1
DEFERRED COMPENSATION AGREEMENT
This Agreement is entered into as of the 3rd day of
April, 1995, by and between Valley National Gases, Inc., a West
Virginia corporation having its principal office at 00 - 00xx
Xxxxxx, Xxxxxxxx, Xxxx Xxxxxxxx 00000 ("VALLEY"), and Xxxx Xxxxxxxx
of 0000 Xxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxxxxxxxxx 00000
("EMPLOYEE").
W I T N E S S E T H:
Whereas, the Employee is employed by Valley in the
capacity of Executive Vice President;
Whereas, Valley is motivated to retain the valuable
services and business counsel of Employee and to induce Employee to
remain in his executive capacity with Valley;
Whereas, Valley wishes to retain Employee in order to
prevent the substantial financial loss which Valley would incur if
Employee were to leave and were to enter the employment of a
competitor;
Whereas, Employee is considered a highly compensated
Employee and member of a select senior management group of Valley;
Whereas, Employee is willing to continue in the
employment of Valley, provided Valley will agree to provide an
additional fringe benefit in the form of deferred compensation in
accordance with and upon the terms and conditions set forth in this
Agreement; and,
2
Now, therefore, Employee and Valley agree as follows:
1. Deferred Compensation Plan.
--------------------------
(a) There is established by Valley for the benefit of
Employee in accordance with the terms and conditions of this
Agreement, a non-qualified Deferred Compensation Plan ("PLAN").
(b) Valley awards Employee a deferred compensation unit
("UNIT"). Employee's Unit has a value ("UNIT VALUE") which is
equivalent to one half of one percent (0.5%) of the Valley Value as
hereinafter defined in paragraph 2 [Valley Value multiplied by
0.005 equals the Unit Value].
(c) Employee shall have a deferred compensation account
("ACCOUNT"). The Account shall be credited with a per dollar
amount equal to the Unit Value, as adjusted and affixed annually,
pursuant to the Plan under this Agreement ("ACCOUNT BALANCE"). The
Account shall be credited with an initial Account Balance of One
Hundred Thirty-eight Thousand Eight Hundred Seventy-four Dollars
($138,874.00), being the initial Unit Value.
(d) As long as the Plan is in effect, annually as of the
close of Valley's fiscal year, Employee's Account Balance will be
adjusted to reflect the then current Unit Value. The Account
Balance will thereupon be affixed at the adjusted per dollar
equivalent of the Unit Value. Depending upon the Valley Value at
any annual Unit Value adjustment date, the Account Balance may
increase or decrease.
2
3
2. Valley Value. Annually, as of Valley's fiscal year, the
------------
value of Valley ("VALLEY VALUE") for the purposes of agreement will
be determined and affixed as follows:
(a) In the absence of any contingent event set forth
hereinafter in subparagraphs (b), (c), or (d) of this paragraph 2,
the Valley Value for the purposes of this Agreement will be
adjusted and affixed as follows:
(i) The net income of Valley shall be adjusted to
reflect Valley's earnings before interest, income taxes,
depreciation and amortization ("EBITDA"). EBITDA shall be
determined by adding to Valley's net income as reported in Valley's
financial statements, all interest, income taxes, depreciation,
amortization and the excess, if any, by which the compensation (per
W-2 form) of Xxxx X. Xxxx, Valley's Shareholder and Chairman of the
Board ("WEST"), exceeds 130% of the compensation (per W-2) of the
next highest paid Employee of Valley, and making any adjustment
necessary to compensate for diminished revenue or higher cost
resulting from current or prior sale, distribution or transfer of
operating assets to shareholders (see Example set forth on Exhibit
"A" attached hereto and incorporated herein by reference); and,
(ii) EBITDA determined above will be multiplied by
a factor of six (6); and,
(iii) The total of the interest-bearing debt,
excluding debt incurred to finance transactions with Employees or
Shareholders, as reported in the financial statements of Valley
3
4
shall be subtracted from the amount determined in subparagraph (ii)
above. The result shall be the Valley Value.
(b) If West, his successors or assigns, enters into an
agreement to sell the stock of Valley through a private placement
("PRIVATE PLACEMENT"), the Valley Value shall be determined by
multiplying the Private Placement selling price of one hundred
percent (100%) of the Valley stock shares, as set forth in the
agreement for sale of West's shares less sales expenses. If less
than one hundred percent (100%) of the shares are sold, the selling
price of the shares sold shall be applied pro rata to determine the
Private Placement selling price of one hundred percent (100%) of
the shares.
(c) If Valley, West, his successors or assigns, should
offer shares of stock to the public ("PUBLIC PLACEMENT"), the
Valley Value shall be determined based on the market price per
share at the time of the initial offering less the pro rata costs
of issuance. After Public Placement, the Valley Value adjusted
annually as of the close of the fiscal year shall be equal to the
closing stock price of one (1) share of Valley stock as of the end
of Valley's fiscal year multiplied by the total number of Valley
shares issued.
(d) If West, his successors or assigns, enters into an
agreement to sell substantially all of the assets of Valley
("SUBSTANTIAL ASSET SALE"), the Valley Value shall be determined by
adjusting the net worth of Valley's balance sheet as of the date of
the execution of such agreement by adding the excess, if any, of
4
5
the sales price of the assets to be sold over the net book value of
those assets; subtracting all liabilities, including those incurred
or to be incurred in consummating the sale and/or liquidating
Valley including income taxes on gains, attorney, accounting and
other fees. The sales price for the purposes of this Substantial
Asset Sale provision shall also include all related sale
transaction consideration including, but not limited to, Non-
Competition Agreement payments, Consultation Agreement payments and
the like; provided, however, such sales price shall not include
reasonable salary or compensation to be paid West, his successors
or assigns, commensurate with future services required to be
performed under an Employment or Consultation Agreement. The
resulting proforma net worth shall be the Valley Value.
3. Vesting of Employee's Interest in Account.
-----------------------------------------
(a) Vesting of Employee's interest in the Account shall
occur based upon years of participation by Employee in the Plan.
The date of this Agreement shall be the beginning date for the
calculation of vesting. The vesting schedule shall be as follows:
Years of Participation Percentage of Vesting
---------------------- ---------------------
0-10 0%
11 20%
12 40%
13 60%
14 80%
15 100%
(b) Employee's vested interest in the Account balance
under the Plan shall be accelerated to one hundred percent (100%)
5
6
vested interest, upon the occurrence of any of the following
events:
(i) Private Placement.
(ii) Public Placement.
(iii) Substantial Asset Sale.
(iv) Employee becomes permanently disabled.
(v) Employee dies.
(vi) Employee retires from Valley after reaching
normal retirement age as defined in Valley's qualified retirement
plan.
(vii) Termination of the Plan.
4. Payment of Deferred Compensation Account Balance.
------------------------------------------------
(a) Employee shall be entitled to payment of the
deferred compensation Account Balance of Employee's Account
("PAYMENT") only in accordance with Employee's vested interest and
only upon the occurrence of any of the following events:
(i) Termination of Plan.
(ii) Termination of Employee's employment with Valley.
(iii) Private Placement.
(iv) Substantial Asset Sale.
(b) In the event Employee's employment with Valley is
terminated, the amount of Payment to which Employee is entitled
under the terms of the Plan shall be reduced if:
(i) Employee's termination is initiated by
Employee. In this event, Employee's vested Account interest and
6
7
right to Payment under the Plan shall be reduced by fifty percent
(50%), unless, however, the combination of the number of the
Employee's years of service with Valley as defined in Valley's
qualified retirement plans added to the numerical equivalent of
Employee's age at date of termination equals 80 or above.
(ii) Employee's employment is terminated by Valley
"for cause". In this event, any vested Account interest shall be
reduced to zero percent (0%), and Employee shall forfeit right to
Payment under the Plan. The term "for cause" as defined in this
Plan shall mean: gross negligence; dishonesty; conviction of plea
or nolo contendere in a felony case; defalcation; intoxication on
the job; and/or drug addiction.
(c) In the event of Employee's death, permanent
disability, retirement at normal retirement age as set forth in
Valley's qualified retirement plans, or termination of employment
based upon Valley's initiative for any reason other than "for
cause" as defined hereinabove, Employee shall be entitled to
Payment equal to the entire vested amount of Employee's Account
Balance.
(d) Valley shall make any Payment due Employee under the
Plan within thirty (30) days after the occurrence of an event
entitling Employee to Payment. Notwithstanding, in the event of
Employee's death Valley shall make the payment to which Employee is
entitled to Employee's personal representative for Employee's
estate.
7
8
(e) Payment to Employee shall be in cash in an amount
equal to the value of the Account Balance; provided, however, in
the event of a Public Placement, Valley shall have the right and
option to make Payment to Employee in publicly traded shares of
Valley with an aggregate stock value as of the Payment date equal
to the value of the Account Balance.
5. Valley's Right to Terminate, Amend or Modify the Deferred
---------------------------------------------------------
Compensation Plan. At any time, Valley may unilaterally terminate,
-----------------
amend or modify the Plan. Unilateral, amendment or modification of
the Plan hereunder shall constitute termination of the Plan.
6. Mutual Amendment or Modification.
--------------------------------
(a) During the term of this Agreement, the Agreement and
Plan may be amended, modified or revoked at any time, in whole or
in part, by the express mutual written agreement of Valley and
Employee.
(b) Valley and Employee acknowledge that in the event of
Public Placement, amendment and modification of the Plan under this
Agreement may be required; and in such event, Valley and Employee
agree to consent to all such amendments and modifications necessary
to convert the Plan to a stock plan in accordance with requirements
of the Public Placement; provided, however, no amendment or
modification shall cause Employee to be deemed to be in
constructive receipt of any income or property of value or
otherwise be subject immediately tax liability, no amendment or
modification shall cause Employee's vested interest in the Account
Balance and the value of the Account Balance to be reduced as a
8
9
result thereof, and no amendment or modification shall cause any
stock plan to be substantially at variance to the substantive terms
and conditions of the Plan, and in any such event, such amendment
and modification shall constitute termination of the Plan.
7. Plan to Be Unfunded and Unsecured. Valley's obligation
---------------------------------
with respect to the Plan under this Agreement shall be an unfunded
and unsecured promise to pay. Valley shall not be obligated under
any circumstances to fund its obligation under this Agreement and
all payments of deferred compensation by Valley to Employee under
the terms and conditions of this Agreement will be made from the
general assets of Valley.
8. No Employment Agreement. This Agreement shall not be
-----------------------
deemed to create a contract of employment between Valley and
Employee and shall create no right in the Employee to continue in
Valley's employ for any specific period of time, or to create any
other rights in Employee or obligations on the part of Valley,
except as are set forth in this Agreement. Nor shall this
Agreement restrict the unilateral right of Valley to terminate
employment of Employee, with or without cause, or restrict the
unilateral right of the Employee to terminate his employment with
Valley.
9. Independence of Benefits. The benefits payable under the
------------------------
Plan shall be independent of, and in addition to, any other
benefits or compensation, whether by salary, or bonus or otherwise,
payable under any other employment agreements that now exist or may
hereafter exist from time to time between Valley and Employee.
9
10
This Agreement between Valley and Employee does not involve a
reduction in salary or foregoing of an increase in future salary by
Employee. Nor does this Agreement in any way effect or reduce the
existing and future compensation and other benefits of the
Employees.
10. Assignability. Except insofar as this provision may be
-------------
contrary to express applicable law, no sale, transfer, alienation,
assignment, pledge, collateralization, or attachment of any
benefits under this Agreement shall be valid or recognized by
Valley.
11. Arbitration. All disputes as to administration of the
-----------
Plan or as to rights of either Valley or Employee under this
Agreement which cannot be resolved, shall be submitted to binding
arbitration in accordance with the rules of the American
Arbitration Association. Expenses of arbitration shall be borne by
the non-prevailing party in the arbitration proceeding, unless the
selected arbitrator shall determine otherwise. The procedure for
arbitration shall be in accordance with the rules of the American
Arbitration Association, except that Employee and Valley shall each
select one arbitrator, and the two selected arbitrators shall
choose a third arbitrator. Should either Valley or Employee fail
to select an arbitrator within ten (10) days after arbitration is
sought, or if the two arbitrators shall fail to select a third
arbitrator within fifteen (15) days after arbitration is sought,
the American Arbitration Association shall select the arbitrator.
10
11
12. Law Governing. This Agreement shall be governed by the
-------------
laws of the State of West Virginia.
13. Binding Effect. This Agreement is solely between Valley
--------------
and Employee. Further, Employee, personal representative or other
persons claiming by or through Employee shall only have recourse
against Valley for enforcement of this Agreement. However, this
Agreement shall be binding upon not only Valley and Employee, but
as well Employee's beneficiaries, heirs, executors and
administrators of Employee and upon the successors and assigns of
Valley.
IN WITNESS WHEREOF, Xxxx X. Xxxx, Chairman of the Board,
with full authority thereof has executed and delivered this
Agreement for and on behalf of Valley National Gases, Inc., and
witness the signature, to be effective as of the date and year
first above written.
VALLEY NATIONAL GASES, INC., a West
Virginia corporation
By
--------------------------------------
Its Chairman of the Board
----------------------------------------
Xxxx Xxxxxxxx
11
12
Exhibit A
VALLEY NATIONAL GASES, INC.
DEFERRED COMPENSATION AGREEMENT
Following is an example to illustrate the application of the
adjustment required by Section 2(a)(ii) of the agreement.
The example assumes that X. Xxxx purchases land and a building from
the corporation on July 1, 1996 and immediately leases it back to
the corporation for a ten year period on a triple net lease for an
annual rent of $30,000.00. On the date of sale the remaining book
value of the land and building was $100,000.00 and the sale price
was $400,000.00.
The adjustments required to EBITDA are as follows:
Increase
Fiscal year ending: (Decrease)
------------------ ----------
First fiscal year adjustment:
June 30, 1997 deduct the one time gain on the sale $(300,000.00)
add back the annual rent 30,000.00
-----------
Net fiscal year adjustment (270,000.00)
============
Annual fiscal year adjustments thereafter:
June 30, 1998 add back to the annual rent $30,000.00
June 30, 1999 add back to the annual rent 30,000.00
June 30, 2000 add back to the annual rent 30,000.00
June 30, 2001 add back to the annual rent 30,000.00
June 30, 2002 add back to the annual rent 30,000.00
June 30, 2003 add back to the annual rent 30,000.00
June 30, 2004 add back to the annual rent 30,000.00
June 30, 2005 add back to the annual rent 30,000.00
June 30, 2006 add back to the annual rent 30,000.00
Minus the annual interest income generated by proceeds from
the sale of the property to West Rental
12
