EXHIBIT 10.5
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; 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 January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the meaning provided in Rule 405 of Regulation C of the Securities Act of 1933,
as amended.
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 2
Notwithstanding the foregoing, however, in the event that the Executive's
employment is involuntarily terminated by the Company (other than due to death
or for Good Cause or Disability, as hereinafter defined) subsequent to such time
as the Company has entered into a letter of intent or a definitive agreement
which subsequently results in a Change of Control, then such termination (an
"Advance Termination") shall be deemed to be a termination which entitles the
Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to 2.99 multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Xxxxxxxx X. Xxxxxxxx, Xxxxxxx X. Xxxxx or Xxx X. Xxxxxxxx
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 6
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall reduce such payments
and benefits provided to the Executive under Section 4 of this Agreement to the
extent necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code; but only if, by reason of such reduction,
the net after-tax benefit to the Executive shall exceed the net after-tax
benefit if such reduction were not made. "Net after-tax benefit" for these
purposes shall mean the sum of (i) the total amount payable to the Executive
under Section 4 of this Agreement, plus (ii) all other payments and benefits
which the Executive receives or is then entitled to receive from the Company or
any affiliate that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to the Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
payment under Section 4), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code. The amount of any reduction made under this Section 8(a) in
the payment to which the Executive is entitled under Section 4 of this Agreement
is hereinafter referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly.
Change of Control Agreement
P. Xxxxxxx Xxxxxx
May 8, 1997
Page 7
In no event will the Executive be required to reimburse the Company for any of
the costs and expenses incurred by the Company relating to any judicial
proceeding or arbitration.
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly 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 succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /S/ XXX X. XXXXXXXX
Xxx X. Xxxxxxxx
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 9th day of May, 1997:
/S/ X. XXXXXXX XXXXXX
X. Xxxxxxx Xxxxxx (Executive)
