EXHIBIT 10.5
EXECUTIVE SEVERANCE AGREEMENT, dated as of July 23, 1998, by and
between Sonat Inc., a Delaware corporation ("Sonat"), and Xxxxxx X. Xxxxx,
Xx. ("Executive").
WHEREAS, the Executive Compensation Committee of the Board of Directors
of Sonat has recommended, and the Board of Directors has approved, that Sonat
enter into severance agreements with key executives who are from time to time
designated by the Executive Compensation Committee;
WHEREAS, should Sonat become subject to any proposed or threatened
Change of Control (as hereinafter defined), the Board of Directors believes it
imperative that Sonat and the Board of Directors be able to rely upon Executive
to continue in Executive's position, and that Sonat be able to receive and rely
upon Executive's advice, if requested, as to the best interests of Sonat and its
stockholders without concern that Executive might be distracted by the personal
uncertainties and risks created by such a proposal or threat;
WHEREAS, should Sonat receive any such proposals, in addition to
Executive's regular duties, Executive may be called upon to assist in the
assessment of such proposals, to advise management and the Board of Directors as
to whether such proposals would be in the best interests of Sonat and its
stockholders, and to take such other actions as the Board of Directors might
determine to be appropriate;
WHEREAS, Executive is a key executive and, pursuant to action taken by
the Executive Compensation Committee and the Board of Directors, has previously
entered into a severance agreement with Sonat; and
WHEREAS, the Executive Compensation Committee and the Board of
Directors have approved certain revisions to such severance agreement, Executive
agrees to such revisions, and Executive and Sonat desire to amend and restate
such severance agreement in order to consolidate the terms thereof into a single
document;
NOW, THEREFORE, Sonat and Executive agree as follows:
1. Services During Certain Events. In the event a third person begins a
tender or exchange offer, circulates a proxy to stockholders, or takes other
steps to effect a Change of Control, Executive agrees not to voluntarily leave
the employ of Sonat or its subsidiaries, and to render the services contemplated
in the recitals to this Agreement, until the third person has abandoned or
terminated his efforts to effect a Change of Control or until a Change of
Control has occurred.
2. Termination Following Change of Control. Except as provided in
Section 4 hereof, Sonat will provide or cause to be provided to Executive the
rights and benefits described in Section 3 hereof in the event that Executive's
employment is terminated:
(a) at any time within three years following a Change of
Control by Sonat or its subsidiaries for reasons other than for "cause"
(as such term is defined in Section 4 hereof) or other than as a
consequence of Executive's death, permanent disability or retirement at
or after April 30, 2001 ("Normal Retirement Date") as provided under
Sonat's Retirement Plan as in effect immediately preceding such date;
(b) at any time within three years following a Change of
Control by Executive following the occurrence of any of the following
events without Executive's written consent:
(i) the assignment of Executive to any duties or
responsibilities that are inconsistent with Executive's
position, duties, responsibilities or status immediately
preceding such Change of Control, or a change in reporting
responsibilities or titles in effect at such time resulting in
a reduction of Executive's responsibilities or position;
(ii) the reduction of Executive's annual salary
(including any deferred portions thereof), annual or long-term
cash or stock bonus opportunities, or level of benefits or
supplemental compensation; or
(iii) the transfer of Executive to a location
requiring a change in Executive's residence or a material
increase in the amount of travel normally required of
Executive in connection with Executive's employment; or
(c) by Executive for any reason during the 30-day period
immediately following the first anniversary of the date of the Change
of Control.
For purposes of this Agreement, "Change of Control" shall
mean:
A. The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership
(within the meaning of Rule 13(d)-3 promulgated under the Exchange Act) of 20%
or more of either (i) the then outstanding shares of common stock of Sonat (the
"Outstanding Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of Sonat entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that for purposes of this subsection A, the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from Sonat, (ii)
any acquisition by Sonat, (iii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by Sonat or any corporation controlled by
Sonat or (iv) any acquisition by any corporation pursuant to a transaction which
complies with clauses (i), (ii) and (iii) of subsection C; or
B. Individuals who, as of the date hereof, constitute the
Board of Directors (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board of Directors; provided, however that any
individual becoming a director subsequent to the date hereof whose election, or
nomination for election by Sonat's shareholders, was approved by a vote of at
least a majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board of Directors; or
C. Consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of Sonat
(a "Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Common Stock and
Outstanding Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns Sonat or all or substantially all of Sonat's assets either
directly or through one or more subsidiaries) in substantially the same
proportions as their ownership, immediately prior to such Business Combination,
of the Outstanding Common Stock and Outstanding Voting Securities, as the case
may be, (ii) no Person (excluding any corporation resulting from such Business
Combination or any employee benefit plan (or related trust) of Sonat or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board of Directors, providing for
such Business Combination.
3. Rights and Benefits upon Termination. In the event of the
termination of Executive's employment under any of the circumstances set forth
in Section 2 hereof ("Termination"), Sonat agrees to provide or cause to be
provided to Executive the following rights and benefits:
(a) Lump Sum Payment at Termination. Executive shall be
entitled to receive within 30 days of Termination a lump-sum payment in
cash in the amount of three times Executive's Earnings (as such term is
defined in this Section 3(a)); provided, however, that if there are
fewer than 36 months remaining from the date of Termination to
Executive's Normal Retirement Date, the amount calculated pursuant to
this paragraph will be reduced by multiplying such amount by a
fraction, the numerator of which is the number of months (including any
fraction of a month) so remaining to Executive's Normal Retirement Date
and the denominator of which is 36.
For purposes of this Agreement, "Earnings" shall mean
the sum of (1) Executive's Annual Base Pay (as defined below), (2)
Executive's Recent Cash Bonus (as defined below), and (3) Executive's
Recent Long-Term Compensation (as defined below).
"Annual Base Pay" shall mean the greater of (1) the
annualized amount of Executive's rate of base pay (as shown in Sonat's
payroll records) immediately before the Change of Control, and (2) the
annualized amount of Executive's rate of base pay (as shown in Sonat's
payroll records) immediately before the date of Termination.
"Recent Cash Bonus" shall mean the product of
Executive's Annual Base Pay multiplied by the greater of:
(1) the quotient determined by
dividing (a) the sum of the amounts payable
to Executive upon the occurrence of a Change
of Control pursuant to Section 2.6 of
Sonat's Performance Award Plan, Section 2.6
of Sonat's Cash Bonus Plan, and Section 2.6
of Sonat's Performance Award and Cash Bonus
Plan (regardless of whether such amounts are
paid in a lump sum or in installments), by
(b) the annualized amount of Executive's
rate of base pay (as shown in Sonat's
payroll records) immediately before the
Change of Control; and
(2) the highest quotient determined,
for the calendar year in which the Change of
Control occurs and for each of the two
preceding calendar years, by dividing (a)
the sum of the bonuses paid to Executive
under the Performance Award Plan, the Cash
Bonus Plan, and the Performance Award and
Cash Bonus Plan during the first calendar
quarter of such calendar year (including for
this purpose any amount receipt of which was
deferred by the Executive
Compensation Committee
pursuant to the terms of such Plans, or by
Executive pursuant to the terms of Sonat's
Deferred Compensation Plan), by (b) the
annualized amount of Executive's rate of
base pay (as shown in Sonat's payroll
records) at the time of such payment.
Notwithstanding the foregoing, if at the
time of the Change of Control the amount
paid to Executive under clause (1) above is
with respect to a bonus opportunity
established for the preceding calendar year
(or a portion thereof), the quotients
calculated pursuant to this clause (2) shall
be determined for each of the three calendar
years before the calendar year in which the
Change of Control occurs.
"Recent Long-Term Compensation" shall mean the product of
Executive's Annual Base Pay multiplied by the average of the quotients
determined, for each of the three calendar years before the date of the Change
of Control, by dividing (a) the Grant Value (as defined below) for the regular
annual grant of stock options and/or restricted stock made under Sonat's
Executive Award Plan during the fourth calendar quarter of such calendar year by
(b) the annualized amount of Executive's rate of base pay (as shown in Sonat's
payroll records) on the date of such grant. Grant Value shall mean, with respect
to any such annual grant during any fourth calendar quarter, the sum of (1) the
product of the number of stock options granted to Executive multiplied by the
value of each such stock option at the date of grant (as determined or approved
by the Executive Compensation Committee at the date of grant), plus (2) the
product of the number of shares of restricted stock granted to Executive
multiplied by the value of a share of restricted stock at the date of grant (as
determined or approved by the Executive Compensation Committee at the date of
grant). Notwithstanding the foregoing, if the Change of Control occurs in the
fourth calendar quarter of a calendar year and after the regular annual grant of
stock options and/or restricted stock for such year, the quotients calculated as
described above shall be determined for such calendar year and for the two
preceding calendar years. If the quotient determined for any calendar year is
zero, such quotient shall be disregarded (and no additional quotients shall be
calculated in substitution therefor).
(b) Retirement Benefits. If at the date of Termination,
Executive is not otherwise entitled to receive an early retirement
benefit under the terms of a qualified defined benefit retirement plan
of Sonat or its subsidiaries, Sonat shall pay in cash to Executive, in
the form of a cash lump sum (a "Severance Retirement Benefit"), an
amount equal to the Actuarial Equivalent (as defined below) of the
excess, if any, of (1) the monthly benefit calculated under the early
retirement provisions of the Retirement Plan (as in effect immediately
prior to the Change of Control), using the early retirement reduction
factors applicable as of the later of age 55 or Executive's actual age
at the date of Termination, and (2) the monthly benefit payable to
Executive under the Retirement Plan (as in effect on the date of
Executive's Termination), assuming the following for purposes of
clauses (1) and (2): (A) the benefit is payable in the form of a single
life annuity as of the later of the date Executive attains age 55 and
the date of Termination; (B) the benefit is calculated based on
Executive's actual service and actual earnings history at the date of
Termination; (C) Executive is fully vested in the benefit; and (D) the
benefit is calculated under the assumption that Sections 401(a)(17) and
415 of the Internal Revenue Code of 1986, as amended (the "Code"), are
nonexistent and the provisions of the Retirement Plan incorporating
such Code Sections are inoperative. The determination of Executive's
Severance Retirement Benefit shall not include the value of any
benefits under the "cash balance" portion of the Retirement Plan. The
Severance Retirement Benefit shall be paid as soon as practicable (and
within 30 days) after the date of Termination, and shall not be
affected by the settlement option or date of commencement of any
benefits actually payable under the Retirement Plan or Sonat's
Supplemental Benefit Plan.
(c) Survivors' Benefits. If Executive is entitled to receive a
Severance Retirement Benefit under Section 3(b) and on the date of
Termination Executive either (1) has an Eligible Spouse (as such term
is defined in the Retirement Plan as in effect immediately prior to the
Change of Control, and determined as if Executive had died on the date
of Termination), or (2) does not have an Eligible Spouse (as defined
above) but does have one or more Eligible Children (as such term is
defined in the Retirement Plan as in effect immediately prior to the
Change of Control, and determined as if Executive had died on the date
of Termination), Sonat shall pay to Executive, in the form of a cash
lump sum (the "Severance Survivors' Benefit"), an amount equal to the
Actuarial Equivalent of the monthly survivors' benefit payable to such
Eligible Spouse or Eligible Children (as the case may be) under the
Retirement Plan (as in effect immediately prior to the Change of
Control) with respect to Executive if Executive's retirement benefit
were calculated under the early retirement provisions of such plan,
using the early retirement benefit reduction factors applicable as of
the later of age 55 or Executive's actual age at the date of
Termination, and assuming (A) the retirement benefit is payable as of
the later of the date Executive attains age 55 and the date of
Termination; (B) the retirement benefit is calculated based on
Executive's actual service and actual earnings history at the date of
Termination; (C) Executive is fully vested in the retirement benefit;
and (D) the retirement benefit and survivors' benefit are calculated
under the assumption that Code Sections 401(a)(17) and 415 are
nonexistent and Section 7.10 and the provisions of the Retirement Plan
incorporating the limitations contained in such Code Sections are
inoperative. The determination of Executive's Severance Survivors'
Benefit shall not include the value of any benefits under the "cash
balance" portion of the Retirement Plan.
The Severance Survivors' Benefit shall be paid as soon as practicable
(and within 30 days) after the date of Termination and shall not be
affected by any settlement option or date of commencement of any
benefits actually payable under the Retirement Plan or the Supplemental
Benefit Plan.
(d) Insurance and Other Special Benefits. To the extent
Executive is eligible thereunder, Executive shall continue to be
covered by the life and dependent life insurance, medical and dental
insurance, and accident and disability insurance plans of Sonat and its
subsidiaries or any successor plan or program in effect at Termination
for employees in the same class or category as Executive, subject to
the terms of such plans and to Executive's making any required
contributions thereto. In the event Executive is ineligible to continue
to be so covered under the terms of any such benefit plan or program,
or in the event Executive is eligible but the benefits applicable to
Executive are not substantially equivalent to the benefits applicable
to Executive immediately prior to Termination, then, for a period of 36
months following Termination (or until Executive's Normal Retirement
Date, whichever is sooner), Sonat shall provide such substantially
equivalent benefits, or such additional benefits as may be necessary to
make the benefits applicable to Executive substantially equivalent to
those in effect before Termination, through other sources; provided,
however, that if during such period Executive should enter into the
employ of another company or firm which provides substantially similar
benefit coverage, Executive's participation in the comparable benefit
provided by Sonat either directly or through such other sources shall
cease. Nothing contained in this paragraph shall be deemed to require
or permit termination or restriction of Executive's coverage under any
plan or program of Sonat or any of its subsidiaries or any successor
plan or program thereto to which Executive is entitled under the terms
of such plan or program, whether at the end of the aforementioned
36-month period or at any other time. Executive shall be entitled to
continuation ("COBRA") coverage under Code Section 4980B upon the
termination of the coverage provided under this Section 3(d) to the
same extent as if such coverage had not been provided. Upon the
occurrence of both (1) the termination of the medical coverage
(including any COBRA coverage elected by Executive) provided under this
Section 3(d), and (2) Executive's attainment of age 55, Executive shall
be eligible for such retiree medical coverage as may be available
generally to early or normal retirees of Sonat, or to former employees
in the same class or category as Executive, subject to the terms of
such coverage and to Executive's making any required contributions
thereto.
(e) Relocation Assistance. Should Executive move his or her
residence in order to pursue other business opportunities within three
years of the date of Termination (or until Executive's Normal
Retirement Date, whichever is sooner), Sonat shall reimburse Executive
for any expenses incurred in that relocation (including taxes payable
on the reimbursement) which are not reimbursed by another employer;
provided, however, that Executive shall be entitled to such
reimbursement with respect to only one such relocation, it being agreed
that in the event of more than one such relocation, Executive shall be
entitled to specify the relocation for which reimbursement hereunder is
to be made. Benefits under this provision will include the assistance,
at no cost to Executive, in selling Executive's home and other
assistance which was customarily provided to executives transferred
within Sonat or between Sonat and its subsidiaries prior to the Change
of Control.
(f) Other Benefit Plans. The specific arrangements referred to
in this Section 3 are not intended to exclude Executive's participation
in other benefit plans in which Executive currently participates or
which are available to executive personnel generally in the class or
category of Executive or to preclude other compensation or benefits as
may be authorized by the Board of Directors from time to time.
(g) Duty to Mitigate. Executive's entitlement to benefits
hereunder shall not be governed by any duty to mitigate damages by
seeking further employment nor offset by any compensation which
Executive may receive from future employment.
(h) Payment Obligations Absolute. Sonat's obligation to pay or
cause to be paid to Executive the benefits and to make the arrangements
provided in this Section 3 shall be absolute and unconditional and
shall not be affected by any circumstances, including, without
limitation, any setoff, counterclaim, recoupment, defense or other
right, which Sonat may have against Executive or anyone else. All
amounts payable by or on behalf of Sonat hereunder shall be paid
without notice or demand. Each and every payment made hereunder by or
on behalf of Sonat shall be final and Sonat and its subsidiaries shall
not, for any reason whatsoever, seek to recover all or any part of such
payment from Executive or from whomever shall be entitled thereto.
(i) Actuarial Equivalent. "Actuarial Equivalent" shall mean a
benefit actuarially equal in value to the value of a given benefit in a
given form or schedule, based upon (1) the 1983 Group Annuity Mortality
Table (or, if different, the mortality table or tables used to
calculate Actuarial Equivalents under the Retirement Plan as of the
date on which an Actuarial Equivalent is being determined under this
Agreement) and (2) an interest rate equal to the yield on new 7-12 year
AA-rated general obligation tax-exempt bonds as determined by Xxxxxxx
Xxxxx & Co. (or its affiliates) and published in The Wall Street
Journal (or other financial publication) on the business day
immediately preceding the date of Executive's Termination (or, if such
yield is not so determined and published on such business day, on the
most immediately preceding day on which such yield was so determined
and published); provided, however, that if such yield has not been so
determined and published within 90 days prior to the date of
Executive's Termination, the interest rate shall be the yield on
substantially similar securities on the business day preceding the date
of Executive's Termination as determined by AmSouth Bank N.A. upon the
request of either Sonat or Executive.
The Severance Survivors' Benefit shall be valued as a
reversionary annuity commencing upon the death of Executive. For
purposes of calculating the Severance Survivors' Benefit, (1) it shall
be assumed that Executive, Executive's Eligible Spouse, and Executive's
Eligible Children do not die before the later of the date Executive
attains age 55 and the date of Executive's Termination, and (2) if
Executive has Eligible Children (but not an Eligible Spouse), it shall
be assumed that each Eligible Child remains an Eligible Child until the
date such Eligible Child attains age 25 and that such Eligible Child
does not die before such date.
4. Conditions to the Obligations of Sonat. Sonat shall have no
obligation to provide or cause to be provided to Executive the rights and
benefits described in Section 3 hereof if either of the following events shall
occur:
(a) Termination for Cause. Sonat or its subsidiaries shall
terminate Executive's employment for "cause". For purposes of this
Agreement, termination of employment for "cause" shall mean termination
solely for dishonesty, conviction of a felony, or willful unauthorized
disclosure of confidential information of Sonat.
(b) Resignation as Director. Executive shall not, promptly
after Termination and upon receiving a written request to do so, resign
as a director and/or officer of each subsidiary and affiliate of Sonat
of which Executive is then serving as a director and/or officer.
5. Confidentiality; Non-Solicitation; Cooperation.
(a) Confidentiality. Executive agrees that at all times following
Termination, Executive will not, without the prior written consent of Sonat,
disclose to any person, firm or corporation any confidential information of
Sonat or its subsidiaries which is now known to Executive or which hereafter may
become known to Executive as a result of Executive's employment or association
with Sonat and which could be helpful to a competitor, unless such disclosure is
required under the terms of a valid and effective subpoena or order issued by a
court or governmental body; provided, however, that the foregoing shall not
apply to confidential information which becomes publicly disseminated by means
other than a breach of this Agreement.
(b) Non-Solicitation. Executive agrees that for a period of three years
following the date of Termination (or until Executive's Normal Retirement Date,
whichever is sooner) Executive will not induce, either directly or indirectly,
any employee of senior to manager level of Sonat or any of its subsidiaries to
terminate his or her employment.
(c) Cooperation. Executive agrees that, at all times following
Termination, Executive will furnish such information and render such assistance
and cooperation as may reasonably be requested in connection with any litigation
or legal proceedings concerning Sonat or any of its subsidiaries (other than any
legal proceedings concerning Executive's employment). In connection with such
cooperation, Sonat will pay or reimburse Executive for reasonable expenses.
(d) Remedies for Breach. It is recognized that damages in the event of
breach of this Section 5 by Executive would be difficult, if not impossible, to
ascertain, and it is therefore agreed that Sonat, in addition to and without
limiting any other remedy or right it may have, shall have the right to an
injunction or other equitable relief in any court of competent jurisdiction,
enjoining any such breach, and Executive hereby waives any and all defenses
Executive may have on the ground of lack of jurisdiction or competence of the
court to grant such an injunction or other equitable relief. The existence of
this right shall not preclude Sonat from pursuing any other rights and remedies
at law or in equity which Sonat may have.
6. Certain Additional Payments by Sonat. (a) Anything in this Agreement
to the contrary notwithstanding and except as set forth below, in the event it
shall be determined that any payment or distribution by Sonat to or for the
benefit of Executive, or any benefit, arrangement regarding the exercise or
vesting of options, restricted stock, or other securities of Sonat, or other
plan, agreement or arrangement regarding a change of control of Sonat (whether
determined pursuant to the terms of this Agreement or otherwise, but determined
without regard to any additional payments required under this Section 6) (any
such payment, distribution, benefit, arrangement, plan, or agreement being
referred to as a "Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount such that after payment by Executive of all
federal, state, local, employment and payroll taxes (including any interest or
penalties imposed with respect to such taxes), including, without limitation,
any federal, state, local, employment and payroll taxes (and any interest and
penalties imposed with respect thereto) and Excise 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. Notwithstanding the foregoing provisions of this
Section 6(a), if it shall be determined that Executive is entitled to a Gross-Up
Payment, but that Executive, after taking into account the Payments and the
Gross-Up Payment, would not receive a net after-tax benefit of at least $50,000
(taking into account both federal, state, local, employment and payroll taxes
and any Excise Tax) as compared to the net after-tax proceeds to Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
(b) Subject to the provisions of Section 6(c), all determinations
required to be made under this Section 6, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
LLP or such other certified public accounting firm as may be designated by
Executive (the "Accounting Firm"), which shall provide detailed supporting
calculations both to Sonat 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 Sonat. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting a Change of
Control, Executive shall appoint another nationally recognized accounting firm
to make the determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by Sonat. Any Gross-Up Payment shall be
paid by Sonat to Executive within five days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm shall be binding
upon Sonat and Executive. As a result of the uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by Sonat should have been made ("Underpayment"), consistent with
the calculations required to be made hereunder. In the event that Sonat exhausts
its remedies pursuant to Section 6(c) and Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by Sonat to or for the benefit of Executive.
(c) Executive shall notify Sonat in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by Sonat
of a Gross-Up Payment. Such notification shall be given as soon as practicable
but no later than ten business days after Executive is informed in writing of
such claim and shall apprise Sonat of the nature of such claim and the date on
which such claim is requested to be paid. Executive shall not pay such claim
prior to the expiration of the 30-day period following the date on which it
gives such notice to Sonat (or such shorter period ending on the date that any
payment of taxes with respect to such claim is due). If Sonat notifies Executive
in writing prior to the expiration of such period that it desires to contest
such claim, Executive shall:
(i) give Sonat any information reasonably requested by Sonat
relating to such claim,
(ii) take such action in connection with contesting such claim
as Sonat shall reasonably request in writing from time to time,
including without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by Sonat,
(iii) cooperate with Sonat in good faith in order effectively
to contest such claim, and
(iv) permit Sonat to participate in any proceedings relating
to such claim;
provided, however, that Sonat shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Executive harmless, on an after-tax basis,
for any Excise Tax or federal, state, local, employment and payroll tax
(including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 6(c), Sonat shall control all proceedings
taken in connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at its sole option,
either direct Executive to pay the tax claimed and xxx for a refund or to
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 Sonat shall
determine; provided, however, that if Sonat directs Executive to pay such claim
and xxx for a refund, Sonat shall advance the amount of such payment to
Executive, on an interest-free basis, and shall indemnify and hold Executive
harmless on an after-tax basis, from any Excise Tax or federal, state, local,
employment or payroll tax (including interest or penalties with respect thereto)
imposed with respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of the statute
of limitations relating to payment of taxes for the taxable year of Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, Sonat's control of the contest
shall be limited to issues with respect to which a Gross-Up Payment would be
payable hereunder, and Executive shall be entitled to settle or contest, as the
case may be, any other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by Executive of an amount advanced by Sonat
pursuant to Section 6(c), Executive becomes entitled to receive any refund with
respect to such claim, Executive shall (subject to Sonat's complying with the
requirements of Section 6(c)) promptly pay to Sonat the amount of such refund
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by Executive of an amount advanced by Sonat
pursuant to Section 6(c), a determination is made that Executive shall not be
entitled to any refund with respect to such claim and Sonat 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 such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
7. Term of Agreement. This Agreement shall terminate on July 31, 1999;
provided, however, that this Agreement shall automatically renew for successive
one-year terms unless the Board of Directors notifies Executive in writing at
least 30 days prior to a July 31 expiration date that it does not desire to
renew the Agreement for an additional term. This Agreement shall also terminate
if and when the Executive Compensation Committee determines that Executive is no
longer a key executive for purposes of being a party to an executive severance
agreement with Sonat and so notifies Executive in writing. The preceding
provisions of this Section 7 to the contrary notwithstanding, this Agreement
shall not terminate (i) within three years after a Change of Control or (ii)
during any period of time when Sonat has reason to believe that any third person
has begun a tender or exchange offer, circulated a proxy to stockholders, or
taken other steps or formulated plans to effect a Change of Control, such period
of time to end when, in the opinion of the Executive Compensation Committee, the
third person has abandoned or terminated his efforts or plans to effect a Change
of Control.
8. Expenses. Sonat shall pay or reimburse Executive for all costs and
expenses, including, without limitation, court costs and attorneys' fees,
incurred by Executive as a result of any claim, action or proceeding (including,
without limitation, a claim, action or proceeding by Executive against Sonat)
arising out of, or challenging the validity or enforceability of, this Agreement
or any provision hereof. Sonat shall pay or reimburse such costs and expenses
promptly (and within 30 days) after Executive has submitted supporting
documentation.
9. Miscellaneous.
(a) Assignment. No right, benefit or interest hereunder shall be
subject to assignment, anticipation, alienation, sale, encumbrance, charge,
pledge, hypothecation or set-off in respect of any claim, debt or obligation, or
to execution, attachment, levy or similar process; provided, however, that
Executive may assign any right, benefit or interest hereunder if such assignment
is permitted under the terms of any plan or policy of insurance or annuity
contract governing such right, benefit or interest.
(b) Construction of Agreement. Nothing in this Agreement shall be
construed to amend any provision of any plan or policy of Sonat and its
subsidiaries. This Agreement is not, and nothing herein shall be deemed to
create, a commitment of continued employment of Executive by Sonat or any of its
subsidiaries.
(c) Amendment. This Agreement may not be amended, modified or cancelled
except by written agreement of the parties.
(d) Waiver. No provision of this Agreement may be waived except by a
writing signed by the party to be bound thereby.
Executive may at any time or from time to time waive any or
all of the rights and benefits provided for herein which have not been received
by Executive at the time of such waiver. In addition, prior to the last day of
the calendar year in which Executive's Termination occurs, Executive may waive
any or all rights and benefits provided for herein which have been received by
Executive; provided that prior to the end of such year Executive repays to Sonat
(or, if the benefit was received from an employee benefit plan trust, to such
trust) the amount of the benefit received together with interest thereon at the
minimum rate required to avoid imputed income. Any waiver of benefits pursuant
to this paragraph shall be irrevocable. If Executive waives a right or benefit
provided for herein and such waiver is determined by the Internal Revenue
Service not to be effective, Sonat shall indemnify Executive for any federal
income and excise taxes Executive incurs as a result of that determination, so
as to put Executive in the position Executive would have been in had the waiver
been given effect.
(e) 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.
(f) Successors. This Agreement shall be binding upon and inure to the
benefit of Executive and Executive's personal representative and heirs, and
Sonat and any successor organization or organizations which shall succeed to
substantially all of the business and property of Sonat, whether by means of
merger, consolidation, acquisition of substantially all of the assets of Sonat
or otherwise, including by operation of law.
(g) Taxes. Any payment or delivery required under this Agreement shall
be subject to all requirements of the law with regard to withholding of taxes,
filing, making of reports and the like, and Sonat shall use its best efforts to
satisfy promptly all such requirements.
(h) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware.
(i) Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the matters covered
hereby, and incorporates into one document any previous severance agreement
executed by the parties and all amendments thereto as of the date hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as July
23, 1998.
SONAT INC.
By:
Vice President - Human Resources and
Secretary
Xxxxxx X. Xxxxx, Xx.
