SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT (this "Agreement"), dated as of February
25, 1998, is made and entered by and between RailTex, Inc., a Texas corporation
(the "Company"), and _______________ (the "Executive").
WITNESSETH:
WHEREAS, the Executive is a senior executive of the Company and
has made and is expected to continue to make major contributions to the short-
and long-term profitability, growth and financial strength of the Company;
WHEREAS, the Company recognizes that, as is the case for most
publicly held companies, the possibility of a Change in Control (as defined
below) exists;
WHEREAS, the Company desires to assure itself of both present and
future continuity of management and desires to establish certain minimum
severance benefits for certain of its senior executives, including the
Executive, applicable in the event of a Change in Control;
WHEREAS, the Company wishes to ensure that its senior executives
are not practically disabled from discharging their duties in respect of a
proposed or actual transaction involving a Change in Control; and
WHEREAS, the Company desires to provide additional inducement for
the Executive to continue to remain in the employ of the Company.
NOW, THEREFORE, the Company and the Executive agree as follows:
1. CERTAIN DEFINED TERMS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Base Pay" means the Executive's annual base salary rate as
in effect from time to time.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means that, prior to any termination pursuant to
Section 3(b) or Section 3(c), the Executive shall have committed:
(i) conviction of a criminal violation involving fraud,
embezzlement or theft in connection with his duties or in the course of
his employment with the Company or any Subsidiary;
(ii) intentional wrongful damage to property of the Company
or any Subsidiary; or
(iii) intentional wrongful disclosure of secret processes or
confidential information of the Company or any Subsidiary;
and any such act shall have been demonstrably and materially harmful to
the Company. For purposes of this Agreement, no act or failure to act on
the part of the Executive shall be deemed "intentional" if it was due
primarily to an error in judgment or negligence, but shall be deemed
"intentional" only if done or omitted to be done by the Executive not in
good faith and without reasonable belief that his action or omission was
in the best interest of the Company. Notwithstanding the foregoing, the
Executive shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of
not less than three quarters of the Board then in office at a meeting of
the Board called and held for such purpose, after reasonable notice to
the Executive and an opportunity for the Executive, together with the
Executive's counsel (if the Executive chooses to have counsel present at
such meeting), to be heard before the Board, finding that, in the good
faith opinion of the Board, the Executive had committed an act
constituting "Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the Executive
or his beneficiaries to contest the validity or propriety of any such
determination.
(d) "Change in Control" means the occurrence during the Term of
any of the following events:
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
(a "Person") of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of the combined
voting power of the then outstanding Voting Stock of the Company;
provided, however, that for purposes of this Section 1(d)(i), the
following acquisitions of Voting Stock of the Company shall not
constitute a Change in Control: (A) any issuance of Voting Stock of the
Company directly from the Company that is approved by the Incumbent
Board (as defined in Section 1(d)(ii), below), the consideration for
which consists principally of property other than cash, (B) any
acquisition by the Company of Voting Stock of the Company, (C) any
acquisition of Voting Stock of the Company by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any
Subsidiary, or (D) any acquisition of Voting Stock of the Company by any
Person pursuant to a Business Combination that complies with clauses
(A), (B) and (C) of Section 1(d)(iii) below; or
(ii) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a Director subsequent to the date hereof
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whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least two-thirds of the
Directors then comprising the Incumbent Board (either by a specific vote
or by approval of the proxy statement of the Company in which such
person is named as a nominee for director, without objection to such
nomination) shall be deemed to have been a member of the Incumbent
Board; or
(iii) consummation of a reorganization, merger or
consolidation, a sale or other disposition of all or substantially all
of the assets of the Company, or other transaction (each, a "Business
Combination"), unless, in each case, immediately following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners of Voting Stock of the Company
immediately prior to such Business Combination beneficially own,
directly or indirectly, more than two-thirds of the combined voting
power of the then outstanding shares of Voting Stock of the entity
resulting from such Business Combination (including, without limitation,
an entity which as a result of such transaction owns the Company or all
or substantially all of the Company's assets either directly or through
one or more subsidiaries), (B) no Person (other than the Company, such
entity resulting from such Business Combination, or any employee benefit
plan (or related trust) sponsored or maintained by the Company, any
Subsidiary or such entity resulting from such Business Combination)
beneficially owns, directly or indirectly, 20% or more of the combined
voting power of the then outstanding shares of Voting Stock of the
entity resulting from such Business Combination, and (C) at least a
majority of the members of the Board of Directors of the entity
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 providing for such Business Combination; or
(iv) approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company, except pursuant to a
Business Combination that complies with clauses (A), (B) and (C) of
Section 1(d)(iii).
(e) "Employee Benefits" means the perquisites, benefits and
service credit for benefits as provided under any and all employee
retirement income and welfare benefit policies, plans, programs or
arrangements in which Executive is entitled to participate, including
without limitation any stock option, performance share, performance
unit, stock purchase, stock appreciation, savings, pension, supplemental
executive retirement, or other retirement income or welfare benefit,
deferred compensation, incentive compensation, group or other life,
health, medical/hospital or other insurance (whether funded by actual
insurance or self-insured by the Company or a Subsidiary), disability,
salary continuation, expense reimbursement and other employee benefit
policies, plans, programs or arrangements that may now exist or any
equivalent successor policies, plans, programs or arrangements that may
be adopted hereafter by the Company or a Subsidiary, providing
perquisites, benefits and service credit for benefits at least as great
in the aggregate as are payable thereunder prior to a Change in Control.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
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(g) "Incentive Pay" means an annual bonus, incentive or other
payment of compensation, in addition to Base Pay, made or to be made in
regard to services rendered in any year or other period pursuant to any
bonus, incentive, profit-sharing, performance, discretionary pay or
similar agreement, policy, plan, program or arrangement (whether or not
funded) of the Company or a Subsidiary, or any successor thereto.
(h) "Severance Period" means the period of time commencing on the
date of the first occurrence of a Change in Control and continuing until
the earlier of (i) the second anniversary of the occurrence of the
Change in Control, or (ii) the Executive's death; PROVIDED, HOWEVER,
that commencing on each anniversary of the Change in Control, the
Severance Period will automatically be extended for an additional year
unless, not later than 90 calendar days prior to such anniversary date,
either the Company or the Executive shall have given written notice to
the other that the Severance Period is not to be so extended.
(i) "Subsidiary" means an entity in which the Company directly or
indirectly beneficially owns 50% or more of the outstanding Voting
Stock.
(j) "Term" means the period commencing as of the date hereof and
expiring as of the later of (i) the close of business on December 31,
2001, or (ii) the expiration of the Severance Period; PROVIDED, HOWEVER,
that (A) commencing on January 1, 2001 and each January 1 thereafter,
the term of this Agreement will automatically be extended for an
additional year unless, not later than September 30 of the immediately
preceding year, the Company or the Executive shall have given notice
that it or the Executive, as the case may be, does not wish to have the
Term extended and (B) subject to the last sentence of Section 9, if,
prior to a Change in Control, the Executive ceases for any reason to be
an executive officer of the Company and any Subsidiary, thereupon
without further action the Term shall be deemed to have expired and this
Agreement will immediately terminate and be of no further effect.
(k) "Termination Date" means the date on which the Executive's
employment is terminated (the effective date of which shall be the date
of termination, or such other date that may be specified by the
Executive if the termination is pursuant to Section 3(b) or Section
3(c)).
(l) "Voting Stock" means securities entitled to vote generally in
the election of directors.
2. OPERATION OF AGREEMENT. This Agreement will be effective and binding
immediately upon its execution, but, anything in this Agreement to the contrary
notwithstanding, this Agreement will not be operative unless and until a Change
in Control occurs. Upon the occurrence of a Change in Control at any time during
the Term, without further action, this Agreement shall become immediately
operative, including without limitation, the last sentence of
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Section 9 notwithstanding that the Term may have theretofore expired.
3. TERMINATION FOLLOWING A CHANGE IN CONTROL.
(a) In the event of the occurrence of a Change in Control, the
Executive's employment may be terminated by the Company or a Subsidiary
during the Severance Period and the Executive shall be entitled to the
benefits provided by Section 4 unless such termination is the result of
the occurrence of one or more of the following events:
(i) The Executive's death;
(ii) If the Executive becomes permanently disabled within the
meaning of, and begins actually to receive disability benefits pursuant
to, the long-term disability plan in effect for, or applicable to,
Executive immediately prior to the Change in Control; or
(iii) Cause.
If, during the Severance Period, the Executive's employment is terminated by the
Company or any Subsidiary other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), the Executive will be entitled to the benefits provided by Section 4
hereof.
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and any Subsidiary
during the Severance Period with the right to severance compensation as
provided in Section 4 upon the occurrence of one or more of the
following events (regardless of whether any other reason, other than
Cause as hereinabove provided, for such termination exists or has
occurred, including without limitation other employment):
(ii) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or RailTex Service Co.,
Inc. (or any successor entity by operation of law or otherwise), as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a Director of the Company
(or any successor thereto) if the Executive shall have been a Director
of the Company immediately prior to the Change in Control;
(iii) (A) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and any Subsidiary which the
Executive held immediately prior to the Change in Control, (B) a
reduction in the aggregate of the Executive's Base Pay and Incentive Pay
received from the Company and any Subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits or a reduction in
the scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice
from the Executive of such change, reduction or termination, as the case
may be;
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(iv) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have been
made in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the Executive
was responsible immediately prior to the Change in Control, which has
rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused
Executive to suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written notice
to the Company from the Executive of such determination;
(v) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all of
its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (by operation of law or otherwise) assumed
all duties and obligations of the Company under this Agreement pursuant
to Section 11(a);
(vi) The Company (A) relocates its principal executive
offices (if such offices are the principal location of Executive's
work), or (B) requires the Executive to have his principal location of
work changed, to any location that, in either case, is in excess of 50
miles from the location thereof immediately prior to the Change in
Control, or (C) requires the Executive to travel away from his office in
the course of discharging his responsibilities or duties hereunder at
least 20% more (in terms of aggregate days in any calendar year or in
any calendar quarter when annualized for purposes of comparison to any
prior year) than was required of Executive in any of the three full
years immediately prior to the Change in Control without, in either
case, his prior written consent, and, in the case of clause (C), which
is not remedied by the Company within 10 calendar days after receipt by
the Company of written notice of such increase; or
(vii) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto which is not remedied by the Company within 10
calendar days after receipt by the Company of written notice from the
Executive of such breach.
(c) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may
terminate employment with the Company and any Subsidiary for any reason,
or without reason, during the 30-day period immediately following the
first anniversary of the first occurrence of a Change in Control with
the right to severance compensation as provided in Section 4.
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(d) A termination by the Company pursuant to Section 3(a) or by
the Executive pursuant to Section 3(b) or Section 3(c) will not affect
any rights that the Executive may have pursuant to any agreement,
policy, plan, program or arrangement of the Company or Subsidiary
providing Employee Benefits, which rights shall be governed by the terms
thereof.
4. SEVERANCE COMPENSATION.
(a) If, following the occurrence of a Change in Control, the
Company or Subsidiary terminates the Executive's employment during the
Severance Period other than pursuant to Section 3(a)(i), 3(a)(ii) or
3(a)(iii), or if the Executive terminates his employment pursuant to
Section 3(b) or Section 3(c), the Company will pay to the Executive the
amounts described in Annex A within five business days after the
Termination Date and will continue to provide to the Executive the
benefits described on Annex A for the periods described therein.
(b) Without limiting the rights of the Executive at law or in
equity, if the Company fails to make any payment or provide any benefit
required to be made or provided hereunder on a timely basis, the Company
will pay interest on the amount or value thereof at an annualized rate
of interest equal to the so-called composite "prime rate" as quoted from
time to time during the relevant period in the Southwest Edition of THE
WALL STREET JOURNAL, plus 2%. Such interest will be payable as it
accrues on demand. Any change in such prime rate will be effective on
and as of the date of such change.
(c) Notwithstanding any provision of this Agreement to the
contrary, the parties' respective rights and obligations under this
Section 4 and under Sections 5, 7, 8 and the last sentence of Section 9
will survive any termination or expiration of this Agreement or the
termination of the Executive's employment following a Change in Control
for any reason whatsoever.
(d) Unless otherwise expressly provided by the applicable annual
bonus plan, after the occurrence of a Change in Control, the Company
shall pay in cash to the Executive a lump-sum amount equal to the value
of the Executive's annual bonus earned or accrued with respect to the
Executive's service during the annual performance period that includes
the date on which the Change in Control occurred, disregarding any
applicable vesting requirements; provided that such amount shall be
calculated at the plan target rate, but prorated to base payment only on
the portion of the Executive's service that had elapsed during the
applicable performance period. Such payment shall take into account
service rendered through the payment date and shall be made at the
earlier of (i) the date prescribed for payment pursuant to the
applicable plan, program or agreement, and (ii) within five business
days after the Termination Date.
5. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding,
but subject to Section 5(h), in the event that this Agreement shall
become operative and it shall be
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determined (as hereafter provided) that any payment (other than the Gross-Up
payments provided for in this Section 5) or distribution by the Company or any
of its affiliates to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise pursuant to or by reason of any other agreement, policy, plan,
program or arrangement, including without limitation any stock option,
performance share, performance unit, stock appreciation right or similar right,
or the lapse or termination of any restriction on or the vesting or
exercisability of any of the foregoing (a "Payment"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code") (or any successor provision thereto) by reason of being
considered "contingent on a change in ownership or control" of the Company,
within the meaning of Section 280G of the Code (or any successor provision
thereto) or to any similar tax imposed by state or local law, or any interest or
penalties with respect to such tax (such tax or taxes, together with any such
interest and penalties, being hereafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"); provided, however, that no
Gross-up Payment shall be made with respect to the Excise Tax, if any,
attributable to (i) any incentive stock option, as defined by Section 422 of the
Code ("ISO") granted prior to the execution of this Agreement, or (ii) any stock
appreciation or similar right, whether or not limited, granted in tandem with
any ISO described in clause (i). The Gross-Up Payment shall be in an amount such
that, after payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including any Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise
Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made
by a nationally recognized accounting firm (the "Accounting Firm")
selected by the Executive in his sole discretion. The Executive shall
direct the Accounting Firm to submit its determination and detailed
supporting calculations to both the Company and the Executive within 30
calendar days after the Termination Date, if applicable, and any such
other time or times as may be requested by the Company or the Executive.
If the Accounting Firm determines that any Excise Tax is payable by the
Executive, the Company shall pay the required Gross-Up Payment to the
Executive within five business days after receipt of such determination
and calculations with respect to any Payment to the Executive. If the
Accounting Firm determines that no Excise Tax is payable by the
Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state
or local income or other tax return. As a result of the uncertainty in
the application of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty regarding applicable
state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which
will not have been made by the
8
Company should have been made (an "Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts or fails to pursue its remedies pursuant to Section 5(f) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Executive shall direct the Accounting Firm to determine the amount of the
Underpayment that has occurred and to submit its determination and detailed
supporting calculations to both the Company and the Executive as promptly as
possible. Any such Underpayment shall be promptly paid by the Company to, or for
the benefit of, the Executive within five business days after receipt of such
determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents
in the possession of the Company or the Executive, as the case may be,
reasonably requested by the Accounting Firm, and otherwise cooperate
with the Accounting Firm in connection with the preparation and issuance
of the determinations and calculations contemplated by Section 5(b). Any
determination by the Accounting Firm as to the amount of the Gross-Up
Payment shall be binding upon the Company and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis
with the determination of the Accounting Firm with respect to the Excise
Tax payable by the Executive. The Executive shall make proper payment of
the amount of any Excise Payment, and at the request of the Company,
provide to the Company true and correct copies (with any amendments) of
his federal income tax return as filed with the Internal Revenue Service
and corresponding state and local tax returns, if relevant, as filed
with the applicable taxing authority, and such other documents
reasonably requested by the Company, evidencing such payment. If prior
to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
Firm determines that the amount of the Gross-Up Payment should be
reduced, the Executive shall within five business days pay to the
Company the amount of such reduction.
(e) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses
are initially paid by the Executive, the Company shall reimburse the
Executive the full amount of such fees and expenses within five business
days after receipt from the Executive of a statement therefor and
reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority
that, if successful, would require the payment by the Company of a
Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive
actually receives notice of such claim and the Executive shall further
apprise the Company of the nature of such claim and the date on which
such claim is requested to be paid (in each case, to the extent known by
the Executive). The Executive shall not pay such claim
9
prior to the earlier of (i) the expiration of the 30-calendar-day period
following the date on which he gives such notice to the Company and (ii)
the date that any payment of amount with respect to such claim is due.
If the Company notifies the Executive in writing prior to the expiration
of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably requested
by the Company;
(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 competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
PROVIDED, HOWEVER, that the Company shall bear and pay directly all
costs and expenses (including interest and penalties) incurred in
connection with such contest and shall indemnify and hold harmless the
Executive, on an after-tax basis, for and against 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
expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with
the contest of any claim contemplated by this Section 5(f) 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 (provided, however, that the Executive may
participate therein at his own cost and expense) and may, at its option,
either direct the Executive to pay the tax claimed and xxx for a refund
or contest the claim in any permissible manner, and the 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; PROVIDED, however,
that if the Company directs the Executive to pay the tax claimed 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
or other tax, including interest or penalties with respect thereto,
imposed with respect to such advance; and PROVIDED FURTHER, HOWEVER,
that any extension of the statute of limitations relating to payment of
taxes for the taxable year of the Executive with respect to which the
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of any such
contested claim 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
10
Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(f)) promptly pay
to the Company the amount of such refund (together with any interest
paid or credited thereon after any taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company
pursuant to Section 5(f), 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 or refund prior to the expiration of 30 calendar
days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of any such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this
Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated
to make a Gross-Up Payment to the Executive and (ii) the aggregate
"present value" of the "parachute payments" to be paid or provided to
the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," then the
payments and benefits to be paid or provided under this Agreement will
be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of any payment or benefit to the Executive, as
so reduced, constitutes an "excess parachute payment." For purposes of
this Section 5(h), the terms "excess parachute payment," "present
value," "parachute payment," and "base amount" will have the meanings
assigned to them by Section 280G of the Code. The determination of
whether any reduction in such payments or benefits to be provided under
this Agreement is required pursuant to the preceding sentence will be
made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to
payments or benefits may be reduced by reason of the limitations
contained in this Section 5(h) will not of itself limit or otherwise
affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be
provided under this Agreement or otherwise is required to be reduced
pursuant to this Section 5(h), the Executive will be entitled to
designate the payments and/or benefits to be so reduced in order to give
effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the
Executive to make such designation. In the event that the Executive
fails to make such designation within 10 business days of the
Termination Date, the Company may effect such reduction in any manner it
deems appropriate.
6. NO MITIGATION OBLIGATION. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby
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acknowledged by the Company to be reasonable, and the Executive will not be
required to mitigate the amount of any payment provided for in this Agreement by
seeking other employment or otherwise, nor will any profits, income, earnings or
other benefits from any source whatsoever create any mitigation, offset,
reduction or any other obligation on the part of the Executive hereunder or
otherwise, except as expressly provided in the last sentence of Paragraph 2 set
forth on Annex A.
7. LEGAL FEES AND EXPENSES. It is the intent of the Company that the
Executive not be required to incur legal fees and the related expenses
associated with the interpretation, enforcement or defense of Executive's rights
under this Agreement by litigation or otherwise because the cost and expense
thereof would substantially detract from the benefits intended to be extended to
the Executive hereunder. Accordingly, if it should appear to the Executive that
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes or
threatens to take any action to declare this Agreement void or unenforceable, or
institutes any litigation or other action or proceeding designed to deny, or to
recover from, the Executive the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or defense, including
without limitation the initiation or defense of any litigation or other legal
action, whether by or against the Company or any Director, officer, stockholder
or other person affiliated with the Company, in any jurisdiction.
Notwithstanding any existing or prior attorney-client relationship between the
Company and such counsel, the Company irrevocably consents to the Executive's
entering into an attorney-client relationship with such counsel, and in that
connection the Company and the Executive agree that a confidential relationship
shall exist between the Executive and such counsel. Without respect to whether
the Executive prevails, in whole or in part, in connection with any of the
foregoing, the Company will pay and be solely financially responsible for any
and all attorneys' and related fees and expenses incurred by the Executive in
connection with any of the foregoing; provided that, in regard to such matters,
the Executive has not acted in bad faith or with no colorable claim of success.
8. CONFIDENTIALITY; NONSOLICITATION.
(a) During the Term, the Company agrees that it will disclose to
Executive its confidential or proprietary information (as defined in
this Section 8(a)) to the extent necessary for Executive to carry out
his obligations to the Company. The Executive hereby covenants and
agrees that the Executive will not, without the prior written consent of
the Company, during the Term or thereafter disclose to any person not
employed by the Company, or use in connection with engaging in
competition with the Company, any confidential or proprietary
information of the Company. For purposes of this Agreement, the term
"confidential or proprietary information" will include all information
of any nature and in any form that is owned by the Company and that is
not publicly available (other than by Executive's breach of this Section
8(a)) or generally known to persons engaged in businesses similar or
related to those of the Company. Confidential or
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proprietary information will include, information concerning the
Company's business, affairs, customers, clients, sources of supply and
customer lists. For purposes of the preceding two sentences, the term
"Company" will also include any Subsidiary (collectively, the
"Restricted Group"). The foregoing obligations imposed by this Section
8(a) will not apply (i) during the Term, in the course of the business
of and for the benefit of the Company, (ii) if such confidential or
proprietary information will have become, through no fault of the
Executive, generally known to the public or (iii) if the Executive is
required by law to make disclosure (after giving the Company notice and
an opportunity to contest such requirement).
(b) The Executive hereby covenants and agrees that during the
Term and for one year thereafter Executive will not, without the prior
written consent of the Company, which consent will not unreasonably be
withheld, knowingly solicit any employee of the Restricted Group to
leave the employment of the Restricted Group.
9. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
will create any right or duty on the part of the Company or the Executive to
have the Executive remain in the employment of the Company or any Subsidiary
prior to or following any Change in Control. Any termination of employment of
the Executive or the removal of the Executive from the office or position in the
Company or any Subsidiary that occurs (i) (A) not more than one year prior to
the date on which a Change in Control, as defined in Section 1(d)(ii), 1(d)(iii)
or 1(d)(iv), occurs, or (B) not more than 90 days prior to the date on which a
Change in Control, as defined in Section 1(d)(i), but not otherwise in Section
1(d), occurs, and (ii) following the commencement of any discussion with a third
person that ultimately results in a Change in Control, shall be deemed to be a
termination or removal of the Executive after a Change in Control for purposes
of this Agreement.
10. WITHHOLDING OF TAXES. The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as the
Company is required to withhold pursuant to any applicable law, regulation or
ruling.
11. SUCCESSORS AND BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, reorganization or
otherwise) to all or substantially all of the business or assets of the
Company, by agreement in form and substance reasonably satisfactory to
the Executive, expressly to assume and agree to perform this Agreement
in the same manner and to the same extent the Company would be required
to perform if no such succession had taken place. This Agreement will be
binding upon and inure to the benefit of the Company and any successor
to the Company, including without limitation any persons acquiring
directly or indirectly all or substantially all of the business or
assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor shall thereafter be
deemed the "Company" for the purposes of this Agreement), but will not
otherwise be assignable, transferable or delegable by the Company.
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(b) This Agreement will inure to the benefit of and be
enforceable by the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees and legatees.
(c) This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer
or delegate this Agreement or any rights or obligations hereunder except
as expressly provided in Sections 11(a) and 11(b). Without limiting the
generality or effect of the foregoing, the Executive's right to receive
payments hereunder will not be assignable, transferable or delegable,
whether by pledge, creation of a security interest, or otherwise, other
than by a transfer by Executive's will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer
contrary to this Section 11(c), the Company shall have no liability to
pay any amount so attempted to be assigned, transferred or delegated.
12. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company) at its principal executive office and to the Executive at his principal
residence, or to such other address as any party may have furnished to the other
in writing and in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement will be governed by and construed in accordance
with the substantive laws of the State of Texas, without giving effect to the
principles of conflict of laws of such State.
14. VALIDITY. If any provision of this Agreement or the application of
any provision hereof to any person or circumstances is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other person or circumstances will not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal will be reformed to the extent (and only to the extent) necessary to
make it enforceable, valid or legal.
15. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
will be deemed a waiver of similar or dissimilar provisions or conditions at the
same or at any prior or subsequent time. No agreements or representations, oral
or otherwise, expressed or implied with respect to the subject matter hereof
have been made by
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either party which are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
RAILTEX, INC.
By: _______________________________
[Name and Title]
_______________________________
[Executive]
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ANNEX A
SEVERANCE COMPENSATION
(1) A lump-sum payment
in an amount equal to three times
the sum of (A) Base Pay (at the
highest rate in effect for any
period prior to the Termination
Date), plus (B) Incentive Pay (in an
amount equal to the target bonus
applicable immediately prior to the
Change in Control or, if greater,
the target bonus in effect prior to
the Termination Date).
(2) For a period of 36
months following the Termination
Date (the "Continuation Period"),
the Company will arrange to provide
the Executive with Employee Benefits
that are welfare benefits (but not
stock option, performance share,
performance unit, stock purchase,
stock appreciation or similar
compensatory benefits) substantially
similar to those that the Executive
was receiving or entitled to receive
immediately prior to the Termination
Date (or, if greater, immediately
prior to the reduction, termination,
or denial described in Section
3(b)(ii)), including, but not
limited to, health care, dental,
group life, and group long-term
disability benefits, and the term
life equivalent benefit for any
split-dollar insurance program. If
and to the extent that any benefit
described in this Paragraph 2 is not
or cannot be paid or provided under
any policy, plan, program or
arrangement of the Company or any
Subsidiary, as the case may be, then
the Company will itself pay or
provide for the payment to the
Executive, his dependents and
beneficiaries, of such Employee
Benefits. Notwithstanding the
foregoing, or any other provision of
the Agreement, for purposes of
determining the period of
continuation coverage to which the
Executive or any of his dependents
is entitled pursuant to Section
4980B of the Code (or any successor
provision thereto) under the
Company's medical, dental and other
group health plans, or successor
plans, the Executive's "qualifying
event" shall be the termination of
the Continuation Period and the
Executive shall be
A-1
considered to have remained actively
employed on a full-time basis
through that date. Employee Benefits
otherwise receivable by the
Executive pursuant to this Paragraph
2 will be reduced to the extent
comparable welfare benefits are
actually received by the Executive
from another employer during the
Continuation Period following the
Executive's Termination Date, and
any such benefits actually received
by the Executive shall be reported
by the Executive to the Company.
(3) If, prior to the
Change in Control, Executive has
been provided the use of a Company
car, then within five business days
after the Termination Date, the
Company will convey title to such
car to Executive without additional
consideration therefor.
