the three months and six months ended June 28, 1998, respectively, compared to $39.2 million and $75.4 million in the three and six months ended June 29, 1997, respectively. Operating income for the three months and six months ended June 28, 1998 included charges of $12.0 million to record additional warranty and legal reserves and $3.0 million expense for Year 2000 compliance for new computer systems. Excluding these charges, Industrial Segment operating income increased slightly to $41.5 million and $78.8 million for the three and six months ended June 28, 1998, respectively, as a result of increased sales. Operating margin decreased slightly from prior periods due to lower operating margins on the first quarter 1998 acquisitions although such acquisitions were accretive. Liquidity and Capital Resources The Company generated $40.2 million of operating cash flows for the six months ended June 28, 1998 compared with $22.4 million for the six months ended June 29, 1997. The higher operating cash flows in 1998 were primarily due to the Company's initiatives to reduce working capital requirements. The ratio of current assets to current liabilities at June 28, 1998 was 1.52, decreasing from 1.78 at December 31, 1997. Cash and cash equivalents increased to $20.1 million at June 28, 1998 from $14.7 million at December 31, 1997. In the first six months of 1998, the Company invested $27.2 million in capital expenditures compared to $29.3 million during the same prior year period. Debt decreased by $153.8 million at June 28, 1998 compared to December 31, 1997. In April 1998, the Company sold $150.0 million of 5 1/4% Convertible Preferred Securities. The proceeds from the Convertible Preferred Securities, which are effectively guaranteed by the Company, were used to reduce the Company's indebtedness under its credit agreement. 23 24 PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. In addition, the Company has been notified that it is among Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. See note 6 to consolidated financial statements. Item 4. Submission of Matters to a Vote of Security Holders. (a) The annual meeting of the shareholders of the Company was held on May 7, 1998. (b) At the annual meeting of shareholders held on May 7, 1998, shareholders voted for: 1. The election of Board Directors consisting of eight members. 2. Increase in the number of shares of common stock authorized to be issued under the 1992 Stock Option and Incentive Plan. 3. Proposal to approve Amendment No. 3 to the 1994 Stock Option Plan for Outside Directors. 4. Ratification of appointment of Arthur Andersen LLP as the independent public accountants of the Company. There were 65,943,010 shares of common stock, par value $.01 per share, outstanding and entitled to one vote per share as of the record date for said meeting. The voting results were as follows: 1. Election of Directors
Number of Votes -------------------------------- Name of Candidates For Withheld ------------------ --- -------- Joseph R. Coppola 61,861,064 237,050 William H. Grigg 61,869,881 228,233 John W. Guffey, Jr. 61,866,741 231,373 David D. Harrison 61,875,842 222,272 David I. Margolis 61,870,408 227,706 Joel Moses 61,870,557 227,557 Richard A. Stuckey 61,863,695 234,419 Nishan Teshoian 61,876,643 221,471
24 25 2. Increase in the number of shares of common stock authorized to be issued under the 1992 Stock Option and Incentive Plan. For Against Abstain 47,147,980 9,524,748 295,106 3. Proposal to approve Amendment No. 3 to the 1994 Stock Option Plan for Outside Directors. For Against Abstain 50,520,540 6,287,724 307,589 4. Ratification of appointment of Arthur Andersen LLP as the independent public accountants of the Company. For Against Abstain 61,994,660 46,425 57,029 Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 4.1 Indenture dated April 16, 1998, between Coltec and Bankers Trust Company as trustee, relating to the 7 1/2% Senior Secured Notes. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.2 Form of 7 1/2% Series B Senior Secured Notes (included in Exhibit 4.1 above). (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.3 Registration Rights Agreement, dated as of April 16, 1998, between Coltec and the Initial Purchasers named therein. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.4 Fifth Amendment to the Credit Agreement, dated as of March 16, 1998 among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.5 Consent and Agreement, dated as of March 31, 1998, with respect to the Credit Agreement among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 25 26 4.6 Modification to Fifth Amendment to Credit Agreement, dated as of April 20, 1998, among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.7 Amended and Restated Company Pledge Agreement, dated as of March 24, 1998, made Coltec in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.8 Amended and Restated Company Security Agreement, dated as of March 24, 1998, made by Coltec in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.9 Amended and Restated Subsidiary Pledge Agreement, dated March 24, 1998, made by the Subsidiary named therein in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.10 Amended and Restated Subsidiary Security Agreement, dated March 24, 1998, made by the Subsidiary named therein in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.11 Second Amendment to Receivables Transfer and Administration Agreement, dated January 26, 1998, between Coltec and Coltec North Carolina Inc. (Incorporated by reference to the Company's Registration Statement on Form S-4, filed May 18, 1998.) 4.12 Certificate of trust of the Coltec Capital Trust. (Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 4.13 Amended and Restated Declaration of Trust of Coltec Capital Trust dated as of April 14, 1998, among Coltec Industries Inc, as sponsor, The Bank of New York, as Property Trustee, and The Bank of New York (Delaware), as Delaware Trustee, and the individuals named as Administrative Trusts therein (Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 4.14 Indenture dated April 14, 1998, between Coltec Industries Inc and The Bank of New York, as trustee, relating to the 5 1/4%(Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 26 27 4.15 Form of 5 1/4% Convertible Preferred Security. (Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 4.16 Form of 5 1/4% Convertible Junior Subordinated Deferrable Interest Debenture Due 2028. (Incorporated by reference to the Company's Registration statement on Form S-3, filed May 18, 1998.) 4.17 Guarantee Agreement, dated April 14, 1998, among Coltec Industries Inc and The Bank of New York, as trustee. ( Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 4.18 Registration Rights Agreement, dated as of April 14, 1998, among Coltec Industries Inc, Coltec Capital Trust and the Initial Purchasers named therein. (Incorporated by reference to the Company's Registration Statement on Form S-3, filed May 18, 1998.) 4.19 Fifth Amendment to the Credit Agreement, dated as of March 16, 1998, among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, the Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.20 Consent and Agreement, dated as of March 31, 1998, with respect to the Credit Agreement among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.21 Modification to Fifth Amendment to Credit Agreement, dated as of April 20, 1998, among Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto from time to time, Bank of America National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 27 28 4.22 Amended and Restated Company Pledge Agreement, dated as of March 24, 1998, made by Coltec in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.23 Amended and Restated Company Security Agreement, dated as of March 24, 1998, made by Coltec in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.24 Amended and Restated Subsidiary Pledge Agreement, dated March 24, 1998, made by the Subsidiary named therein in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.25 Amended and Restated Subsidiary Security Agreement, dated March 24, 1998, made by the Subsidiary named therein in favor of Bankers Trust Company as collateral agent. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 4.26 Second Amendment to Receivables Transfer and Administration Agreement, dated January 26, 1998, between Coltec and Coltec North Carolina Inc. (Incorporated by reference to Coltec's Registration Statement on Form S-4, filed May 18, 1998.) 10.28 Employment Agreement dated July 15, 1998 between the Company and John W. Guffey, Jr. 10.29 Employment Agreement dated July 15, 1998 between the Company and Nishan Teshoian. 10.30 Employment Agreement dated July 15, 1998 between the Company and David D. Harrison. 10.31 Employment Agreement dated July 15, 1998 between the Company and Robert J. Tubbs. 10.32 Employment Agreement dated July 15, 1998 between the Company and Laurence H. Polsky. 10.33 Employment Agreement dated July 15, 1998 between the Company and Michael J. Burdulis. 27. Financial Data Schedules. (for SEC use only). 28 29 (b) Reports on Form 8-K The following Current Reports on Form 8-K were filed by the Company during the quarter ended June 30, 1998. Current Report on Form 8-K dated March 30, 1998 (filed April 3, 1998) (Items 5 and 7). Current Report on Form 8-K dated April 9, 1998 (filed April 9, 1998) (Items 5 and 7). Current Report on Form 8-K dated April 14, 1998 (filed April 16, 1998) (Items 5 and 7). Current Report on Form 8-K dated May 15, 1998 (filed May 15, 1998) (Items 5 and 7). 29 30 S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLTEC INDUSTRIES INC (Registrant) by /s/ David D. Harrison ----------------------------- David D. Harrison Executive Vice President and Chief Financial Officer Date: August 17, 1998 30 EX-10.28 2 EMPLOYMENT AGREEMENT WITH JOHN W GUFFEY 1 EXHIBIT 10.28 EMPLOYMENT AGREEMENT This Agreement dated as of this 15th day of July, 1998 between John W. Guffey, Jr. ("the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation") WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 6 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Board of Directors (the "Board") as Chairman and Chief Executive Officer of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his current position, as shall from time to time be assigned to him by the Board. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity, or as (ii) a director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at the Corporation's headquarters at 3 Coliseum Centre, 2550 West Tyvola Rd. Charlotte, NC except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the Contract Period, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the Effective Date and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than that customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the Effective Date. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively, the "Retirement Plans") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in 2 3 Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By- Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Management of the Corporation During the Contract Period and subject to its fiduciary duties, the Board shall not interfere with Executive's responsibilities in connection with the normal day to day management of the Corporation's business matters and will involve Executive as a director, in determining the strategic direction of the Corporation, consistent with the Board's past practice and its fiduciary duties to the Corporation's shareholders and its management. 6. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 6.2 or 6.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 6.1 below. 6.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 9 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 6.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for 3 4 Good Reason in respect of a termination covered by Sections 7.6 or 7.7 below; d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 6.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 6.2(e) above ("Retirement Termination") 7. Compensation Upon Termination or During Disability 7.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon : i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Board; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; 4 5 iv. a willful material breach of an established written policy or procedure of the Corporation, which breach is materially injurious to the Corporation; v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 11.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 6.2 above), specified in the Notice of Termination : i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 8 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 6 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the Board which demand specifically identifies the manner in which Executive believes that any Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his 5 6 day-to-day duties); provided, however, that appropriate involvement of Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview the Board's responsibilities shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside Charlotte, NC without the concurrence of Executive; vii. after a Change-in-Control, the corporation a)reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a basis comparable to that before the Change-in-Control, c) reduces the Company Perquisites made available to Executive before a Change-in-Control, or d) eliminates or impairs Executive's ability to participate in Retirement Plans, or viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the 6 7 Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 7.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the Disability occurs) under the Corporation ' s compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability 7 8 and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 7.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 7.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms . 7.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. 8 9 b. Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 7.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 7.7 below ("Section 7.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to three times (3x) the sum of Executive's annual base salary plus the Executive's highest annual incentive bogey used in any of the three years prior to the Date of Termination to calculate Executive's award under the Coltec Annual Incentive Plan . c. In accordance with a valid election on file with the Corporation, the corporation shall pay to Executive a sum of money equal to the value of Executive' s accrued balance of the Benefits Equalization Plan ("BE Plan"). d. For a period of three years from the Date of Termination (the "Relevant Damage Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 7.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is 9 10 ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 7.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 7.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 7.6 (b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 10 11 7.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"),or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under Section 7.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited, to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive a lump sum equal to four times (4x) the sum of Executive's annual base salary for one calendar year at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive during any of the three preceding calendar years. c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. e. For four years from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 7.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of 11 12 coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 7.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of 12 13 the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 7.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional four year period, and (y) the compensation described in Section 7.7 (b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a four year period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period, and if Executive shall have received any payments or benefits pursuant to Section 7.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 7.7. j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 7.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 7.8 In addition to the benefits set forth in Sections 7.6 and 7.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 7.7 Good Reason, or (3) by Executive for Section 7.7 Good Reason then: 13 14 a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In addition to all other benefits provided hereunder, in the event that Executive becomes entitled to any payments or benefits from the corporation (whether or not provided under this Agreement) ("Severance Payments") if Executive will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a change-in-control of the Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code in excess of the base amount within the meaning of Section 280G(b) (3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess 14 15 parachute payments within the meaning of Section 280G(b) (1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d) (3)and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b) (2) (B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274 (b) (2) (B) of the Code). 7.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise 15 16 receivable by Executive pursuant to Subsections 7.6(d) or 7.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation , LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 7.10 Any stock of the Corporation, which is delivered to the Executive pursuant to Subsections 7.6 or 7.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 8. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. Notice For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Compensation Committee of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or 16 17 subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 11. Non-competition 11.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 11.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 7.l(b) hereof. 11.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 7.6(b) or 7.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 11. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such 17 18 information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 11.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 11 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 14 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 12. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. Arbitration Except as contemplated by Section 11.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 15. Governing Law This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 16. Entire Agreement; Survival of Certain Provisions 16.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by 18 19 either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements, Restated Employment Agreements and or Change in Control Agreements, if any, between the Corporation and the Executive, each of which is hereby expressly terminated. 16.2 The obligations of the Corporation under Section 7.8 above and the Executive's obligations under Section 11 above shall survive the expiration of the term of this Agreement. 17. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Laurence H. Polsky -------------------------------------- /s/ John W. Guffey, Jr -------------------------------------- EXECUTIVE 19 EX-10.29 3 EMPLOYMENT AGREEMENT WITH NISHAN TESHOIAN 1 EXHIBIT 10.29 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of this 15th day of July, 1998 between Nishan Teshoian (the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 5 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chairman and Chief Executive Officer as the President and Chief Operating Officer of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his then current position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or by the Chairman and Chief Executive Officer of the Corporation 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Board as (ii) a 2 director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at the Corporation's headquarters, except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the contract period hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the date of this Agreement and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than the level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the date of this Agreement. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively the "Retirement Plans") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 2 3 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By- Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; 3 4 e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination") 6. Compensation Upon Termination or During Disability 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon : i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Board; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; iv. a willful material breach of an established written policy or procedure of the Corporation which breach is materially injurious to the Corporation; 4 5 v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination : i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 7 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board, the Chairman and Chief Executive Officer or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the Chairman and Chief Executive Officer or to the Board which demand specifically identifies the manner in which Executive believes that the Chairman and Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); provided, however, that appropriate involvement of the Chairman and Chief Executive Officer or the Board members in regular reviews of those items 5 6 which have, consistent with the Corporation's past practices, been normally within the purview of the Chairman and Chief Executive Officer or the Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation' s policy and practice in effect on the date of this Agreement; or vii. after a Change-in-Control as hereafter defined, the Corporation a) reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a bases comparable to that before the Change-in-Control, c) reduces the Company Perquisites made available to Executive before the Change-in-Control or d) eliminates or impairs Executive's ability to participate in the Retirement Plans. viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: 6 7 i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the 7 8 Disability occurs) under the Corporation ' s compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms . 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: 8 9 a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. b. Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to two times (2x) the sum of Executive's annual base salary plus the Executive's highest incentive bogey established at any time during the three year period prior to the Date of Termination pursuant to the Coltec Annual Incentive Plan . c. In accordance with a valid election on file with the Corporation the Corporation shall pay the Executive a sum of money equal to the value of Executive' s accrued balance of the Benefits Equalization Plan (the "BE Plan"). d. For a period of two years from the Date of Termination (the "Relevant Damage Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any 9 10 other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 6.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii.the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 6.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 6.6 (b) which would 10 11 have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 6.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"),or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under Section 6.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive as severance pay a lump sum equal to three times (3x) the sum of Executive's annual base salary at the rate in effect immediately prior to the time Notice of Termination is given plus the highest Annual Bonus received by the Executive during any of the three preceding calendar years. If the Executive has not received an Annual Bonus during the three (3) year period preceding the Date of Termination, then the Annual Bonus for purposes of this section shall be calculated by multiplying Executive's full base salary for one calendar year times .8 and by further multiplying the result by 2.27. c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. 11 12 d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. e. For three years from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 6.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from 12 13 consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 6.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional three year period, and (y) the compensation described in Section 6.7 (b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a three year period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period and if Executive shall have received any payments or benefits pursuant to Section 6.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 6.7. 13 14 j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 6.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In addition to all other benefits provided hereunder, in the event that Executive becomes entitled to any payments or benefits from the Corporation (whether or not provided under this Agreement) (the "Severance Payments") that will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a Change-of-Control of the 14 15 Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-of-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code in excess of the base amount within the meaning of Section 280G(b) (3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess parachute payments within the meaning of Section 280G(b) (1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d) (3)and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and Federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b) (2) (B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with 15 16 respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274 (b) (2) (B) of the Code). 6.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation, LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 6.10 Any stock of the Corporation, which is delivered to the Executive pursuant to Subsections 6.6 or 6.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 7. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. Notice 16 17 For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 10. Non-competition 10.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines 17 18 of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 6.l(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 18 19 11. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Arbitration Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. Governing Law This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 15. Entire Agreement; Survival of Certain Provisions 15.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements between the Corporation and the Executive, each of which is hereby expressly terminated. 15.2 The obligations of the Corporation under Section 6.8 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 19 20 16. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Laurence H. Polsky -------------------------------- /s/ Nishan Teshoian -------------------------------- EXECUTIVE 20 EX-10.30 4 EMPLOYMENT AGREEMENT WITH DAVID D HARRISON 1 EXHIBIT 10.30 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of this 15th day of July, 1998 between David D. Harrison (the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 5 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chairman and Chief Executive Officer as the Executive Vice President and Chief Financial Officer of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his then current position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or by the Chairman and Chief Executive Officer of the Corporation. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Chairman and Chief Executive Officer as (ii) a director of any corporation which is not a 2 competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at such location within the continental United States as the Chairman and Chief Executive Officer may from time to time, after consultation with Executive, deem appropriate, except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the contract period hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the Effective Date and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than the level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the Effective Date. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively the "Retirement Plan") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 2 3 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By- Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; 3 4 e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination") 6. Compensation Upon Termination or During Disability 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon : i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Chairman and Chief Executive Officer; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; iv. a willful material breach of an established written policy or procedure of the Corporation which breach is materially injurious to the Corporation; 4 5 v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination : i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 7 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board, the Chairman and Chief Executive Officer, the President and Chief Operating Officer or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the President and Chief Operating Officer, the Chairman and Chief Executive Officer or to the Board which demand specifically identifies the manner in which Executive believes that such President and Chief Operating Officer, Chairman and Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); 5 6 provided, however, that appropriate involvement of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation' s policy and practice in effect on the date of this Agreement; or vii. after a Change-in-Control as hereafter defined, the Corporation a) reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a basis comparable to that before the Change-in-Control, c) reduces the Company perquisites made available to Executive before the Change-in-Control or d) eliminates or impairs Executive's ability to participate in the Retirement Plans; viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. 6 7 d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base 7 8 salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the Disability occurs) under the Corporation ' s compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms . 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: 8 9 a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. b. Executive shall be entitled to participate in all applicable group life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to two times (2x) the sum of Executive's annual base salary plus the Executive's highest annual incentive bogey used in any of the three years prior to the Date of Termination to calculate Executive's award under the Coltec Annual Incentive Plan. c. In accordance with a valid election on file with the Corporation, the Corporation shall pay to Executive a sum of money equal to the value of Executive' s accrued balance of the Benefits Equalization Plan (the "BE Plan"). d. For a period of two years from the Date of Termination (the "Relevant Damage Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, during the Relevant Damage Period Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as 9 10 well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 6.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii.the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 6.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 6.6 (b) which would 10 11 have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 6.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"), or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under the Section 6.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive a lump sum equal to three times (3x) the sum of Executive's annual base salary at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive during any of the three preceding calendar years. c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. 11 12 e. For three years from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 6.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive 12 13 has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 6.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional three year period, and (y) the compensation described in Section 6.7 (b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a three year period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period, and if Executive shall have received any payments or benefits pursuant to Section 6.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 6.7. j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 6.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which 13 14 event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In the event that Executive becomes entitled to any payments or benefits from the Corporation (whether or not provided under this Agreement) (the "Severance Payments") that will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a change-in-control of the Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b) (2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b) (1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's 14 15 independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b) (4) of the Code in excess of the base amount within the meaning of Section 280G(b) (3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess parachute payments within the meaning of Section 280G(b) (1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d) (3)and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b) (2) (B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the 15 16 remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274 (b) (2) (B) of the Code). 6.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation , LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 6.10. Any stock of the Corporation, which is delivered to the Executive pursuant to Subsection 6.6 or 6.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 7. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. Notice For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 16 17 9. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 10. Non-competition 10.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 5.l(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which 17 18 directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 11. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Arbitration Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. Governing Law 18 19 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 15. Entire Agreement; Survival of Certain Provisions 15.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements, Restated Employment Agreements and or Change-of-Control Agreements, if any, between the Corporation and the Executive, each of which is hereby expressly terminated. 15.2 The obligations of the Corporation under Section 6.8 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 16. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Laurence H. Polsky -------------------------------- /s/ David D. Harrison -------------------------------- EXECUTIVE 19 EX-10.31 5 EMPLOYMENT AGREEMENT WITH ROGERT J TUBBS 1 EXHIBIT 10.31 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of this 15th day of July, 1998 between Robert J. Tubbs (the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 5 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chairman and Chief Executive Officer as the Executive Vice President, General Counsel and Secretary of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his then current position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or by the Chairman and Chief Executive Officer of the Corporation. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Chairman and Chief Executive Officer as (ii) a director of any corporation which is not a 2 competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at such location within the continental United States as the Chairman and Chief Executive Officer may from time to time, after consultation with Executive, deem appropriate, except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the contract period hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the Effective Date and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than the level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the Effective Date. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively the "Retirement Plan") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 2 3 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By-Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; 3 4 e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination") 6. Compensation Upon Termination or During Disability 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon : i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Chairman and Chief Executive Officer; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; iv. a willful material breach of an established written policy or procedure of the Corporation which breach is materially injurious to the Corporation; 4 5 v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination : i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 7 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board, the Chairman and Chief Executive Officer, the President and Chief Operating Officer or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the President and Chief Operating Officer, the Chairman and Chief Executive Officer or to the Board which demand specifically identifies the manner in which Executive believes that such President and Chief Operating Officer, Chairman and Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); 5 6 provided, however, that appropriate involvement of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation' s policy and practice in effect on the date of this Agreement; or vii. after a Change-in-Control as hereafter defined, the Corporation a) reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a basis comparable to that before the Change-in-Control, c) reduces the Company perquisites made available to Executive before the Change-in-Control or d) eliminates or impairs Executive's ability to participate in the Retirement Plans; viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. 6 7 d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base 7 8 salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms. 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: 8 9 a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. b. Executive shall be entitled to participate in all applicable group life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to two times (2x) the sum of Executive's annual base salary plus the Executive's highest annual incentive bogey used in any of the three years prior to the Date of Termination to calculate Executive's award under the Coltec Annual Incentive Plan. c. In accordance with a valid election on file with the Corporation, the Corporation shall pay to Executive a sum of money equal to the value of Executive's accrued balance of the Benefits Equalization Plan (the "BE Plan"). d. For a period of two years from the Date of Termination (the "Relevant Damage Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, during the Relevant Damage Period Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as 9 10 well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 6.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 6.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 6.6 (b) which would 10 11 have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 6.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"), or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under the Section 6.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive a lump sum equal to three times (3x) the sum of Executive's annual base salary at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive during any of the three preceding calendar years. c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. 11 12 e. For three years from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 6.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive 12 13 has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 6.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional three year period, and (y) the compensation described in Section 6.7 (b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a three year period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period, and if Executive shall have received any payments or benefits pursuant to Section 6.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 6.7. j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 6.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which 13 14 event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In the event that Executive becomes entitled to any payments or benefits from the Corporation (whether or not provided under this Agreement) (the "Severance Payments") that will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a change-in-control of the Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's 14 15 independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the 15 16 remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 6.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation, LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 6.10. Any stock of the Corporation, which is delivered to the Executive pursuant to Subsection 6.6 or 6.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 7. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. Notice For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 16 17 9. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 10. Non-competition 10.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 5.l(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which 17 18 directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 11. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Arbitration Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. Governing Law 18 19 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 15. Entire Agreement; Survival of Certain Provisions 15.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements, Restated Employment Agreements and or Change-of-Control Agreements, if any, between the Corporation and the Executive, each of which is hereby expressly terminated. 15.2 The obligations of the Corporation under Section 6.8 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 16. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Laurence H. Polsky ------------------------------- /s/ Robert J. Tubbs ------------------------------- EXECUTIVE 19 EX-10.32 6 EMPLOYMENT AGREEMENT WITH LAURENCE H POLSKY 1 EXHIBIT 10.32 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of this 15th day of July, 1998 between Laurence H. Polsky (the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 5 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chairman and Chief Executive Officer as the Executive Vice President, Administration of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his then current position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or by the Chairman and Chief Executive Officer of the Corporation. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Chairman and Chief Executive Officer as (ii) a director of any corporation which is not a 2 competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at such location within the continental United States as the Chairman and Chief Executive Officer may from time to time, after consultation with Executive, deem appropriate, except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the contract period hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the Effective Date and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than the level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the Effective Date. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively the "Retirement Plan") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 2 3 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By-Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; 3 4 e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination") 6. Compensation Upon Termination or During Disability 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon: i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Chairman and Chief Executive Officer; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; iv. a willful material breach of an established written policy or procedure of the Corporation which breach is materially injurious to the Corporation; 4 5 v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination : i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 7 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board, the Chairman and Chief Executive Officer, the President and Chief Operating Officer or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the President and Chief Operating Officer, the Chairman and Chief Executive Officer or to the Board which demand specifically identifies the manner in which Executive believes that such President and Chief Operating Officer, Chairman and Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); 5 6 provided, however, that appropriate involvement of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation's policy and practice in effect on the date of this Agreement; or vii. after a Change-in-Control as hereafter defined, the Corporation a) reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a basis comparable to that before the Change-in-Control, c) reduces the Company perquisites made available to Executive before the Change-in-Control or d) eliminates or impairs Executive's ability to participate in the Retirement Plans; viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. 6 7 d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13 (d) (3) or 14 (d) (2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base 7 8 salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms . 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: 8 9 a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. b. Executive shall be entitled to participate in all applicable group life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to two times (2x) the sum of Executive's annual base salary plus the Executive's highest annual incentive bogey used in any of the three years prior to the Date of Termination to calculate Executive's award under the Coltec Annual Incentive Plan. c. In accordance with a valid election on file with the Corporation, the Corporation shall pay to Executive a sum of money equal to the value of Executive's accrued balance of the Benefits Equalization Plan (the "BE Plan"). d. For a period of two years from the Date of Termination (the "Relevant Damage Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, during the Relevant Damage Period Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as 9 10 well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 6.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 6.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 6.6(b) which would 10 11 have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 6.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"), or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under the Section 6.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive a lump sum equal to three times (3x) the sum of Executive's annual base salary at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive during any of the three preceding calendar years. c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. 11 12 e. For three years from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 6.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive 12 13 has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 6.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional three year period, and (y) the compensation described in Section 6.7(b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a three year period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period, and if Executive shall have received any payments or benefits pursuant to Section 6.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 6.7. j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 6.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which 13 14 event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In the event that Executive becomes entitled to any payments or benefits from the Corporation (whether or not provided under this Agreement) (the "Severance Payments") that will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a change-in-control of the Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's 14 15 independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3)and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of Federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the 15 16 remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 6.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation , LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 6.10. Any stock of the Corporation, which is delivered to the Executive pursuant to Subsection 6.6 or 6.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 7. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. Notice For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 16 17 9. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 10. Non-competition 10.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 5.l(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which 17 18 directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 11. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Arbitration Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 18 19 14. Governing Law This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 15. Entire Agreement; Survival of Certain Provisions 15.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements, Restated Employment Agreements and or Change-of-Control Agreements, if any, between the Corporation and the Executive, each of which is hereby expressly terminated. 15.2 The obligations of the Corporation under Section 6.8 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 16. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Robert J. Tubbs ----------------------------- /s/ Laurence H. Polsky ----------------------------- EXECUTIVE 19 EX-10.33 7 EMPLOYMENT AGREEMENT WITH MICHAEL J BURDULIS 1 EXHIBIT 10.33 EMPLOYMENT AGREEMENT THIS AGREEMENT dated as of this 15th day of July, 1998 between Michael J. Burdulis (the "Executive") and Coltec Industries Inc, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. Employment Term The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement until terminated in accordance with the provisions set forth in Section 5 below (the "Contract Period"). 2. Duties 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's President and Chief Operating Officer as the Senior Vice President - Operations of the Corporation with the responsibilities and authority, and status and perquisites which have, consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding similar position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his then current position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or by the President and Chief Operating Officer of the Corporation. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the President and 2 Chief Operating Officer as (ii) a director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at such location within the continental United States as the President and Chief Operating Officer may from time to time, after consultation with Executive, deem appropriate, except for travel reasonably required in the performance of Executive's responsibilities. 3. Compensation and Benefits Throughout the contract period hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual base salary which is not less than his annual base salary on the Effective Date and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level not less than the customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the Effective Date. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, the Benefits Equalization Plan (collectively the "Retirement Plans") and the Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 2 3 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities described in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies. 4. Indemnification The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law and the By-Laws of the Corporation in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. Termination of Employment The Contract Period shall terminate prior to the completion of its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: a. thirty (30) days after Notice of Termination is given by the Corporation for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; b. the date of death in the event of Executive's death; c. at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given by Executive for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; 3 4 d. at least fifteen days (15) after Notice of Termination is given by the Corporation for termination of employment for Cause; e. at least fifteen days (15) after Notice of Termination is given by Executive for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or f. the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the date set forth in the Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination") 6. Compensation Upon Termination or During Disability 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: a. Disability - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". b. Cause - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon: i. the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; ii. the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the President and Chief Operating Officer; iii. the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; 4 5 iv. a willful material breach of an established written policy or procedure of the Corporation which breach is materially injurious to the Corporation; v. Executive's conviction for a crime involving moral turpitude; or vi. the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. c. Good Reason - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination: i. the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; ii. the failure of the Corporation to obtain a satisfactory agreement, required in Section 7 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); iii. any purported termination of Executive's employment by the Corporation which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; iv. Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board, the Chairman and Chief Executive Officer, the President and Chief Operating Officer or their respective agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the President and Chief Operating Officer, the Chairman and Chief Executive Officer or to the Board which demand specifically 5 6 identifies the manner in which Executive believes that such President and Chief Operating Officer, Chairman and Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); provided, however, that appropriate involvement of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the President and Chief Operating Officer, the Chairman and Chief Executive Officer or the Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement; v. the Corporation or any successor during the two year period following a Change-in-Control delivers to the Executive a Notice of Termination other than for Cause or takes any other action or actions, including, but not limited to, a material decrease in duties or authority or change in reporting relationships, which may have an adverse effect upon Executive's employment or which purport to terminate Executive's employment other than for Cause; vi. relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation's policy and practice in effect on the date of this Agreement; or vii. after a Change-in-Control, as hereafter defined, the Corporation a) reduces Executive's annual salary, b) impairs Executive's opportunity to earn incentive compensation on a basis comparable to that before the Change-in-Control, c) reduces the Company perquisites made available to Executive before e the Change-in-Control or d) eliminates or impairs Executive's ability to participate in the Retirement Plans. viii. the Executive chooses to terminate his employment with the Corporation for any reason during the thirty (30) day period immediately preceding either, at the option of the Executive, the twelve (12) month anniversary or the twenty-four (24) month anniversary of a Change-in-Control as hereafter defined. 6 7 Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute a waiver of Executive's rights under this Paragraph (c) nor constitute a consent to any act or omission by the Corporation constituting Good Reason. d. Change-in-Control - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: i. the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or ii. Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual as a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-ll of Regulation 14A promulgated under the Exchange Act); or iii. Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, 7 8 of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid base salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans targeted for the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: a. The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's accrued but unpaid base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. b. After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid base salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans targeted for the year the Retirement Termination or Resignation occurs) and benefit plans 8 9 and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms. 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. b. Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs, but only to the extent required by the terms of such plans, or only to the extent specifically required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: a. The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans targeted for the year in which Executive's employment is terminated). b. The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to the sum of Executive's annual base salary plus the Executive's highest annual incentive bogey used in any of the three years prior to the Date of Termination to calculate Executive's award under the Coltec Annual Incentive Plan. c. In accordance with a valid election on file with the Corporation the Corporation shall pay to Executive a sum of money equal to the value of Executive's accrued balance of the Benefits Equalization Plan (the "BE Plan"). 9 10 d. For a period of one year from the Date of Termination or until the end of the Contract Period (the "Relevant Employment Period"), the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. e. For purposes of Section 6.6(d), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. f. For purposes of Section 6.6(d), Executive's benefits with respect to the Corporation's Retirement Plan for Salaried Employees and the BE Plan or any equivalent or superior plans or arrangements in which the Executive participated prior to the Date of Termination (any such Plan or arrangement, the "Pension Plans") and the Corporation's welfare benefit plans in which the Executive participates on the date hereof or any 10 11 equivalent or superior successor plans or arrangements in which the Executive participates prior to the Date of Termination ("Welfare Benefit Plans") the contemplated continued participation shall require the Corporation to pay or provide the executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued during the Relevant Damage Period, and (y) the compensation described in Section 6.6(b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over the Relevant Damage Period. g. All restrictions, if any, on shares of restricted stock previously granted to Executive which would have lapsed if Executive had been employed throughout the Relevant Damage Period shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 6.7 If Executive's employment by the Corporation shall be terminated (1) by the Corporation for other than Cause at any time during a period commencing sixty (60) days prior to a the public announcement of a Change-of-Control which does, in fact, later occur and ending on the happening of such Change-of-Control ("Pending Change-of-Control Period"),or (2) by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the following benefits in lieu of the benefits under Section 6.6: a. The Corporation shall pay Executive his accrued but unpaid base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated) b. In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive a lump sum equal to 2.25 times the sum of Executive's annual base salary at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive (or if the Executive has not received an annual bonus while serving as a Senior Vice President, Group Operations, any individual serving as Senior Vice President, Group Operations for the Corporation) during any of the three preceding calendar years. 11 12 c. In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income, employment or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. d. At Executive's option and as soon, as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. e. For two years and three months from the Date of Termination, the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. f. For purposes of Section 6.7(e), Executive's participation in respect to the Corporation's 1994 Long Term Incentive Plan (the "LTIP") shall be as follows (the defined terms within this section and not otherwise defined within this Agreement being the same as defined in the LTIP as in effect on the date hereof): i. all of the Executive's Restricted Shares previously issued under the LTIP and not yet vested by the Date of Termination shall become 100% vested, nonforfeitable and fully transferable as of such date; and ii. the Corporation will pay the Executive as soon as practicable following the Date of Termination an amount in cash equal to three 12 13 times the product of (x) the number of Performance Units previously granted under the LTIP to the Executive and still outstanding, times (y) the Award Value at the Threshold Target level. iii. in the event that the independent accountants of the Corporation shall determine that if the payment of the LTIP Payout is made entirely in cash it shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for under the pooling of interests method of accounting ("Pooling"), then the LTIP Payout shall be made 2/3 in cash and 1/3 in the Corporation's Common Stock (the "Share Portion"). If a merger or acquisition of the Corporation has taken place prior to the time that the Executive has given Notice of Termination setting forth his intent to terminate his employment for Good Reason and the Common Stock of the Corporation is no longer traded on a national securities exchange then the Share Portion of the LTIP Payout shall be made in the common stock of the Corporation's parent or successor corporation (collectively, a "Successor"), which stock is traded on a national securities exchange or on an over the counter securities market. The number of shares payable in respect to the Share Portion shall be determined by dividing the dollar value of the Share Portion by the price of a share of the Common Stock of the Corporation, or a Successor, as the case may be, on the last business day immediately preceding the date of the Notice of Termination. g. For purposes of Section 6.7(e), Executive's benefits with respect to the Pension Plans and the Welfare Benefit Plans, the contemplated continued participation shall require the Corporation to pay or provide the Executive with the benefits, earnings credits for benefits and service credits for benefits, and where applicable, any increases in benefits as a result of increasing age, which the Executive would have received under the Pension Plans and Welfare Benefit Plans if (x) the Executive's employment and his coverage under the Pension Plans and the Welfare Benefit Plans had continued for an additional two year and three month period, and (y) the compensation described in Section 6.7(b) which would have been credited under the Pension Plans and/or the Welfare Plans were paid to the Executive ratably over a two year and three month period. h. All restrictions, if any, on shares of restricted stock previously granted to Executive shall immediately lapse as of the Date of Termination, and Executive shall be entitled to the possession of the shares of such stock as of such date upon the payment of any applicable withholding taxes. 13 14 i. If Executive's employment by the Corporation shall have been terminated by the Corporation for other than Cause at any time during a Pending Change-of-Control Period, and if Executive shall have received any payments or benefits pursuant to Section 6.6, then Executive shall be entitled to receive such additional payments and benefits as he would have received if his employment was terminated and he was entitled to receive payments or benefits pursuant to this Section 6.7. j. If at any time within two years following a Change-of-Control, Executive shall, at the request of the Corporation, relocate his principal place of personal residence or employment and if Executive shall become entitled to receive payments or benefits pursuant to this Section 6.7, then Executive shall also be entitled, at his option, to relocate his personal residence one time during the four year period following the Date of Termination to any location within the continental United States, in which event the Corporation will reimburse the Executive for all relocation and home purchase and sale assistance costs associated with such move in accordance with the Corporation's policy and practice for its Executive Officers in effect at the time of the execution of this Agreement. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: a. The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. b. In addition to all other benefits provided hereunder, in the event that Executive becomes entitled to any payments or benefits from the Corporation (whether or not provided under this Agreement (the "Severance Payments") that will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (I) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance 14 15 Payments, and (ii) any additional Federal, state and local income and employment taxes and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a change-in-control of the Corporation (as defined in Section 280G of the Code) or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (x) the total amount of the Severance Payments or (y) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay Federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued 15 16 from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. c. The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes to the appropriate taxing authority; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 6.9 Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis, benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) related solely to life, health disability and accident insurance plans and programs and other similar benefits (but not Incentive Compensation, LTIP, Pension Plans or other similar plans and programs) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere. 6.10. Any stock of the Corporation, which is delivered to the Executive pursuant to Subsection 6.6 or 6.7, shall be delivered to him fully registered for immediate sale to the public under all applicable securities laws. 7. Successors; Binding Agreement The Corporation will 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 Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement 16 17 prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. Notice For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive's most recent home address on file with the Corporation, and to the Corporation at 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, NC 28217 to the attention of the Chairman of the Board of Directors with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. Modification - Waiver No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. In the event that the independent accountants of the Corporation shall determine that anything contained herein shall prevent the Corporation from consummating any business combination approved by the Board of Directors which combination is intended to be accounted for as a Pooling, then Executive agrees to negotiate in good faith concerning amendments to such portions of this Agreement as may be requested by the Corporation so as to allow such business combination to be accounted for as a Pooling; provided, however, that any such amendment shall: (a) be as limited in scope as is absolutely necessary in the opinion of the Corporation's advisors to allow the business combination to be accounted for as a Pooling, and (b) be designed to have as minimal an economic detriment to the Executive as is possible while still allowing the business combination to be accounted for as a Pooling. 10. Non-competition 10.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the 17 18 outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes or derives five percent (5%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 6.l(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to either Sections 6.6(b) or 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for five percent (5%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 18 19 11. Validity The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. Counterparts This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. Arbitration Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Charlotte, NC or such other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. Governing Law This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of North Carolina. 15. Entire Agreement; Survival of Certain Provisions 15.1 This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. This Agreement supercedes and replaces all prior Employment Agreements, Restated Employment Agreements and or Change in Control Agreements, if any, between the Corporation and the Executive, each of which is hereby expressly terminated. 15.2 The obligations of the Corporation under Section 6.8 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 19 20 16. Withholding Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date. COLTEC INDUSTRIES INC By /s/ Laurence H. Polsky ------------------------------ Michael J. Burdulis ------------------------------ EXECUTIVE EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 28, 1998 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-28-1998 20,073 0 166,134 2,686 242,589 458,742 704,668 404,545 1,061,152 301,104 601,352 144,770 0 705 (305,670) 1,061,152 769,195 769,195 572,010 697,133 0 0 28,310 99,946 33,982 64,879 0 (4,326) 0 60,553 .92 .89
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