EMPLOYMENT AGREEMENT
This Agreement dated as of October 13, 1998 is between Colonial Gas
Company (the "Company"), a Massachusetts corporation, its subsidiary, Transgas
Inc. ("Transgas") and Victor W. Baur (the "Executive"). It restates and amends
the Employment Agreement dated December 31, 1997 between the Company,
Transgas and the Executive.
The Company believes that it is desirable, in order to induce the
Executive to remain in the employ of Transgas, where he presently serves as
President, and to place him in a position to act in the best interests of the
Company and its stockholders in the event of a proposal for the transfer of
control of the Company, to provide certain severance benefits to the Executive
if his employment with Transgas terminates under the circumstances described
below. Accordingly, the parties hereto agree as follows:
1. Employment Rights.
(a) Except as otherwise provided in paragraph l(b), the Executive's
employment may be terminated at any time by the Company, Transgas or the
Executive, subject to the Company's providing the benefits hereinafter
specified.
(b) In the event a tender or exchange offer is made by any person or
group of persons within the meaning of Section 14(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"), other than the Company or any employee benefit
plan sponsored by the Company, for 30% or more of the shares of stock of the
Company entitled to vote for the election of directors, the Executive agrees
that he will not leave the employ of Transgas (other than as a result of
disability, retirement or death) until such offer has been terminated or a
change in control of the Company (as hereinafter defined) has occurred.
2. Termination Prior to Change in Control. If the Executive's employment
with Transgas is terminated for any reason prior to the occurrence of a change
in control of the Company, he shall be entitled to receive such benefits, and
only such benefits, to which he is entitled without regard to this Agreement. If
a change in control shall occur within one year after the termination of the
Executive's employment by Transgas, such termination shall be treated as a
termination after a change in control under paragraph 3 hereof unless the
Company shall sustain the burden of proving that the termination was not in
contemplation of the change in control.
3. Termination After a Change in Control. If the Executive's employment
with Transgas is terminated within 36 months after the occurrence of a change in
control of the Company, he shall be entitled to receive the benefits set forth
below. For purposes of this Agreement, a "change in control" of the Company
shall mean (i) the acquisition directly or indirectly by any person of
beneficial ownership of shares of stock of the Company resulting in such person
becoming the beneficial owner of 20% or more of the shares of stock of the
Company entitled to vote for the election of directors, (ii) the occurrence of a
change during any 24 consecutive months in the composition of the Board of
Directors so that the Continuing Directors (as hereinafter defined) cease for
any reason to constitute a majority of the Company's Board of Directors or (iii)
a change in control of a nature that would be required to be reported in
response to Item 1 (a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to section 13 or 15(d) of the Exchange Act. "Continuing
Directors" shall mean the individuals who were directors at the beginning of the
24-month period or who were designated Continuing Directors by a majority of the
then Continuing Directors. A person shall be deemed to have "beneficial
ownership" of stock if such person or any "affiliate" or "associate" of such
person (as those terms are defined in Rule 12b-2 under the Exchange Act),
directly or indirectly, controls the voting of such stock or has any options,
warrants, conversion or other rights to acquire such stock.
(a) Cause. Upon termination of the Executive's employment by Transgas
for cause, the Executive shall be entitled to his salary through the period
ending with the date of such termination and any accrued benefits, and any and
all other rights of the Executive under this Agreement shall terminate upon the
date of termination. "Cause" shall mean and be limited to (i) deliberate
dishonesty by the Executive in connection with his employment, (ii) willful and
prolonged absence from work (other than as a result of illness or incapacity) in
circumstances that constitute a substantial abdication of the Executive's
responsibilities to Transgas after written notice thereof has been given by the
Company or Transgas to the Executive or (iii) the Executive's conviction of a
felony.
(b) Death, Disability, or Retirement. If the Executive's employment
is terminated by reason of death, permanent disability or retirement, the
Executive shall be entitled to such benefits as may be provided to him pursuant
to the Company's or Transgas' employee benefit plans, including any supplemental
arrangements maintained for his benefit which are set forth in writing and (1)
are described in the attached Exhibit A or (2) are adopted after the date of
this Agreement. Any and all other rights of the Executive under this Agreement
shall terminate upon the occurrence of a termination of his employment under
this subparagraph and the provisions of subparagraph (c) shall not be
applicable. For purposes of this paragraph, "permanent disability" shall be
deemed to exist when, in the good faith judgment of the Board of Directors of
Transgas, the Executive is unable to perform his duties for Transgas due to
illness or incapacity and such disability has continued for a period of not less
than six months, unless he shall have returned to the full time performance of
his duties within 30 days after written notice of the Board's determination has
been given to him. For purposes of this paragraph, "retirement" shall mean
termination by the Executive on or after his normal retirement date as set forth
in the Company's or Transgas' pension plan now in effect (or any successor or
substitute plan or plans of the Company or Transgas put into effect prior to a
change in control) or voluntary early retirement by the Executive in accordance
with such plan prior to his normal retirement date. Written notice of
termination of employment based on retirement shall be given at least 60 days in
advance.
(c) Good Reason. If the Executive's employment is terminated (1) by
the Executive for Good Reason (as hereinafter defined) or (2) by the Company or
Transgas without cause, in lieu of further salary for subsequent periods the
Executive shall be entitled to the following benefits:
(i) The Company shall forthwith pay the Executive, in addition
to his salary and accrued benefits through the date of termination,
severance pay in an amount equal to 2.99 times the sum of (A) the higher
of (x) his annual salary in effect immediately prior to the change in
control or (y) his annual salary in effect immediately prior to the
termination and (B) the higher of (x) the average of the last two annual
bonuses (annualized in the case of any bonus paid with respect to a
partial year) paid to him preceding the change in control or preceding the
date of termination, which ever is greater, and (y) the most recent annual
bonus (annualized in the case of any bonus paid with respect to a partial
year) paid to him preceding the change in control or preceding the date of
termination, whichever is greater.
(ii) The Company shall maintain in full force and effect, for
the continued benefit of the Executive and his dependents for a period
ending on the earlier of the commencement date of equivalent benefits from
a new employer or his normal retirement date (after which the terms of the
applicable pension plan shall govern), the health insurance, dental
insurance and group term life insurance plans in which the Executive was
entitled to participate immediately prior to the termination of his
employment or reasonably equivalent benefits, provided that the Executive
continues to pay an amount equal to the employee's share of contributions
in effect prior to the change in control.
(iii)If the Executive is age 55 or older on the date of
termination of his employment, the Executive will continue to receive,
until his normal retirement date, service credit under the Company's or
Transgas' pension plans and any supplemental arrangements maintained for
his benefit in effect immediately prior to the termination of his
employment, and the benefit levels thereunder shall be calculated as
though the Executive had received an annual increase in compensation until
his normal retirement date in an amount equal to the average annual
compensation increase of all salaried personnel of the Company included in
such plans. To the extent that payment of any amounts resulting from the
foregoing may not be made from such plans, the Company will pay such
amounts to the Executive as supplemental benefits.
(iv) At the request of the Executive, the Company shall pay the
costs of an out-placement service used by the Executive as a result of the
termination of his employment, provided such service is approved by the
Company, which approval will not unreasonably be withheld.
(v) Except as specifically set forth above, the amount of any
payment or benefit under this paragraph 3(c) shall not be reduced, offset
or subject to recovery by the Company or Transgas by reason of any
compensation earned by the Executive as the result of employment by
another employer after the termination of his employment with the Company
or Transgas or otherwise.
For purposes of this paragraph 3(c), "Good Reason" shall mean that the
Executive has determined in good faith that (1) the Company or Transgas has
failed to assign to him on a consistent basis executive duties performable at
the location at which he worked before the change in control (which shall
include any location in Massachusetts within 25 miles of such location or within
50 miles of the Company's executive offices immediately prior to the change in
control) which are commensurate with the level of executive duties performed by
him immediately prior to such change in control, (2) he is prevented by the
Company or Transgas from continuing to fulfill his responsibilities at a level
commensurate with that prior to the change in control, (3) his salary in effect
immediately prior to the change in control is reduced by the Company or
Transgas, (4) the Company or Transgas has failed to continue in effect any
health, welfare, retirement, vacation and other fringe benefit plans of the
Company or Transgas in which the Executive participated at the time of the
change in control (or plans providing substantially equivalent benefits) other
than as a result of the normal expiration of any such plan in accordance with
its terms as in effect at the time of the change in control, or the Company or
Transgas shall have taken or failed to take any action which would adversely
affect the Executive's continued participation in or the benefits receivable by
the Executives under any such plan as in effect at the time of the change in
control, or (5) the Company shall have failed to obtain, at the Executive's
request, an assent to the Company's performance of its obligations under this
Agreement from any person that succeeds to or has the practical ability to
control (either immediately or with the passage of time), directly or
indirectly, the Company's business, including the business of Transgas.
(d) Automobile. Upon termination of the Executive's employment for
any reason, he shall have the right to purchase the automobile supplied to him
by Transgas immediately prior to the change in control, or any automobile
substituted therefore with his approval, at its depreciated cost as shown on the
books of Transgas.
4. Taxes.
(a) Withholding. All payments to be made to the Executive under this
Agreement will be subject to any required withholding of federal, state and
local income and employment taxes.
(b) Payment Limitation. Notwithstanding anything in this Agreement to
the contrary, if the Company determines, based on the opinion of its independent
accountants serving as such immediately prior to the change in control (the
"Accounting Firm"), that any of the payments provided for in this Agreement,
together with any other payments that must be included in such determination,
would constitute an "Excess Parachute Payment" (as defined in Section 280G of
the Internal Revenue Code of 1986, as amended (the "Code"), and proposed and
final regulations thereunder), the payments pursuant to this Agreement shall be
reduced to the maximum amount that would permit a determination that the
Executive has not received an Excess Parachute Payment (the "Maximum Amount")
unless the after-tax amount payable to the Executive hereunder without regard to
the foregoing limitation ("Uncapped After-Tax Amount," as defined below) exceeds
the after-tax amount payable to the Executive with regard to such limitation
("Capped After-Tax Amount," as defined below) by 10% or more. Any such
determination or reduction in amounts payable pursuant to this Agreement shall
be made in accordance with the follow provisions:
(i) For purposes of determining whether the amounts payable to
the Executive pursuant to this Agreement shall be reduced to the Maximum
Amount, the following terms shall have the meanings indicated:
(x) The "Uncapped After-Tax Amount" shall be equal to the
sum of the amounts payable pursuant this Agreement (without regard to
this paragraph 4(b)) and pursuant to all benefit and compensation
plans and arrangements that must be included in determining whether
an Excess Parachute Payment has been made, less the Income Tax Amount
on such sum and the 20% excise tax under Section 4999 of the Code
that would be due on all Excess Parachute Payments.
(y) The "Capped After-Tax Amount" shall be equal to the sum
of the Maximum Amount and all amounts payable pursuant to all benefit
and compensation plans and arrangements that must be included in
determining whether an Excess Parachute Payment has been made, less
the Income Tax Amount on such sum.
(z) The "Income Tax Amount" shall be equal to the amount of
federal, state and local income taxes and the Executive's share of
Federal Insurance Contributions Act taxes that would be due on an
amount (after taking into account the deductibility of state and
local income taxes for federal income tax purposes) if the highest
marginal federal, state and local income tax rate in effect at the
time of the change in control were imposed on the value of the
payments assuming that the amounts payable pursuant to this Agreement
and all benefit and compensation plans and arrangements shall be
treated as paid in full on the date of the change in control.
(ii) If the Accounting Firm determines that payments pursuant to
this Agreement should be reduced to the Maximum Amount, the Company shall
promptly give the Executive notice to that effect and a copy of the
detailed calculation thereof, and the Executive may then elect, in his
sole discretion, which and how much of the payments shall be eliminated or
reduced (as long as after such election the present value of the aggregate
payments equals the Maximum Amount), and shall advise the Company in
writing of his election within 10 days of his receipt of notice. If no
such election is made by the Executive within such period, the Company may
elect which and how much of the payments shall be eliminated or reduced
(as long as after such election the present value of the aggregate
payments equals the Maximum Amount) and shall notify the Executive
promptly of such election. All determinations made by the Accounting Firm
under this paragraph 4 shall be based upon Sections 280G and 4999 of the
Code and on proposed or final regulations for applying those Code
sections, or on substantial authority within the meaning of Section 6662
of the Code, shall be binding upon the Company and the Executive and shall
be made within 60 days of a termination of employment of the Executive. As
promptly as practicable following such determination, the Company shall
pay to or distribute for the benefit of the Executive such payments as are
then due to the Executive under this Agreement and shall promptly pay to
or distribute for the benefit of the Executive in the future such payments
as become due to the Executive under this Agreement.
(iii)As a result of possible uncertainty in the application of
Section 280G of the Code at the time of the determinations by the
Accounting Firm hereunder, amounts may have been paid that should not have
been paid ("Overpayment") or additional amounts may not have been paid
that could have been paid ("Underpayment"), in each case, consistent with
the calculations required to be made hereunder. In the event that the
Internal Revenue Service asserts a deficiency against the Executive or the
Company in such a case and the Accounting Firm determines that an
Overpayment has been made, any such Overpayment shall be treated for all
purposes as a loan to the Executive from the date such Overpayment was
made in an amount equal to the value of such Overpayment, which loan the
Executive shall repay to the Company together with interest at the
applicable federal rate under Section 7872(f)(2)(B) of the Code within 60
days after receipt by the Executive of written notice of such
determination by the Accounting Firm, including the amount of the loan and
interest calculation; provided, however, that no such loan shall be deemed
to have been made and no amount shall be payable by the Executive to the
Company if and to the extent such deemed loan and repayment with interest
would not eliminate the excise tax under Section 4999 of the Code, or the
disallowance of the deduction under Section 280G(a) of the Code, for the
amounts previously paid to the Executive. In the event that the Accounting
Firm determines that an Underpayment has been made, such Underpayment
shall be promptly paid by the Company to the Executive, together with
interest at the applicable federal rate provided for in Section
7872(f)(2)(B) of the Code.
5. Term. The term of this Agreement shall commence on the date hereof and
shall continue in effect until December 31, 1999 and shall automatically be
extended for one additional year on that date and on each December 31 thereafter
unless the Company, Transgas or the Executive shall give at least 90 days prior
written notice that this Agreement shall not be extended. Notwithstanding the
foregoing, this Agreement shall continue in effect for the period specified in
paragraph 3 hereof if a change in control of the Company shall have occurred
during such term. The respective obligations of and benefits to the Company,
Transgas and the Executive as provided in paragraphs 3, 4, 6 and 7 hereof shall
survive termination of this Agreement.
6. Disclosure of Information. The Executive agrees to receive confidential
and proprietary information of the Company or Transgas in confidence, and not to
disclose such information to others, except pursuant to the performance of his
duties for the Company or Transgas, unless and until such information has become
public knowledge or has come into the possession of such others by legal and
equitable means.
7. Fees and Expenses. The Company shall pay all legal fees and related
expenses incurred by the Executive as a result of his seeking to obtain or
enforce any right or benefit provided by this Agreement following a change in
control of the Company.
8. Miscellaneous.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Company and Transgas, its successors and assigns and
the Executive, his successors, personal representatives and heirs, and shall not
be assignable by the Executive except with respect to any payments or benefits
hereunder. In the event that the Company is consolidated or merged with or into
any other corporation, the term "Company" as used herein shall mean such other
corporation, and this Agreement shall continue in full force and effect.
(b) Amendment; Waiver. This Agreement may not be modified or amended
in any manner except by an instrument in writing signed by the parties hereto.
The waiver by either party of compliance with any provision of this Agreement by
the other party shall not operate or be construed as a waiver of any other
provision of this Agreement, or of any subsequent breach by such party or a
provision of that Agreement.
(c) Notices. All notices hereunder shall be sufficient if given in
writing sent by registered or certified mail, addressed as follows:
To the Company:
Colonial Gas Company
40 Market Street
Lowell, Massachusetts 01852
Attention: President
To Transgas:
Transgas Inc.
c/o Colonial Gas Company
40 Market Street
Lowell, MA 01852
Attention: V. P. Human Resources
To the Executive:
Victor W. Baur
137 Lexington Road
Dracut, MA 01826
(d) Heading. The headings of paragraphs herein are included solely
for convenience of reference and shall not control the meaning of
interpretations of any of the provisions of this Agreement.
(e) Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
(f) Applicable Law. This Agreement shall be governed by the laws of
Massachusetts.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
IN WITNESS WHEREOF, the Company and Transgas have each caused this
Agreement to be executed by its duly authorized officer and the Executive has
executed this Agreement as of the date first written above.
COLONIAL GAS COMPANY TRANSGAS INC.
By:__________________________ By:___________________________
By:__________________________
Victor W. Baur
Exhibit A
SUPPLEMENTAL PENSION ARRANGEMENT
Supplemental Executive Retirement Plan.