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 Xxxxxxxx X.
Xxxxx of 0 Xxxxxxxx Xxxxxx, Xxxxxxxx, Xxxx Xxxxxxxx 00000
("EMPLOYEE").
W I T N E S S E T H:
Whereas, the Employee is employed by Valley in the
capacity of 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,
Now, therefore, Employee and Valley agree as follows:
2
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. 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:
2
3
(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
shall be subtracted from the amount determined in subparagraph
(ii) above. The result shall be the Valley Value.
3
4
(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 the sales price of the assets to be sold over the net
book value of those assets; subtracting all liabilities,
4
5
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
8
9
in the Account Balance and the value of the Account Balance to be
reduced as a 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
9
10
otherwise, payable under any other employment agreements that now
exist or may hereafter exist from time to time between Valley and
Employee. 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
10
11
arbitration is sought, the American Arbitration Association shall
select the arbitrator.
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 Gasses, 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
----------------------------------------
Xxxxxxxx X. Xxxxx
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 Rentalao
