TERMINATION AGREEMENT
Exhibit 10.3
THIS TERMINATION AGREEMENT (this “Termination Agreement”) is entered into as of the
29th day of April, 2008, by and among The Meridian Resource Corporation, a Texas corporation (said
corporation, together with its successors and assigns permitted under this Termination Agreement,
hereinafter referred to as the “Company”), and Xxxxxx X. Xxxxxx ( the “Executive”).
W I T N E S S E T H:
WHEREAS, the Company and the Executive entered into that certain (i) Employment Agreement
dated as of the 18th day of August, 1993 (the “Employment Agreement”), (ii)
Agreement wherein the Company granted the Executive certain net profits interests in Company
properties dated the 27th day of June, 1995 (the “NPI Agreement”), and (iii)
Restricted Stock Grant and Executive Deferred Compensation Agreement dated as of the
31st day of July 1996 (the “DC Agreement”) (the Employment Agreement, NPI
Agreement and DC Agreement may collectively be referred to herein as the “Agreements”);
WHEREAS, the Board of Directors of the Company has requested that the Executive terminate the
Agreements and enter into a new short-term employment agreement;
WHEREAS, the Executive is willing to terminate the Agreements provided that certain terms in
the Agreements relating to such termination are fully taken into account in conjunction with this
Termination Agreement;
WHEREAS, the Company and the Executive have agreed to terminate the Agreements on the terms
set forth herein;
WHEREAS, the parties hereto desire to enter into this Termination Agreement to evidence the
foregoing in accordance with the terms and conditions set forth in this Termination Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, the
receipt and sufficiency of which are hereby acknowledged and confessed, the parties hereto hereby
agree as follows:
| I. | Termination. |
A. The Company and the Executive hereby agree to terminate the Employment Agreement and
the NPI Agreement (except to the extent that it is modified in Para. I.B. below) rights
thereunder effective as of the 29th day of April, 2008.
B. In conjunction with such termination, the Company and the Executive acknowledge and
agree that the Executive is vested in his Net Profits Interests under the NPI Agreement
which have been assigned to the Executive or to which the Executive is entitled to an
assignment as a result of events occurring before April 28, 2008. Such Net Profits
Interests will remain unaffected by this Termination Agreement. More
particularly, and by way of illustration only, the Executive’s Net Profits Interest
rights with respect to any well spudded prior to April 28, 2008 are vested and are not
affected by this Agreement. The Company and the Executive further agree that,
notwithstanding the provisions of Paragraph C of Article IV, of the NPI Agreement or any
other provision of the NPI Agreement to the contrary, with respect to any well spudded after
April 28, 2008, within the geographical boundaries of any Property (or on lands pooled
therewith) subject to the NPI Agreement prior to April 28, 2008, the Net Profits
Interest with respect to such well shall be calculated by including in the computation of
“Chargeable Expenditures” with respect to such well the capital expenditures described in
clause (ii) of said Paragraph C of Article IV of the NPI Agreement. The Company and the
Executive further agree that after April 28, 2008 no new Net Profits Interests will be
assigned to the Executive under or pursuant to the NPI Agreement outside of the geographical
boundaries of any Property (or on lands pooled therewith) which was subject to a Net Profits
Interest grant prior to April 28, 2008.
C. The Company and the Executive hereby agree to freeze the DC Agreement effective as
of the date hereof so that the Executive shall accrue no additional benefits under the DC
Plan with respect to periods after the date hereof, provided, however, that the Executive’s
deferral election for the 2008 calendar year shall remain in effect. The Company and the
Executive agree to enter into a termination agreement pursuant to which the the DC Agreement
shall be terminated effective as of the 29th day of April, 2008, and to each execute and
deliver any other document or certificate necessary to evidence such termination.. The
portion of the Executive’s account under the DC Agreement that is not subject to section
409A of the Internal Revenue Code of 1986, as amended (the “Code”) and the rules and
regulations promulgated thereunder by the Department of Treasury and the Internal Revenue
Service (“Section 409A”) shall be distributed to the Executive immediately in
accordance with the existing termination provisions of Section 9.3 of the DC Agreement. The
remaining portion of the Executive’s account under the DC Agreement shall be distributed to
the Executive on the date of his Separation From Service if he is not a Specified Employee
on the date of his Separation From Service or on the date that is six months following the
date of his Separation From Service if he is a Specified Employee on the date of his
Separation From Service. For purposes of this Agreement, the terms “Separation From
Service” and “Specified Employee” shall have the meanings ascribed to those
terms in Section 409A. The Company and the Executive agree that the Executive shall have a
fully vested interest in his account under the DC Agreement and that the freezing and
termination of the DC Agreement shall not adversely impact the Executive’s rights with
respect to such benefits. The Company and the Executive agree that the Company may satisfy
its federal income tax withholding obligation and its Federal Insurance Contributions Act
withholding obligation with respect to the Executive’s benefit under the DC Agreement by
withholding therefrom shares of the Company’s Common Stock in an amount sufficient to
satisfy such withholding obligations.
D. The Company and the Executive hereby agree to continue the employment of the
Executive under a new employment agreement to be executed concurrently with this Termination
Agreement in the form attached hereto as Exhibit A (the “New Employment Agreement”).
E. Both parties agree to mutually cooperate to ensure compliance with this Termination
Agreement and fulfillment of the terms, conditions and obligations contained herein.
Without limiting the generality of the foregoing, the parties agree to execute and deliver
all such further documents, agreements and instruments and take such other and further
action as may be necessary or appropriate to carry out the purposes and intent of this
Termination Agreement. For example, to the extent any additional documents are necessary to
confirm the conveyance of any Net Profits Interest previously conveyed or to be conveyed
under the NPI Agreement, the Company will expeditiously deliver, execute, record or assign
any such documents, agreements and interests at the expense of the Company. In addition, to
the extent any corporate or board of directors action is necessary or appropriate to confirm
any issuance of shares of Company stock under the DC Agreement, the Company agrees to take
all such action. The Company further agrees to take such action which is reasonably
appropriate to bring the DC Agreement into documentary compliance with Section 409A.
F. The Executive agrees to vote in favor of an amendment to the Bylaws of the Company
to effect a separation of the roles of the Company’s Chairman of the Board and Chief
Executive Officer..
G. The Executive agrees that his right to participate (either directly or through an
affiliated entity) with the Company in new oil and gas projects by acquiring a portion of
the Company’s working interest therein, including, without limitation, all rights under the
letter agreement dated July 1, 1994, by and between the Executive and the Company, shall
terminate on December 29, 2008. Such termination shall not affect in any way any such
working interests acquired before such date. This section does not apply to any NPI
interest, or benefit plan, or the DC Agreement to the extent that any such rights are
addressed herein.
H. Executive represents and warrants to the Company that following the execution of
this Termination Agreement and the New Employment Agreement, except for the New Employment
Agreement, the Consulting Agreement referred to therein, and the
Employment Agreement, there are no other agreements
relating to the compensation of the Executive, either written or oral.
| II. | Payments and Benefits. |
A. As part of this Termination Agreement, the Company shall pay or cause to be paid to
or on the behalf of the Executive the following amounts:
1. the Executive’s current annual Base Salary (as defined in the
Employment Agreement) for the remainder of the Employment Period (as defined
in the Employment Agreement); and
2. an amount equal to the last Annual Bonus paid to the Executive, (the
“Recent Bonus”) as defined in the Employment Agreement); and
3. the product of two (2) times the sum of the current annual Base
Salary plus the Recent Bonus; and
4. a lump sum retirement benefit equal to the difference between (i)
the actuarial equivalent to the benefit under any Retirement Plan (as
defined in the Employment Agreement) the Executive would receive if he
remained employed by the Company at the current annual Base Salary plus the
Recent Bonus for the remainder of the Employment Period and (ii) actuarial
equivalent of his benefit, if any, under any Retirement Plan.
On the date of his Separation From Service if he is not a Specified
Employee on the date of his Separation From Service or on the date that is
six months following his Separation From Service if he is a Specified
Employee on the date of his Separation From Service the Company shall pay or
cause to be paid to the Executive, in a single sum in cash, the aggregate of
the amounts specified in clauses 1, 2, 3 and 4 of this Section IIA.
It is hereby agreed by the Company and the Executive that the sum of
the amounts set forth in this section is UNITED STATES DOLLARS
$4,953,374.00.
B. In the event it shall be determined that any payment, benefit or distribution
provided to the Executive hereunder or otherwise would constitute “parachute payments”
within the meaning of Section 280G of the Code and would be subject to the excise tax
imposed by Section 4999 of the Code, together with any interest or penalties imposed with
respect to such excise tax (“Excise Tax”), then the Executive shall be entitled to
receive an additional payment (a “Gross-Up Payment”) in an amount such that, after
payment (whether through withholding at the source or otherwise) by the Executive of all
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), employment taxes and Excise Tax imposed upon the Gross-Up Payment, the Executive
retains an amount of the Gross-Up Payment equal to the Excise Tax imposed on such payment
(or such amount is paid on the Executive’s behalf with respect to such Excise Tax). Any
Gross-Up Payment that the Company is required to make to reimburse the Executive for
federal, state and local taxes imposed upon the Executive, including the amount of
additional taxes imposed upon the Executive due to the Company’s payment of the initial
taxes on such amounts, shall be made by the Company by the end of the Executive’s taxable
year next following the Executive’s taxable year in which the Executive remits the related
taxes to the taxing authority.
C. The Company shall promptly reimburse the Executive for costs and expenses of legal
counsel and consultants related to the negotiation of the termination of the Agreements.
However, such amount shall be limited to a collective amount of an additional $100,000 for
expenses incurred by both Xxxxxx X. Xxxxxx and Xxxxxxx X. Xxxxxx beyond the amount
previously approved by the Board of Directors for that
purpose. Such payments under this Section II.D shall be made within ten (10) business
days after the delivery of the Executive’s written request for the payment accompanied by
such evidence of fees and expenses incurred as the Company may reasonably require. In any
event the Company shall pay the Executive such legal fees, consultants’ fees and expenses by
the last day of the Executive’s taxable year following the taxable year in which the
Executive incurred such legal fees, consultants’ fees and expenses. The legal fees,
consultants’ fees or expenses that are subject to reimbursement pursuant to this Section
II.D shall not be limited as a result of when the fees or expenses are incurred. The amount
of legal fees, consultants’ fees or expenses that is eligible for reimbursement pursuant to
this Section II.D during a given taxable year of the Executive shall not affect the amount
of expenses eligible for reimbursement in any other taxable year of the Executive. The
right to reimbursement pursuant to this Section II.D is not subject to liquidation or
exchange for another benefit.
D. On the date of his Separation From Service if he is not a Specified Employee on the
date of his Separation From Service or on the date that is six months following the date of
his Separation From Service if he is a Specified Employee on the date of his Separation From
Service, the Company shall transfer ownership to the Executive of all furnishings and
artwork in the Executive’s office.
E. All shares accrued to the Executive under the DC Agreement shall be delivered to the
Executive pursuant to the terms of such agreement as adjusted to reflect any changes
described in paragraph I.H.
| III. | Miscellaneous. |
A. This Termination Agreement shall be governed by and construed in accordance with the
laws of the State of Texas. Further, the Executive agrees that any legal proceeding to
enforce the provisions of this Termination Agreement shall be brought in Houston, Xxxxxx
County, Texas, and hereby waives his right to any pleas regarding subject matter or personal
jurisdiction and venue. The captions of this Termination Agreement are not part of the
provisions hereof and shall have no force or effect. This Termination Agreement may not be
amended or modified otherwise than by a written agreement executed by the parties hereto or
their respective successors and legal representatives.
B. Every notice, approval, request, demand, or statement required or permitted to be
given under this Termination Agreement shall be in writing and shall be deemed sufficiently
given when deposited in the mail, registered or certified, postage prepaid, and addressed to
the party hereto to which given as follows:
| If to the Executive: | ||||||||
| If to the Company: | The Meridian Resource Corporation | |||||||
| 0000 Xxxxxxx Xxxxxxx, Xxxxx 000 | ||||||||
| Xxxxxxx, Xxxxx 00000 | ||||||||
| Attn: | ||||||||
or to such other address as either party shall have furnished to the other in writing in
accordance herewith. Written notice given by any other method shall be deemed effective
when actually received by the party.
C. Every provision of this Termination Agreement is intended to be severable such that
the invalidity or unenforceability of any provision of this Termination Agreement shall not
affect the validity or enforceability of any other provision of this Termination Agreement.
D. The Company may withhold from any amounts payable under this Termination Agreement
such Federal, state or local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
E. In the event that the Executive makes a demand upon the Company for any benefits or
amounts due hereunder and the Company rejects such demand, and the Executive ultimately
prevails in litigation resulting therefrom, the Company shall reimburse the Executive for
reasonable attorney fees incurred by the Executive in enforcing rights to which the
Executive shall have become entitled pursuant to this Termination Agreement. Such payments
to the Executive under this Section III.E shall be made within ten (10) business days after
the delivery of the Executive’s written request for the payment accompanied by such evidence
of fees incurred as the Company may reasonably require. In any event the Company shall pay
the Executive such legal fees by the last day of the Executive’s taxable year following the
taxable year in which the Executive incurred such legal fees. The legal fees that are
subject to reimbursement pursuant to this Section III.E shall not be limited as a result of
when the fees or expenses are incurred. The amount of legal fees that is eligible for
reimbursement pursuant to this Section III.E during a given taxable year of the Executive
shall not affect the amount of expenses eligible for reimbursement in any other taxable year
of the Executive. The right to reimbursement pursuant to this Section III.E is not subject
to liquidation or exchange for another benefit.
F. As soon as reasonably practicable, the Company shall create an irrevocable grantor
trust (the “Rabbi Trust”) which shall be subject to the claims of creditors of the Company.
As soon as reasonably practicable, the Company shall transfer to the Rabbi Trust cash
sufficient (on an undiscounted basis) to pay the estimated amount of the portion of the
Executive’s benefit under the DC Agreement that is subject to Section 409A and the amounts
specified in clauses 1, 2, 3 and 4 of Section II.A. Such amount shall be paid from the
Rabbi Trust on the dates specified in Sections I.C and II.A herein, provided that the
Company shall remain liable to pay any such amounts which for any reason are not paid from
the Rabbi Trust. The trustee of the Rabbi Trust shall be a bank or trust company selected
by the Company. Pursuant to the terms of the Trust Agreement, the trustee shall pay over
all funds and shares under the Rabbi Trust to the
Executive on the date that is six months following the date of separation, as required
by Section 409A.
G. Except as specifically contemplated by this Termination Agreement, this Termination
Agreement constitutes the entire agreement by the parties hereto relating to the subject
matter hereof and supersedes and replaces all prior and contemporaneous agreements,
arrangements or understandings, whether written or oral, between the Company and the
Executive.
H. No failure by a party hereto to insist upon strict performance of any term,
covenant, condition or agreements of this Termination Agreement, or to exercise any right or
remedy provided for in this Termination Agreement upon breach of any provisions, and no
acceptance of payment or performance during the continuation of such breach, shall
constitute a waiver of any term, covenant or condition herein or a waiver of any subsequent
breach or default in the performance of any term, covenant, condition or agreements herein.
I. This Termination Agreement may be executed in multiple counterparts, each of which
shall be deemed an original for all purposes, but all of which shall constitute one and the
same instrument.
J. Any capitalized term used but not otherwise defined herein shall have the meaning
given to such term in the Employment Agreement, the NPI Agreement, or in the DC Agreement,
as the case may be.
IN WITNESS WHEREOF, the undersigned have executed this Termination Agreement on the 29th day
of April, 2008, to be effective on the date first written above.
| THE MERIDIAN RESOURCE CORPORATION | ||||
| a Texas corporation | ||||
| By: | /s/ Xxxxx X. XxXxxx | |||
| Name: | Xxxxx X. XxXxxx | |||
| Title: | Senior Vice President | |||
| EXECUTIVE | ||||
| /s/ Xxxxxx X. Xxxxxx, Xx. | ||||
