Contract
Exhibit 10(u)
C. XXXX XXXXXX
ADDITIONAL PAYMENT AGREEMENT, dated as of the 10th day of October, 2007 (this “Agreement”), by and between TXU Corp. (which is expected to be renamed Energy Future Holdings Corp. following the Merger (as defined below)), a Texas corporation (the “Company”), Texas Energy Future Holdings Limited Partnership, a Delaware limited partnership (the “Parent”), Texas Competitive Electric Holdings Company LLC, a Delaware limited liability company (the “Holdings”), and C. Xxxx Xxxxxx (the “Executive”).
WHEREAS, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) dated February 25, 2007, by and among Parent, Texas Energy Future Merger Sub Corp, a Texas corporation (“Merger Sub”), and the Company, Merger Sub will be merged with and into the Company (the “Merger”), with the Company surviving the Merger as a subsidiary of Parent.
WHEREAS, pursuant to Section 4.6 of the Employment Agreement between the Company and Executive, dated February 21, 2004 (the “Employment Agreement”), the Company and Executive have previously agreed that, in consideration of Executive’s dedicated service to the Company and in order to ensure that the compensation and benefits expectations of Executive will be satisfied, in the event it shall be determined that any payment, benefit or distribution in the nature of compensation (within the meaning of section 280G(b)(2) of the Code) to or for the benefit of Executive, whether paid, payable or provided by the Company or any of its affiliates or their respective successors or assigns, pursuant to this Agreement, any benefit plan, stock incentive plan, employment or severance agreement or otherwise (collectively, the “Payments”), would be subject to the excise tax imposed by section 4999 of the Code (together with any interest or penalties imposed with respect to such excise tax, the “Excise Tax”), and/or the additional tax imposed by Section 409A of the Code (together with any interest or penalties imposed with respect to such additional tax, the “Additional Tax”) then Executive shall be entitled to receive an additional payment (the “Gross-Up Payment”) in an amount such that, after payment by Executive of all taxes (and any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and the Excise Tax and/or Additional Tax imposed upon the Gross-Up Payment, Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
WHEREAS, the Company agrees to calculate the amount of the Gross-Up Payment payable on behalf of Executive to the Internal Revenue Service (the “Service”) in good faith and in accordance with a reasonable interpretation of the Code as to the amount of the Excise Tax which may be imposed on Executive with respect to payments made by the Company and, in reliance on the Company’s commitments set forth in this Agreement, Executive agrees to accept such calculation.
WHEREAS, because of the uncertainties involved in calculating the exact amount of the payments that will be subject to the Excise Tax, which in turn affects the extent to which a Gross-Up Payment is necessary, the parties desire to have the Company set aside certain proceeds in order to satisfy any subsequent claims by the Service that the amount of Excise Tax that was paid on such Payments was insufficient.
WHEREAS, in the event the Gross-Up Payment made by the Company to Executive is insufficient to cover the additional Excise Tax that becomes due and owing to the Service, the Company agrees to indemnify and hold Executive harmless in respect of any Excise Tax by setting aside in a secular Trust (as defined below), the amount set forth on Exhibit A representing the difference between a calculation using a method consistent with Treasury Regulation § 1.280G-1 and a calculation assuming that all payments are subject to Excise Tax (the “Additional Payment”). For the avoidance of doubt, the amount of the Additional Payment shall not limit the Company’s liability or obligations hereunder.
WHEREAS, the Company has also agreed that, in addition to the Additional Payment, the Company shall indemnify and hold Executive harmless from any and all liabilities (including interest and penalties) that result from Executive entering into this Agreement and the funding of the Trust.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Effective Time. This Agreement shall become effective upon the Effective Time (as defined in the Merger Agreement) and shall remain in effect until the later of (i) the closing of the later of (A) the Company’s or (B) Executive’s, tax year that follows the expiration of the statute of limitations for which the Service may audit the tax year in which the Service could claim that an underpayment of the Excise Tax for such year was paid and (ii) the resolution and settlement with the Service as to any contested claim. If the Merger Agreement is terminated in accordance with its terms prior to the Effective Time, this Agreement shall automatically terminate and shall be null and void ab initio and of no further force and effect.
2. Amount of Additional Gross-up Payment. (a) The determinations as to the Additional Payment for purposes of this Agreement shall be made by Xxxxxxx & Marsal Tax-and LLC (“A&M”), and approved by Deloitte & Touche USA LLP, or such other nationally recognized certified public accounting firm as may be designated by the Company (the “Accounting Firm”), which approval shall not be unreasonably withheld. A&M and the Accounting Firm shall provide detailed supporting calculations both to the Company and Executive within 15 business days of the receipt of notice from Executive that there has been a Payment or such earlier time as is requested by the Company. All fees and expenses of Accounting Firm shall be borne solely by the Company.
(b) (i) If at any time after the Effective Time, Executive receives a claim from the Service of an underpayment of the Excise Tax on the Payments, or an imposition of an Additional Tax on the Payments, Executive shall notify the Company in writing of such claim by the Service. Such notification shall be given as soon as practicable after Executive receives actual notice in writing of such claim by the Service. The Executive shall apprise the Company 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 Executive gives such notice to the Company (or the date that any payment of taxes with respect to such claim is due pursuant to the notice from the Service, if shorter). The Company shall provide notice to Executive in writing regarding whether it will contest such claim no later than 5 business days prior to the date on which the amount of such claim is required to be paid. If the Company determines not to contest the claim, it shall pay to Executive (or cause the Trust to pay to Executive) prior to the date on which Executive must pay the claim to the Service the amount necessary for Executive to satisfy the claim by the Service for all or the portion of the Additional Payment set forth in such claim, plus any interest and penalties imposed as a result of such claim, on an after-tax basis. If the Company notifies Executive that the Company desires to contest such claim, Executive shall:
(A) give the Company information reasonably requested by the Company relating to such claim,
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(B) reasonably cooperate with the Company in good faith in order to contest such claim and take such action in connection with such claim as the Company shall reasonably request in writing, and
(C) permit the Company to participate in any proceedings relating to such claim and accept legal representation with respect to such claim by an attorney reasonably selected by the Company.
In the event that in connection with such contest Executive is required to pay the claim prior to the final resolution, the Company shall pay to Executive (or cause the Trust to pay to Executive) prior to the date on which Executive must pay the claim to the Service the amount necessary for Executive to satisfy the claim by the Service for all or the portion of the Additional Payment set forth in such claim, plus any interest and penalties imposed as a result of such claim, on an after-tax basis.
(ii) The Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest identified in subsection (b)(i) above, and shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax, Additional Tax or income tax (including interest and penalties) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 2(b), the Company shall control all proceedings taken in connection with such contest, and, at its sole discretion, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the applicable taxing authority in respect of such claim and may, at its sole discretion, either pay the tax claimed to the appropriate taxing authority on behalf of Executive and direct Executive to xxx for a refund or contest the claim in any permissible manner, and 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 pays such claim and directs Executive to xxx for a refund, the Company shall indemnify and hold Executive harmless, on an after-tax basis, from any Excise Tax, Additional Tax or income tax (including interest or penalties) imposed with respect to such payment or with respect to any imputed income in connection with such payment. Furthermore, the Company’s control of the contest shall be limited to issues with respect to the Additional Payment or to which Executive has any liability as a result of his entering into this Agreement or the funding of the Trust, and Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Service or any other taxing authority.
(c) If, after the receipt by Executive of an Additional Payment or payment by the Company of an amount on Executive’s behalf pursuant to Section 2(b), Executive becomes entitled to receive any refund with respect to the Excise Tax or Additional Tax to which such Additional Payment relates or with respect to such claim, Executive shall (subject to the Company’s complying with the requirements of Section 2(b), if applicable) as soon as practicable pay to the Company the amount of such refund. If, after payment by the Company of an
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amount on Executive’s behalf pursuant to Section 2(b), a determination is made that Executive shall not be entitled to a refund (together with any interest paid or credited thereon by the Service after taxes applicable thereto) with respect to such claim and the Company does not notify Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then the amount previously paid by the Company shall offset, to the extent thereof, the amount of Additional Payment required to be paid.
(d) The following payments shall in all events be paid as follows:
(1) Any Additional Payment, as determined pursuant to this Section 2, shall be paid by the Company to Executive prior to the date on which such amount is due to the Service. Notwithstanding any other provision of this Section 2, the Company may, in its sole discretion, withhold and pay over to the Service or any other applicable taxing authority, for the benefit of Executive, all or any portion of any Additional Payment, provided that such payment is paid no later than required by the Service, and Executive hereby consents to such withholding;
(2) Any expenses, as determined pursuant to this Section 2, incurred by Executive in connection with a contest respecting the existence or amount of any Excise Tax or Additional Tax to which Executive may be entitled pursuant to Section 2(b) above within shall be paid directly by Company and the Company shall fully gross-up Executive with respect to any income recognized by Executive as a result of income taxes that Executive is required to pay with respect to such expenses being paid by the Company; and
(3) Within five days after Executive submits a claim for reimbursement to which Executive may be entitled under this Agreement for an expense incurred during the term of this Agreement, including, but not limited to, any Additional Payment with respect to the interest or penalty component of an Excise Tax, shall be paid by the Company to Executive. The amount of any such expenses eligible for reimbursement paid during an Executive’s taxable year shall not affect the expenses eligible for reimbursement in any other taxable year, and the right to any such expense reimbursement may not be liquidated or exchanged for any other benefit.
Notwithstanding the foregoing, in no event shall the foregoing payments be paid later than (A) the end of Executive’s taxable year next following Executive’s taxable year in which (x) with respect to subsections (d)(1) and (d)(2) above, the Excise Tax and/or Additional Tax (and any income or other related taxes or interest or penalties thereon) on a payment are remitted to the Service or any other applicable taxing authority or, in the case of amounts relating to a claim described in Section 2(b) that does not result in the remittance of any federal, state, local and foreign income, excise, social security and other taxes, the calendar year in which the claim is finally settled or otherwise resolved or (y) with respect to subsection (d)(3) above, the expense was incurred, and (B) the end of the six month period described in Section 5 below, if applicable.
3. Establishment of Trust. In furtherance of its obligations hereunder, the Company hereby agrees to establish a trust as of October 10, 2007, in the form attached hereto as Exhibit “A,” for the benefit of Executive pursuant to the terms herein (the “Trust”). To the extent not paid by the Company, the amounts under the Trust shall be paid, in accordance with and pursuant to the terms and conditions of the Trust and this Agreement. If paid by the Company, it shall be entitled to reimbursement from the Trust in accordance with and pursuant to the terms and conditions thereof.
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4. Indemnification. As further inducement for Executive to enter into this Agreement, the Company shall indemnify and hold Executive harmless on an after-tax basis, for any Excise Tax due under section 4999 of the Code or income tax (including, but not limited to, any additional income tax under Section 409A of the Code) (including interest and penalties) imposed as a result of the establishment and funding of the Trust.
5. Delayed Payment Date. Notwithstanding any provision to the contrary in this Agreement, (i) if Executive is deemed at the time of his or her termination of employment to be a “key employee” within the meaning of that term under Code Section 416(i) (as used for purposes of defining a “specified employee” under Section 409A of the Code) and delayed payment of an amount that is payable to or on behalf of Executive in connection with a termination of employment is required in order to avoid a prohibited distribution under Section 409A(a)(2) of the Code, no such amount shall be provided to or paid on behalf of Executive prior to the earlier of (x) the expiration of the six (6)-month period measured from the date of Executive’s “separation from service” (as such term is defined in Treasury Regulations issued under Code Section 409A) or (y) the date of Executive’s death; provided however, upon the expiration of the applicable Code Section 409A(a)(2) delay period referred to herein, all amounts delayed pursuant to this Section 6 shall be promptly paid to or on behalf of Executive in a lump sum; and (ii) if any other payments of money or other benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. Whether an Executive is a “key employee” for purposes of this Section 5 shall be determined in accordance with the written guidelines adopted by the Company for making such determinations. The parties do not expect that Executive will be a specified employee on the date of his expected termination of employment.
6. Miscellaneous. (a) No Waiver. The waiver by a party of the violation of any of the provisions of this Agreement, whether express or implied, shall not operate or be construed as a waiver of any subsequent violation of any such provision.
(b) Amendment. This Agreement may not be amended, modified or cancelled except by written consent of the parties.
(c) Severability. In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions of this Agreement shall remain in full force and effect to the fullest extent permitted by law.
(d) Binding Effect. This Agreement shall be binding upon and inure to the benefit of Executive, the Company, Parent, Holdings, their affiliates, and any successor organization or organizations which shall succeed to the business and property of the Company, Parent and Holdings, whether by means of merger, consolidation, acquisition of substantially all the assets of the Company, Parent and Holdings or otherwise, including by operation of law.
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(e) Governing Law. This Agreement has been made in and shall be governed and construed in accordance with the laws of the State of Texas.
(f) Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures were all affixed to the same instrument.
7. Written Agreement. Except as otherwise provided herein, and in the Severance and Release Agreement, between the Company and the Executive, dated October 10, 2007, this Agreement sets forth the entire agreement and understanding of the parties with respect to the matters covered hereby, including, without limitation, the amount of the Additional Payment which shall be paid from the Trust. This Agreement supersedes all prior agreements and understandings (including verbal agreements) between Executive and the Company and/or its affiliates regarding the terms and conditions of Executive’s entitlement to, and Company’s obligation to pay, any Gross-Up Payment or Additional Payment in connection with any payments or benefits provided to Executive; provided, however that nothing herein shall adversely affect Executive’s rights under Section 4.6 of his Employment Agreement.
8. Notices. All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows:
if to Executive: At the most recent address on file at the Company.
if to the Company:
TXU Corp. (which is expected to be renamed Energy Future Holdings
Corp. following the Merger)
0000 Xxxxx Xxxxxx
Xxxxxx, Xxxxx 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee.
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IN WITNESS WHEREOF, Executive has hereunto set Executive’s hand and, pursuant to the authorization from the Board, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written.
| /s/ C. Xxxx Xxxxxx | ||
| C. Xxxx Xxxxxx | ||
| Texas Energy Future Holdings Limited Partnership | ||
| /s/ Xxxxxxxx Xxxxx | ||
| Name: | Xxxxxxxx Xxxxx | |
| Title: | Vice President and Treasurer | |
| TXU Corp. (which is expected to be renamed Energy Future Holdings Corp. following the Merger) | ||
| /s/ Xxxxx X. Xxxxx | ||
| Name: | Xxxxx X. Xxxxx | |
| Title: | EVP- Legal, General Counsel | |
| Texas Competitive Electric Holdings Company LLC | ||
| /s/ Xxxxx X. Xxxxx | ||
| Name: | Xxxxx X. Xxxxx | |
| Title: | Executive Vice President | |
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| PRIVILEGED AND CONFIDENTIAL Execution Version |
EXHIBIT A
| Gross-Up Payment Prior to Reduction |
Gross-Up Payment After Reduction of Reasonable Compensation |
Additional Payment | ||
| 39,304,245.92 | 17,683,814.27 | 21,620,431.65 | ||
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