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EXHIBIT 10.7
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT, dated as of December 16, 1998 is made and
entered into by and between PetroQuest Energy, Inc., a Delaware corporation with
its principal office at 000 X. Xxxxxxx Xxxxxx Xxxx, Xxxxx 000, Xxxxxxxxx,
Xxxxxxxxx 00000 (the "Company"), and Xxxxxxx X. Xxxxxxx ("Executive").
R E C I T A L S
A. Company desires to enter into an agreement with Executive whereby
severance benefits will be paid to Executive on a change in control of the
Company and consequent actual or constructive termination of Executive's
employment.
B. This Agreement sets forth the severance benefits which the Company
agrees that it will pay to the Executive if Executive's employment with the
Company terminates under one of the circumstances described herein following a
Change in Control of the Company.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. Term of Agreement. This Agreement shall be effective immediately on
the date hereof and shall continue in effect through December 31, 2001;
provided, however, that commencing on January 1, 2002 and each January 1
thereafter, the term of this Agreement shall automatically be extended for one
additional year unless not later than September 30 of the preceding year, the
Company shall have given notice that it does not wish to extend this Agreement;
provided, further, that notwithstanding any such notice by the Company not to
extend, this Agreement shall automatically be extended for 24 months beyond the
term provided herein if a Change in Control, as defined in Section 3 of this
Agreement, has occurred during the term of this Agreement.
2. Effect on Employment Rights. This Agreement is not part of any
employment agreement that the Company and Executive may have entered. Nothing in
this Agreement shall confer upon Executive any right to continue in the employ
of the Company or interfere with or restrict in any way the rights of the
Company, which are hereby expressly reserved, to terminate for any reason, with
or without cause.
Executive agrees that, subject to the terms and conditions of this
Agreement, in the event of a potential change in control of the Company (as
defined below), Executive will remain in the employ of the Company during the
pendency of any such potential change in control and for a period of one year
after the occurrence of an actual Change in Control. For this purpose, a
"potential change in
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control of the Company" shall be deemed to have occurred if (a) the Company
enters into an agreement the consummation of which would result in the
occurrence of a Change in Control, (b) any person (including the Company)
publicly announces an intention to take or consider taking action which if
consummated would constitute a Change in Control or (c) the Board of Directors
of the Company (the "Board") adopts a resolution to the effect that a potential
change in control of the Company has occurred.
3. Change in Control. For purposes of this Agreement, a "Change in
Control" of the Company shall be deemed to have occurred if any of the events
set forth in any one of the following paragraphs shall occur:
(a) any "person" (as defined in section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as
such term is modified in sections 13(d) and 14(d) of the Exchange Act),
excluding the Company or any of its subsidiaries, a trustee or any
fiduciary holding securities under an employee benefit plan of the
Company of any of its subsidiaries, an underwriter temporarily holding
securities pursuant to an offering of such securities or a corporation
owned, directly or indirectly, by stockholders of the Company in
substantially the same proportions as their ownership of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 30% or more of the combined voting power of the Company's
then outstanding securities; or
(b) during any period of not more than two consecutive years,
individuals who at the beginning of much period constitute the Board
and any new director (other than a director designated by a Person who
has entered into an agreement with the Company to effect a transaction
described in clause (a), (c) or (d) of this paragraph) whose election
by the Board or nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority thereof; or
(c) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (i)
a merger or consolidation which would result in the voting securities
of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity), in combination with the
ownership of any trustee or other fiduciary holder of securities under
an employee benefit plan of the Company, at least 50% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no person acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
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(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
Notwithstanding the foregoing, no Change in Control shall be deemed to
have occurred if there is consummated any transaction or series of
integrated transactions immediately following which, in the judgment of
the Compensation Committee of the Board, the holders of the Company's
Common Stock immediately prior to such transaction or series of
transactions continue to have the same proportionate ownership in an
entity which owns all or substantially all of the assets of the Company
immediately prior to such transaction or series of transactions.
4. Termination of Employment Following a Change in Control. Executive
shall be entitled to the benefits provided in Section 5 hereof upon the
subsequent termination of Executive's employment by the Company within two years
after a Change in Control which occurs during the term of this Agreement,
provided such termination is (a) by the Company other than for cause, as defined
below, or (b) by Executive for Good Reason, as defined below. Executive shall
not be entitled to the benefits of Section 5, any other provision hereof to the
contrary notwithstanding, if Executive's employment terminates: (i) pursuant to
Executive retiring at age 65, (ii) by reason of Executive's total and permanent
disability, or (iii) by reason or Executive's death. As used herein, "total and
permanent disability" means a condition which prevents Executive from performing
to a significant degree the essential duties of his or her position and is
expected to be of long-term duration or result in death. A determination of
total and permanent disability must be based on competent medical evidence.
(a) Cause.
(i) Definition. Termination by the Company of
Executive's employment for Cause shall mean termination upon
Executive's willful engaging in misconduct which is
demonstrably and materially injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part shall be considered "willful" unless done, or
omitted to be done, by Executive not in good faith and without
reasonable belief that Executive's action or omission was in
the best interest of the Company or its subsidiaries.
Notwithstanding the foregoing, Executive shall not be deemed
to have been terminated for Cause unless and until there shall
have been delivered to Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose of making a
determination of whether Cause for termination exists (after
reasonable notice to Executive and an opportunity for
Executive to be heard before the Board), finding that in the
good faith opinion of
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the Board Executive was guilty of misconduct as set forth
above in this subsection 4(a)(i) and specifying the
particulars thereof in detail.
(ii) Remedy by Executive. If the Company gives
Executive a Notice of Termination which states that the basis
for terminating Executive's employment is Cause, Executive
shall have ten days after receipt of such Notice to remedy the
facts and circumstances which provided Cause. The Board (or
any duly authorized Committee thereof) shall make a good faith
reasonable determination immediately after such ten-day period
whether such facts and circumstances have been remedied and
shall communicate such determination in writing to Executive.
If the Board determines that an adequate remedy has not
occurred, then the initial Notice of Termination shall remain
in effect.
(b) Good Reason. After a Change in Control, Executive may
terminate employment with the Company at any time during the term of
this Agreement if Executive has made a good faith reasonable
determination that Good Reason exists for this termination.
(i) Definition. For purposes of this Agreement, "Good
Reason" shall mean any of the following actions, if taken
without the express written consent of Executive:
A. any material change by the Company in
Executive's functions, duties, or responsibilities
which change would cause Executive's position with
the Company to become of less dignity,
responsibility, importance, or scope from the
position and attributes that applied to Executive
immediately prior to the Change in Control;
B. any significant reduction in Executive's
base salary, other than a reduction effected as part
of an across-the-board reduction affecting all
executive employees of the Company;
C. any material failure by the Company to
comply with any of the provisions of this Agreement
(or of any employment agreement between the parties);
D. the Company's requiring Executive to be
based at any office or location more than 45 miles
from the home at which the Executive resides on the
date immediately preceding the Change in Control,
except for travel reasonably required in the
performance of Executive's responsibilities and
commensurate with the amount of travel required of
Executive prior to the Change in Control; or
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E. any failure by the Company to obtain the
express assumption of this Agreement by any successor
or assign of the Company.
Executive's right to terminate employment
for Good Reason pursuant to this subsection 4(b)(I)
shall not be affected by Executive's incapacity due
to physical or mental illness.
(ii) Remedy by Company. If Executive gives the
Company a Notice of Termination which states that the basis
for Executive's termination of employment is Good Reason, the
Company shall have ten days after receipt of such Notice to
remedy the facts and circumstances which provided Good Reason.
Executive shall make a good faith reasonable determination
immediately after such ten-day period whether such facts and
circumstances have been remedied and shall communicate such
determination in writing to the Company. If Executive
determines that adequate remedy has not occurred, then the
initial Notice of Termination shall remain in effect.
(iii) Determination by Executive Presumed Correct.
Any determination by Executive pursuant to this Section 4(b)
that Good Reason exists for Executive's termination of
employment and that adequate remedy has not occurred shall be
presumed correct and shall govern unless the party contesting
the determination shows by a clear preponderance of the
evidence that it was not a good faith reasonable
determination.
(iv) Severance Payment Made Notwithstanding Dispute.
Notwithstanding any dispute concerning whether Good Reason
exists for termination of employment or whether adequate
remedy has occurred, the Company shall immediately pay to
Executive, as specified in Section 5, any amounts otherwise
due under this Agreement. Executive may be required to repay
such amounts to the Company if any such dispute is finally
determined adversely to Executive.
(c) Notice of Termination. Any termination of Executive's
employment by the Company or by Executive hereunder shall be
communicated by a Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a
written notice which shall indicate the specific termination provisions
in this Agreement relied upon any which sets forth (i) in reasonable
detail the facts and circumstances claimed to provide a basis for
termination of Executive's employment under the provision so indicated
and (ii) the date of Executive's termination of employment, which shall
be no earlier than 10 days after such Notice is received by the other
party. Any purported termination of the Executive's employment by the
Company which is not effected pursuant to a Notice of Termination
satisfying the requirements of this Agreement shall not be effective.
In the case of a termination for Cause, the Notice of Termination shall
also satisfy the requirements set forth in Section 4(a)(i).
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5. Severance Payment Upon Termination of Employment. If Executive's
employment with the Company is terminated during the term of this Agreement and
after a Change in Control (a) by the Company other than for Cause, or (b) by
Executive for Good Reason, then Executive shall be entitled to the following:
(a) Lump-Sum Severance Payment. In lieu of any further salary
payments to the Executive for periods subsequent to the Date of
Termination, the Company shall pay to the Executive a lump sum
severance payment, in cash, equal to two (2) (or, if less, the number
of years, including fractions, from the date of Termination until the
Executive would have reached age sixty-five (65)) times the sum of (a)
the Executive's Annual Base Salary in effect on date of termination and
(b) the Executive's most recent Annual Bonus. If the most recent Annual
Bonus was a stock option or a stock grant, the value of the bonus will
be deemed to be the number of option shares times the closing price of
the Company's Common Stock for the 20 trading days prior to
Termination.
(b) Continued Benefits. For a twenty-four (24) month period
(or, if less, the number of months from the Date of Termination until
the Executive would have reached age sixty-five (65)) after the Date of
Termination, the Company shall provide the Executive with life
insurance, health, disability and other welfare benefits ("Welfare
Benefits") substantially similar in all respects to those which the
Executive is receiving immediately prior to the Notice of Termination
(without giving effect to any reduction in such benefits subsequent to
the Potential Change in Control preceding the Change in Control or the
Change in Control which reduction constitutes or may constitute Good
Reason). Benefits otherwise receivable by an Executive pursuant to this
Section shall be reduced to the extent substantially similar benefits
are actually received by or made available to the Executive by any
other employer during the same time period for which such benefits
would be provided pursuant to this Section at a cost to the Executive
that is commensurate with the cost incurred by the Executive
immediately prior to the Executive's Date of Termination (without
giving effect to any increase in costs paid by the Executive after the
Potential Change in Control preceding the Change in Control or the
Change in Control which constitutes or may constitute Good Reason);
provided, however, that if the Executive becomes employed by a new
employer which maintains a medical plan that either (i) does not cover
the Executive or a family member or dependent with respect to a
preexisting condition which was covered under the applicable Company
medical plan, or (ii) does not cover the Executive or a family member
or dependent for a designated waiting period, the Executive's coverage
under the applicable Company medical plan shall continue (but shall be
limited in the event of noncoverage due to a preexisting condition, to
such preexisting condition) until the earlier of the end of the
applicable period of noncoverage under the new employer's plan or the
third anniversary of the Executive's Date of Termination. The Executive
agrees to report to the Company any coverage and benefits actually
received by the Executive or made available to the Executive from such
other employer(s). The Executive shall be entitled to elect to change
his level of
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coverage and/or his choice of coverage options (such as Executive only
or family medical coverage) with respect to the Welfare Benefits to be
provided by the Company to the Executive to the same extent that
actively employed senior executives of the Company are permitted to
make such changes; provided, however, that in the event of any such
changes the Executive shall pay the amount of any cost increase that
would actually be paid by an actively employed executive of the Company
by reason of making the same change in his level of coverage or
coverage options.
(c) Gross-Up Payment. In the event that the Executive becomes
entitled to the Severance Benefits or any other benefits or payments
under this Agreement (other than pursuant to this Section) by reason of
the accelerated vesting of stock options thereunder (together, the
"Total Benefits"), and in the event that any of the Total Benefits will
be subject to the Excise Tax, the Company shall pay to the Executive an
additional amount (the "Gross-Up Payment") such that the net amount
retained by the Executive, after deduction of any Excise Tax on the
Total Benefits and any federal, state and local income tax, Excise Tax
and FICA and Medicare withholding taxes upon the payment provided for
by this Section, shall be equal to the Total Benefits.
For purposes of determining whether any of the Total Benefits
will be subject to the Excise Tax and the amount of such Excise Tax,
(i) any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the Executive's
termination of employment (whether pursuant to the terms of this
Agreement or any other agreement, plan or arrangement with the Company,
any Person whose actions result in a Change in Control or any Person
affiliated with the Company or such Person) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the
Cod, and all "excess parachute payments" within the meaning the Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel ("Tax Counsel") selected by the Company's
independent auditors and acceptable to the Executive, such other
payments or benefits (in whole or in part) do not constitute parachute
payments, or such excess parachute payments (in whole or in part)
represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the Base
Amount, or are otherwise not subject to the Excise Tax, (ii) the amount
of the Total Benefits which shall be treated as subject to the Excise
Tax shall be equal to the lesser of (A) the total amount of the Total
Benefits reduced by the amount of such Total Benefits that in the
opinion of Tax Counsel are not parachute payments, or (B) the amount of
excess parachute payments within the meaning of Section 280G(b)(1)
(after applying clause (i), above), and (iii) the value of any non-cash
benefits or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal income taxes at the highest marginal rate of federal income
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 the
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Executive's residence on the Date of Termination, net of the reduction
in federal income taxes which could be obtained from deduction of such
state and local taxes (calculated by assuming that any reduction under
Section 68 of the Code in the amount of itemized deductions allowable
to the Executive applies first to reduce the amount of such state and
local income taxes that would otherwise be deductible by the
Executive).
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax, federal, state
and local income taxes and FICA and Medicare withholding taxes imposed on the
portion of the Gross-Up Payment being repaid by the Executive to the extent that
such repayment results in a reduction in Excise Tax, FICA and Medicare
withholding taxes and/or federal, state or local income taxes) plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the Company shall
make an additional Gross-Up Payment, determined as previously described, to the
Executive in respect to such excess (plus any interest, penalties or additions
payable by the Executive with respect to such excess) at the time that the
amount of such excess is finally determined.
(d) Timing of Payments. The payments provided for in Sections
5(a) and 5(c) shall be made not later than the fifth (5th) day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or before such
day, the Company shall pay to the Executive on such day an estimate, as
determined in good faith by the Company, of the minimum amount of such
payments and shall pay the remainder of such payments (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code from
the firth (5th) day following the Date of Termination to the payment of
such remainder) as soon as the amount thereof can be determined but in
no event later than the thirtieth (30th) day after the Date of
Termination. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to the Executive, payable
on the fifth (5th) business day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the Code
from the fifth (5th) day following the Date of Termination to the
repayment of such excess).
6. Reimbursement of Legal Costs. The Company shall pay to the Executive
all legal fees and expenses incurred by the Executive as a result of a
termination which entitles the Executive to any payments under this Agreement
including all such fees and expenses, if any, incurred in contesting or
disputing any Notice of Intent to Terminate under Section 4(a) hereof or in
seeking to obtain or enforce any right or benefit provided by this Agreement or
in connection with any tax audit or
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proceeding to the extent attributable to the application of Section 4999 of the
Code to any payment or benefit provide hereunder. Such payments shall be made
within five (5) business days after delivery of the Executive's respective
written requests for payment accompanied by such evidence of fees and expenses
incurred as the Company reasonably may require.
7. Damages. Executive shall not be required to mitigate damages with
respect to the amount of any payment provided under this Agreement by seeking
other employment or otherwise, nor shall the amount of any payment provided
under this Agreement be reduced by retirement benefits, deferred compensation or
any compensation earned by Executive as a result of employment by another
employer.
8. Successor to Company. The Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to Executive,
expressly, absolutely and unconditionally to 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 or assignment had taken place. A
used in this Agreement, "Company" shall mean the Company as hereinbefore defined
and any successor or assign to its business and/or assets as aforesaid which
executes and delivers the agreement provided for in this section or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
9. Heirs of Executive. This Agreement shall inure to the benefit of and
be enforceable by Executive's personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive should die while any amounts are still payable to Executive hereunder,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be so much designee, to Executive's estate.
10. Arbitration. Any dispute, controversy or claim arising under or in
connection with this Agreement, or the breach thereof, shall be settled
exclusively by arbitration in accordance with the Rules of the American
Arbitration Association then in effect. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court of competent jurisdiction. Any
arbitration held pursuant to this section in connection with Executive's
termination of employment shall take place in Houston, Texas at the earliest
possible date. If any proceeding is necessary to enforce or interpret the terms
of this Agreement, or to recover damages for breach thereof, the prevailing
party shall be entitled to reasonable attorneys' fees and necessary costs and
disbursements, not to exceed in the aggregate one percent (1%) of the net worth
of the other party, in addition to any other relief to which he or it may be
entitled.
11. Notice. For purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when
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delivered by messenger or in person, or when mailed by United States registered
mail, return receipt requested, postage prepaid, as follows:
If to the Company: 000 X. Xxxxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, President
If to the Executive: Xxxxxxx X. Xxxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxx, XX 00000
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
12. General Provisions.
(a) Executive's rights and obligations under this Agreement
shall not be transferable by assignment or otherwise, nor shall
Executive's rights be subject to encumbrance or subject to the claims
of the Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the benefit
of, be binding upon and be enforceable by, any successor surviving or
resulting corporation, or other entity to which such assets shall be
transferred. This Agreement shall not be terminated by the voluntary or
involuntary dissolution of the Company.
(b) This Agreement and any Employment Agreement with Executive
plus terms of any stock option plans or grants constitutes the entire
agreement between the parties hereto in respect to the rights and
obligations of the parties following a Change in Control. This
Agreement supersedes and replaces all prior oral and written
agreements, understandings, commitments, and practices between the
parties (whether or not fully performed by Executive prior to the date
hereof), which shall be of no further force or effect.
(c) The provisions of this Agreement shall be regarded as
divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of such provisions or
parts thereof and the applicability thereof shall not be affected
thereby.
(d) This Agreement may not be amended or modified except by a
written instrument executed by the Company and Executive.
(e) This Agreement and the rights and obligations hereunder
shall be governed by and construed in accordance with the laws of the
State of Texas.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PetroQuest Energy, Inc.,
a Delaware Corporation
By:/s/ Xxxxxx X. Xxxxxxxxx
---------------------------------
Attest: Xxxxxx X. Xxxxxxxxx
Chief Financial Officer
By:/s/ Xxxxxx X. Xxxxxx
---------------------------------
By the authority of the Compensation
Committee of the Board of Directors
of PetroQuest Energy, Inc. on
December 16, 1998.
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxx
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