AGREEMENT
BETWEEN
NEW ENGLAND ELECTRIC SYSTEM
AND
RICHARD P. SERGEL
Dated March 1, 1998
TABLE OF CONTENTS
Page
1. Defined Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Term of Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Company's Covenants Summarized . . . . . . . . . . . . . . . . . . 2
4. The Executive's Covenants; Previous Agreement. . . . . . . . . . . 2
5. Compensation Other Than Severance Payments . . . . . . . . . . . . 3
6. Severance Payments . . . . . . . . . . . . . . . . . . . . . . . . 4
7. Termination Procedures and Compensation During Dispute . . . . . . 11
8. No Mitigation. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
9. Successors; Binding Agreement. . . . . . . . . . . . . . . . . . . 14
10. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
12. Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
13. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14. Settlement of Disputes; Arbitration. . . . . . . . . . . . . . . . 16
15. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
AGREEMENT
THIS AGREEMENT dated March 1, 1998, is made by and between New
England Electric System, a Massachusetts business trust (the Company), and
Richard P. Sergel (the Executive).
WHEREAS the Company considers it essential to the best interests
of its shareholders to foster the continuous employment of key management
personnel; and
WHEREAS the Board of Directors of the Company (the Board)
recognizes that, as is the case with many publicly-held companies, the
possibility of a Change in Control or a Major Transaction (as defined in the
last Section hereof) exists and that such possibility, and the uncertainty and
questions which it may raise among management, may result in the departure or
distraction of management personnel to the detriment of the Company and its
shareholders; and
WHEREAS the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the management of the Company and its subsidiaries (collectively,
the System), including the Executive, to their assigned duties without
distraction in the face of potentially disruptive circumstances arising from
the possibility of a Change in Control or a Major Transaction;
NOW THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the Company and the Executive hereby agree as
follows:
1. Defined Terms. The definitions of capitalized terms used in this
Agreement are provided in the last Section hereof.
2. Term of Agreement. This Agreement shall commence on the date
hereof and shall continue in effect through December 31, 2000; provided,
however, that commencing on January 1, 1999 and each January 1 thereafter, the
term of this Agreement shall automatically be extended for one additional year
unless, not later than September 30 of the preceding year, the Company or the
Executive shall have given notice not to extend this Agreement or a Change in
Control or a Major Transaction shall have occurred prior to such January 1;
provided, however, if a Change in Control or a Major Transaction shall have
occurred during the term of this Agreement, this Agreement shall continue in
effect for a period of thirty-six months beyond the month in which such Change
in Control or Major Transaction occurred.
3. Company's Covenants Summarized. In order to induce the Executive
to remain in the employ of the NEES Companies and in consideration of the
Executive's covenants set forth in Section 4 hereof, the Company agrees, under
the conditions described herein, to pay the Executive the Severance Payments
described in Section 6.1 hereof and the other payments and benefits described
herein in the event the Executive's employment with the NEES Companies is
terminated following a Change in Control or a Major Transaction and during the
term of this Agreement. The obligations of the Company hereunder shall be
deemed satisfied to the extent payments are made by any NEES Company. No
amount or benefit shall be payable under this Agreement unless there shall
have been (or, under the terms hereof, there shall be deemed to have been) a
termination of the Executive's employment with the NEES Companies following a
Change in Control or a Major Transaction. This Agreement shall not be
construed as creating an express or implied contract of employment and, except
as otherwise agreed in writing between the Executive and the Company, the
Executive shall not have any right to be retained in the employ of the NEES
Companies.
4. The Executive's Covenants; Previous Agreement. The Executive
agrees that, subject to the terms and conditions of this Agreement, in the
event of a Potential Change in Control or a Potential Major Transaction during
the term of this Agreement, the Executive will remain in the employ of the
NEES Companies until the earliest of (i) a date which is twelve months from
the date of such Potential Change of Control or Potential Major Transaction,
(ii) the date of a Change in Control or a Major Transaction, (iii) the date of
termination by the Executive of the Executive's employment for Good Reason
(determined by treating the Potential Change in Control or Potential Major
Transaction as a Change in Control or a Major Transaction, as applicable, in
applying the definition of Good Reason), by reason of death or Disability or
Retirement, or (iv) the termination by NEES Companies of the Executive's
employment for any reason.
The Executive and the Company agree that their prior agreement dated
February 28, 1995, is terminated effective as of the date hereof.
5. Compensation Other Than Severance Payments.
5.1 Following a Change in Control or a Major Transaction and
during the term of this Agreement, during any period that the Executive fails
to perform the Executive's full-time duties with the NEES Companies as a
result of incapacity due to physical or mental illness, the Company shall
provide the Executive with disability benefits equivalent to those under the
Disability Insurance Plan (without regard to any amendment to such plan made
subsequent to the Change in Control or Major Transaction which amendment
adversely affect the Executive's rights thereunder) until the Executive's
employment is terminated by the Employer for Disability.
5.2 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay the Executive's full salary to
the Executive through the Date of Termination at the rate in effect at the
time the Notice of Termination is given, together with all compensation and
benefits payable to the Executive through the Date of Termination under the
terms of any compensation or benefit plan, program or arrangement maintained
by the Employer during such period; except to the extent that the Executive is
receiving payments with respect to such period, or a portion thereof, in
accordance with Section 5.1.
5.3 If the Executive's employment shall be terminated for any
reason following a Change in Control or a Major Transaction and during the
term of this Agreement, the Company shall pay to the Executive the normal
post-termination compensation and benefits due the Executive as such payments
become due. Such post-termination compensation and benefits shall be
determined under, and paid in accordance with, the System's applicable
retirement, insurance and other compensation or benefit plans, programs and
arrangements. Provided that the benefits payable to the Executive pursuant to
the Standard Severance Plan for Non-Union Employees (the Severance Plan) or
its successor do not exceed benefits payable to the Executive under this
Agreement, the Executive hereby waives all rights to benefits pursuant to the
Severance Plan.
6. Severance Payments.
6.1 Subject to Section 6.2(b), the Company shall pay the
Executive the payments described in this Section 6.1 (the Severance Payments)
upon the termination of the Executive's employment following a Change in
Control or a Major Transaction and during the term of this Agreement, in
addition to the payments and benefits described in Section 5 hereof, unless
such termination is (i) by the Employer for Cause, (ii) by reason of death,
Disability or Retirement, or (iii) by the Executive without Good Reason. The
Executive's employment shall be deemed to have been terminated following a
Change in Control or a Major Transaction by the Employer without cause or by
the Executive with Good Reason if the Executive's employment is terminated
prior to a Change in Control or a Major Transaction without cause at the
direction of a Person who has entered into an agreement with the Company the
consummation of which will constitute a Change in Control or a Major
Transaction, or if the Executive terminates his employment with Good Reason
prior to a Change in Control or a Major Transaction (determined by treating a
Potential Change in Control or Potential Major Transaction as a Change in
Control or a Major Transaction, as applicable, in applying the definition of
Good Reason) if the circumstance or event which constitutes Good Reason occurs
at the direction of such Person.
(A) In lieu of any further salary payments to the
Executive for periods subsequent to the Date of Termination, the Company
shall pay to the Executive a lump sum severance payment, in cash, equal
to three times the sum of (i) the higher of the Executive's annual base
salary in effect as of the Date of Termination or in effect immediately
prior to the Change in Control or Major Transaction, and (ii) the higher
of the average amount paid to the Executive pursuant to the New England
Electric Companies' Senior Incentive Compensation Plan, New England
Electric Companies' Incentive Compensation Plan I, II, or III, and New
England Electric Companies Incentive Share Plan or successors of any
such plans, with respect to the three years preceding the year in which
the Date of Termination occurs or the average amount paid with respect
to the three years preceding the year in which the Change in Control or
Major Transaction occurs.
(B) In addition to the retirement benefits to which the
Executive is entitled under each Pension Plan or any successor plan
thereto, the Company shall pay the Executive a lump sum amount, in cash,
equal to the excess of (x) the actuarial equivalent of the retirement
pension (taking into account any early retirement subsidies associated
therewith and determined as a straight life annuity commencing at the
later of age 55 or the third anniversary of the Date of Termination)
which the Executive would have accrued under the terms of each such
Pension Plan (without regard to any amendment to such Pension Plan made
subsequent to a Change in Control or a Major Transaction, which
amendment adversely affects in any manner the computation of retirement
benefits thereunder), determined as if the Executive were fully vested
thereunder and had accumulated (after the Date of Termination) thirty-
six additional months of service credit thereunder and had been credited
under each such Pension Plan during such period with compensation at the
higher of (a) Executive's compensation (as defined in such Pension Plan)
during the twelve months immediately preceding the Date of Termination
or (b) Executive's compensation (as defined in such Pension Plan) during
the twelve months immediately preceding the Change in Control or Major
Transaction, over (y) the actuarial equivalent of the retirement pension
(taking into account any early retirement subsidies associated therewith
and determined as a straight life annuity commencing at the later of age
55 or the Date of Termination) which the Executive had accrued pursuant
to the provisions of each such Pension Plan as of the Date of
Termination. For purposes of this Section 6.1(B), "actuarial
equivalent" shall be determined using the same methods and assumptions
utilized under the New England Electric Companies' Final Average Pay
Plan I (or a successor thereto) immediately prior to the Date of
Termination (without regard to any amendment of such methods and
assumptions made subsequent to a Change in Control or a Major
Transaction, which amendment results in a lower actuarial equivalent
value). The discount rate used for the calculation of benefits
hereunder shall be that used by the System for valuing the liabilities
of the New England Electric Companies' Final Average Pay Plan I (or a
successor thereto) immediately prior to the Date of Termination.
(C) If the Executive would have become entitled to
benefits under the System's post-retirement health care or life
insurance plans had his employment terminated at any time during the
period of thirty-six months after the Date of Termination, the Company
shall pay such benefits to the Executive commencing on the later of (a)
the date that such coverage would have first become available and (b)
the date the benefits described in (D) below terminate.
(D) For the thirty-six month period immediately following
the Date of Termination, the Company shall arrange to provide the
Executive with life, disability, accident and health insurance benefits
substantially similar to those which the Executive is receiving
immediately prior to the Notice of Termination (without giving effect to
any reduction in such benefits subsequent to a Change in Control or a
Major Transaction which reduction constitutes Good Reason). Benefits
otherwise receivable by the Executive pursuant to this Section 6.1(D)
shall be reduced to the extent comparable benefits are actually received
by or made available to the Executive without cost during the thirty-six
month period following the Executive's termination of employment (and
any such benefits actually received by the Executive shall be reported
to the Company by the Executive). If the benefits provided to the
Executive under this Section 6.1(D) shall result in a decrease, pursuant
to Section 6.2(b), in the Severance Payments and these Section 6.1(D)
benefits are thereafter reduced pursuant to the immediately preceding
sentence because of the receipt of comparable benefits, the Company
shall, at the time of such reduction, pay to the Executive the lesser of
(a) the amount of the decrease made in the Severance Payments pursuant
to Section 6.2, or (b) the maximum amount which can be paid to the
Executive without being, or causing any other payment to be,
nondeductible by reason of section 280G of the Code.
6.2 (a) In the event that the Executive becomes entitled to
the Severance Payments prior to February 1, 2001, if any of the Severance
Payments will be subject to the Excise Tax, the Company shall pay to the
Executive an additional amount (the Gross-Up Payment) such that the net amount
retained by the Executive, after deduction of any Excise Tax on the Severance
Payments and any Federal, state and local income tax and Excise Tax upon the
payment provided for by this Section 6.2(a), shall be equal to the Severance
Payments. For purposes of determining whether any of the Severance Payments
will be subject to the Excise Tax and the amount of such Excise Tax, (i) any
other payments or benefits received or to be received by the Executive in
connection with a Change in Control or a Major Transaction, or the Executive's
termination of employment (whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the System, any Person whose
actions result in a Change in Control or a Major Transaction or any Person
affiliated with the System or such Person) shall be treated as "parachute
payments" within the meaning of section 280G(b)(2) of the Code, and all
"excess parachute payments" within the meaning of section 280G(b)(l) of the
Code shall be treated as subject to the Excise Tax, unless in the opinion of
tax counsel selected by the Company's independent auditors and reasonably
acceptable to the Executive such other payments or benefits (in whole or in
part) do not constitute parachute payments, including by reason of Section
280G(b)(4)(A) of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered, within
the meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, or are otherwise not subject to the
Excise Tax, (ii) the amount of the Severance Payments which shall be treated
as subject to the Excise Tax shall be equal to the lesser of (A) the total
amount of the Severance Payments or (B) the amount of excess parachute
payments within the meaning of section 280G(b)(l) of the Code (after applying
clause (i), above), and (iii) the value of any noncash benefits or any
deferred payment or benefit shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3) and (4) of
the Code. For purposes of determining the amount of the Gross-Up Payment, the
Executive shall be deemed to pay Federal income taxes at the highest marginal
rate of Federal income taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at the highest marginal
rate of taxation in the state and locality of the Executive's residence on the
Date of Termination, net of the maximum reduction in Federal income taxes
which could be obtained from deduction of such state and local taxes. In the
event that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax and Federal,
state and local income tax imposed on the Gross-Up Payment being repaid by the
Executive to the extent that such repayment results in a reduction in Excise
Tax and/or a Federal, state or local income tax deduction) plus interest on
the amount of such repayment at the rate provided in section 1274(b)(2)(B) of
the Code. In the event that the Excise Tax is determined to exceed the amount
taken into account hereunder at the time of the termination of the Executive's
employment (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the Company
shall make an additional Gross-Up Payment in respect of such excess (plus any
interest, penalties or additions payable by the Executive with respect to such
excess) at the time that the amount of such excess is finally determined. The
Executive and the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings concerning the
existence or amount of liability for Excise Tax with respect to the Severance
Payments.
(b) In the event the Executive becomes entitled to the
Severance Payments on February 1, 2001, or thereafter, and in the event that
any payment or benefit received or to be received by the Executive in
connection with a Change in Control or a Major Transaction, or the termination
of the Executive's employment (whether pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the System, any Person whose
actions result in a Change in Control or a Major Transaction or any Person
affiliated with the System or such Person) (all such payments and benefits,
including the Severance Payments, being hereinafter called Total Payments)
would be subject (in whole or part), to the Excise Tax, then the Severance
Payments shall be reduced to the extent necessary so that no portion of the
Total Payments is subject to the Excise Tax (after taking into account any
reduction in the Total Payments provided by reason of section 280G of the Code
in such other plan, arrangement or agreement) if (A) the net amount of such
Total Payments, as so reduced, (and after deduction of the net amount of
Federal, state and local income tax on such reduced Total Payments) is greater
than (B) the excess of (i) the net amount of such Total Payments, without
reduction (but after deduction of the net amount of Federal, state and local
income tax on such Total Payments), over (ii) the amount of Excise Tax to
which the Executive would be subject in respect of such Total Payments. For
purposes of determining whether and the extent to which the Total Payments
will be subject to the Excise Tax, (i) no portion of the Total Payments the
receipt or enjoyment of which the Executive shall have effectively waived in
writing prior to the Date of Termination shall be taken into account, (ii) no
portion of the Total Payments shall be taken into account which in the opinion
of tax counsel selected by the Company does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code, (including by
reason of section 280G(b)(4)(A) of the Code) and, in calculating the Excise
Tax, no portion of such Total Payments shall be taken into account which
constitutes reasonable compensation for services actually rendered, within the
meaning of section 280G(b)(4)(B) of the Code, in excess of the Base Amount
allocable to such reasonable compensation, and (iii) the value of any noncash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company in accordance with the principles of
sections 280G(d)(3) and (4) of the Code. Prior to the payment date set forth
in Section 6.3 hereof, the Company shall provide the Executive with its
calculation of the amounts referred to in this Section and such supporting
materials as are reasonably necessary for the Executive to evaluate the
Company's calculations. If the Executive objects to the Company's
calculations, the Company shall pay to the Executive such portion of the
Severance Payments (up to 100% thereof) as the Executive determines is
necessary to result in the Executive receiving the greater of clauses (A) and
(B) of this Section.
6.3 The payments provided for in Section 6.1 (other than
Sections 6.1(D) and 6.2(a)) hereof shall be made not later than the fifth day
following the Date of Termination, provided, however, that if the amounts of
such payments, or any limitation on such payments set forth in Section 6.2(b)
hereof, cannot be finally determined on or before such day, the Company shall
pay to the Executive on such day an estimate, as determined in good faith by
the Company, of the minimum amount of such payments to which the Executive is
clearly entitled and shall pay the remainder of such payments (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to the Executive,
payable on the fifth business day after demand by the Company (together with
interest at the rate provided in section 1274(b)(2)(B) of the Code). At the
time that payments are made under this Section, the Company shall provide the
Executive with a written statement setting forth the manner in which such
payments were calculated and the basis for such calculations including,
without limitation, any opinions or other advice the Company has received from
counsel, auditors or consultants (and any such opinions or advice which are in
writing shall be attached to the statement).
6.4 The Company also shall pay to the Executive all legal fees
and expenses incurred by the Executive in disputing in good faith any
termination of his employment hereunder or in seeking in good faith to obtain
or enforce any benefit or right provided by this Agreement or in connection
with any tax audit or proceeding to the extent attributable to the application
of section 4999 of the Code to any payment or benefit provided hereunder.
Such payments shall be made within five business days after delivery of the
Executive's written requests for payment accompanied with such evidence of
fees and expenses incurred as the Company reasonably may require.
7. Termination Procedures and Compensation During Dispute.
7.1 Notice of Termination. After a Change in Control or a Major
Transaction and during the term of this Agreement, any purported termination
of the Executive's employment (other than by reason of death) shall be
communicated by written Notice of Termination from one party hereto to the
other party hereto in accordance with Section 10 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Executive's employment under the provision so
indicated. Further, a Notice of Termination for Cause is required to include
a copy of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of the Board
which was called and held for the purpose of considering such termination
(after reasonable notice to the Executive and an opportunity for the
Executive, together with the Executive's counsel, to be heard before the
Board) finding that, in the good faith opinion of the Board, the Executive was
guilty of conduct set forth in clause (i) or (ii) of the definition of Cause
herein, and specifying the particulars thereof in detail.
7.2 Date of Termination. "Date of Termination", with respect to
any purported termination of the Executive's employment after a Change in
Control or a Major Transaction and during the term of this Agreement, shall
mean (i) if the Executive's employment is terminated for Disability, thirty
days after Notice of Termination is given (provided that the Executive shall
not have returned to the full-time performance of the Executive's duties
during such thirty-day period), and (ii) if the Executive's employment is
terminated for any other reason, the date specified in the Notice of
Termination (which, in the case of a termination by the Employer, shall not be
less than thirty days (except in the case of a termination for Cause) and, in
the case of a termination by the Executive, shall not be less than fifteen
days nor more than sixty days, respectively, from the date such Notice of
Termination is given).
7.3 Dispute Concerning Termination. If within fifteen days
after any Notice of Termination is given, or, if later, prior to the Date of
Termination (as determined without regard to this Section 7.3), the party
receiving such Notice of Termination notifies the other party that a dispute
exists concerning the termination, the Date of Termination shall be the date
on which the dispute is finally resolved, either by mutual written agreement
of the parties or by a final judgment, order or decree of a court of competent
jurisdiction (which is not appealable or with respect to which the time for
appeal therefrom has expired and no appeal has been perfected); provided
further that the Date of Termination shall be extended by a notice of dispute
only if such notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
7.4 Compensation During Dispute. If a purported termination
occurs following a Change in Control or a Major Transaction and during the
term of this Agreement, and such termination is disputed in accordance with
Section 7.3 hereof, the Company shall pay the Executive the full compensation
in effect when the notice giving rise to the dispute was given (including, but
not limited to, salary) and continue the Executive as a participant in all
compensation, benefit and insurance plans in which the Executive was
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with Section 7.3 hereof. Amounts
paid under this Section 7.4 are in addition to all other amounts due under
this Agreement (other than those due under Section 5.2 hereof) and shall not
be offset against or reduce any other amounts due under this Agreement.
8. No Mitigation. The Company agrees that, if the Executive's
employment with the NEES Companies terminates during the term of this
Agreement, the Executive is not required to seek other employment or to
attempt in any way to reduce any amounts payable to the Executive by the
Company pursuant to this Agreement. Further, the amount of any payment or
benefit provided for in this Agreement (other than in Section 6.1(D) hereof)
shall not be reduced by any compensation earned by the Executive as the result
of employment by another employer, by retirement benefits, by offset against
any amount claimed to be owed by the Executive to the System, or otherwise.
9. Successors; Binding Agreement.
9.1 In addition to any obligations imposed by law upon any
successor to the Company, the Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or 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 a breach
of this Agreement and shall entitle the Executive to compensation from the
Company in the same amount and on the same terms as the Executive would be
entitled to hereunder if the Executive were to terminate the Executive's
employment for Good Reason after a Change in Control or a Major Transaction,
except that, for purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of Termination.
9.2 This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive shall die while any amount would still be payable to the
Executive hereunder (other than amounts which, by their terms, terminate upon
the death of the Executive) if the Executive had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the terms of this Agreement to the executors, personal representatives or
administrators of the Executive's estate.
10. Notices. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below, or to such other address as either party
may have furnished to the other in writing in accordance herewith, except that
notice of change of address shall be effective only upon actual receipt:
To the Company:
New England Power Service Company
25 Research Drive
Westborough, MA 01582-0099
Attention: Director of Human Resources
To the Executive:
Richard P. Sergel
34 Brook Street
Wellesley, MA 02181
11. Miscellaneous. No provision of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing and signed by the Executive and such officer as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. This Agreement supersedes any
other agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of The Commonwealth of Massachusetts. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any successor
provisions to such sections. Any payments provided for hereunder shall be
paid net of any applicable withholding required under Federal, state or local
law and any additional withholding to which the Executive has agreed. The
obligations of the Company and the Executive under Sections 6 and 7 shall
survive the expiration of the term of this Agreement.
12. Validity. The invalidity or unenforceability or 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.
13. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
14. Settlement of Disputes; Arbitration. All claims by the Executive
for benefits under this Agreement shall be directed to and determined by the
Board and shall be in writing. Any denial by the Board of a claim for
benefits under this Agreement shall be delivered to the Executive in writing
and shall set forth the specific reasons for the denial and the specific
provisions of this Agreement relied upon. The Board shall afford a reasonable
opportunity to the Executive for a review of the decision denying a claim and
shall further allow the Executive to appeal to the Board a decision of the
Board within sixty days after notification by the Board that the Executive's
claim has been denied. Any further dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
the Executive shall be entitled to seek specific performance of the
Executive's right to be paid until the Date of Termination during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
15. Definitions. For purposes of this Agreement, the following terms
shall have the meanings indicated below:
(A) "Base Amount" shall have the meaning defined in section
280G(b)(3) of the Code.
(B) "Beneficial Owner" shall have the meaning defined in Rule
13d-3 under the Exchange Act.
(C) "Board" shall mean the Board of Directors of the Company.
(D) "Cause" for termination by the Employer of the Executive's
employment, after any Change in Control or Major Transaction, shall mean (i)
the willful and continued failure by the Executive to substantially perform
the Executive's duties with the System (other than any such failure resulting
from the Executive's incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice of Termination
for Good Reason by the Executive pursuant to Section 7.1) after a written
demand for substantial performance is delivered to the Executive by the Board,
which demand specifically identifies the manner in which the Board believes
that the Executive has not substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in conduct which is demonstrably
and materially injurious to the System, monetarily or otherwise. For purposes
of clauses (i) and (ii) of this definition, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be done,
by the Executive not in good faith and without reasonable belief that the
Executive's act, or failure to act, was in the best interest of the System.
(E) A "Change in Control" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) any Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such Person any
securities acquired directly from the Company or its affiliates)
representing 20% or more of the combined voting power of the
Company's then outstanding securities; or
(II) during any period of not more than two consecutive
years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a director
designated by a Person who has entered into an agreement with the
Company to effect a transaction described in clause (I) of this
paragraph) whose election by the Board or nomination for election
by the Company's shareholders was approved or recommended by a
vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved or
recommended, cease for any reason to constitute a majority
thereof.
(F) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(G) "Company" shall mean New England Electric System and any
successor to its business and/or assets which assumes and agrees to perform
this Agreement by operation of law, or otherwise (except in determining, under
Section 15(E) hereof, whether or not any Change in Control or Major
Transaction has occurred in connection with such succession).
(H) "Date of Termination" shall have the meaning stated in
Section 7.2 hereof.
(I) "Disability" shall be deemed the reason for the termination
by the Employer of the Executive's employment, if, as a result of the
Executive's incapacity due to physical or mental illness, the Executive shall
have been absent from the full-time performance of the Executive's duties with
the System for a period of six consecutive months, the Company shall have
given the Executive a Notice of Termination for Disability, and, within thirty
days after such Notice of Termination is given, the Executive shall not have
returned to the full-time performance of the Executive's duties.
(J) "Disability Insurance Plan" shall mean the Company
Disability Insurance Plan or any successor thereto.
(K) "Employer" shall mean the NEES Company by which the
Executive is employed at the time of determination.
(L) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended from time to time.
(M) "Excise Tax" shall mean any excise tax imposed under section
4999 of the Code.
(N) "Executive" shall mean the individual named in the first
paragraph of this Agreement.
(O) "Good Reason" for termination by the Executive of the
Executive's employment shall mean the occurrence (without the Executive's
express written consent) of any one of the following acts by the System, or
failures by the System to act, unless, in the case of any act or failure to
act described in paragraph (I), (V), (VI), (VII), or (VIII) below, such act or
failure to act is corrected prior to the Date of Termination specified in the
Notice of Termination given in respect thereof:
(I) the assignment to the Executive of duties substantially
inconsistent with the Executive's status as an executive officer
of the System;
(II) a reduction in the Executive's annual base salary as
in effect on the date hereof or as the same may be increased from
time to time;
(III) requiring the Executive to be based at a location
more than 100 miles from the town of Westborough, Massachusetts,
except for required travel on the System's business to an extent
substantially consistent with the Executive's present business
travel obligations;
(IV) the failure by the Employer, to pay to the Executive
any portion of the Executive's compensation within seven days of
the date such compensation is due;
(V) the failure by the System to continue in effect any
compensation plan in which the Executive participates immediately
prior to the Change in Control or the Major Transaction which is
material to the Executive's total compensation, including but not
limited to the New England Electric Companies' Incentive
Compensation Plan I, New England Electric Companies' Incentive
Compensation Plan II, New England Electric Companies' Senior
Incentive Compensation Plan, New England Electric Companies'
Incentive Share Plan, New England Electric Systems Companies'
Deferred Compensation Plan and the New England Electric Companies'
Executive Supplemental Retirement Plan or any substitute plans
adopted prior to the Change in Control or Major Transaction,
unless an equitable arrangement (embodied in an ongoing substitute
or alternative plan) has been made with respect to such plan, or
the failure by the System to continue the Executive's
participation therein (or in such substitute or alternative plan)
on a basis not substantially less favorable, both in terms of the
amount of benefits provided and the level of the Executive's
participation relative to other participants, as existed at the
time of the Change in Control or Major Transaction;
(VI) the failure by the System to continue to provide the
Executive with benefits substantially similar to those enjoyed by
the Executive under any of the System's pension, life insurance,
medical, health and accident, or disability plans in which the
Executive was participating at the time of the Change in Control
or the Major Transaction, the taking of any action by the System
which would directly or indirectly materially reduce any of such
benefits or deprive the Executive of any material fringe benefit
enjoyed by the Executive at the time of the Change in Control or
Major Transaction, or the failure by the Employer to provide the
Executive with the number of paid vacation days to which the
Executive is entitled on the basis of years of service with the
NEES Companies in accordance with the Employer's normal vacation
policy in effect at the time of the Change in Control or Major
Transaction; or
(VII) any purported termination of the Executive's
employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of Section 7.1; for
purposes of this Agreement, no such purported termination shall be
effective.
The Executive's right to terminate the Executive's employment for
Good Reason shall not be affected by the Executive's incapacity due to
physical or mental illness. The Executive's continued employment shall not
constitute consent to, or a waiver of rights with respect to, any act or
failure to act constituting Good Reason hereunder.
(P) "Gross-Up Payment" shall have the meaning given in Section
6.2(a) hereof.
(Q) A "Major Transaction" shall be deemed to have occurred if
the conditions set forth in any one of the following paragraphs shall have
been satisfied:
(I) the shareholders of the Company approve a merger or
consolidation of the Company with any corporation or business
trust, other than (i) a merger or consolidation which would result
in the individuals who prior to such merger or consolidation
constitute the Board constituting at least two-thirds of the board
of directors of the Company or the surviving or succeeding entity
immediately after such merger or consolidation, or (ii) a merger
or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more
than 20% of the combined voting power of the Company's then
outstanding securities; or
(II) the shareholders of the Company approve a plan of
complete liquidation of the Company; or
(III) the shareholders of the Company approve an agreement
for the sale or disposition by the Company of all or substantially
all the Company's assets, other than a sale or disposition which
would result in the individuals who prior to such sale or
disposition constitute the Board constituting at least two-thirds
of the board of directors of the Person purchasing such assets
immediately after such sale or disposition.
(R) "NEES Companies" shall mean all NEES Companies,
collectively.
(S) "NEES Company" shall mean a subsidiary of the Company.
(T) "Notice of Termination" shall have the meaning stated in
Section 7.1 hereof.
(U) "Pension Plan" shall mean each of the plans and agreements
listed in Attachment A.
(V) "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (i) the Company or any NEES Company, (ii)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any NEES Company, (iii) an underwriter temporarily holding
securities pursuant to an offering of such securities, or (iv) a corporation
owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of shares of the
Company.
(W) "Potential Change in Control" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Change in Control;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Change in Control;
(III) any Person who is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing
10% or more of the combined voting power of the Company's then
outstanding securities, increases such Person's beneficial
ownership of such securities by 5% or more over the percentage so
owned by such Person on the date hereof unless such Person has
reported or is required to report such ownership (but less than
25%) on Schedule 13G under the Exchange Act (or any comparable or
successor report) or on Schedule 13D under the Exchange Act (or
any comparable or successor report) which Schedule 13D does not
state any intention to or reserve the right to control or
influence the management or policies of the Company or engage in
any of the actions specified in Item 4 of such Schedule (other
than the disposition of the common shares) and, within 10 business
days of being requested by the Company to advise it regarding the
same, certifies to the Company that such Person acquired such
securities of the Company in excess of 14.9% inadvertently and
who, together with its affiliates, thereafter does not acquire
additional securities while the Beneficial Owner of 15% or more of
the securities then outstanding; provided, however, that if the
Person requested to so certify fails to do so within 10 business
days, then such occurrence shall become a Potential Change in
Control immediately after such 10 business day period; or
(IV) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Change in Control has
occurred.
(X) "Potential Major Transaction" shall be deemed to have
occurred if the conditions set forth in any one of the following paragraphs
shall have been satisfied:
(I) the Company enters into an agreement, the consummation
of which would result in the occurrence of a Major Transaction;
(II) the Company or any Person publicly announces an
intention to take or to consider taking actions which, if
consummated, would constitute a Major Transaction; or
(III) the Board adopts a resolution to the effect that, for
purposes of this Agreement, a Potential Major Transaction has
occurred.
(Y) "Retirement" shall be deemed the reason for the termination
by the Employer or the Executive of the Executive's employment if such
employment is terminated in accordance with the Employer's written mandatory
retirement policy, if any, as in effect immediately prior to the Change in
Control or Major Transaction, or in accordance with any retirement arrangement
established with the Executive's written consent with respect to the
Executive.
(Z) "Severance Payments" shall mean those payments described in
Section 6.1 hereof.
(AA) "System" shall mean the Company and the NEES Companies,
collectively.
(BB) "Total Payments" shall mean those payments described in
Section 6.2 hereof.
New England Electric System
By /s/ George M. Sage
_______________________________________
Chairman of the Compensation Committee
/s/ Richard P. Sergel
_________________________________________
ATTACHMENT A
New England Electric System Companies' Final Average Pay Pension Plan I
New England Electric Companies' Executive Supplemental Retirement Plan