THIRD AMENDMENT TO EMPLOYMENT AGREEMENT
EXHIBIT
10.37c
THIRD
AMENDMENT
TO
This amendment (the “Third Amendment”)
is made the 4th day of August, 2008, between The United Illuminating Company, a
Connecticut Corporation (the “Company”) and Xxxxxxx X. Xxxxxxxx (the
“Executive”).
WHEREAS, the Company previously entered
into an amended and restated employment Agreement with the Executive dated as of
January 26, 2004, a First Amendment thereto, dated November 18, 2004, and a
second Amendment thereto, dated November 28, 2005, (collectively, the
“Employment Agreement”); and
WHEREAS, in light of changes to the law
concerning severance and deferred compensation, including Internal Revenue Code
Section 409A and related Treasury Regulations, the Company and the Executive
wish to amend the Agreement by this Third Amendment to clarify certain
provisions in the event the Executive’s employment is involuntarily terminated,
and to make other minor, clarifying revisions to the Agreement,
NOW THEREFORE, the following Sections
of the Agreement are hereby amended as follows:
1. The
third sentence of Section (1)(b) of the Agreement is deleted.
2. The
second sentence of Section (2)(c) of the Agreement is revised to read as
follows:
In the
event that the Executive’s employment is not so continued, the Executive may be
eligible for benefits on account of a Constructive Termination in accordance
with the terms of the UIL CIC Plan II.
3. The
third paragraph of Section (4)(b) of the Agreement is revised to read as
follows:
The
Executive’s “Stub-Period
Incentive Compensation” shall mean the annual short-term incentive
compensation being earned in the year in which the Executive terminates
employment, pro-rated for the year in which he terminates service, and shall be
equal to that short-term annual incentive compensation payment to which the
Executive would be entitled, if any, under the terms of the Company’s executive
incentive compensation plan, calculated as if he had been employed by the
Company on the last day of the year including his Date of Termination, based on
actual performance with respect to the achievement of UIL and Company goals
(collectively referred to as “Company goals”), multiplied by a fraction, the
numerator of which is the number of days which have elapsed in such year through
the Date of Termination and the denominator of which is 365. UIL
shall determine in its discretion the composition of the Executive’s
scorecard. In the event that the ‘gate’, if any, is not achieved with
respect to Company goals, then no Stub-Period Incentive Compensation will be
paid. Any Stub-Period Incentive
Compensation
payable upon termination of the Executive shall be paid in accordance with
Section (6)(e) of this Agreement.
4. Section
(4)(g) of the Agreement is hereby revised in its entirety to provide as
follows:
(g) Supplemental
Executive Retirement Benefit.
(i) Benefit
Formula. Upon the Executive’s Separation from Service (as
defined for purposes of The Supplemental Executive Retirement Plan of the United
Illuminating Company) 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 “UI Pension Plan”), shall be the excess, if any, of
(A) less (B), where (A) is 2.0% (.02) 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 years), and (B) is the
benefit payable under the Company’s Pension Plan, where (A) and (B) are both
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 paid to the Executive as
short-term incentive compensation pursuant to the Company’s annual executive
incentive compensation plan. With the exception of the lump sum methodology
noted below (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.
(ii) Time and Form of Payment for
Pre-2005 Accruals. Distribution of the supplemental retirement
benefit as accrued through December 31, 2004 shall be made in a single lump sum
in the month of January following the Executive’s Separation from Service, but
in no event earlier than the first business day of the month following the date
that is six months after the date of the Executive’s Separation from Service
(or, if earlier, the first business day of the month following the Executive’s
date of death). The pre-2005 accrual shall be the actuarially
equivalent present value of the supplemental retirement benefit to which the
Executive would be entitled under this Section (4)(g) if the Executive had
voluntarily terminated service as of December 31, 2004 and received an
actuarially equivalent lump sum equal to the present value of the immediate life
annuity payable upon his termination of service. Early retirement
subsidies to which the Executive would not in fact be entitled as of December
31, 2004 because the Executive had not attained sufficient service shall not be
included in determining the pre-2005 accrued benefit.
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(iii) Time and Form of Payment for
Post-2004 Accruals. Distribution of those portions of the
supplemental retirement benefit that accrue after December 31, 2004 shall be in
accordance with the terms of The Supplemental Executive Retirement Plan of the
United Illuminating Company, Non-Grandfathered Benefit Provisions (“UI SERP,
Non-Grandfathered Benefits”) except that any lump sum shall be calculated as the
present value of an immediate life annuity and prior to the beginning of any
calendar year the Executive may elect the form of payment for the portion of the
supplemental retirement benefit that may accrue in that calendar year from among
the forms of benefit then available under the UI SERP, Non-Grandfathered
Benefits. Any such election shall apply for all subsequent calendar
years unless a new, timely election is made prior to the beginning of a
subsequent calendar year. As of the date hereof, the Executive has
elected to have accruals for calendar year 2005 paid in a single lump sum and
accruals thereafter paid in the form of a modified joint and 50% survivor
annuity which is actuarially reduced so that if the joint annuitant predeceases
the Executive after the benefit has commenced, the monthly benefit will be
adjusted to the monthly amount of a single life annuity form of benefit
payment.
(iv) Death of
Executive. Notwithstanding the foregoing, if the Executive has
a Separation from Service on account of death, the pre-retirement death benefit
provisions of the Pension Plan shall apply to the supplemental retirement
benefit payable pursuant to this Section (4)(g). If the Executive
should die following his Separation from Service date, death benefits, if any,
shall be payable to the Executive’s spouse or other beneficiary in accordance
with the form of payment in effect at the time of the Participant’s death,
provided, however, that any lump sum form of payment that has been elected but
not yet paid to the Executive as of the Executive’s date of death will be paid
to the Executive’s beneficiary at the same time and in the same amount as it
would have been paid to the Executive had the Executive not died between the
Executive’s Separation from Service date and the payment date of the lump sum
benefit.
(v) Administrative
Matters. Except to the extent otherwise expressly provided for
in this Section (4)(g), administration of this benefit shall be in accordance
with the provisions of the UI SERP, Non-Grandfathered Benefits. All
payments under this Section (4)(g) are conditioned upon the Executive executing
the release provided for in Section (6)(f).
5. Section
(5)(d) of the Agreement is hereby revised in its entirety to provide as
follows:
(d) Termination
by Executive.
(i) If the Executive is not
in default of any of the Executive’s obligations under Section (2), (10), (11)
or (12) hereof, the Executive may terminate employment hereunder on account of a
Constructive Termination in accordance with this Section
(5)(d)(i). For purposes of this Agreement, a Constructive Termination
means:
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(1) a
Separation from Service (as defined for purposes of the UIL CIC Plan II)
within ninety (90) days of the initial occurrence of one of the following events
arising without the consent of the Participant (a “Constructive Termination
Event”):
(A) A
material diminution in the Participant’s annual base salary rate, unless such
reduction is part of, and consistent with, a general reduction of the
compensation rates of all employees of the Company or of the Executive’s
business unit;
(B)
Except as provided in Section (2)(b), a material diminution in the Participant’s
authority, duties, or responsibilities, including the assignment of duties
materially inconsistent in any adverse respect with such Participant’s position,
duties, responsibilities and status with the Company immediately prior thereto,
or diminishment in such Participant’s management responsibilities, duties or
powers as in effect immediately prior thereto, or the removal from or failure to
re-elect such Participant to any such position or office;
(C) A
requirement that the Executive relocate his principal place of employment by
more than fifty (50) miles from the Company’s current executive offices in New
Haven, Connecticut; or
(D) Any
other action or inaction that constitutes a material breach by the Company of
the Agreement, including (1) a failure to include the Executive in the
management salary compensation programs then in effect on substantially the same
terms and conditions as that applicable to the other officers or similarly
situated executives of the Company; (2) a failure to continue the Executive’s
participation in the material benefit plans of the Company on substantially the
same basis, both in terms of the amount of benefits provided (other than due to
the Company’s stock price performance, provided such performance is a relevant
criterion in determining the amount of benefits) and the level of the
Executive’s participation relative to other officers or similarly situated
executives of such Company, as that in effect immediately prior thereto; or
(3) a failure to renew the Executive’s Employment Agreement at the time such
Agreement expires, provided that the Executive was willing and able to execute a
new Agreement providing terms and conditions substantially similar to those in
the expiring Agreement and to continue working for the Company; and
(2) The
Executive has given notice to the UIL Board stating that in the Executive’s
opinion at least one of the Constructive Termination Events has occurred and
setting forth in reasonable detail the relevant facts, and
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such
notice was given within thirty-one (31) days of the occurrence of the
Constructive Termination Event; and
(3) The
Company shall fail to remedy or otherwise cure the situation within thirty-one
(31) days after receipt of the notice.
(ii) Breach by the Company,
during Change of Control Protective Period. If the Executive
is not in default of any of the Executive’s obligations under Section (2), (10),
(11) or (12) hereof, the Executive may terminate employment hereunder on account
of a Constructive Termination in accordance with the UIL CIC Plan
II.
(iii) In the absence of Breach by
the Company. If the Executive is not in default of any of the
Executive’s obligations under Section (2), (10), (11) or (12) hereof, the
Executive may terminate employment in the absence of a Breach by the Company,
effective upon at least ninety (90) days prior written notice.
6. The
initial paragraph of Section (6)(c) of the Agreement is hereby revised in its
entirety to provide as follows:
(c) Upon
Termination Without Cause or a Constructive Termination prior to a Change in
Control. If the Company
terminates the Executive’s employment hereunder without Cause or if the
Executive terminates the Executive’s employment hereunder on account of a
Constructive Termination, and in either case the termination constitutes an
Involuntary Separation from Service within the meaning of Treasury Regulations
Section 1.409A-1(n) and is not upon a Change in Control or within the Change in
Control Protective Period, the Company shall pay or provide (as applicable) to
the Executive, the following:
7. Subsection
(6)(c)(v) is hereby revised in its entirety to provide as follows:
(v) Benefits under the
Company’s healthcare plans during the COBRA continuation period on the same
terms as are then available to active employees of the Company.
8. Subsection
(6)(d) of the Agreement is hereby revised in its entirety to provide as
follows:
(d) Separation
from Service. Notwithstanding
anything herein to the contrary, no compensation constituting severance or
deferred compensation shall be paid under this Agreement upon a termination of
employment or termination of service unless such termination of employment or
termination of service constitutes a Separation from Service as defined in the
UIL CIC Plan II.
9. Subsection
6(e) is hereby revised in its entirety to provide as follows:
(e) Timing of
Payment. Any cash amount
that is due and owing to the Executive upon a termination of service pursuant to
Section (6) or Section (7) (other than
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pursuant
to the UIL CIC Plan II) will be paid on the thirtieth (30th) day
following the Executive’s Separation from Service and in no event may the
Executive designate the timing or year of payment. Notwithstanding
the foregoing, however, (i) any Stub-Period Incentive Compensation shall be
calculated in accordance with the terms of the applicable plan or program and
such incentive compensation and that portion of any severance payment that is
based on such incentive compensation shall be paid at the same time that such
incentive compensation generally would be payable to all other employees, but in
no event later than March 15th of the
calendar year following the end of the performance period to which such
incentive compensation relates; (ii) any long-term incentive compensation shall
be calculated in accordance with the terms of the applicable plan or program and
such incentive compensation shall be paid at the same time that such incentive
compensation generally would be payable to all other employees, but in no event
later than March 15th of the
calendar year following the end of the performance period to which such
compensation relates; and (iii) any qualified or non-qualified deferred
compensation payable pursuant to the terms of a plan of the Company shall be
paid in accordance with the terms of the applicable plan.
10. The
first paragraph of Section (7)(a) of the Agreement is hereby revised to read in
its entirety as follows:
(7) CHANGE
IN CONTROL
(a) If on, or within
twenty-four (24) months following, a Change in Control, the Company (or its
successor or other entity employing the Executive following such Change in
Control) either terminates the Executive’s employment hereunder without Cause or
fails to renew this Agreement on substantially identical terms, or if the
Executive terminates the Executive’s employment on account of a Constructive
Termination (as defined in the UIL CIC Plan II), and in any such case the
termination constitutes an Involuntary Separation from Service within the
meaning of Treasury Regulations Section 1.409A-1(n), then the Executive shall be
entitled to the following:
11. Subsection
(7)(a)(iv) of the Employment Agreement is hereby revised to read in its entirety
as follows:
(iv) those payments, and benefits, if
any, to which the Executive is entitled by reason of having been designated a
Participant in the UIL CIC Plan II. The severance payments, pension
supplements and other benefit provisions under the UIL CIC Plan II shall be
controlling and shall supplant the payments and benefits to which the Executive
would be otherwise be entitled under Section (6)(c)(iv) and (v) of this
Agreement; expressly provided, however, that if the severance benefit provided
for in Section (6)(c)(iv), taking into account Section (11)(b) of this
Agreement, exceeds the value of the analogous severance benefit provided under
the UIL CIC Plan II, then the amount of the severance benefit paid under the UIL
CIC Plan II shall be determined as provided in Section (6)(c)(iv), taking into
account Section (11)(b) of this Agreement.
12. Section
(9) of the Agreement is hereby revised in its entirety to provide as
follows:
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(9) GROSS
UP FOR EXCISE TAX
Notwithstanding anything to the
contrary in the UIL CIC Plan II, and 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, in the event that
it shall be determined that any payment made and benefits provided by the
Company or UIL to or for the Executive, whether paid or payable or distributed
or distributable pursuant to the terms of this Agreement, the UIL CIC Plan II or
otherwise, would constitute an “excess parachute payment” within the meaning of
Section 280G of the Internal Revenue Code subject to an excise tax under Code
Section 4999 (or any successor provisions) (the “Excise Tax”), the Executive
shall be paid an additional amount (the “Gross-Up Payment”) which shall be
calculated as the amount needed to reimburse the Executive for the Excise Tax
and the additional excise, income and employment taxes imposed on the Executive
due to the Company’s payment of the Excise Tax, so that the net amount retained
by the Executive after deduction of any Excise Tax, and any federal, state or
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 absent the Excise Tax, but net
of all applicable federal, state and local taxes. Unless otherwise
agreed to by the Executive, the calculation and administration of the Gross-Up
Payment shall be in accordance with the terms of the UIL CIC Plan II as in
effect on August 4, 2008, and applicable Treasury regulations.
13. Section
(11)(b) of the Employment Agreement, as amended by the First Amendment hereto,
is hereby revised to read in its entirety:
(b) The Executive
acknowledges and agrees that, of the total payments and benefits to which he
would be entitled under Section (6)(c) (termination of the Executive without
Cause) of this Agreement, an amount equal to one (1) times his Target Total
Remuneration (or, if less, the lump sum severance amount that would be payable
to the Executive under Section (6)(c) absent this adjustment) shall be deemed to
be on account of, and paid as consideration for, the covenant not to compete
provided in this Section. The Executive acknowledges and agrees that
the amount attributable to this covenant shall be paid out in twelve (12) equal,
fixed monthly installments beginning with the month following the month in which
the Executive’s Separation from Service occurs, and that such amount shall be
deducted from, and not be in addition to, the amounts otherwise payable under
Section (6)(c) of this Agreement.
In the
event that benefits shall become payable under the UIL CIC Plan II rather than
this Agreement, in addition to such amounts as may become payable under the UIL
CIC Plan II on account of an Involuntary Separation from Service, an amount
equal to one (1) times the Executive’s Target Total Remuneration (or, if less,
the lump sum severance amount that would be payable to the Executive under the
UIL CIC Plan II absent the deduction equal to Target Total Remuneration) shall
be deemed to be on account of, and
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paid as
consideration for, the covenant not to compete provided in this Section, and
shall be paid ratably over the twelve (12) month period hereinbefore
provided.
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 long-term incentive award.
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 any payments are made in accordance with this Section (11)(b), payments
shall be made in equal, fixed monthly installments beginning with the month
following the month in which the Executive’s Separation from Service
occurs. Notwithstanding the foregoing, if the value of the payments
to be made in accordance with this Section (11)(b) exceeds two times the lesser
of the Executive’s annualized compensation or the maximum amount that may be
taken into account for qualified plan purposes (in each case determined in
accordance with Treasury Regulations Section 1.409A-1(b)(9)(iii)(A)), the excess
shall be not be paid prior to the first business day of the month following the
date that is six months after the Executive’s Separation from Service date, at
which time that portion of the excess amount that would have otherwise been paid
in the preceding six months shall be paid in a single lump sum. No
interest or earnings shall be paid on the excess amount for which payment is
delayed. In no event may the Executive designate the timing or year
of any payment made pursuant to this Section (11)(b) or accelerate or delay any
such payment, nor shall any such payment be made later than the last day of the
second taxable year of the Executive following the taxable year in which occurs
the Executive’s separation from service. In the event of the
Executive’s death, amounts otherwise payable hereunder shall be paid to the
Executive’s estate.
14. Section
(13)(c) of the Agreement is hereby revised in its entirety to provide as
follows:
(c) Successors;
Binding Agreement; Assignment.
(i) The Company will require
the acquirer of all or substantially all of the business or assets of the
Company (whether directly or indirectly, by purchase of stock or assets, merger,
consolidation or otherwise), by agreement in form and substance reasonably
satisfactory to the Executive, to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As used
in this Section, the term the “Company” shall include The United Illuminating
Company, UIL Holdings Corporation, and any successor to, or acquirer of, the
business or assets of the Company
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that
executes and delivers the agreement provided for in this Section (13)(c) or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law.
(ii) This Agreement, and the
Executive’s rights and obligations hereunder, may not be assigned by the
Executive. Any attempted assignment of this Agreement by the
Executive shall be void and of no force and effect. This Agreement
and all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by the Executive’s personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and
legatees.
15. New
Subsection (13)(j) is hereby added to the Agreement to provide as
follows:
(j) Code
Section 409A Compliance. The parties
hereto recognize that certain provisions of this Agreement may be affected by
Section 409A of the Internal Revenue Code and guidance issued thereunder, and
agree to amend this Agreement, or take such other action as may be necessary or
advisable, to comply with Section 409A. It is intended that all
payments hereunder shall comply with Section 409A and the regulations
promulgated thereunder so as to not subject the Executive to payment of interest
or any additional tax under Section 409A. In furtherance thereof, if
payment or provision of any amount or benefit hereunder (including any transfer
to a “rabbi” trust or similar funding entity) that is subject to Section 409A at
the time specified herein would subject such amount or benefit to any additional
tax under Section 409A, the payment or provision of such amount or benefit shall
be postponed to the earliest date on which the payment or provision of such
amount or benefit could be made without incurring such additional
tax. In addition, to the extent that any regulations or other
guidance issued under Section 409A (after application of the previous provisions
of this Section (13)(j)) would result in the Executive’s being subject to the
payment of interest or any additional tax under Section 409A, the parties agree,
to the extent reasonably possible, to amend this Agreement in order to avoid the
imposition of any such interest or additional tax under Section 409A, which
amendment shall have the minimum economic effect necessary and be reasonably
determined in good faith by the Company and the Executive.
Notwithstanding
anything herein to the contrary, it is expressly understood that at any time the
Company (or any related employer treated with the Company as the service
recipient for purposes of Code Section 409A) is publicly traded on an
established securities market (as defined for purposes of Code Section 409A), if
a payment or provision of an amount or benefit constituting a deferral of
compensation is to be made pursuant to the terms of this Agreement to the
Executive on account of a Separation from Service (as defined under the UIL CIC
Plan II) at a time when the Executive is a Specified Employee (as defined for
purposes of Code Section 409A(a)(2)(B)(i)), such deferred compensation shall not
be paid to the Executive prior to the date that is six (6) months after the
Separation from Service. In the event this restriction applies, the
deferred compensation that the Executive would have otherwise been entitled to
during the restriction period will be accumulated and paid (without adjustment
for the delay in
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payment)
on the first business day of the seventh month following the date of the
Executive’s Separation from Service.
The
parties hereto intend that the Agreement, as amended, be consistent with IRS
Notice 2007-78, IRS Notice 2007-86 and other Code Section 409A transition
relief, and it shall be interpreted accordingly.
All of
the other terms and conditions of the Employment Agreement shall remain in full
force and effect.
THE UNITED ILLUMINATING
COMPANY
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Attest:
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By /s/ Xxxxx X.
Xxxxxxxxx
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/s/
Xxxxx Xxxxx
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Xxxxx X.
Xxxxxxxxx
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UIL Holdings Corporation,
President and
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Chief Financial
Officer
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The United Illuminating
Company
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Chief Executive
Officer
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/s/ Xxxxxxx X.
Xxxxxxxx
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Xxxxxxx X.
Xxxxxxxx
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