EXHIBIT 10.38
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated October 1, 2002 by and between
Premcor Inc. (the "Company") and Xxxxxxx X. Xxxxx (the "Executive").
1. Term of Employment. Subject to the provisions of Section 8, Executive
shall be employed by the Company for a period commencing on October 1, 2002
("Start Date") and ending on October 1, 2004 (the "Employment Term") on the
terms and subject to the conditions set forth in this Agreement. However,
commencing on October 1, 2004 and on each October 1 thereafter (each an
"Extension Date"), the Employment Term shall be automatically extended for an
additional one-year period, unless the Company or Executive provides the other
party hereto not less than 60 days prior written notice before the next
Extension Date that the Employment Term shall not be so extended.
2. Position.
a. During the Employment Term, Executive shall serve as Senior Vice
President, Secretary and General Counsel directly reporting to the Chief
Executive Officer of the Company. In such position, Executive shall have such
duties and authority as shall be determined from time to time by the Chief
Executive Officer and/or Board of Directors of the Company (the "Board").
b. During the Employment Term, Executive shall devote Executive's full
business time and best efforts to the performance of Executive's duties
hereunder and shall not engage in any other business, profession or occupation
for compensation or otherwise which would conflict or interfere with the
rendition of such services either directly or indirectly, without the prior
written consent of the Board; provided that nothing herein shall preclude
Executive (i) from continuing to serve on any board of directors or trustees of
any business corporation or any charitable organization and (ii) subject to the
prior written approval of the Board, which approval shall not be unreasonably
withheld, from accepting appointment to any board of directors or trustees of
any business corporation or any charitable organization; provided in each case,
and in the aggregate, that such activities do not materially conflict or
interfere with the performance of Executive's duties.
3. Base Salary. During the Employment Term, the Company shall pay Executive
a base salary at the annual rate of $200,000, payable in regular installments in
accordance with the Company's usual payment practices. Executive shall be
entitled to such increases in Executive's base salary, if any, as may be
determined from time to time in the sole discretion of the Board. Executive's
annual rate of base salary, as in effect from time to time, is hereinafter
referred to as the "Base Salary."
4. Annual Bonus. With respect to each fiscal year of the Company ending
during the Employment Term, Executive shall be eligible to earn an annual bonus
award (an "Annual Bonus") if net earnings per share to common shareholders of
the Company, calculated on a fully diluted basis and according to GAAP, as
determined by the Company's outside auditors, excluding the after-tax impact of
any extraordinary or special items that the Board determines in good faith are
not appropriately includable in the Annual Bonus calculation because such items
do not accurately reflect the operating performance of the Company, such as
inventory write ups and write downs, LIFO adjustments, asset purchase or
sale-related gains or losses and acquisition-related write downs ("Adjusted
EPS"), is at least equal to $2.50. Upon achievement of an Adjusted EPS of $2.50,
the Annual Bonus shall equal fifty percent (50%) of his Base Salary (the "Base
Bonus"). For each $0.01 increase in the applicable fiscal year's Adjusted EPS
above $2.50, the Annual Bonus shall be increased by an amount equal to one
percent of Executive's Base Salary, provided that in no event shall the Annual
Bonus be greater than three times Executive's Base
Salary. The Annual Bonus shall be paid to Executive within fifteen business days
after the outside auditors approve the Company's year-end earnings release.
5. Equity Arrangements. During the month of January in each of the years
2003, 2004, and 2005 Executive shall receive a grant of options to purchase not
less than 25,000 shares of Company common stock at an exercise price per share
equal to Fair Market Value (as defined in the Plan) on the date of grant (the
"Annual Options"). Subject to Executive's continued employment with the Company,
such Annual Options will vest in equal installments on each of the first three
anniversaries of the date of grant, and will become fully vested upon the
occurrence of a Change in Control of the Company as defined in the Company's
2002 Equity Incentive Plan (the "Plan"). Other terms and conditions of the
Annual Options shall be as set forth herein, in the Plan and an option agreement
between the Company and Executive. If the Company should, prior to any Annual
Option grant, be involved in any merger, reorganization, stock split or spinoff
or other similar event, the number of shares subject to the Annual Options yet
to be granted, as provided above, shall be adjusted on a pro rata basis.
6. Employee Benefits. During the Employment Term, Executive shall be
entitled to participate in the Company's employee benefit plans (which term does
not include bonus or incentive compensation plans), other than any non-qualified
pension plan or any severance pay plan, as in effect from time to time
(collectively "Employee Benefits"), on the same basis as those benefits are
generally made available to other senior executives of the Company. Executive
shall also be a participant in the Premcor Senior Executive Retirement Plan as
approved by the Board of Directors of the Company on April 2, 2002.
7. Business Expenses. All reasonable business expenses incurred by
Executive in the performance of Executive's duties duringthe Employment Term
shall be reimbursed by the Company following presentation by Executive of proof
of such expenses, as and when reasonably required by the Company.
8. Termination. The Employment Term and Executive's employment hereunder
may be terminated by either party at any time and for any reason.
Notwithstanding any other provision of this Agreement (other than Section
12(h)), the provisions of this Section 8 shall exclusively govern Executive's
rights upon termination of employment with the Company and its affiliates. Upon
termination of Executive's employment for any reason, Executive agrees to
resign, as of the date of such termination, from the Board (and any committees
thereof) and the board of directors of any of the Company's affiliates.
a. Termination By the Company For Cause or Resignation by Executive
Without Good Reason.
(i) If Executive's employment is terminated by the Company for
Cause (as defined below), or if Executive resigns without Good Reason (as
defined in Section 8(c)(ii)), Executive shall be entitled to receive:
(A) the Base Salary through the date of termination;
(B) any Annual Bonus earned but unpaid as of the date of
termination for any previously completed fiscal year (including, if
applicable, 2002);
(C) such Employee Benefits, if any, as to which Executive may
be entitled under the employee benefit plans of the Company ; and
(D) any vested benefits as provided pursuant to the Premcor
Senior Executive Retirement Plan, accrued in respect to any prior
fiscal year.
2
(ii) For purposes of this Agreement, "Cause" shall mean (A)
Executive's continued failure substantially to perform Executive's duties
hereunder (other than as a result of total or partial incapacity due to physical
or mental illness) for a period of 20 days following written notice by the
Company to Executive of such failure, (B) Executive's conviction of, or plea of
nolo contendere to a crime constituting (x) a felony under the laws of the
United States or any state thereof or (y) a misdemeanor involving moral
turpitude, (C) Executive's willful malfeasance or willful misconduct in
connection with Executive's duties hereunder or any act or omission which is
injurious to the financial condition or business reputation of the Company or
any of its subsidiaries or affiliates, other than an act or omission that was
committed or omitted by Executive in the good faith belief that it was in the
best interest of the Company or (D) Executive's breach of the provisions of
Section 9 of this Agreement.
b. Disability or Death.
(i) The Employment Term and Executive's employment hereunder shall
terminate upon Executive's death and may be terminated by the Company if
Executive becomes physically or mentally incapacitated and is therefore unable
for a period of six (6) consecutive months or for an aggregate of nine (9)
months in any twenty-four (24) consecutive month period to perform Executive's
duties (such incapacity is hereinafter referred to as "Disability"). Any
question as to the existence of the Disability of Executive as to which
Executive and the Company cannot agree shall be determined in writing by a
qualified independent physician mutually acceptable to Executive and the
Company. If Executive and the Company cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians shall
select a third who shall make such determination in writing. The determination
of Disability made in writing to the Company and Executive shall be final and
conclusive for all purposes of the Agreement.
(ii) Upon termination of Executive's employment hereunder for
either Disability or death, Executive or Executive's estate (as the case may be)
shall be entitled to receive:
(A) the Base Salary through the date of termination;
(B) any Annual Bonus earned but unpaid as of the date of
termination for any previously completed fiscal year;
(C) such Employee Benefits, if any, as to which Executive may
be entitled under the employee benefit plans of the Company;
(D) a pro rata portion of any Annual Bonus, if any, that
Executive would have been entitled to receive based upon the percentage
of the fiscal year that shall have elapsed through the date of
Executive's termination of employment, payable when such Annual Bonus
would have otherwise been payable had Executive's employment not
terminated; and
(E) any vested benefits as provided in the Premcor Senior
Executive Retirement Plan, accrued to the date of termination of
employment.
c. By the Company Without Cause or Resignation by Executive for Good
Reason.
(i) If Executive's employment is terminated by the Company without
Cause (as defined in Section 8(a)(ii)) or if Executive resigns for Good Reason
(as defined below), Executive shall be entitled to receive:
(A) the Base Salary through the date of termination;
3
(B) any Annual Bonus earned but unpaid as of the date of
termination for any previously completed fiscal year;
(C) such Employee Benefits, if any, as to which Executive may
be entitled under the employee benefit plans of the Company;
(D) subject to Executive's continued compliance with the
provisions of Section 9, Executive shall receive a lump sum
payment, within 60 days of the date of termination of Executive's
employment, equal to three times the sum of Executive's Base Salary
and Base Bonus; and
(E) the benefits as provided in the Premcor Senior Executive
Retirement Plan, whether or not previously vested.
(ii) For purposes of this Agreement, "Good Reason" shall mean,
without Executive's consent, (A) the failure of the Company to pay or cause to
be paid Executive's Base Salary or Annual Bonus, when due hereunder, (B) any
substantial and sustained diminution in Executive's title, authority or
responsibilities from those described in Section 2 hereof or (C) relocation of
Executive's principal place of business by more than 30 miles; provided that the
events described in clauses (A), (B) and (C) of this Section 8(c)(ii) shall
constitute Good Reason only if the Company fails to cure such event within 20
days after receipt from Executive of written notice of the event which
constitutes Good Reason; provided, further, that "Good Reason" shall cease to
exist for an event on the 90th day following the later of its occurrence or
Executive's knowledge thereof, unless Executive has given the Company written
notice thereof prior to such date.
d. Expiration of Employment Term.
(i) Company's Election Not to Extend the Employment Term. In the
event the Company provides Executive notice of non-extension of the Employment
Term pursuant to Section 1, Executive shall be entitled to receive:
(A) the Base Salary through the date of termination;
(B) any Annual Bonus earned but unpaid as of the date of
termination for any previously completed fiscal year;
(C) such Employee Benefits, if any, as to which Executive may
be entitled under the employee benefit plans of the Company;
(D) subject to Executive's continued compliance with the
provisions of Section 9, Executive shall receive a lump sum payment,
within 60 days of the date of termination of Executive's employment,
equal to three times the sum of Executive's Base Salary and Base Bonus;
and
(E) the benefits as provided in the Premcor Senior Executive
Retirement Plan, whether or not previously vested.
(ii) Executive's Election Not to Extend the Employment Term. In the
event Executive provides the Company notice of non-extension of the Employment
Term pursuant to Section 1, Executive shall be entitled to receive:
(A) the Base Salary through the date of termination;
4
(B) any Annual Bonus earned but unpaid as of the date of
termination for any previously completed fiscal year; and
(C) such Employee Benefits, if any, as to which Executive may
be entitled under the employee benefit plans of the Company.
e. Regardless of the reason for Executive's termination, except as set
forth in this Agreement, in the Plan, and any applicable option agreement,
Executive shall have no further rights to any compensation or any other
benefits.
f. Notice of Termination. Any purported termination of employment by
the Company or by Executive (other than due to Executive's death) shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 12(g) hereof. For purposes of this Agreement, a "Notice
of Termination" shall mean a notice which shall indicate the specific
termination provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of employment under the provision so indicated.
9. Confidentiality. Executive agrees to hold all Company information
confidential ("Confidential Information") and shall not at any time disclose,
retain, or use such Confidential Information for Executive's own benefit or the
benefit of any other person, without the written authorization of the Board;
provided that the foregoing shall not apply to the extent that information is
required to be disclosed by law. Executive agrees that upon termination of
Executive's employment with the Company for any reason, he shall return to the
Company immediately all Confidential Information and all copies thereof or
therefrom, in any way relating to the business of the Company.
10. Specific Performance. Executive acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 9 would be inadequate and the Company would suffer
irreparable damages as a result of such breach or threatened breach. In
recognition of this fact, Executive agrees that, in the event of such a breach
or threatened breach, in addition to any remedies at law, the Company, without
posting any bond, shall be entitled to cease making any payments or providing
any benefit otherwise required by this Agreement and obtain equitable relief in
the form of specific performance, temporary restraining order, temporary or
permanent injunction or any other equitable remedy which may then be available.
11. Gross-Up Payment. If it shall be determined that any amount, right or
benefit paid, distributed or treated as paid or distributed by the Company or
any of its affiliates to or for Executive's benefit (other than any amounts
payable pursuant to this Section 11) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986 (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,
collectively, the "Excise Tax"), then Executive shall be entitled to receive an
additional payment (a "Gross-Up Payment") in an amount equal to the amount
necessary such that after payment by Executive of all federal, state and local
taxes (including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income 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. The procedures and conditions for reimbursement, in
the event Executive is entitled to a Gross-Up Payment, are attached hereto as
Exhibit A and incorporated herein by reference.
12. Miscellaneous.
5
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to conflicts of laws principles thereof. Any suit, action or proceeding related
to this Agreement, or any judgment entered by any court related to this
Agreement, may be brought only in any court of competent jurisdiction in the
State of New York, and the parties hereby submit to the exclusive jurisdiction
of such courts. The parties (and any affiliates of the Company or beneficiary or
permitted transferee of Executive) irrevocably waive any objections which they
may now or hereafter have to the laying of venue of any suit, action or
proceeding brought in any court of competent jurisdiction in the State of New
York, and hereby irrevocably waive any claim that any such action, suit or
proceeding has been brought in an inconvenient forum.
b. Entire Agreement; Amendments. This Agreement contains the entire
understanding of the parties with respect to the matters herein (including,
without limitation, Executive's compensation, benefits and severance). There are
no restrictions, agreements, promises, warranties, covenants or undertakings
between the parties with respect to the subject matter herein other than those
expressly set forth herein. This Agreement may not be altered, modified, or
amended except by written instrument signed by the parties hereto.
c. No Waiver. The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver of
such party's rights or deprive such party of the right thereafter to insist upon
strict adherence to that term or any other term of this Agreement.
d. Severability. In the event that any one or more of the provisions of
this Agreement shall be or become invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not be affected thereby.
e. Assignment. This Agreement shall not be assignable by Executive.
This Agreement may be assigned by the Company, with Executive's consent, such
consent not to be unreasonably withheld, to a person or entity that is a
successor in interest to substantially all of the business operations of the
Company. Upon such assignment, the rights and obligations of the Company
hereunder shall become the rights and obligations of such affiliate or successor
person or entity.
f. Successors; Binding Agreement. This Agreement shall inure to the
benefit of and be binding upon personal or legal representatives, executors,
administrators, successors, heirs, distributes, devises and legatees of the
Executive.
g. Notice. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered by hand or overnight courier or
five days after it has been mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective addresses set
forth below, or to such other address as either party may have furnished to the
other in writing in accordance herewith, except that notice of change of address
shall be effective only upon receipt.
If to the Company:
Premcor Inc.
0000 Xxxx Xxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxxxxxxx, Xxxxxxxxxxx 00000
Attention: Chief Executive Officer
6
If to Executive:
Xxxxxxx X. Xxxxx
00 Xxx Xxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
h. Release. As a condition of receipt of the benefits described in
Section 8, Executive will be required to enter into a full and complete release
of the Company from any and all claims which Executive may then have for
whatever reason or cause in connection with Executive's employment and the
termination thereof (including, without limitation, any rights under an
employment agreement which may then be in effect), other than those obligations
specifically set out in this Agreement, the Plan, indemnification provisions in
the Company's by-laws, the Indemnity Agreement between the Company and Executive
and obligations of the Company to the extent that the documents providing for
such obligations specifically provide that the obligations are in addition to
obligations under this Agreement.
i. Disputes. Any dispute with regard to the enforcement of this
Agreement or any matter relating to the employment of Executive by the Company
including but not limited to disputes relating to claims of employment
discrimination, alleged torts or any violation of law other than the seeking of
equitable relief in accordance with applicable law under Section 10 hereof,
shall be exclusively resolved by a single experienced arbitrator licensed to
practice law in New York, selected in accordance with the American Arbitration
Association rules and procedures, at an arbitration to be conducted in New York
City pursuant to the National Rules for the Resolution of Employment Disputes
rules of the American Arbitration Association ("AAA") with the arbitrator
applying the substantive law of the State of New York as provided for under
Section 12(a) hereof. The AAA shall provide the parties hereto with lists for
the selection of arbitrators composed entirely of arbitrators who are members of
the National Academy of Arbitrators and who have prior experience in the
arbitration of disputes between employers and senior executives. The
determination of the arbitrator shall be final and binding on the parties hereto
and judgment therein may be entered in any court of competent jurisdiction in
accordance with Section 12(a). Each party shall pay its own attorneys fees and
disbursements and other costs of the arbitration.
j. Executive Representation. Executive hereby represents to the Company
that the execution and delivery of this Agreement by Executive and the Company
and the performance by Executive of Executive's duties hereunder shall not
constitute a breach of, or otherwise contravene, the terms of any employment
agreement or other agreement or policy to which Executive is a party or
otherwise bound.
k. Cooperation. Executive shall provide his reasonable cooperation in
connection with any action or proceeding (or any appeal from any action or
proceeding) that relates to events occurring during Executive's employment
hereunder. The Company shall provide Executive with a reasonable stipend and
shall reimburse Executive for reasonable expenses incurred as a result of
Executive's cooperation with the Company. This provision shall survive any
termination of this Agreement.
l. Withholding Taxes. The Company may withhold from any amounts payable
under this Agreement such Federal, state and local taxes as may be required to
be withheld pursuant to any applicable law or regulation.
m. Counterparts. This Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
PREMCOR INC.
/s/ XXXXXX X. X'XXXXXX /s/ XXXXXXX X. XXXXX
--------------------------------------------- ----------------------------
By: XXXXXX X. X'XXXXXX XXXXXXX X. XXXXX
Title: Chairman and Chief Executive Officer
8
EXHIBIT A
(A) All determinations required to be made under Section 11 of the
Employment Agreement (the "Agreement"), including whether and when a Gross-Up
Payment is required, the amount of such Gross-Up Payment and the assumptions to
be utilized in arriving at such determination, shall be made by the Company's
independent auditors (the "Auditor"). The Auditor shall provide detailed
supporting calculations to both the Company and Executive within 15 business
days of the receipt of notice from Executive or the Company that there has been
a Payment, or such earlier time as is requested by the Company. All fees and
expenses of the Auditor shall be paid by the Company. Any Gross-Up Payment shall
be paid by the Company to Executive (or to the Internal Revenue Service or other
applicable taxing authority on Executive's behalf) within 5 days of the receipt
of the Auditor's determination. All determinations made by the Auditor shall be
binding upon the Company and Executive; provided that following any payment of a
Gross-Up Payment to Executive (or to the Internal Revenue Service or other
applicable taxing authority on Executive's behalf), the Company may require
Executive to xxx for a refund of all or any portion of the Excise Taxes paid on
Executive's behalf, in which event the provisions of Section (B) below shall
apply. As a result of uncertainty regarding the application of Section 4999 of
the Code hereunder, it is possible that the Internal Revenue Service may assert
that Excise Taxes are due that were not included in the Auditor's calculation of
the Gross-Up Payments (an "Underpayment"). In the event that the Company
exhausts its remedies pursuant to this Section and Executive thereafter is
required to make a payment of any Excise Tax, the Auditor shall determine the
amount of the Underpayment that has occurred and any additional Gross-Up
Payments that are due as a result thereof shall be promptly paid by the Company
to Executive (or to the Internal Revenue Service or other applicable taxing
authority on Executive's behalf).
(B) Executive shall notify the Company in writing of any claim that, if
successful, would require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but no later than 10
business days after Executive receives written notification of such claim and
shall apprise the Company 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 the Company) (or such shorter period ending on the date that any payment of
taxes with respect to such claim is due). If the Company notifies Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall: (i) give the Company all information reasonably
requested by the Company relating to such claim; (ii) take such action in
connection with contesting such claim as the Company 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
the Company and ceasing all efforts to contest such claim; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceeding relating to such claim;
provided, however, that the Company shall bear and pay directly all reasonable
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, from any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a result of such
representation and payment of costs and expense. The Company shall control all
proceedings taken in connection with such contest and, at its sole option, may
pursue or forego 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 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 the
Company shall determine and direct; provided, however that if the Company
directs the Executive to pay such claim and xxx for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free basis,
and shall indemnify and hold the Executive harmless, on an after-tax basis, from
any Excise Tax or income tax (including interest or penalties with
9
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
Executive's taxable year with respect to which such contested amount is claimed
to be due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the 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.
(C) If, after the Executive's receipt of an amount advanced by the
Company pursuant to Section 11 of the Agreement, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall promptly
pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the Executive's
receipt of an amount advanced by the Company pursuant to Section 11 of the
Agreement, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after the Company's receipt of notice of 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.
10
