FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
EXHIBIT
10.37a
FIRST
AMENDMENT
TO
THIS
AMENDMENT ( the “First
Amendment”) is made as of the 18 day
of November,
2004, between The United Illuminating Company, a Connecticut Corporation (the
“Company”) and Xxxxxxx X. Xxxxxxxx (the “Executive”),
WITNESSETH
THAT
WHEREAS,
the Company previously entered
into an amended and restated employment Agreement with the Executive dated
as of
January 26, 2004 (the “Employment Agreement”); and
WHEREAS,
the Company and the Executive
desire to further amend the Employment Agreement by this First Amendment to
reflect certain revisions to the supplemental executive retirement benefit
provisions, tax savings provisions, and non-competition provisions of such
Employment Agreement, and to make other minor clarifying revisions to the
Employment Agreement;
NOW
THEREFORE, the following Sections
of the Agreement are hereby amended as follows:
1.
The first sentence of Section 1(b) of the Agreement is revised to read as
follows:
The
term
of this Agreement shall be for a period commencing on the date hereof and ending
on the second anniversary of the date hereof, unless this Agreement is earlier
terminated as provided in Section 5 (the “Initial Term”).
2.
Section 4(g) of the Employment Agreement is hereby amended in its entirety
to
read as follows in recognition of Xx. Xxxxxxxx’x entitlement to certain early
retirement subsidies in the calculation of his supplemental executive retirement
benefit in the event he terminates and receives a lump sum distribution of
his
SERP prior to what would be his Normal Retirement Date:
(g) Supplemental
Executive Retirement Benefit. Upon termination of the Executive's
employment with the Company and all affiliates other than for Cause (as defined
in Section 5(b) of this Agreement), a supplemental retirement benefit shall
be
payable in accordance with the provisions of this Section (4)(g). The
annual supplemental retirement benefit, expressed in the form of a single life
annuity beginning at the Executive's Normal Retirement Date as defined in The
United Illuminating Company Pension Plan (the “Company's Pension Plan”), shall
be the excess, if any, of (A) less (B), where (A) is 2.0% (.020) of the
Executive's highest three-year average Total Compensation times his number
of
years of service as an employee of the Company (including any deemed service
credited under this Agreement or
the
CIC
Plan II) at termination (not to exceed thirty), and (B) is the benefit payable
under the Company's Pension Plan expressed as a single life annuity commencing
as of the Executive’s Normal Retirement Date. For purposes of this
Section, Total Compensation shall mean the Executive’s Base Salary, and any
amount payable to the Executive as short-term incentive compensation pursuant
to
the Company’s annual executive incentive compensation plan. Subject
to the requirements of Section 6(f), distribution of the supplemental retirement
benefit shall be made in the month of January following the Executive’s
termination of service with the Company and its affiliates, but in no event
earlier than six months following the Executive’s termination of service. The
benefit provided in this Section 4(g) shall be paid in an actuarially equivalent
lump sum equal to the present value of the immediate life annuity payable as
of
such distribution date, unless the Executive shall have elected at least 12
months in advance of such distribution date to commence distributions in one
of
the other actuarially equivalent forms of benefits permitted under the Company’s
Pension Plan, in which case the commencement of the supplemental executive
retirement benefit provided under this Section 4(g) shall be deferred, except
in
the case of termination due to death or disability, for a period of at least
five years from the date on which such distribution otherwise would have been
made. The provisions of this subsection are intended to comply with all laws
applicable to the taxation of non-qualified deferred compensation, and the
Company and Executive agree to revise this subsection as necessary or advisable
from time to time in order to comply with changes in such laws. With the
exception of the lump sum methodology noted above (i.e., the present value
of an
immediate annuity), the benefits payable under this Section 4(g) shall be
calculated using the same definitions of actuarial equivalence, and the same
early retirement reduction factors that are specified in the Pension Plan in
the
event that the Executive becomes entitled to payment of the supplemental
retirement benefit prior to what would have been his Normal Retirement Date,
except that, in the event that the Executive is credited with deemed years
of
service, the reductions shall be based on the Executive's service deemed as
an
employee of the Company. If the form of payment provides for a death
benefit, such benefit shall be payable to the Executive's estate, unless another
beneficiary has been designated by the Executive. If the Executive
dies prior to the commencement of benefit payments, then the pre-retirement
death benefit provisions of the Pension Plan shall apply to the supplemental
retirement benefit payable pursuant to this Section (4)(g).
3.
Section 6(a) is hereby revised in its entirety to provide reference to
‘retirement’ as a condition upon which certain benefits will be paid:
(6)
CONSEQUENCES OF TERMINATION OR NON-RENEWAL.
(a)
Termination
on Death, Disability or Retirement; or by the Executive in the Absence of a
Breach by the Company upon Adequate Notice. If the Executive’s
employment terminates by reason of the Executive’s death, or his total or
partial physical or mental disability such that the Executive becomes entitled
to long-term disability benefits under the Company’s long-term disability plan,
or if the Executive retires on or after becoming eligible to retire under the
terms of the Company’s Pension Plan, or terminates employment hereunder in the
absence of a Breach by the Company upon ninety (90) days prior written notice,
the
Company
shall pay to the Executive or, in the event of death or disability, the
Executive’s personal representative and/or spouse:
(i)
the Executive’s Base Salary earned,
but unpaid, as of the Date of Termination and Accrued Incentive Compensation
(as
defined in Section 4(b);
(ii)
Stub-Period Incentive Compensation
(as defined in Section 4(b)) earned, but unpaid, as of the Date of Termination,
but only in the case of the Executive’s death, termination due to disability or
retirement (as hereinbefore defined), and not in case of his voluntary
termination other than on account of such retirement; plus
(iii)
any amounts payable pursuant to
(4)(d) (unreimbursed business expenses), (4)(e) (employee benefits due and
owing), (4)(f) (accrued, but unpaid vacation or holidays) hereof, and (4)(g)
(supplemental executive retirement benefits), plus
(iv)
any benefits or amounts payable on
account of the Executive’s (A) participation in any long-term incentive
compensation plan and equity compensation plan or arrangement, and (B)
participation in any deferred compensation plan in which he was a participant
as
of his termination of service, all as determined in accordance with the terms
and conditions of such plans and arrangements.
Pending
a
determination that the Executive is entitled to long-term disability benefits,
the Executive’s short-term disability benefits shall be extended, as necessary
at 50% of Base Salary, if his length of employment with the Company is of such
short duration that his short term disability benefits would otherwise expire
before his entitlement to long-term disability benefits is determined.
Upon
payment of these amounts, the Company shall have no further obligation to the
Executive, the Executive’s personal representative and/or spouse under this
Agreement or on account of, or arising out of, the termination of the
Executive’s employment.
4.
Sections 6(c)(iii) and 7(a)(iii) are hereby revised to read as follows:
(iii)
any benefits or amounts payable
on account of the Executive’s (A) participation in any long-term incentive
compensation plan and equity compensation plan or arrangement, and (B)
participation in any deferred compensation plan in which he was a participant
as
of his termination of service, all as determined in accordance with the terms
and conditions of such plans and arrangements; plus
5.
Section 6(c)(iv) is hereby revised to read as follows:
(iv)
lump sum severance equal to two
(2) times the sum
of:
(1) the
Executive’s annual Base Salary rate in effect immediately prior to the
Executive’s Date of Termination, as determined by the UIL Board’s most recent
review of salary rates pursuant to Section 4(a); and
(2) the
short-term annual incentive compensation payment to which the Executive would
be
entitled, calculated as if he had been employed by the Company on the last
day
of the year of his Termination, and as if both personal goals and Company goals
had been achieved ‘at target’ without pro-ration for the fact that the Executive
was employed only a portion of such year. Except for the assumption that such
goals shall have been achieved at target, personal and Company goals shall
be
defined and determined as set forth in Section 4(b) of this Agreement.
6.
Section 6(f) is revised to read as follow:
(f)
Release. All
payments and
obligations of the Company under Section (6), (7), (8) and (9) shall be
conditioned upon the execution and delivery by Executive to the Company of
a
full and effective release by Executive of any liability of the Company and
its
Affiliates to Executive in form and substance reasonably satisfactory to the
Company.
7.
Section 9 of the Employment Agreement is hereby revised to read in its entirety
as follows:
(9) GROSS
UP FOR EXCISE
TAX.
(a)
Anything in this Agreement to the contrary notwithstanding, in the event that
it
shall be determined that any payment made and benefits provided by the Company
to or for the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise, would constitute an
“excess parachute payment” within the meaning of Section 280G of the Internal
Revenue Code of 1986 subject to an excise tax under Section 4999 of the Internal
Revenue Code of 1986 as amended (the “Code”) or any successor provision (the
“Excise Tax”), the Executive shall be paid an additional amount (the “Gross-Up
Payment”) such that the net amount retained by Executive after deduction of any
Excise Tax, and any federal, state and local income and employment tax
(including any Excise Tax imposed upon the Gross-Up Payment itself) shall be
equal to the total amount of all payments and benefits to which the Executive
would be entitled pursuant to this Agreement absent the Excise Tax, but net
of
all applicable federal, state and local taxes. For purposes of
determining the amount of the Gross-Up Payment, Executive shall be deemed to
pay
federal income tax and employment taxes at the highest marginal rate of federal
income and employment 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’s residence in the
calendar year in which the Gross-Up Payment is to be made, net of the maximum
reduction in federal income taxes that may be obtained from the deduction of
state and local taxes.
(b)
The Gross-Up Payment, if any, shall be paid to the Executive or, at the
discretion of the Company, directly to governmental authorities through tax
withholding on the Executive’s behalf, as soon as practicable following the
payment of the excess parachute payment, but in any event not later than 30
business days immediately following such payment; provided that any Gross-up
Payment under this Section 9, including Section 9(d) shall be
conditioned
upon the Executive providing the release called for in Section 6(f) and
complying with the confidentiality and non-compete provisions of this
Agreement.
(c)
Subject to the provisions of Section 9(d), all determinations required to be
made under this Section 9, including whether and when a Gross-Up Payment is
required and the amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by tax counsel
appointed by UIL Holdings Corporation (the "Tax Counsel"), which shall provide
its determinations and any supporting calculations both to the Company and
Executive within 10 business days of having made such determination. The Tax
Counsel shall consult with the benefit consultants and counsel to UIL Holdings
Corporation in determining which payments to, or for the benefit of, the
Executive are to be deemed to be ‘parachute payments’ within the meaning of
Section 280G(b)(2) of the Code. Any such determination
by
the Tax Counsel shall be final and binding upon the Company and Executive.
All
fees and expenses of the Tax Counsel (and, if applicable benefits consultants
or
other counsel) shall be borne solely by UIL Holdings Corporation. As
a result of the uncertainty in the application of Section 4999 of the Code
at
the time of the initial determination by the Tax Counsel hereunder, it is
possible that Gross-Up Payments, which will not have been made by the Company,
should have been made ("Underpayment"). In the event that it is ultimately
determined in accordance with the procedures set forth in Section 9(d) that
the
Executive is required to make a payment of Excise Tax, the Tax Counsel shall
determine the amount of the Underpayment that has occurred, and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
the
Executive.
(d)
The Executive shall notify the Company and UIL Holdings Corporation in writing
of any claims by the Internal Revenue Service that, if successful, would require
the payment by the Company of any, or any additional, Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than 30 days
after the Executive actually receives notice in writing of such claim and shall
apprise the Company and UIL Holdings Corporation of the nature of such claim
and
the date on which such claim is requested to be paid. The Executive shall not
pay such claim prior to the expiration of the 30-day period following the date
on which he gives such notice to the Company and UIL Holdings Corporation (or
such shorter period ending on the date that any payment of taxes with respect
to
such claim is due). If the Company notifies the Executive in writing prior
to
the expiration of such period that it desires to contest such claim, the
Executive shall:
(1)
give the Company any information
reasonably requested by the Company relating to such claim;
(2)
take such action in connection
with contesting such claim as the Company shall reasonably request in writing
from time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company and reasonably
acceptable to the Executive;
(3)
cooperate with the Company in
good faith in order to contest such claim effectively; and
(4)
if the Company elects not to
assume and control the defense of such claim, permit the Company to participate
in any proceedings relating to such claim;
provided,
however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for any Excise Tax (including interest and penalties with respect
thereto) imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 9(d), the Company shall have the right, with the consent of UIL Holdings
Corporation, to assume the defense of and control all proceedings in connection
with such contest, in which case it may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may either direct the Executive to pay
the tax claimed and xxx for a refund or contest the claim in any permissible
manner, and the Executive agrees to prosecute such contest to a determination
before any administrative tribunal, in a court of initial jurisdiction and
in
one or more appellate courts, as the Company shall determine; provided, however,
that if the Company directs the Executive to pay such claim and xxx for a
refund, the Company shall advance the amount of such payment to the Executive,
on an interest-free basis, and shall indemnify and hold the Executive harmless,
on an after-tax basis, from any Excise Tax (including interest or penalties
with
respect thereto) imposed with respect to such advance or with respect to any
imputed income with respect to such advance; and further provided, that any
extension of the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested amount is
claimed to be due is limited solely to such contested
amount. Furthermore, the Company's right to assume the defense of and
control the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder, and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the Internal
Revenue Service or any other taxing authority.
(e)
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 9(d), the Executive becomes entitled to receive any refund
with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(d)) promptly pay to the Company
the
amount of such refund (together with any interest paid or credited thereon
after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(d), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim,
and the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required
to
be repaid, and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
8.
Section 11 of the Employment Agreement is hereby revised in its entirety to
read
as follows:
(11) NON–COMPETITION
(a)
The Executive agrees and covenants
that, during the Term of this Agreement and for a period of twelve (12) months
following the month during which the Executive ceases to be employed by the
Company, the Executive will not, in any capacity, directly or indirectly, whether as a
consultant,
employee, officer, director, partner, member, principal, shareholder, or
otherwise:
(i)
compete with the Company in the
regional marketing of energy services related to the delivery or use, at retail,
of electricity in Connecticut; or
(ii)
directly or indirectly divert or
attempt to divert from the Company or any Affiliate any business in which such
entity has been actively engaged during the Term hereof, or in any way interfere
with the relationships that the Company or any Affiliate has with its sources
of
supply or customers; or
(iii)
directly or indirectly interfere
or attempt to interfere with the relationship between the Company or any
Affiliate and any of such entity’s employees,
unless
the Company has granted prior written approval which may be withheld for any
reason.
For
purposes of this Section “Affiliate” means any entity that directly or
indirectly controls, is controlled by, or is under common control with the
Company.
Nothing
in this Section shall be construed to prohibit the ownership by the Executive
of
less than five percent (5%) of any class of securities of any entity that is
engaged in any of the foregoing businesses having a class of securities
registered pursuant to the Securities Exchange Act of 1934 (the “Exchange Act”),
provided that such ownership represents a passive investment and that neither
the Executive, nor any group of persons including the Executive, in any way,
directly or indirectly, manages or exercises control of such entity, guarantees
any of its financial obligations, or otherwise takes any part in its business,
other than through exercising the Executive’s rights as a shareholder.
As
used
in Sections 10-12, the term the “Company” shall mean The United Illuminating
Company and any successor to, or acquirer of, the business or assets of the
Company.
(b)
The Executive acknowledges and
agrees that, of the total payments and benefits to which he would be entitled
under Sections 6(c) (termination of the Executive without cause), Section 6(d)
(non-renewal) or 7 (termination in connection with a Change in Control) of
this
Agreement, as applicable, an amount equal to one (1) times his ‘Target
Total Remuneration’, as hereinafter defined, shall be deemed to be on
account of, and paid as consideration for, the covenant not to compete provided
in this Section. Executive acknowledges and agrees that 1/12 of the amount
attributable to this covenant shall be paid out on a monthly basis during the
12
month period that this covenant is in force following his termination of service
from the Company and its Affiliates, and that such amount shall be deducted
from, and not be in addition to, the amounts otherwise payable under Section
6(c), 6(d) or 7 of this
Agreement,
as applicable. Target Total Remuneration shall be defined as the sum
of the following components of the Executive’s remuneration as most recently
approved by the Compensation and Executive Development Committee of the Board
prior to the date of the Executive’s termination: (1) Base Salary, (2) target
annual short-term incentive award, and (3) target annual long-term incentive
award (but in no event more than the amount owed under Section 6(c), 6(d) or
7). In the event that the Company determines that this covenant has
been violated, no further payments shall be made under this Section, the
Executive shall be obligated immediately to repay any amounts paid hereunder,
and the Company shall have all of the rights and remedies provided under Section
13 of this Agreement. Payments hereunder shall be subject to the
rabbi trust deposit requirements of Section 8.
In
the
event that payments under the Change in Control Plan II would exceed those
otherwise payable under this Agreement under Section 7 on account of a Change
in
Control, then such payments are expressly conditioned upon compliance with
Section 11(a) and (b) of this Agreement and, of such Change in Control payments,
an amount equal to one (1) times the Executive’s Target Total Remuneration shall
be deemed to be on account of, and paid as consideration for, the covenant
not
to compete provided in this Section, and shall be paid ratably over the 12
month
period hereinbefore provided.
9.
Section 13(b) is revised to read as follows:
(b)
Effect
Of
Breach. All payments and other benefits payable but not yet
distributed to Executive under Sections (6), (7) (8) and (9) shall be forfeited
and discontinued in the event that the Executive violates Sections (10) through
(12) of this Agreement, or willfully engages in conduct which is materially
injurious to the Company, monetarily or otherwise, all as determined in the
sole
discretion of the Company.
All
of
the other terms and conditions of the Employment Agreement shall remain in
full
force and effect.
THE
UNITED
ILLUMINATING COMPANY
Attest:
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/s/
Xxxxx X. Xxxxx
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By
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/s/
Xxxxxxxxx X. Xxxxxxx
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Xxxxx
X. Xxxxx
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Xxxxxxxxx
X. Xxxxxxx
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UIL
Vice President Investor Relations
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Its
Chief Executive
Officer
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Corporate
Secretary & Assistant Treasurer
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/s/
Xxxxxxx X. Xxxxxxxx
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Xxxxxxx
X. Xxxxxxxx
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