EXHIBIT 10(iii)(a)
FORM OF
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is entered into on December 17,
1998 by and between TEXACO INC. ("Company"), its subsidiaries and affiliates
(The Company, its subsidiaries and affiliates shall be referred to herein as
"Texaco"), and ______________________________________ ("Employee").
WHEREAS, the Company believes that it is in the best interest of the
Company and its stockholders to encourage the continuous employment of key
management;
WHEREAS, the Company believes that in the event of a Change of Control
of the Company, as defined herein, ("Change of Control") its executives should
remain free of personal financial and employment uncertainty and continue to
assess each business proposition on its merits based on what is best for the
Company's stockholders.
WHEREAS, although a change of control in the Company is not
contemplated, the Company has determined that appropriate steps should be taken
to encourage continued dedication of its key management employees.
NOW, THEREFORE, for good and valuable consideration the Employee and
the Company agree as follows:
1. Term of Agreement. The term of this Agreement shall commence
on the date first set forth above and shall continue in effect
through December 31, 2001; provided however, on January 1, 2000
and each January 1 thereafter the term of this Agreement shall
automatically be extended for an additional one-year term, unless
the Company's Board of Directors ("Board") agree by an
affirmative vote not to extend the agreement; provided further,
that if there is a Change of Control prior to the expiration of
any original or extended term, this Agreement may not be
terminated and shall remain in full force and effect for 36
months beyond the month in which such Change in Control of the
Company occurred; provided further that the term of this
Agreement shall automatically expire upon the first day of the
month immediately following the Employee's 65th birthday.
2. Change of Control. A Change of Control is considered to have
occurred if:
(a) At any time during the period of two consecutive years, at
least a majority of the entire Board does not consist of
Incumbent Directors; (Incumbent Directors is defined as
individuals who were directors of the Company at the beginning
of this two-year period or who subsequently become directors
of the Company and whose election or nomination for election
by the Company's stockholders was approved by a vote of the
majority of the "Incumbent Directors.")
(b) At any time during any 12-month period the individuals who are
directors of the Company at the beginning of the 12-month
period cease to
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constitute at least a majority of the Board other than due
to death, disability or mandatory retirement; or
(c) Any individual, firm, corporation, partnership, or other
entity, other than the Company, employee benefit plan of the
Company, or any entity organized, appointed or established by
the Company, becomes a Beneficial Owner of securities of the
Company representing 25% or more of the combined voting power
of the then outstanding securities of the Company; or
(d) The shareholders of the Company, determined prior to a merger
or corporate combination, do not own 55% or more of the merged
or combined entity.
3. Eligibility. The Employee will be entitled to the benefits set
forth in this Agreement from the date of first contact by a
party, or a party's representative, with Texaco which results
in a Change of Control involving that party or its affiliate,
as may be disclosed in Form 14d-1 filed with the Securities
Exchange Commission and up to 36 months after a Change of
Control of the Company, either of the following occurs:
(a) The Employee's employment is terminated without Just Cause.
Termination for Just Cause means that the Employee's
employment with Texaco is terminated due to the Employee's
engaging in willful and continued misconduct, or to the
Employee's willful and continued failure to substantially
perform his or her duties with Texaco (other than due to
physical or mental disability, illness, etc.), if such failure
or misconduct is materially damaging or materially detrimental
to the business and operations of Texaco, provided that the
Employee shall have received written notice of such failure or
misconduct and shall have continued to engage in such failure
or misconduct after thirty (30) days following receipt of such
notice from the Board, which notice specifically identifies
the manner in which the Board believes that the Employee has
engaged in such failure or misconduct. For purposes of this
subsection, no act, or failure to act, on the employee's part
shall be deemed willful unless done, or omitted to be done, by
the Employee not in good faith and without reasonable belief
that the Employee's action or omission was in the best
interest of Texaco. Notwithstanding the foregoing, the
Employee shall not be deemed to have been terminated for Just
Cause under this Agreement unless and until there shall have
been delivered to the Employee a copy of a resolution duly
adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at
a meeting of the Board called and held for such purpose (after
reasonable notice to the Employee and an opportunity for the
Employee, together with his or her counsel, to be heard before
the Board), finding that in the good faith opinion of the
Board the Employee failed to substantially perform his or her
duties or of misconduct in accordance with the first sentence
of this subsection, and of continuing such failure to
substantially perform the
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Employee's duties or misconduct as aforesaid after notice
from the Board, and specifying the particulars thereof in
detail; or
(b) The Employee resigns for Good Reason. The Employee will be
deemed to resign for Good Reason if he or she resigns within
60 days after:
(i) a reduction in the Employee's Base Pay (as defined in
Section 4);
(ii) a reduction in the Employee's cash bonus in excess of
20% of the prior year's award (unless the reduction
is due to Texaco's performance under the objective
measurements of the Company's Incentive Bonus Plan
effective immediately before the Change of Control or
under the objective measurements of an incentive
compensation program with target bonuses and
performance goals comparable to and not materially
less favorable to the Employee than the targets and
goals described in the Company's Incentive Bonus Plan
in existence prior to the Change in Control);
(iii) the assignment of any duties inconsistent with the
position in Texaco that the Employee held immediately
prior to the Change of Control or a significant
adverse alteration in the nature or status of the
Employee's responsibilities or condition of
employment from those in effect immediately prior to
such Change of Control;
(iv) the failure of Texaco to continue in effect any
material compensation or benefit plan in which the
Employee participated immediately prior to the Change
of Control, unless an equitable arrangement (embodied
in an ongoing substitute or alternate plan) has been
made with respect to such plan, or the failure by
Texaco to continue the Employee's participation
therein (or in such substitute or alternative plan)
on a basis not materially less favorable, both in
terms of the amount of benefits provided and the
level of the Employee's participation relative to
other participants, as that which existed at the time
of the Change of Control, unless any such change is
independently justified based on peer group
practices; or
(v) being required to relocate to a work location which
is 50 or more miles from the Employee's former work
location, without the Employee's consent.
4. Severance Benefits. If there is a Change of Control and the
Employee is terminated, within the period described in Section
3 above, without Just Cause or resigns for Good Reason, the
Employee shall receive a cash payment, except as otherwise
provided herein, equal to the following:
(a) Thirty-six months' Base Pay, which shall mean the monthly base
salary in effect immediately before the Change of Control or,
if greater, the base
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salary during the year immediately before the Employee's
termination without Just Cause or resignation for Good
Reason; plus
(b) three times the highest cash bonus earned by the Employee in
any of the five years preceding the Employee's termination
date (If the Employee has not yet earned a Company bonus prior
to the Change of Control, then the Employee's target bonus
shall be used in this regard); plus
(c) three times the annual value of benefits earned or accrued by
the Employee as a result of the Employee's participation in
the following plans immediately preceding the Change of
Control or immediately preceding the Employee's resignation,
whichever is greater:
(1) In lieu of additional service credit under the
Retirement and Supplemental Plans, a cash payment
equal to 10% of the amounts determined under 4(a) and
4(b) above; plus
(2) In lieu of additional contributions to the Thrift
and Supplemental Plans, a cash payment equal to 6%
of the amounts determined under 4(a) above; plus
(3) If Employee is not eligible to receive a full Company
contribution under (d) below, a cash payment equal to
the annual Company contribution that is not payable
by the Company under (d) to the Texaco Comprehensive
Medical Plan (or alternate sponsored medical plan or
HMO) for the Employee's elected coverage option.
(d) Retiree medical coverage under the Company-sponsored medical
plan pursuant to the terms and conditions of such plan
immediately prior to the Change of Control as you have
attained age 45 and have at least 10 years of service. The
full Company portion of the premium will be paid by the
Company, if the Employee has 20 or more years of service. The
Company contribution will be pro-rated downward by 5% per year
between 10 and 20 years at termination of employment. In order
to qualify for retiree coverage, the Employee must have been
covered under a Company-sponsored medical plan immediately
prior to the Change of Control or immediately prior to
termination of employment. If Employee is not eligible for
retiree medical, she can participate in the Company-sponsored
medical plan at her own expense for three years from the date
of termination (inclusive of COBRA coverage); and
(e) As Employee has reached age 45 and has at least 10 years of
service, Employee will receive retiree life insurance coverage
under the Company-sponsored life insurance plan pursuant to
the terms and conditions of such plan immediately prior to the
Change of Control. The full amount of insurance will be paid
by the Company if the Employee has 20 or more years of
service. Coverage will be reduced 5% per year for employees
who have between 10 and 20 years of service upon termination
of
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employment. In order to qualify for retiree life insurance
the Employee must have participated in contributory life
insurance coverage immediately prior to the date of the
Change of Control or immediately prior to termination of
employment.
(f) Outplacement services with a nationally recognized
outplacement firm, with a cost not to exceed $15,000, plus
(g) Continued participation under the terms and practices of the
Company's Tax Assistance Plan for the year of termination or
resignation and three calendar years immediately following.
Notwithstanding the above, if the Employee is within 36 months of
attaining age 65 at the time of termination of employment or
resignation, the benefits described in (a) through (c) above shall
be reduced by multiplying such benefit amounts by a fraction the
numerator of which shall be the number of full and partial months
from the date the Employee terminates employment to the last day
of the month he or she turns age 65, and the denominator of which
shall be 36 months.
5. Release. Employee will not be asked to sign a release in order to
receive the benefits provided under this Agreement.
6. Payment of Benefits. The Severance Benefits provided for under
Section 4(a), (b) and (c) of this Agreement, less applicable tax
withholding, shall be paid by the Company to the Employee in a
lump sum within 10 business days after termination or resignation.
7. Gross-up. This section will apply in the event that the Employee,
or any of his beneficiaries or designees, receives payments under
this Agreement or under any other plan, agreement, program, or
policy that is sponsored by the Company, which are determined (as
described below) to be subject to excise tax under Internal
Revenue Code (IRC) section 4999 ("excess parachute payments").
(a) If it is determined that the Employee would be subject to the
excise tax noted above on such excess parachute payments, the
Company shall pay to the Employee within 10 days following
such determination or date of payment, if later, an additional
amount ("Gross-up Payment") which may be necessary to
reimburse the Employee on an after-tax basis (including
income, FICA and excise taxes) for any excise tax that may be
imposed by the Internal Revenue Service or a court. Such
determination of the existence of excess parachute payments
must be made either pursuant to a written determination by the
public accounting firm designated by the Company to provide
tax assistance service under the Tax Assistance Plan prior to
the Change of Control or such other party as may be
specifically designated by the Company prior to the Change of
Control, pursuant to a closing agreement made under IRC
Section 7121 that is approved by the IRS and involves the
Employee, or pursuant to a decision involving the
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Employee by a court of competent jurisdiction. In
calculating the amount of the Gross-up Payment, it shall be
assumed that the Employee pays state and local income taxes
at the highest marginal rate of taxation imposed by the
state and locality in which the Employee resides or is
employed (or both) in the calendar year in which the
Gross-up Payment is to be made and pays FICA taxes on wages
earned. It also shall be assumed that the Employee's income
tax rate will be computed based upon the maximum effective
marginal federal, state, and local income tax rates
(including FICA taxes) on earned income, with such maximum
effective federal rate to be computed with regard to IRC
section 68, and applying any available deduction of state
and local income taxes for federal income tax purposes. All
such calculations shall be made by the public accounting
firm or party specified in this Section in an equitable
manner.
(b) Notwithstanding any other provision in this Agreement to the
contrary, if it is determined by the Company's independent
auditors, elected by the shareholders prior to the Change of
Control, that the tax gross-up provisions in this section as
they relate to the accelerated vesting of nonqualified stock
options or restricted stock issued by the Company would be the
sole reason precluding the use by the Company of the pooling
of interests method of accounting, then the tax gross-up
provisions of this section shall not apply to such
nonqualified stock options or restricted stock as the case may
be, unless the gross-up payment as described herein can be
altered, modified or delayed to allow it to be paid without
precluding the use of the pooling of interest method of
accounting. The Company will make best efforts to alter,
modify, or delay the payment so that the gross-up can be made.
8. Benefits under this Agreement and Similar Plans. Severance
Benefits under this Agreement are made in lieu of and shall
replace any benefit entitlements under the Separation Pay Plan of
Texaco Inc. but are not intended to replace benefits provided
under any other plan or arrangement.
9. Grantor Trust. Severance Benefits under this Agreement shall be
secured by the Grantor Trust established by the Company.
10. Successors. This Agreement will be binding upon both the
Company's and Employee's successors and assigns. The Company
shall require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or
substantially all of the business assets of the Company to
expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. Failure of
the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be deemed to be a
material breach of this Agreement and shall entitle the Employee
to compensation from the Company in the same amount and on the
same terms as the Employee would be entitled to hereunder if he
or she terminates employment following a Change of Control. For
purposes of implementing the foregoing, the date on which any
such succession becomes
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effective shall be deemed the Date of Termination. As used in
this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
11. Enforceability. This Agreement shall inure to the benefit of and
be enforceable by the Employee's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die
while any amount is still payable hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to the Employee's devisee,
legatees or other designee or, if there is no such designee, to
his or her estate.
12. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing
and shall be deemed to have been duly given when delivered or
mailed by United States registered or certified mail, return
receipt requested postage prepaid, addressed to the Company or the
Employee, as the case may be. All notices to the Company shall be
directed to the Assistant Secretary of the Company with
responsibility for executive compensation at:
Texaco Inc.
0000 Xxxxxxxxxxx Xxxxxx
Xxxxx Xxxxxx, Xxx Xxxx 00000
Attn.: Executive Compensation Department
Notices to the Employee shall be directed to the Employee at:
Notices of address changes must be furnished to the other party in
writing in accordance herewith and shall be effective only upon
receipt by the other party.
13. Interpretation. Any issues with respect to the interpretation of
this Agreement upon the occurrence of a Change of Control,
including but not limited to the issue of eligibility, will be
determined by majority vote of the Change of Control Committee.
The Change of Control Committee is a committee composed of all
individuals who held the offices of Chief Executive Officer, Chief
Financial Officer and the Assistant Secretary of the Company with
responsibility for executive compensation at any time during the
12-month period immediately before the Change of Control. The
decisions reached by the Change of Control Committee with respect
to all issues and questions relative to this Agreement will be
final, conclusive and binding on all persons.
14. Miscellaneous. No provision of this Agreement may be modified,
waived, cancelled or discharged in any way unless such waiver,
modification,
cancellation or discharge is agreed to in writing and signed by
the Employee and a duly authorized officer of the Company.
15. Indemnification. The Company shall pay any and all reasonable fees
and expenses incurred by the Employee in seeking to obtain or
enforce any rights or benefits provided by this Agreement,
including, all reasonable attorney's fees and expenses,
accountant's fees and expenses, and court costs that may be
incurred by the Employee in pursuing a claim for payment of
benefits under this Agreement, unless a Court of competent
jurisdiction determines that the participant's cause of action is
frivolous.
16. Severability. If any provision of this Agreement is adjudged by a
court of competent jurisdiction to be void or unenforceable, the
same shall in no way affect any other provision of this Agreement
or the validity or enforceability of this Agreement.
17. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of
which together will constitute one and the same instrument.
18. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized officer, and the Employee has signed this
Agreement, all as of the day and year first above written.
TEXACO INC.
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Xxxxx X. Xxxxx
Chairman of the Board and Chief Executive Officer
-------------------------------------------------
Employee
Attest:
Xxxxxxx Xxxxxxxxxx
Assistant Secretary
