Exhibit 10.2


 


AMENDMENT NO. 1 TO


EMPLOYMENT AGREEMENT


 


This Amendment
No. 1 to the Employment Agreement (the “Amendment”), dated March 31, 2006 by
and between Rexnord Corporation, a Delaware Corporation (together with any
successor thereto, the “Company”), and Robert A. Hitt (the “Executive”).


 


R E C
I T A L S:


 


WHEREAS, the Company and the Executive have
previously entered into an Employment Agreement, dated November 25, 2002 (the “Agreement”),
and the Rexnord Corporation Executive Bonus Plan in the form then in effect was
attached to the Agreement as Exhibit A (the “Original Exhibit A”); and


 


WHEREAS, effective March 31, 2006 the Company
amended its Executive Bonus Plan to include certain revised target amounts
relating to the Executive’s bonus; and


 


WHEREAS, the Company and the Executive wish
to amend the Agreement pursuant to the terms herein set forth to reflect such
amendments to the Executive Bonus Plan and effect certain other amendments to
the Agreement.


 


NOW, THEREFORE, in consideration of the foregoing
and other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties, intending to be legally bound, hereto agree as
follows:


 


A G R
E E M E N T


 


1.             The
Rexnord Corporation Executive Bonus Plan, as amended by the Company on March
31, 2006 and set forth on the Exhibit A to this Amendment (the “Amended Exhibit
A”), shall become Exhibit A to the Agreement in lieu of the Original Exhibit A
and shall replace the Original Exhibit A in its entirety.


 


2.             The
following sentence shall be added to the end of Exhibit D to the
Agreement: “With respect to the temporary housing and commuting costs set forth
above, the amount of reimbursement or payment to the Executive shall be grossed
up to include all applicable taxes required to be paid by the Executive.”


 


3.             All
other terms of the Agreement shall remain unchanged.


 


[Signature Pages Follow]


 

















 


IN WITNESS
WHEREOF, the parties have executed this Agreement on the date and year first
written above.


 


	
   

  	
  REXNORD CORPORATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James T.
  Strahley

  	
   

  
	
   

  	
  Name: James
  Strahley

  
	
   

  	
  Title: VP
  Human Resources

  
	
   

  
	
   

  
	
   

  	
  EXECUTIVE

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Robert
  A. Hitt

  	
   

  
	
   

  	
  Name:
  Robert A. Hitt

  



 

















 


EXHIBIT A


 


REXNORD CORPORATION EXECUTIVE BONUS PLAN


 


General
Description


 


Rexnord Corporation (the “Company”)
provides an incentive compensation bonus plan for key officers and directors
(the “Executive Bonus Plan”).  The
purpose of the Executive Bonus Plan is to provide a variable component of pay
that provides an incentive for the leadership of the company to achieve key business
objectives.


 


Each bonus fiscal year will
begin on April 1 and end on March 31. 
The first bonus fiscal year will begin on April 1, 2003 and end on March
31, 2004.


 


The form of bonus to be
received by participating executives is called the Performance Bonus and is
based on (i) the performance of the Company during the bonus fiscal year (the “Company
Performance Bonus”) and (ii) the performance of the executive in meeting
individual goals (Annual Improvement Priorities or “CEO approved AIP’s”) as determined
by the Compensation Committee, not to exceed five personal performance goals
(the “Individual Performance Bonus”).


 


PERFORMANCE MEASURES AND WEIGHTING


 


The Performance Bonus amount will be based on
the measures below and weighted as follows:


 


•                  40% based on
total EBITDA


•                  40% based on
total Debt Repayment


•                  20% based on CEO
approved AIP’s (Individual Performance Bonus)


 


MINIMUM PERFORMANCE ACHIEVEMENT


 


Company Performance Bonus


 


Minimum performance achievement must be met
to trigger eligibility to receive a Company Performance Bonus payment under the
plan. The CEO of the Company will be eligible to receive a Company Performance
Bonus for each bonus fiscal year in which both EBITDA and Debt Repayment equal
or exceed 90% of both of their respective EBITDA and Debt Repayment targets as
described below in the Section entitled “Achievement Targets” (“EBITDA Target”
and “Debt Repayment Target”).   If the
Company meets these minimum performance triggers, then the amount of the
Company Performance Bonus that the executive is eligible to receive will be
determined based upon the level of achievement of the performance measures as
described below under “Calculation of Performance Bonus - Company Performance
Bonus.”


 

















 


Individual Performance Bonus 


 


EBITDA and Debt Repayment must equal or
exceed 70% of their respective Targets in order for the CEO to be eligible to
receive a Individual Performance Bonus. 
If the Company meets these minimum performance triggers, then the amount
of the Individual Performance Bonus that the executive is eligible to receive
will be determined based upon the level of achievement of the CEO approved AIP
performance measures as described below under “Calculation of Performance Bonus
- Individual Performance Bonus.”


 


CALCULATION OF PERFORMANCE BONUS


 


Company Performance Bonus 


 


If the
executive is eligible to receive a Company Performance bonus, then the amount
of the bonus  that the executive will be
eligible to receive will be determined by the level of achievement of the
EBITDA and Debt Repayment performance measures, each computed
individually.  The bonus amount is based
on 60% of the CEO’s base pay times the
respective performance measure weighting (the “Base Bonus”) and adjusted for
performance greater than or less than the Target amounts.  Accordingly, if the Company achieves 100% of
the EBITDA Target for a given bonus fiscal year, the CEO’s bonus amount will be
60% of the CEO’s base pay during the bonus fiscal year times 40%. Similarly, if
the Company achieves 100% of the Debt Repayment Target for a given bonus fiscal
year, the CEO’s bonus amount will be 60% of the CEO’s base pay during the bonus
fiscal year times 40%.  If the Company
achieves greater or less than 100% of the respective EBITDA and Debt Repayment
Targets, the CEO’s bonus amounts will increase or decrease as a percentage of
the Base Bonus as set forth in the table below.


 


	
  Percent of

  EBITDA and

  Debt Reduction

  Target

  Achievement

  	
   

  	
  < 90%

  of

  Target

  	
   

  	
  90%

  of

  Target

  	
   

  	
  95%

  of

  Target

  	
   

  	
  100%

  of

  Target

  	
   

  	
  105%

  of

  Target

  	
   

  	
  110%

  of

  Target

  	
   

  	
  115%

  of

  Target

  	
   

  	
  120%

  of

  Target

  	
   

  	
  125%

  of

  Target

  	
   

  	
  130%

  or > of

  Target

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Percent of Base

  Bonus

  	
   

  	
  0%

  	
   

  	
  50%

  	
   

  	
  75%

  	
   

  	
  100%

  	
   

  	
  125%

  	
   

  	
  150%

  	
   

  	
  200%

  	
   

  	
  250%

  	
   

  	
  300%

  	
   

  	
  350%

  and >*

  	
   

  



 










*For each
additional 5% increase in the percent of Bonus Plan achievement target after an
achievement of 115%, the executive will receive an increase of 50% of the
percentage of the Base Bonus.


 


Individual Performance Bonus 


 


The Individual
Performance Bonus to be received by the executive for each bonus fiscal year
will be based on the performance of the executive with respect to the CEO
approved AIP’s as determined by the Compensation Committee in its sole
discretion. The bonus amount is based on 60% of the CEO’s base pay, times a
weighting of 20%. Although a weighting of 20% is given to the Individual
Performance Bonus in accordance with the 40/40/20 weighting specified above,
the Compensation Committee may, at its discretion, award a payment based on a
weighting percentage ranging from 0 to 40% to this measure.


 

















 


ACHIEVEMENT TARGETS


 


For the 2004
fiscal year, the EBITDA target shall be $137.6 million and the Debt Repayment
Target shall be $38 million.  The EBITDA
and Debt Repayment Targets for the 2005 through 2008 fiscal years shall be
determined in good faith by the Compensation Committee at its sole discretion.


 


“EBITDA” for a
given bonus fiscal year shall mean consolidated earnings before interest,
taxes, depreciation and amortization.   “Debt
Repayment” for a given bonus fiscal year shall mean the positive excess, if any,
of (a) debt outstanding at the beginning of the fiscal year, over (b) debt
outstanding  at the end of the fiscal
year. In both cases, EBITDA and Debt Repayment shall be computed in a manner
consistent with the Rexnord Management Incentive Plan including adjustments, if
any, as determined by the Compensation Committee, in its sole discretion.


 


The EBITDA and
Debt Repayment Targets are based upon certain revenue and expense assumptions
about the future business of the Company (the “Base Targets”).  Accordingly, in the event that the
Compensation Committee determines, in its sole discretion, that an adjustment
to target(s) is appropriate in order to maintain eligibility or prevent
dilution or enlargement of the Performance Bonus intended to be made available
under the Executive Bonus Plan, the Compensation Committee shall adjust the
financial targets in good faith and in any manner as it may deem equitable. In
the event of an acquisition or divestiture, the Base Targets would be adjusted
by the Compensation Committee for the purposes of bonus calculations.


 


	
  Base Targets

  	
   

  	
  2006

  	
   

  	
  2007

  	
   

  	
  2008

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Base Debt Repayment Target

  	
   

  	
  $

  	
  54

  	
   

  	
  $

  	
  67

  	
   

  	
  $

  	
  92

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Base EBITDA Target

  	
   

  	
  $

  	
  196.5

  	
   

  	
  $

  	
  222.7

  	
   

  	
  $

  	
  241.9

  	
   

  
													



 


The Base Targets above were
revised to reflect the Company’s acquisition of The Falk Corporation on May 16,
2005.


 


PAYMENT OF PERFORMANCE BONUS


 


The
Performance Bonus is calculated once the bonus fiscal year ends, the Company
receives its year-end financial audit, and performance reviews are
completed.  The Compensation Committee
shall then determine eligibility and the amount of Performance Bonus the CEO
will receive under the terms of the Executive Bonus Plan.


 


If the CEO
leaves the Company prior to the end of the bonus fiscal year, he is not
eligible for a bonus payment.  The only
exceptions are if the CEO is terminated because he formally retires under the
pension plan (or retires meeting the requirements of that plan), resigns with
Good Reason or is terminated for other than Cause (as such terms are defined in
the CEO’s employment agreement).  Under
these circumstances, a pro-rated bonus will be paid at the time bonuses are
paid to other executives.