SEVERANCE AGREEMENT
Exhibit
10.5 - Xxxxxxx Xxxxxxxxx Agreement
This
Severance Agreement (the “Agreement”) is made and entered into as of this
29th
day of
June, 2005 (the “Effective Date”), by and between SEMCO Energy Inc., a Michigan
corporation (the “Company”), and Xxxxxxx X. Xxxxxxx (“Executive”).
WHEREAS,
Executive desires to be employed, or to continue to be employed, by the
Company;
WHEREAS,
among other things, the Company believes that, in the event a transaction is
proposed that would, if consummated, constitute a Change in Control (as defined
below), it is important to the Company that Executive be induced to remain
in
his position and focused on pursuing the best interests of the Company and
its
shareholders and not be distracted by personal uncertainties and risks created
by the prospect of such a Change in Control;
WHEREAS,
the Company desires to employ, or continue to employ, Executive, on the terms
and conditions set forth in this Agreement, which, except as provided herein,
is
intended to supersede all prior such agreements and understandings between
Executive and the Company;
NOW,
THEREFORE, in consideration of the compensation and other benefits of
Executive’s employment and, if applicable, Executive’s continued employment, by
the Company and the mutual covenants and agreements hereinafter set forth,
Executive and the Company agree as follows:
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1.
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Employment.
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1.1. Executive
is employed by the Company as of the Effective Date, and Executive hereby
accepts and, if applicable, continues such employment, upon the terms and
conditions hereinafter set forth. Executive shall be employed by the Company
in
the position set forth on Exhibit A and have such functions, authority, duties
and responsibilities as are customarily given to persons in such positions
at a
company with publicly-traded securities, including (without limitation) the
reporting relationships, functions, authority, duties, and responsibilities
set
forth on Exhibit A.
1.2. Executive
agrees that, throughout Executive’s employment with the Company, Executive will
(i) faithfully render such services as may be reasonably delegated to, or
required of, Executive by the Company, (ii) and devote Executive’s entire
business time, best efforts, ability, skill and attention, in good faith, to
the
Company’s business, and (iii) follow and act in accordance with the rules,
policies, and procedures of the Company. Executive shall serve on a full-time
basis; provided, however, that it shall not be a breach of this Agreement for
Executive to serve on corporate, industry trade group, civic or charitable
boards or committees or to engage in other activities, with the consent of
the
President and Chief Executive Officer and so long as such activities do not
materially interfere with the performance of Executive’s duties and
responsibilities to the Company.
2. Employment
“At Will”.
Executive and the Company agree that Executive’s employment with the Company is
“at will” and is not for any specified term. Accordingly, either Executive or
the Company may terminate the employment relationship, with or without reason
therefor, with the notice required by and otherwise in accordance with the
terms
of this Agreement.
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3.
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Compensation.
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3.1. Base
Salary.
The
Company shall pay Executive as compensation for Executive’s services an annual
base salary (as initially established and as it may change from time to time,
the “Base Salary”) set forth on Exhibit B, payable beginning on the Effective
Date in accordance with the Company’s usual payroll practices. The amount of
Executive’s Base Salary shall be reviewed annually by the Board of Directors,
which may increase, but not decrease, Executive’s Base Salary.
3.2. Bonus.
The
Company shall pay Executive an annual lump sum bonus in accordance with the
Company’s then-existing Short-Term Incentive Plan (the “STIP”), which shall
afford Executive a reasonable opportunity to earn annual lump sum payments
(i)
based on the percentage set forth in Exhibit C multiplied by his Base Salary
(as
initially established and as it may increase from time to time,
the
“Target Annual Bonus”), and (ii), depending on his performance and the financial
performance of the Company, such lesser or greater annual lump sum payments
as
may be awarded under the STIP.
3.3. Options;
Long-Term Incentive Plan Participation.
3.3.1. Executive
has been granted options to acquire the number of shares of the Company’s Common
Stock set forth on Exhibit D (the “Options”). The Options were granted
under the Company's Long-Term Incentive Plan (as it exists from time to time,
the “LTIP”) and vest as set forth on Exhibit D; provided, however, that,
notwithstanding that vesting schedule, Executive shall vest in the Options,
to
the extent not already vested, upon (a)
the
consummation of a transaction constituting a Change in Control, (b) the
Company’s termination of Executive’s employment without Cause, or (c) the
Executive’s termination of his employment with Good Reason.
3.3.2. In
addition, Executive shall participate in the LTIP and be considered for
additional awards thereunder at such times as such awards are made to other
senior executives of the Company. Any such LTIP awards shall be made on
substantially the same terms as awards made to such other senior executives.
Exhibit D sets forth Executive’s annual long-term incentive award target, which
is the
percentage set forth in Exhibit D multiplied by his Base Salary (as
initially established and as it may increase from time to time,
the
“Long-Term Incentive Award Target”). Annual long-term incentive
awards
to
satisfy the Long-Term Incentive Target may be made up of awards of options
to
purchase the Company’s Common Stock, restricted stock units, or other kinds of
long-term incentives authorized by the LTIP.
3.4. Restricted
Stock Units.
Executive has been granted the number of restricted stock units, representing
shares of the Company’s Common Stock, set forth on Exhibit E (the “Restricted
Stock Units”). Such Restricted Stock Units were granted under the LTIP, and the
restrictions with respect to the Restricted Stock Units shall lapse and
Executive shall be entitled to the shares of Common Stock represented by such
Restricted Stock Units as set forth on Schedule E; provided,
however, that, notwithstanding the schedule set forth on Exhibit E, all such
restrictions shall lapse and Executive shall be entitled to the shares of Common
Stock represented by such Restricted Stock Units, to the extent such
restrictions have not already lapsed and the shares vested, upon (a)
the
consummation of a transaction constituting a Change in Control, (b) the
Company’s termination of Executive’s employment without Cause, or (c) the
Executive’s termination of his employment with Good Reason. In no case shall
shares of the Company’s Common Stock represented by the Restricted Stock Units
be delivered to the Executive prior to the latest date set forth on Exhibit
E.
3.5. Retirement
Benefits.
Executive shall be eligible to participate in the Company’s Non-Union Retirement
Plan. In addition, Executive shall be eligible to receive additional retirement
benefits pursuant to the Company’s Supplemental Executive Retirement Plan, as
amended from time to time (the “SERP”), including the additional service and
retirement considerations set forth in Exhibit F.
3.6. Welfare
Benefits.
The
Company shall provide to Executive all benefits for which Executive may be
eligible under any welfare benefit plans, practices, policies, and programs
as
may be provided by the Company from time to time (including, without limitation,
medical, prescription, dental, disability, employee life, group life, accidental
death and travel accident insurance plans and programs) to the extent these
rights and benefits are generally made available to other employees of the
Company.
3.7. Expense
Reimbursement.
The
Company shall promptly reimburse Executive for reasonable expenses (including
entertainment expenses) incurred by Executive while attending to the business
of
the Company, in accordance with the Company’s then-existing business expense
reimbursement policies.
3.8. Other
Perquisites.
Executive shall be provided with the perquisites set forth on Exhibit
G.
3.9. Relocation
Expenses.
In
connection with Executive’s relocation to Michigan (if applicable), Executive
shall be reimbursed, on an after-tax equivalent basis, for relocation expenses
in accordance with the Company’s then-effective Relocation Policy. (For purposes
of the preceding sentence, “an after-tax equivalent basis” shall mean that
Executive will be reimbursed in amount which will provide him a reimbursement
amount which after the payment of all federal, state, and local income and
employment taxes would equal the amount he would have received if the
reimbursement were not subject to such taxation when made.)
3.10. Vacation.
Executive shall be entitled to 4 weeks of paid vacation in each calendar year.
Unused vacation shall carry over from year-to-year in accordance with the
Company’s then-effective vacation carryover policy.
3.11. Directors
and Officers Insurance and Indemnification.
Executive shall be covered under the Company’s then-existing directors and
officers insurance policy. Executive also shall be indemnified as provided
in
the Company’s then-existing bylaws and Articles of Incorporation.
3.12. Executive
hereby consents to the imposition of reasonable Company Common Stock ownership
guidelines established by the Board of Directors.
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4.
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Termination
of Employment.
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4.1. Executive’s
employment may be terminated by the Company as follows:
4.1.1. Termination
Due to Death.
Executive’s employment shall be terminated immediately upon the death of the
Executive.
4.1.2. Termination
Due to Disability.
If the
Company determines, in good faith, that the Disability (as defined below) of
Executive has occurred, it may give Executive written notice of its intention
to
terminate Executive’s employment. In such event, Executive’s employment shall
terminate effective on the 30th
day
after receipt of such notice by Executive (the “Disability Effective Date”), if
, within 30 days after such receipt, Executive shall not have returned to the
performance of his essential functions, with or without reasonable
accommodation. For purposes of this Agreement, “Disability” shall mean the
inability of Executive to perform a material portion of his duties for 180
consecutive days as a result of incapacity due to a mental or physical
condition, which is determined to be total and permanent by a physician selected
by the Company.
4.1.3. Termination
for Cause.
The
Company may terminate Executive’s employment at any time for Cause. For the
purposes of this Agreement, “Cause” shall mean:
4.1.3.1. Executive’s
continued failure or inability to perform any material duties reasonably
assigned to Executive (other than any such failure resulting from Executive’s
death or Disability) or Executive’s substantial performance deficiencies, after
(i) Executive is given a written demand by the Board of Directors identifying
the manner in which the Company believes (a) Executive has not performed such
duties or, as applicable, (b) the reasons for finding Executive’s performance to
be deficient, and (ii) Executive’s subsequent failure to (a) cure or (b)
otherwise address, to the reasonable satisfaction of the Board of Directors,
the
matters set forth in such written demand within 30 days (which, if a transaction
contituting a Change in Control has been consummated at the time such demand
is
made, shall be extended to 60 days); or
4.1.3.2. a
material breach of this Agreement by Executive; or
4.1.3.3. Executive’s
commission of fraud against the Company or his engaging in willful misconduct
which is materially injurious to the Company, monetarily or otherwise;
or
4.1.3.4. Executive’s
willful misconduct involving a third party or conviction of a felony or
submission of a guilty or nolo contendere plea by Executive with respect
thereto.
4.1.4. For
purposes of this definition, no act or omission on Executive’s part shall be
considered “willful” unless done or omitted to be done by Executive in bad
faith, recklessly, or in the absence of a reasonable belief that Executive’s act
or omission was in the best interests of the Company.
4.1.5. Termination
without Cause.
The
Company may terminate Executive’s employment for any reason not amounting to
Cause, upon not less than 60 days’ prior written notice to
Executive.
4.2. Executive’s
employment may be terminated by Executive as follows:
4.2.1. Termination
by Executive with Good Reason.
Executive’s employment may be terminated by Executive at any time with Good
Reason. For the purposes of this Agreement, “Good Reason” shall mean any of the
following actions taken without Executive’s consent, in writing:
4.2.1.1. the
assignment to Executive of any duties that are materially inconsistent with
Executive’s position (including status, office, titles and reporting
relationships), functions, authority, duties or responsibilities as contemplated
by this Agreement, or any other action by the Company which results in a
material diminution in Executive’s position, functions, authority, duties, or
responsibilities, excluding an isolated, insubstantial and inadvertent action
not taken in bad faith and which is remedied by the Company within 30 days
after
receipt of written notice thereof given by Executive; or
4.2.1.2. a
material breach of this Agreement by the Company; or
4.2.1.3. a
reduction in Executive’s Base Salary, Target Annual Bonus, or Long-Term
Incentive Award Target; or
4.2.1.4. after
a
transaction constituting a Change in Control has been consummated, the
relocation of the Company’s headquarters by more than 50 miles or the assignment
of Executive to a work location that is more than 50 miles from his work
location (as determined by his work location immediately preceding the
announcement of the transaction which, when consummated, constituted the Change
in Control referred to in this sentence); provided, however, that to the extent
reasonably required and substantially consistent with such travel immediately
prior to consummation of the transaction constituting a Change in Control,
travel by the Executive on Company business shall not be deemed a change in
his
work location; or
4.2.1.5. the
failure of any successor to the Company to adopt and agree to be bound by this
Agreement, in writing, and thereafter honor the Company’s obligations
hereunder.
4.2.2. Anything
in this Agreement to the contrary notwithstanding, if (i) a transaction
constituting a Change in Control is consummated, (ii) Executive’s employment
with the Company is terminated within one year prior to the date on which such
consummation occurred, and (iii) it is reasonably demonstrated by the Executive
that such termination of employment (a) was at the request of a third party
which had taken, or subsequently took, steps reasonably calculated to effect
a
Change in Control, or (b) otherwise arose in connection with or anticipation
of
a transaction which, if consummated, would constitute a Change in Control,
then,
for purposes of this Agreement and notwithstanding any other action taken by
the
Company or Executive (including execution of a general release of claims),
Executive’s termination shall be deemed to have occurred with Good Reason after
consummation of a transaction constituting a Change in Control.
4.2.3. Termination
by Executive without Good Reason.
Executive’s employment may be terminated by Executive, for any reason not
amounting to Good Reason, upon not less than 60 days’ prior written notice to
the Company.
4.3. Notice
of Termination.
Any
termination of Executive’s employment (other than by death) shall be
communicated to the other party by Notice of Termination given in accordance
with this section. For purposes of this Agreement, a “Notice of Termination”
means a written notice which (i) states the specific termination provision
in
this Agreement relied upon, (ii), to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of Executive’s employment under the provision so indicated, and
(iii) if the Date of Termination (as defined below) is other than the date
of
receipt of such notice, specifies the termination date.
4.4. Date
of Termination.
“Date
of Termination” means: (i) if Executive’s employment is terminated by reason of
death or Disability, the Date of Termination shall be the date of death of
Executive or the Disability Effective Date, as the case may be; (ii) if
Executive’s employment is terminated by the Company for Cause or by Executive
with Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be; (iii) if Executive’s employment is
terminated by the Company without Cause or is terminated by Executive without
Good Reason, the Date of Termination shall be the date specified in the notice,
which must be at least 60 days after the notice is given.
4.5. Obligations
upon Termination.
Upon
Executive’s termination, this Agreement shall terminate and all rights and
obligations of the parties hereunder shall cease, except (i) as otherwise
expressly provided herein, and (ii) for the following:
4.5.1. In
any
event, Executive shall be entitled to receive his Base Salary through the Date
of Termination to the extent not theretofore paid, any accrued vacation pay,
and
to the extent not theretofore paid or provided, any other amounts or benefits
(including, without limitation, vested benefits) required to be paid or provided
under any plan, program, policy or agreement (including, without limitation,
to
the extent it has been earned for the preceding year but not paid, Executive’s
annual lump sum bonus).
4.5.2. If
Executive’s employment is terminated by death or Disability, by the Company with
Cause, or by the Executive without Good Reason, no further payments shall be
due
and owing to Executive hereunder.
4.5.3. If
Executive’s employment is terminated by the Company without Cause or by the
Executive with Good Reason, then Executive shall thereafter receive (i) an
amount equal to 2 times
the sum
of (a) his Base Salary plus
(b) his
Target Annual Bonus, payable in accordance with the Company's usual payroll
practices, or (ii) in the event that a transaction constituting a Change in
Control has been consummated within the 24 months preceding such termination,
an
amount equal to 2.99 times
the
sum
of (a) his Base Salary plus
(b)
his
Target Annual Bonus, payable in a lump sum within 60 days following the Date
of
Termination, together with (y) the pro rata portion of the annual lump sum
bonus
earned by Executive for the year in which his employment is terminated,
calculated based on his Target Annual Bonus and without any other adjustment
for
Executive’s performance or otherwise, and (z) any Gross-Up Payment for Excise
Taxes described in Exhibit H.
4.5.4. If
Executive’s employment is terminated by the Company without Cause or by
Executive with Good Reason, then the Company shall thereafter continue medical
and other welfare benefits coverages for Executive and Executive’s family, which
shall be substantially the same as those which would have been provided to
them
under the plans, programs, practices and policies described in Section 3.6
as if
Executive’s employment had not been terminated, (i) for 2 years, or (ii) in the
event that a transaction constituting a Change in Control has been consummated
within the 24 months preceding such termination, for 3 years; provided, however,
that if Executive becomes re-employed with another employer and is eligible
to
receive substantially similar medical and other welfare benefits coverages
under
another employer’s plans, at substantially similar cost to Executive, then the
Company-provided medical and other welfare benefit coverages described herein
shall be deemed secondary to such other medical and other welfare benefit
coverages.
4.5.5. Executive
shall be entitled to continue, at his expense, medical or other welfare benefits
for Executive and Executive’s family, as provided under state or federal law,
after the medical and other welfare benefits coverages provided under Section
4.5.4 end.
4.5.6. If
Executive’s employment is terminated by the Company without Cause or by
Executive with Good Reason, the Company shall pay the actual cost of
outplacement services for Executive up to a total of $10,000.
4.5.7. As
a
condition of receiving any payments or benefits pursuant to Sections 4.5.3,
4.5.4, or 4.5.6, Executive shall execute a general release of claims (including,
without limitation, any claims arising under federal, state, or local law,
rules, regulations, or orders related to the termination of Executive’s
employment and this Agreement) substantially in the form attached hereto at
Exhibit I.
4.5.8. Executive
shall not be required to mitigate the amount of any payment or benefit provided
hereunder by seeking other employment or otherwise. Except as provided herein,
the amount of any such payment or benefits hereunder shall not be reduced by
any
compensation earned, payment made, or benefits received by Executive as a result
of obtaining such employment or engaging in any other other
activity.
4.5.9. The
termination of Executive’s employment pursuant to this Section 4 or otherwise
shall not terminate or otherwise affect the rights and obligations of the
parties pursuant to Sections 5 through 15.
4.6. For
purposes of this Section 4, the following definitions shall apply:
4.6.1. “Change
in Control” shall mean:
4.6.1.1. the
direct or indirect sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any Person or entity or group
of Persons or entities acting in concert as a partnership or other group (a
“Group of Persons”) (other than a Person described in clause (i) of the
definition of Affiliate);
4.6.1.2. the
consummation of any consolidation or merger of the Company with or into another
corporation with the effect that the stockholders of the Company immediately
prior to the date of the consolidation or merger hold less than 51% of the
combined voting power of the outstanding voting securities of the surviving
entity of such merger or the corporation resulting from such consolidation
ordinarily having the right to vote in the election of directors (apart from
rights accruing under special circumstances) immediately after such merger
or
consolidation;
4.6.1.3. the
stockholders of the Company shall approve any plan or proposal for the
liquidation or dissolution of the Company;
4.6.1.4. a
Person
or Group of Persons acting in concert as a partnership, limited partnership,
syndicate or other group shall, as a result of a tender or exchange offer,
open
market purchases, privately negotiated purchases or otherwise, have become
the
direct or indirect beneficial owner (within the meaning of Rule 13d-3 under
the
Securities Exchange Act of 1934, as amended (the “Exchange Act”)) (“Beneficial
Owner”) of securities of the Company representing 30% or more of the combined
voting power of the then outstanding securities of the Company ordinarily (and
apart from rights accruing under special circumstances) having the right to
vote
in the election of directors; or
4.6.1.5. a
Person
or Group of Persons, together with any Affiliates thereof, shall succeed in
having a sufficient number of its nominees elected to the Board of Directors
such that such nominees, when added to any existing director remaining on the
Board of Directors after such election who is an Affiliate of such Person or
Group of Persons, will constitute a majority of the Board of
Directors.
4.6.2. “Affiliate”
of any specified Person shall mean (i) any other Person which, directly or
indirectly, is in control of, is controlled by or is under common control with
such specified Person or (ii) any other Person who is a director or officer
(A)
of such specified Person, (B) of any subsidiary of such specified Person or
(C)
of any Person described in clause (i) above or (iii) any Person in which such
Person has, directly or indirectly, a five (5) percent or greater voting or
economic interest or the power to control. For the purposes of this definition,
“control” of a Person means the power, direct or indirect, to direct or cause
the direction of the management or policies of such Person whether through
the
ownership of voting securities, or by contract or otherwise; and the terms
“controlling” and “controlled” have meanings correlative to the
foregoing.
4.6.3. “Person”
shall mean any individual, corporation, partnership, joint venture, association,
joint-stock company, trust, unincorporated organization, government or any
agency or political subdivision thereof or any other entity within the meaning
of Section 13(d)(3) or 14(d)(2) of the Exchange Act.
4.6.4. “Voting
Power” shall mean the voting power of all securities of a Person then
outstanding generally entitled to vote for the election of directors of the
Person (or, where appropriate, for the election of persons performing similar
functions).
4.6.5. Nothwithstanding
the foregoing, the Board of Directors may determine, after a review of the
facts
and circumstances surrounding a particular transaction, in its sole discretion,
that consummation of the transaction shall constitute a Change in Control for
purposes of this Agreement.
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5.
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Confidential
Information.
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5.1. Both
during his employment and for a period of 2 years following termination of
his
employment, Executive shall exercise due care to protect from disclosure all
secret or confidential information, knowledge or data relating to the Company,
its businesses and strategic plans, possessed or known by or disclosed or made
available to Executive during his employment and which shall not be or have
become public knowledge (other than as a result of a breach of this
Agreement).
5.2. For
a
period of 2 years following termination of his employment, Executive shall
not,
without the prior written consent of the Company, communicate or divulge any
such secret or confidential information, knowledge or data to any other person,
except as required by law; provided that, in any such case, Executive shall
give
the Company prompt prior written notice of such legal requirement so that the
Company may seek, at its sole expense, a protective order or other appropriate
remedy to protect such information from disclosure or to limit such
disclosure.
6. Post-Termination
Restrictions.
Executive acknowledges that the Company (i) has spent substantial money, time
and effort to develop secret or confidential information, knowledge or data
relating to the Company, its businesses and strategic plans, possessed or known
by or disclosed or made available to Executive during his employment, and (ii)
is employing Executive with the understanding that, following the termination
of
his employment, Executive will not put himself in a position in which the
Company’s ability to execute its strategic plan might be compromised.
Accordingly, Executive agrees that during his employment at the Company and
for
2 years following the termination of his employment, irrespective of the reasons
for or circumstances surrounding that termination, Executive shall not, directly
or indirectly (whether as owner, partner, consultant, employee or otherwise),
unless the Company consents thereto in writing:
6.1. engage
in, assist or have an interest in, or enter the employment of or act as an
agent, advisor or consultant for, any person or entity which is engaged in
business in the States of Michigan and Alaska that is competitive with any
business in which the Company is engaged at the time of the Executive’s
termination, or which is, on that date, is engaged in a business that is
competitive with any business described in the Company’s strategic plan approved
by the Board of Directors (a “Competing Activity”); or
6.2. cause
or
attempt to cause any person or entity to divert, terminate, limit, modify or
fail to enter into any existing or potential business relationship with the
Company; or
6.3. induce
or
attempt to induce any employee, consultant or advisor of the Company to leave
his or her position with the Company, change his relationship with the Company,
or accept employment or an affiliation involving a Competing
Activity.
7. Acknowledgment
Regarding Restrictions.
Executive acknowledges that the restraints set forth in Sections 5 and 6 (both
separately and in total) are reasonable and enforceable in view of the Company’s
legitimate interests in protecting its secret or confidential information,
knowledge or data relating to the Company, its businesses and strategic plans,
those strategic plans themselves, and the Company’s goodwill
generally.
8. No
Waiver of Rights.
The
Company’s failure to enforce at any time any of the provisions of this Agreement
or to require at any time performance by Executive of any of the provisions
hereof shall in no way be construed to be a waiver of such provisions or to
affect either the validity of this Agreement, or any part hereof, or the right
of the Company thereafter to enforce each and every provision in accordance
with
its terms.
9. Executive’s
Duty to Provide Information on Request; Company’s Right to Injunctive Relief;
Tolling.
9.1. As
reasonably requested by the Company, for a period of 2 years after the
termination of his employment, Executive shall report in reasonable detail
to
the Company, orally or in writing, with respect to any matter reasonably related
to his compliance with his obligations under Sections 5 and 6 hereof, including
(without limitation) his (i) knowledge or actions with respect to the protection
from disclosure of secret or confidential information, knowledge or data
relating to the Company, its businesses and strategic plans, possessed or known
by or disclosed or made available to Executive during his employment, (ii)
interests, direct or indirect (whether as owner, partner, consultant, employee
or otherwise), in any Competing Activity, (iii) knowledge or actions with
respect to any person or entity involved in any existing or potential business
relationship with the Company, and (iv) knowledge or actions concerning any
employee, consultant or advisor of the Company and their relationship with
the
Company or any person engaged in any Competing Activity.
9.2. In
the
event of a breach or threatened breach of any of Executive’s obligations under
the terms of Sections 5 or 6 hereof, the Company shall be entitled, in addition
to any other legal or equitable remedies it may have in connection therewith
(including any right to damages that it may suffer), to temporary, preliminary
and permanent injunctive relief restraining such breach or threatened breach.
Executive acknowledges that the harm which might result to the Company as a
result of any noncompliance by Executive with any of the provisions of Sections
5 or 6 would be irreparable. Executive agrees that if there is a question as
to
the enforceability of any of the provisions of Sections 5 or 6 hereof, Executive
will not engage in any conduct inconsistent with or contrary to the obligations
set forth therein until after any such question has been resolved by a final
judgment of a court of competent jurisdiction, which, insofar as practicable
under the circumstances, shall be secured on an expedited basis. Executive
and
the Company agree that the running of the periods set forth in Section 6 hereof
shall be tolled during any period of time in which Executive violates the
obligations set forth therein.
10. Judicial
Enforcement.
If any
provision of this Agreement is adjudicated to be invalid or unenforceable under
the applicable law in any jurisdiction, the validity or enforceability of the
remaining provisions thereof shall be unaffected. To the extent that any
provision of this Agreement is adjudicated to be invalid or unenforceable
because it is overbroad, that provision shall not be void but rather shall
be
limited only to the extent required by applicable law and enforced as so
limited. Executive and the Company acknowledge that this provision is reasonable
in view of their respective interests.
11. Executive
Representations.
Executive represents that the execution and delivery of the Agreement and
Executive’s employment by the Company do not breach any previous employment
agreement or other contractual obligations of Executive with a third-party.
Executive further agrees to disclose, during the 2 years following the
termination of Executive’s employment with the Company, the substance of the
terms of Sections 5, 6, 7, and 9 of this Agreement to any potential future
employer, joint venturer, contractor, partner, or any other person who may
be
directly affected by such provisions.
12. Executive
Covenant.
Following his employment with the Company, to the extent the Company reasonably
so requests, Executive agrees to cooperate with the Company and its counsel
in
the contest or defense of, and to provide any testimony and access to his books
and records in connection with, any action, arbitration, audit, hearing,
investigation, litigation or suit involving or relating to any action, activity,
circumstance, condition, conduct, event, fact, failure to act, incident,
occurrence, plan, practice, situation, status or transaction involving the
Company while he was employed by the Company. The Company shall reimburse
Executive for all reasonable expenses incurred by Executive in connection with
providing such cooperation. For its part, the Company shall (i) make every
reasonable effort to arrange for such cooperation to be provided by Executive
at
mutually-convenient times and places and otherwise in a manner that does not
interfere unreasonably with Executive’s employment, search for employment, or
retirement, and (ii) compensate Executive reasonably for any professional
services rendered (except in a situation where Executive is providing testimony
in a court of law or administrative proceeding on behalf of the Company, in
which case Executive shall only receive legally mandated witness fees and
reimbursement of his reasonable expenses).
13. Amendments,
Entire Agreement.
No
modification, amendment, or waiver of any of the provisions of this Agreement
shall be effective unless such modification, amendment, or waiver is in writing
specifically referring hereto, and signed by the parties hereto. This Agreement
supersedes all prior agreements and understandings between Executive and the
Company, except previously-executed LTIP-related agreements between Executive
and the Company.
14. Assignments.
This
Agreement shall be freely assignable by the Company to, and shall inure to
the
benefit of and be binding upon, the Company, its successors, assigns and any
other entity which shall succeed to the business presently being conducted
by
the Company. As a contract for personal services, neither this Agreement nor
any
rights hereunder shall be assigned by Executive.
15. Choice
of Forum and Governing Law; Attorneys’ Fees.
15.1. Any
litigation involving this Agreement shall be filed and conducted in the state
or
federal courts in Michigan; and (ii) the Agreement shall be interpreted in
accordance with and governed by the laws of the State of Michigan, without
regard to any conflict of law principles thereof.
15.2. The
Company shall promptly pay all legal fees and expenses incurred by Executive
in
seeking to obtain any benefits or payments under, or otherwise enforce, this
Agreement, in connection with a Change in Control. Such payments shall be made
to Executive within 15 days after Executive’s submission of a written request
therefor; provided, however, that Executive shall provide supporting
documentation for the fees and expenses for which reimbursement is sought as
the
Company may reasonably require. In the event that a court of competent
jurisdiction shall determine that Executive has pursued such claims for benefits
or payments under, or enforcement of, this Agreement in bad faith, or advanced
frivolous claims in connection therewith, Executive shall promptly repay all
or
part of such attorneys’ fees and expenses, as such court shall determine are
directly attributable to such bad faith or frivolous claims.
16. Headings.
Section
headings are provided in this Agreement for convenience only and shall not
be
deemed to alter the content of such sections.
17. Execution
of Agreement.
This
Agreement may be executed in one or more counterparts, each of which will be
deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement. The exchange
of copies of this Agreement and of signature pages by facsimile transmission
shall constitute effective execution and delivery of this Agreement as to the
parties and may be used in lieu of the original Agreement for all purposes.
Signatures of the parties transmitted by facsimile shall be deemed to be their
original signatures for all purposes.
IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as
of the day and year first above written.
By:
/s/Xxxxxx
X. Xxxxxxxxx, Xx.
Name:
Xxxxxx X. Xxxxxxxxx, Xx.
Title:
President and Chief Executive Officer
EXECUTIVE
Xxxxxxx
X. Xxxxxxx
EXHIBIT
A
Executive’s
title shall be: Senior Vice President, Chief Financial Officer, and
Treasurer.
Executive
shall report to the Company’s President and Chief Executive
Officer.
Executive’s
functions, authority, duties, and responsibilities shall include (without
limitation): Overall responsibility for, and supervision of, all financial
matters involving or otherwise affecting the Company, including (without
limitation) advising the Board of Directors with respect to all such matters,
determining and implementing the Company’s financial strategies, preparing the
Company’s budgets and forecasts and reconciling them to actual results,
publishing the Company financial results, and controlling all expenditures
related thereto. The Company’s Chief Accounting Officer shall report to
Executive. Executive shall at all times be a member of the Company’s senior
executive group, for the purpose of providing the benefit of his business
experience to the Company.
EXHIBIT
B
Executive’s
annual Base Salary shall be $260,000.
EXHIBIT
C
Executive’s
Target Annual Bonus shall be 40% multiplied by his Base Salary.
EXHIBIT
D
Executive
has previously been granted the following Options, at $5.270/share: 40,000.
Except as otherwise provided herein, such Options shall vest as
follows:
33% July
19,
2005
33% July
19,
2006
34% July
19,
2007
Executive’s
Long-Term Incentive Award Target is 50% multiplied by his Base Salary. Except
as
otherwise provided herein, Executive shall vest in the Options only if he is
still employed on the dates set forth above.
EXHIBIT
E
Executive
has previously been granted the following Restricted Stock Units. Except as
otherwise provided herein, the restrictions on such Restricted Stock Units
shall
lapse and the Executive shall be entitled the shares of Common Stock represented
by the Restricted Stock Units as set forth below:
5,000 Number
of
Restricted Stock Units on which the restrictions shall lapse on July 19,
2005.
3,750 Number
of
Restricted Stock Units on which the restrictions shall lapse upon March 31,
2006, if Executive has met the performance targets applicable
thereto.
3,750 Number
of
Restricted Stock Units on which the restrictions shall lapse upon March 31,
2007, if Executive has met performance targets applicble thereto.
With
respect to Restricted Stock Units as to which all restrictions lapse on March
31, 2006, and March 31 2007, except as otherwise provided herein, Executive
shall be entitled to the shares of Common Stock represented by the Restricted
Stock Units only if he is still employed on such dates.
EXHIBIT
F
Executive
shall be granted the following additional service and retirement
considerations:
(a) On
the
fifth anniversary of Executive’s first being employed by the Company, he shall
receive an additional 5 Years of Service with the Company, as defined in the
SERP.
(b) If,
prior
to the fifth anniversary of Executive’s first being employed by the Company, a
transaction constituting a Change in Control is consummated, in lieu of the
additional credited service provided under Exhibit F (a), as of the day
immediately preceding the day on which such Change in Control transaction is
consummated, he shall receive an additional 5 Years of Service with the Company
and shall be deemed as eligible to Retire, as defined in the SERP.
EXHIBIT
G
The
following perquisites shall be provided to Executive, at Company
expense:
(1) Cellular
telephone.
(2) Reimbursement
of the cost of an annual physical examination.
(3) Payment
of membership dues to professional organizations.
(4) Reimbursement
for annual tax preparation expenses in an amount not to exceed $2,500 per
year.
(5) A
per
month cash car allowance as provided in the Company’s then-existing car
allowance policy (currently $600).
EXHIBIT
H
Executive
shall be entitled to a Gross-Up Payment for Excise Taxes, as
follows:
(a) In
the
event it shall be determined that any payment or distribution by the Company
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, but not
including any additional payments required by this Exhibit H)(a “Payment”) would
be subject to the excise tax imposed by Section 4999 of the Internal Revenue
Code, as amended, or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the “Excise
Tax”), then the Executive shall be entitled to receive from the Company an
additional payment (a "Gross-Up Payment") in an amount that allows Executive
to
retain that part of the Gross-Up Payment equal to the Excise Tax imposed upon
the Payments after deducting from the Gross-up Payment all taxes (including,
without limitation, the Excise Tax on the payments, the Excise Tax on the
Gross-Up Payment, any income taxes and all interest and penalties imposed with
respect to any of such taxes). Notwithstanding the foregoing provisions of
this
Exhibit H, if it shall be determined that the Executive is entitled to a
Gross-Up Payment, but that the Payments do not exceed 110% of the greatest
amount (the "Reduced Amount") that could be paid to the Executive such that
the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate,
shall
be reduced to the Reduced Amount.
(b) Subject
to the provisions of Exhibit H(c), all determinations required to be made under
this Exhibit H, including whether and when a Gross-Up Payment is required and
the amount of such Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a nationally recognized
accounting firm selected by the Company for this purpose prior to the
consummation of a transaction constituting a Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by
the Company. In the event that the Accounting Firm is serving as accountant
or
auditor for the individual, entity or group effecting the Change in Control,
the
Executive shall appoint another nationally recognized accounting firm to make
the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as
determined pursuant to this Exhibt H, shall be timely paid by the Company on
behalf of the Executive directly to the appropriate taxing authorities. Any
determination by the Accounting Firm shall be binding upon the Company and
the
Executive. As a result of the uncertainty in the application of Section 4999
of
the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which should have been made
("Underpayment"), consistent with the calculations required to be made hereunder
will not have been made by the Company. In the event that the Company exhausts
its remedies pursuant to Exhibit H(c), and the Executive thereafter is required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be
promptly paid by the Company to the appropriate taxing authorities for the
benefit of the Executive.
(c) Executive
shall notify the Company in writing of any claim by the Internal Revenue Service
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 20 days after the Executive is informed in writing 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 the Executive
in writing prior to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i)
give
the Company any 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;
(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 additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold the Executive harmless, on an after-tax
basis, for 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 Exhibit H(c),
the Company shall control all proceedings taken in connection with such contest
and, in its sole discretion, may pursue or forgo any and all administrative
appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, in its sole discretion, 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
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 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 the taxable year of the Executive 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.
(d) If,
after
the receipt by the Executive of an amount advanced by the Company pursuant
to
Exhibit H(c), the Executive becomes entitled to receive any refund with respect
to such claim, the Executive shall (subject to the Company's complying with
the
requirements of Exhibit H(c)) 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 receipt by the Executive of an amount
advanced by the Company pursuant to Exhibit H(c), 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 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.
EXHIBIT
I
FORM
OF GENERAL RELEASE OF CLAIMS
For
good
and valuable consideration set forth in the agreement (the “Agreement”) between
[INSERT NAME OF EMPLOYEE] (“Employee”) and SEMCO Energy, Inc. (together with its
subsidiaries, affiliates, and successors and the directors, officers, employees,
agents thereof, the “Company”), the sufficiency of which is hereby acknowledged,
Employee and the Company agree as follows:
1. General
Release of Claims.
Except
as expressly provided in the Agreement, Employee, for himself and him
dependents, heirs, executors, administrators, representatives, and assigns,
irrevocably releases and forever discharges the Company of and from, and agrees
to indemnify and hold the Company harmless from, any and all manner of claims,
suits, actions, causes of action, demands, charges, complaints, or obligations
of any sort whatsoever (including claims for costs and attorneys’ fees), direct
or indirect, fixed or contingent, known and unknown, in law or in equity, which
he ever had, now has, or may have against the Company arising in any way
whatsoever from or in connection with his employment at, or the termination
of
his employment with, the Company. Without limiting the generality of the
foregoing, it is understood and agreed that this General Release of Claims
specifically includes any and all claims for: breach of express or implied
contract or covenant; violation of any federal, state or local statute, rule,
regulation, or order (including the Equal Pay Act of 1963, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967,
the
Americans with Disabilities Act of 1990, the Xxxxxxx-Xxxxxx Civil Rights Act,
and the Michigan Persons with Disabilities Act); tort; and breach of any
statutory or common law duties or doctrines.
2. Certain
Matters Not Covered by General Release of Claims. This
General Release of Claims does not, and is not intended to, release, discharge
or in any way remove or otherwise limit or affect any claims, suits, actions,
causes of action, demands, charges, complaints, or obligations of any sort
whatsoever (including claims for costs and attorneys’ fees) arising in
connection with or under or relating in any way to either party’s performance of
their obligations under the Agreement.
3. No
Admission of Liability.
Neither
the terms nor the existence of the Agreement or the General Release of Claims,
or the Company’s seeking Employee’s execution of the General Release of Claims,
shall be construed as an admission of liability by the Company, including that
it violated any federal, state or local statute, regulation, rule, or order;
breached any contract or covenant; committed any tort; breached any statutory
or
common law duty or doctrine; or otherwise took, or failed to take, any action
or
committed any offense that is actionable in any way by Employee.
4. Use
of Counterparts Authorized.
The
General Release of Claims may be executed in counterparts; provided, however,
that each party to the General Release of Claims shall provide a duly-executed
copy of it to the other party to the General Release of Claims.
5. Definition.
In the
General Release of Claims, the words “include,”“includes,” and “including”
shall mean include, includes, or including without limitation.
6. Parties
Are Acting Freely, on an Informed Basis, with the Opportunity to Seek the Advice
of Counsel.
Employee
and the Company each acknowledge that they: are acting of their own free will;
fully understand both the Agreement and the General Release of Claims; and
have
had the opportunity to seek the advice of an attorney about these important
legal documents affecting their rights.
7. Governing
Law and Venue.
The
Agreement and the General Release of Claims shall be governed and construed
in
accordance with the laws of the State of Michigan, without regard to the
conflict of laws provisions thereof. Any action related in any way whatsoever
to
the Agreement or General Release of Claims shall be brought in a court of
competent jurisdiction in the State of Michigan.
8. Time
to Consider General Release of Claims; Right to Revoke; Effect of
Revocation.
Employee
acknowledges that: (i) he may consider whether to execute the General Release
of
Claims for up to 21 days; and (ii), after executing the General Release of
Claims, he may revoke it within 7 days, by giving notice, in writing, to the
Company’s General Counsel, c/o SEMCO Energy, Inc., 0000 Xxxx Xxx Xxxxxx Xxxx -
Xxxxx 000, Xxxx, Xxxxxxxx 00000. If Employee revokes the General Release of
Claims as provided herein, Employee shall promptly repay to the Company any
severance and related benefits paid to him under the Agreement.
9. Entire
Agreement.
The
Agreement and the General Release of Claims constitute the entire agreement
between Employee and the Company with respect to the subject-matter hereof.
They
acknowledge that they are not relying on any representations or statements
(written or oral) not contained therein.
