EXHIBIT 10.2
EMPLOYMENT AGREEMENT
(EXECUTED NOVEMBER 18, 2001)
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
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1. Employment Period........................................... 1
2. Terms of Employment......................................... 1
3. Termination of Employment................................... 4
4. Obligations of the Company upon Termination................. 6
5. Non-Exclusivity of Rights................................... 10
6. Full Settlement; Resolution of Disputes..................... 10
7. Certain Additional Payments by the Company.................. 10
8. Confidential Information.................................... 13
9. Change of Control........................................... 13
10. Successors.................................................. 16
11. Miscellaneous............................................... 16
</Table>
i
EMPLOYMENT AGREEMENT
This AGREEMENT (the "Agreement"), by and between CorvettePorsche Corp., a
Delaware Corporation ("New Parent"), Conoco Inc., a Delaware corporation (the
"Company"), and Archie W. Dunham (the "Executive"), is dated as of the 18 day of
November, 2001, and is to be effective as of the date of the consummation of the
transactions (collectively, the "Merger") contemplated by the Agreement and Plan
of Merger dated as of November 18, 2001, by and among Phillips Petroleum
Company, a Delaware corporation ("Phillips"), New Parent, Porsche Merger Corp.,
a Delaware corporation and wholly owned subsidiary of New Parent, Corvette
Merger Corp., a Delaware corporation and wholly owned subsidiary of New Parent,
and the Company ("the Merger Agreement") as of the same time as the consummation
of the Merger (the "Agreement Effective Date").
The Company and the Executive entered into an Employment Agreement
effective as of August 17, 1999, and as amended and restated as of October 19,
2000 (the "Prior Employment Agreement") pursuant to authorization by the Board
of Directors of the Company (the "Company Board") to provide the Executive with
substantial incentives to continue to serve the Company as Chairman of the
Company Board, President and Chief Executive Officer and a member of the Company
Board performing at the highest level of leadership and stewardship, without
distraction or concern over compensation, benefits or tenure, to manage the
Company's future growth and development, and to maximize the returns to the
Company's stockholders.
As the Merger will constitute a "Change of Control" under the Prior
Employment Agreement and the election of another individual as Chief Executive
Officer constitutes "Good Reason" under the Prior Employment Agreement, either
of which events triggers the Executive's right to terminate his employment and
receive certain compensation and benefits, and in consideration of the
Executive's entering into this Agreement, which results in substantial
modifications of the terms and conditions of the Executive's continuing
relationship with the Company, the parties agree that in lieu of the
compensation and benefits provided under the Prior Employment Agreement,
promptly following the Agreement Effective Date the Executive shall receive the
compensation and benefits set forth in Annex B, determined as of the Agreement
Effective Date without regard to any services performed or compensation earned
following the Agreement Effective Date.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Employment Period. As of the Agreement Effective Date, the
Company hereby agrees to continue to employ the Executive, and the
Executive hereby agrees to accept employment with the Company, in
accordance with, and subject to, the terms and provisions of this
Agreement, for the period commencing on the Agreement Effective Date and
ending on the date that is the later of (i) October 1, 2004 and (ii) the
second anniversary of the Agreement Effective Date. As used herein, the
term "Employment Period" means the period commencing on the Agreement
Effective Date and ending on the date that is the later of (i) October 1,
2004 and (ii) the second anniversary of the Agreement Effective Date.
2. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period, (i) the Executive shall be a
senior executive employee of New Parent and a member and Chairman of the
Board of Directors of New Parent (the "New Parent Board") and Chairman
of the Executive Committee of the New Parent Board, and (ii) the
Executive's services shall be performed at New Parent's headquarters in
the Houston, Texas metropolitan area. During the Employment Period: the
Executive shall preside at meetings of the New Parent Board and of New
Parent's shareholders; shall work with the Chief Executive Officer of
New Parent (the "CEO" or "Chief Executive Officer") on external
stakeholder relations (community, state, federal and foreign
governments), business development (growth) initiatives, and the
creation of an outstanding and cohesive New Parent Board; and shall have
such other executive responsibilities as he and the CEO may agree. While
the Executive is
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Chairman of the New Parent Board, the Executive and the CEO shall
jointly recommend to the New Parent Board the long-range strategic plan
for New Parent, major acquisitions and divestitures, and major changes
to New Parent's capital structure, and with respect to all other
matters, the CEO shall, in consultation with the Executive, arrange the
agenda for meetings of the New Parent Board, and shall report to the New
Parent Board and arrange for other executives and advisors to report to
the New Parent Board. At the conclusion of the Employment Period, the
Executive shall retire from employment with New Parent and as Chairman
of the New Parent Board but shall remain a member of the New Parent
Board, a member of the Executive Committee of the New Parent Board and
Chairman of the Committee on Directors' Affairs until his 70th birthday
(or earlier retirement from such positions), subject to being
periodically re-elected to the New Parent Board by New Parent's
shareholders; provided, that he shall be proposed for such re-election
whenever his then current term as a member of the New Parent Board is
set to expire before his 70th birthday. The duties and responsibilities
of the Executive may not be terminated or diminished during the
Employment Period other than pursuant to the affirmative vote of at
least two-thirds of the members of the New Parent Board (the "Required
Board Majority").
(ii) During the Employment Period, excluding any periods of
vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during normal
business hours to the business and affairs of the Company and, to the
extent necessary to discharge the responsibilities assigned to the
Executive hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Period, it shall not be a violation of this Agreement for the
Executive to (A) serve on corporate, civic or charitable boards or
committees, (B) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (C) manage personal investments. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Agreement
Effective Date, the continued conduct of such activities (or the conduct
of activities similar in nature and scope thereto) subsequent to the
Agreement Effective Date shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. During the Employment Period, Executive's
compensation and benefits shall be, both in the aggregate and with respect
to each element of compensation and benefits, the same as the Chief
Executive Officer. However, with respect to employee benefit plans,
programs and practices that were in effect prior to the Agreement Effective
Date for individuals who were salaried United States Company employees
(including senior executives) prior to the Agreement Effective Date (the
"Company Prior Arrangements"), participation by Executive in such programs
after the Agreement Effective Date, even if such arrangements provide
lesser benefits than those analogous arrangements provided the Chief
Executive Officer, shall satisfy any requirement in this Agreement that
Executive participate in, or be covered by, such an arrangement, but only
if (i) the analogous arrangements provided to the Chief Executive Officer
were in effect prior to the Agreement Effective Date ("Phillips Prior
Arrangements"), (ii) to the extent either of the Company Prior Arrangements
or Phillips Prior Arrangements are modified, both are similarly modified
and (iii) each of such arrangements continue to cover the applicable of
Company or Phillips United States salaried employees (including senior
executives) generally in the same manner as immediately prior to the
Agreement Effective Date. Notwithstanding any other provision of this
Agreement, neither the Executive's compensation and benefits set forth on
Annex B nor the Chief Executive Officer's Special Grants (as defined in the
Employment Agreement dated as of November 18, 2001 among New Parent,
Phillips and James J. Mulva) shall be taken into account in determining the
comparability of the compensation and benefits of the Executive to the
Chief Executive Officer.
(i) Base Salary. Commencing on the Agreement Effective Date,
during the Employment Period, the Executive shall receive an annual base
salary of not less than his annual base salary as in effect immediately
prior to the Agreement Effective Date ("Annual Base Salary"), which
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shall be paid in accordance with the Company's regular payroll
practices. Commencing on the January 1 following the Agreement Effective
Date, and thereafter during the Employment Period, the Annual Base
Salary shall be reviewed at least annually and shall be increased at any
time and from time to time as shall be substantially consistent with
competitive industry practice but in no event less than increases
consistent with increases in base salary generally awarded in the
ordinary course of business to the Chief Executive Officer, taking into
account the Executive's unique position with the Company and in no event
shall Annual Base Salary be less than that applicable to the Chief
Executive Officer. Any increase in Annual Base Salary shall not serve to
limit or reduce any other obligation to the Executive under this
Agreement. Annual Base Salary shall not be reduced after any such
increase, and the term "Annual Base Salary," as utilized in this
Agreement, shall refer to Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year or portion thereof
during the Employment Period, an Annual Bonus opportunity (the "Annual
Bonus") in an amount substantially consistent with competitive industry
practice, prorated for any period consisting of less than 12 full
months. The Annual Bonus shall not be less than the annual bonus paid to
the Chief Executive Officer for the same fiscal year or portion thereof.
(iii) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be entitled to participate in all
incentive, savings and retirement plans that are tax-qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended
("Code"), and in all plans that are supplemental to any such
tax-qualified plans, in each case to the extent that such plans are
applicable generally to other executives of the Company, but in no event
shall such plans provide the Executive with incentive opportunities
(measured with respect to both regular and special incentive
opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities
that are, in each case, less favorable to the Executive, in the
aggregate, than the most favorable plans of the Company. As used in this
Agreement, the term "most favorable" shall, when used with reference to
any plans, practices, policies or programs of the Company, be deemed to
refer to the plans, practices, policies or programs of the Company, as
in effect at any time during the Employment Period and provided
generally to the Chief Executive Officer or to other executives of the
Company, that are most favorable to the Executive.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under all
welfare benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
vision, disability, salary continuance, group life and supplemental
group life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other executives of the
Company, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits that are less favorable, in
the aggregate, than the most favorable such plans, practices, policies
and programs of the Company.
(v) Expenses. During the Employment Period, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in accordance with the most favorable
policies, practices and procedures of the Company.
(vi) Fringe Benefits and Perquisites. During the Employment
Period, the Executive shall be entitled to fringe benefits and
perquisites in accordance with the most favorable plans, practices,
programs and policies of the Company.
(vii) Office and Support Staff. During the Employment Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments at least equal to the most favorable
of the foregoing provided to the Executive by the Company at any time
during the Employment Period, and to secretarial and other assistance to
the extent needed to
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fulfill his corporate responsibilities at least equal to the most
favorable of the foregoing provided to the Executive by the Company at
any time during the Employment Period.
(viii) Vacation. During the Employment Period, the Executive shall
be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company.
(ix) Long-Term Incentive Compensation. In addition to Base Salary,
Annual Bonus and other elements of compensation described in Section
2(b) or otherwise in this Agreement, during the Employment Period, the
Executive periodically shall be awarded incentive compensation awards,
which may consist of, among other things, stock options, stock
appreciation rights, restricted stock, stock units or performance
awards, having in the aggregate target values consistent with each of
(A) the Executive's position and (B) competitive industry practice. Such
incentive compensation awards shall be substantially the same, both in
amount, exercise, strike or base price (if applicable) and other terms
and conditions, as those awarded to the Chief Executive Officer.
(x) Financial and Tax Planning. During the Employment Period, the
Executive shall be entitled to reimbursement of (A) reasonable expenses
incurred with respect to preparation of his personal income tax returns
and (B) reasonable costs of financial counseling (in either case,
including a complete gross up for any taxes incurred by the Executive as
a result of such reimbursement). Such reimbursement shall be
substantially the same, both in scope and other terms and conditions, as
those made available to the Chief Executive Officer.
(xi) Life Insurance. During the Employment Period, the Company
shall provide the Executive with term life insurance in an amount equal
to the Executive's Annual Base Salary multiplied by four, which
insurance may be provided through one or more group policies and/or the
purchase of an individual policy, as well as a complete gross up for any
taxes incurred by the Executive as a result of such insurance coverage.
The Executive agrees to submit to physical examinations as reasonably
requested by the Company for purposes of obtaining such insurance. Such
coverage shall be substantially the same, both in scope and other terms
and conditions, as made available to the Chief Executive Officer.
Notwithstanding the foregoing provisions of this Section 2(b), prior to a
Change of Control, the Company may reduce or modify amounts and benefits
described in this Section 2(b) to the extent that such changes are
applicable to all of the Company's senior executives, including the Chief
Executive Officer.
3. Termination of Employment.
(a) Death or Disability. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period. If
the Required Board Majority determines in good faith that a Disability of
the Executive has occurred during the Employment Period, it may give to the
Executive written notice in accordance with Section 11(d) of this Agreement
of its intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate effective on
the later of (i) the date the Executive would otherwise be placed on
permanent disability status under the Company's disability programs for
United States salaried employees and (ii) the 30th day after receipt of
such notice by the Executive, provided that, within the 30 days after such
receipt, the Executive shall not have returned to full-time performance of
the Executive's duties (such later date being the "Disability Effective
Date"). For purposes of this Agreement, "Disability" shall mean the absence
of the Executive from the Executive's duties with the Company on a
full-time basis for 180 consecutive business days as a result of incapacity
due to mental or physical illness or injury which is determined to be total
and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
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(b) Cause. The Company, acting pursuant to a resolution adopted by
the Required Board Majority, may terminate the Executive's employment
during the Employment Period with or without Cause. For purposes of this
Agreement, "Cause" shall mean the Company's termination pursuant to a
resolution adopted by the Required Board Majority of the Executive's
employment for any of the following: (i) the Executive's final conviction
of a felony crime against the Company involving moral turpitude or (ii) the
Executive's deliberate and intentional continuing failure to substantially
perform his duties and responsibilities hereunder (except by reason of the
Executive's incapacity due to physical or mental illness or injury) for a
period of 45 days after the Required Board Majority has delivered to the
Executive a written demand for substantial performance hereunder which
specifically identifies the bases for the Required Board Majority's
determination that the Executive has not substantially performed his duties
and responsibilities hereunder (that 45-day period being the "Grace
Period"); provided, that for purposes of this clause (ii), the Company
shall not have Cause to terminate the Executive's employment unless (A) at
a meeting of the New Parent Board called and held following the Grace
Period in the city in which the Company's principal executive offices are
located, of which the Executive was given not less than 10 days' prior
written notice and at which the Executive was afforded the opportunity to
be represented by counsel, to appear and to be heard, the Required Board
Majority shall adopt a written resolution that (1) sets forth the Required
Board Majority's determination that the failure of the Executive to
substantially perform his duties and responsibilities hereunder has (except
by reason of his incapacity due to physical or mental illness or injury)
continued past the Grace Period and (2) specifically identifies the bases
for that determination, and (B) the Company, at the written direction of
the Required Board Majority, shall deliver to the Executive a Notice of
Termination for Cause to which a copy of that resolution, certified as
being true and correct by the secretary or any assistant secretary of the
Company, is attached.
(c) Good Reason. The Executive's employment may be terminated during
the Employment Period by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
(i) the assignment to the Executive of any duties inconsistent in
any respect with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or any
other action by the Company which results in a diminution in such
position, authority, duties or responsibilities (whether or not
occurring solely as a result of the Company ceasing to be a publicly
traded entity or becoming a subsidiary of a publicly traded entity),
excluding for this purpose an isolated, insubstantial and inadvertent
action not taken in bad faith that is remedied by the Company promptly
after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of this Agreement not specifically addressed in parts (iii)
through (vi) below, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith that is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office outside the Houston, Texas metropolitan area;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement;
(v) the failure to continue the Executive as Chairman of the New
Parent Board; or
(vi) any failure by the Company to comply with and satisfy the
requirements of Section 10 of this Agreement; provided that (A) the
successor described in Section 10(c) has received, at least 10 days
prior to the Date of Termination (as defined in subparagraph (f) below),
written notice from the Company or the Executive of the requirements of
such provision, and (B) such
5
failure to be in compliance with and satisfy the requirements of Section
10 continues as of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company is
terminated within one year prior to the date on which the Change of Control
occurs, unless it is reasonably demonstrated by the Company that such
termination of employment (x) was not at the request of a third party who
has taken steps reasonably calculated to effect the Change of Control and
(y) otherwise did not arise in connection with or anticipation of the
Change of Control, then any such termination shall be deemed for Good
Reason.
(d) Other Termination by the Executive. The Executive's employment
(and status as a member of the New Parent Board) may be terminated
voluntarily by the Executive at any time during the Employment Period and,
if other than (i) at a time when the Executive is eligible to terminate his
employment for Good Reason or (ii) by retirement on or after the last day
of the Employment Period ("Retirement"), is referred to herein as an "Other
Termination by the Executive." The Executive agrees not to cause
termination of employment to occur within six months following a Change of
Control, except by reason of a Retirement, for Good Reason or Disability.
(e) Notice of Termination. Any termination shall be communicated by
Notice of Termination to the other party hereto given in accordance with
Section 11(d) of this Agreement. The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company hereunder or preclude the Executive
or the Company from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(f) Date of Termination. For purposes of this Agreement, the term
"Date of Termination" means (i) if the Executive's employment is terminated
by the Company for Cause, by the Executive for Good Reason, or as an Other
Termination by the Executive, the date of receipt of the Notice of
Termination or any later date specified therein, as the case may be, (ii)
if the Executive's employment is terminated by the Company other than for
Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, (iii) if the
Executive's employment is terminated by reason of death or Disability, the
Date of Termination shall be the date of death of the Executive or the
Disability Effective Date, as the case may be and (iv) if the Executive's
employment is terminated at the expiration of the Employment Period as
provided in Section 4(e), then the last day of the Employment Period.
4. Obligations of the Company upon Termination.
(a) Good Reason; Other than for Cause or Death or Disability. If,
during the Employment Period, (x) the Company shall terminate the
Executive's employment other than for Cause or death or Disability or (y)
the Executive shall terminate employment for Good Reason:
(i) the Company shall pay or provide to or in respect of the
Executive the following amounts and benefits:
A. in a lump sum in cash, within 10 days after the Date of
Termination, an amount equal to the sum of (1) the Executive's Annual
Base Salary through the Date of Termination, (2) at the election of
the Executive prior to the Date of Termination, any deferred
compensation previously awarded to or earned by the Executive
(together with any accrued interest or earnings thereon) and (3) any
compensation for unused vacation time for which the Executive is
eligible in accordance with the most favorable plans, policies,
programs and practices of the Company, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1),
(2) and (3) shall be hereinafter referred to as the "Accrued
Obligation");
B. in a lump sum in cash, within 10 days after the Date of
Termination, an amount equal to the product of (x) the Annual Bonus
(excluding for this purpose any payments set
6
forth on Annex B) paid or awarded by the Company to or for the
benefit of the Executive in respect of the fiscal year immediately
preceding the Date of Termination and (y) a fraction, the numerator
of which is the number of days in the current fiscal year through the
Date of Termination and the denominator of which is 365;
C. in a lump sum in cash, undiscounted, within 10 days after
the Date of Termination, an amount equal to the amount of Annual Base
Salary that would have been paid to the Executive pursuant to this
Agreement for the period (the "Remaining Employment Period")
beginning on the Date of Termination and ending on the date that is
the last day of the Employment Period (the "Final Expiration Date")
if the Executive's employment had not been terminated plus the Annual
Bonus that would have been paid or awarded to or for the benefit of
the Executive during the Remaining Employment Period if the
Executive's employment had not been terminated and if the amount of
the Annual Bonus (excluding for this purpose any payments set forth
on Annex B) for each fiscal year or portion thereof during such
period were equal to the average of the two highest Annual Bonuses
paid or awarded to or for the benefit of the Executive in respect of
the three full fiscal years preceding the Date of Termination,
prorated in the case of any period of less than a full fiscal year;
D. in a lump sum in cash, undiscounted, within 30 days after
the Date of Termination, an amount equal to the economic equivalent
of the benefits the Executive (and his dependents or beneficiaries)
would have received or become entitled to under Section 2(b)(iii) of
this Agreement for the Remaining Employment Period if the Executive's
employment had not been terminated;
E. effective as of the Date of Termination, (1) if the
Executive has not received a grant of stock options in respect of any
calendar year during the Employment Period or the Remaining
Employment Period, for each such calendar year, a stock option grant
covering the same number of shares and on the same terms and
conditions as the average of the prior stock option grants to the
Executive for the three full fiscal years preceding the Date of
Termination (excluding for this purpose any grant pursuant to Annex
B), prorated in the case of any period of less than a full fiscal
year, and (2) if the Executive has not received a grant of restricted
stock and/or restricted stock units and/or other similar equity-based
awards in respect of any calendar year during the Employment Period
or the Remaining Employment Period, for each such calendar year, a
grant covering the same number of shares and on the same terms and
conditions as the average of the prior grants of such awards to the
Executive for the three full fiscal years preceding the Date of
Termination (excluding for this purpose any grant pursuant to Annex
B), prorated in the case of any period of less than a full fiscal
year; provided that any awards required by (1) or (2) shall be
prorated based on the length of the Remaining Employment Period as
compared to the customary terms of such awards for purposes of a
recipient becoming entitled to full vesting in such award; and
F. effective as of the Date of Termination, (1) immediate
vesting and exercisability of, and termination of any restrictions on
sale or transfer (other than any such restriction arising by
operation of law) with respect to, each and every stock option,
restricted stock award, restricted stock unit award and other
equity-based award and performance award that is outstanding as of
the Date of Termination (including, without limitation, each of the
foregoing granted pursuant to Section 4(a)(i)(E)) (each, a
"Compensatory Award"), (2) the extension of the term during which
each and every Compensatory Award may be exercised by the Executive
until the earlier of (x) the first anniversary of the Date of
Termination or (y) the date upon which the right to exercise any
Compensatory Award would have expired if the Executive had continued
to be employed by the Company under the terms of this Agreement until
the Final Expiration Date and (3) if a Change of Control precedes or
occurs within one year following the Date of Termination, at the sole
election of
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the Executive, in exchange for any or all Compensatory Awards that
are either denominated in or payable in Common Stock (as defined in
Section 9 hereof), an amount in cash equal to the excess of (x) the
Highest Price Per Share over (y) the exercise or purchase price, if
any, of such Compensatory Awards. As used herein, the term "Highest
Price Per Share" shall mean the highest price per share that can be
determined to have been paid or agreed to be paid for any share of
Common Stock by a Covered Person (as defined below) at any time
during the six-month period immediately preceding any Change of
Control. As used herein, the term "Covered Person" shall mean any
Person other than an Exempt Person (in each case as defined in
Section 9 hereof) who (I) is the Beneficial Owner (as defined in
Section 9 hereof) of 20% or more of the outstanding shares of Common
Stock or 20% or more of the combined voting power of the outstanding
Voting Stock (as defined in Section 9 hereof) of the Company at any
time during the Employment Period, (II) is a Person who has any
material involvement in proposing or effectuating the Change of
Control (as defined in Section 9 hereof), (III) is an assignee of or
has otherwise succeeded to any shares of Common Stock or Voting Stock
of the Company which were at any time during the Employment Period
"beneficially owned" (as defined in Section 9 hereof) by any Person
identified in clause (I) or (II) of this definition, if such
assignment or succession shall have occurred in the course of a
privately negotiated transaction rather than an open market
transaction, or (IV) is described in Section 3(c)(vi) hereof. For
purposes of determining whether a Person is a Covered Person, the
number of shares of Common Stock or Voting Stock of the Company
deemed to be outstanding shall include shares of which the Person is
deemed the Beneficial Owner, but shall not include any other shares
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon exercise of conversion rights, warrants or
options. In determining the Highest Price Per Share, the price paid
or agreed to be paid by a Covered Person will be appropriately
adjusted to take into account (W) distributions paid or payable in
stock, (X) subdivisions of outstanding stock, (Y) combinations of
shares of stock into a smaller number of shares and (Z) similar
events.
(ii) for the period extending until the later of (A) the third
anniversary of the Date of Termination or (B) the date the Executive
attains age 70, or such longer period as any plan, program, practice or
policy may provide (the "Benefit Continuation Period"), the Company
shall continue benefits to the Executive and/or the Executive's family
at least equal to those which would have been provided to them in
accordance with the most favorable plans, programs, practices and
policies described in Sections 2(b)(iv) of this Agreement if the
Executive's employment had not been terminated, provided that the
obligation of the Company to provide these benefits shall cease upon the
Executive's refusal to serve as a member of the New Parent Board. For
purposes of determining eligibility of the Executive for retiree
benefits pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the Final
Expiration Date and to have retired on such date;
(iii) for the Remaining Employment Period, to the extent not
previously paid or provided, the Company shall timely pay or provide to
the Executive and/or the Executive's family any other amounts or
benefits required to be paid or provided, or which the Executive and/or
the Executive's family is eligible to receive as of the Date of
Termination, pursuant to this Agreement and under any plan, program,
policy or practice or contract or agreement of the Company as in effect
and applicable generally to other executives and their families on the
Agreement Effective Date or, if more favorable to the Executive, as in
effect generally thereafter and on or prior to the Date of Termination
with respect to other executives of the Company and their families (such
other amounts and benefits shall be hereinafter referred to as the
"Other Benefits");
(iv) upon the Executive's termination of employment described in
Section 4(a), the Executive shall receive Post-Employment Compensation
during the Benefit Continuation Period as described in Section 4(f); and
8
(v) unless otherwise provided herein, until the Executive (or any
family member or family entity assignee of the Executive) no longer
holds any stock options granted by the Company to the Executive, the
Company will provide to the Executive at no cost to the Executive
(including a complete gross up for any taxes incurred by the Executive
as a result of receiving such benefits), the benefits described in
Sections 2(b)(x) and 2(b)(xi), but in no event beyond the date of death
of the Executive.
(b) Death or Disability. If the Executive's employment is terminated
by reason of the Executive's death or Disability during the Employment
Period (regardless of whether a Change of Control has occurred), this
Agreement shall terminate without further obligations to the Executive
under this Agreement, other than the payment of Accrued Obligations, which
shall be paid to the Executive, or the Executive's estate or beneficiary,
as applicable, in a lump sum in cash within 30 days after the Date of
Termination, and the provision of the Other Benefits.
(c) Cause. If the Executive's employment shall be terminated for
Cause during the Employment Period, this Agreement shall terminate without
further obligations to the Executive under this Agreement, other than the
payment of the Accrued Obligations. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days after
the Date of Termination.
(d) Other Termination by the Executive: If an Other Termination by
the Executive occurs during the Employment Period, this Agreement shall
terminate without further obligations to the Executive under this
Agreement, other than the payment of Accrued Obligations and the provision
of the Other Benefits. In such case, all Accrued Obligations shall be paid
to the Executive in a lump sum in cash within 30 days after the Date of
Termination.
(e) Expiration of Employment Period. Notwithstanding any other
provision of this Agreement, if the Executive remains employed until the
expiration of the Employment Period, upon any termination of employment at
or after such expiration, (i) the Executive shall be entitled to payment of
the Accrued Obligation as described in Section 4(a)(i)(A) as though the
termination of employment was a termination by the Executive with Good
Reason and (ii) each and every Compensatory Award, as defined in Section
4(a)(i)(F)(1), shall be immediately vested and exercisable, and any
restrictions on sale or transfer (other than any such restrictions arising
by operation of law) with respect to such awards shall lapse. Immediately
upon such a termination, the Executive shall receive the Post-Employment
Compensation as described in Section 4(f), provided that the obligation of
Company to provide these benefits shall cease upon the Executive's refusal
to serve as a member of the New Parent Board. It is contemplated by the
parties that the Executive shall serve as a member of the New Parent Board
during the Benefit Continuation Period.
(f) Post-Employment Compensation. As used herein, Post-Employment
Compensation shall mean, during the Benefit Continuation Period:
(i) continued participation in the Directors' Charitable Gift Plan;
(ii) continued participation in the benefit plans described in
Section 2(b)(iv);
(iii) continued coverage under the comprehensive security program
the Executive participated in pursuant to Section 11(b) during
employment, in the same manner and providing the same level of security
protection as in effect on the date of execution of this Agreement, and
in any event on a basis no less favorable than the coverage provided to
the Chief Executive Officer, including both company-provided air and
ground transportation and home security protection and a complete gross
up for any taxes incurred by the Executive as a result of such continued
coverage, and
(iv) continued participation in the Conoco Domestic Relocation
Policy with respect to a single relocation, at the election of the
Executive.
9
5. Non-Exclusivity of Rights. Except as provided in Section 4 of
this Agreement, nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy
or practice provided by the Company and for which the Executive may
qualify, nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any contract or agreement with the Company.
Amounts which are vested benefits or which the Executive is otherwise
entitled to receive under any plan, policy, practice or program of, or any
contract or agreement with, the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice
or program or contract or agreement except as such plan, policy, practice
or program or contract or agreement is superseded by this Agreement.
6. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make payments provided for in this
Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set off, counterclaim, recoupment, defense, mitigation or
other claim, right or action which the Company may have against the
Executive or others. The Company agrees to pay promptly as incurred, to the
fullest extent permitted by law, all legal fees and expenses that the
Executive may reasonably incur as a result of any contest (regardless of
the outcome thereof) by the Company, the Executive or others as to the
validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of
any contest by the Executive about the amount of any such payment pursuant
to this Agreement) plus, in each case, interest on any delayed payment at
the annual percentage rate which is three percentage points above the
interest rate shown as the Prime Rate in the Money Rates column in the then
most recently published edition of The Wall Street Journal (Southwest
Edition), or, if such rate is not then so published on at least a weekly
basis, the interest rate announced by Chase Bank Texas, N.A. (or its
successor), from time to time, as its "Base Rate" (or prime lending rate),
from the date those amounts were required to have been paid or reimbursed
to the Executive until those amounts are finally and fully paid or
reimbursed; provided, however, that in no event shall the amount of
interest contracted for, charged or received hereunder exceed the maximum
non-usurious amount of interest allowed by applicable law.
(b) If there shall be any dispute between the Company and the
Executive concerning (i) in the event of any termination of the Executive's
employment by the Company, whether such termination was for Cause or
Disability, (ii) in the event of any termination of employment by the
Executive, whether Good Reason existed, (iii) whether termination occurred
after expiration of the Employment Period or in contemplation of or
following a Change of Control, (iv) the compensation or benefits to be
provided in respect of any termination of the Executive's employment with
the Company or as Post-Employment Compensation, or (v) the compensation and
benefits to be provided to Executive as described in Annex B on or after
the Agreement Effective Date, then, unless and until there is a final,
nonappealable judgment by a court of competent jurisdiction declaring that
such termination was for Cause or Disability or that the determination by
the Executive of the existence of Good Reason was improper or that the
termination did not occur in contemplation of or following a Change of
Control or after expiration of the Employment Period, or that the Executive
or the Executive's beneficiary or estate claimed improper benefits upon
termination or as Post-Employment Compensation, the Company shall pay all
amounts, and provide all benefits, to the Executive and/or the Executive's
family or other beneficiaries, as the case may be, that the Company would
be required to pay or provide pursuant to the applicable provisions of
Section 4 hereof as though such termination were by the Company without
Cause or in contemplation of or following a Change of Control or by the
Executive with Good Reason or by either party after expiration of the
Employment Period, or the benefits that the Executive or the Executive's
beneficiary or estate claimed were properly payable hereunder.
7. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any
Payment would be subject to the Excise Tax, then the
10
Executive shall be entitled to receive an additional payment (the "Gross-Up
Payment") in an amount such that, after payment by the Executive of all
taxes (and any interest or penalties imposed with respect to such taxes),
including, without limitation, any income and employment taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed
upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments. The Company's
obligation to make Gross-Up Payments under this Section 7 shall not be
conditioned upon the Executive's termination of employment.
(b) Subject to the provisions of Section 7(c), all determinations
required to be made under this Section 7, including whether and when a
Gross-Up Payment is required, the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made
by PricewaterhouseCoopers LLP or such other nationally recognized certified
public accounting firm as may be designated by the Executive (the
"Accounting Firm"). The Accounting Firm 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 Merger (as defined in the Merger Agreement)
or the Change of Control, the Executive may 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). The Accounting Firm shall not determine that no Excise Tax is
payable by the Executive unless it delivers to the Executive a written
opinion (the "Accounting Opinion") that failure to report the Excise Tax on
the Executive's applicable federal income tax return would not result in
the imposition of a negligence or similar penalty. All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 7, shall be paid by the
Company to the Executive within 5 days of the receipt of the Accounting
Firm's determination. 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 that will not have been made by the Company should have
been made (the "Underpayment"), consistent with the calculations required
to be made hereunder. In the event the Company exhausts its remedies
pursuant to Section 7(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 or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claims 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 30 days after the Executive actually
receives notice 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; provided, however, that the failure of the Executive to notify the
Company of such claim (or to provide any required information with respect
thereto) shall not affect any rights granted to the Executive under this
Section 7 except to the extent that the Company is materially prejudiced in
the defense of such claim as a direct result of such failure. The Executive
shall not pay such claim prior to the expiration of the 30-day period
following the date on which the Executive 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 the Company 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
11
representation with respect to such claim by an attorney selected by the
Company and reasonably acceptable to the Executive;
(iii) cooperate with the Company in good faith in order to
effectively 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 or employment
tax (including interest and penalties) imposed as a result of such
representation and payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 7(c), the Company shall control all
proceedings taken in connection with such contest, and, at its sole
discretion, may pursue or forgo any and all administrative appeals,
proceedings, hearings and conferences with the applicable taxing authority
in respect of such claim and may, at its sole discretion, either direct the
Executive to pay the tax claimed and sue 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 sue 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) imposed
with respect to such advance or with respect to any imputed income in
connection with such advance; and provided, further, 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 the 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 Section 7(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 Section 7(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
Section 7(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.
(e) Notwithstanding any other provision of this Section 7, the Company
may, in its sole discretion, withhold and pay over to the Internal Revenue
Service or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of the Gross-Up Payment, and the Executive
hereby consents to such withholding.
(f) Definitions. The following terms shall have the following
meanings for purposes of this Section 7.
(i) "Excise Tax" shall mean the excise tax imposed by Section 4999
of the Code, together with any interest or penalties imposed with
respect to such excise tax.
(ii) A "Payment" shall mean any payment or distribution in the
nature of compensation (within the meaning of Section 280G(b)(2) of the
Code) to or for the benefit of the Executive, whether paid or payable
pursuant to this Agreement or otherwise.
12
8. Confidential Information. The Executive shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the Company or any of its
affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the
Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement) (referred to herein as
"Confidential Information"). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior
written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise
payable to the Executive under this Agreement. Also, within 14 days after
the termination of Executive's employment for any reason, the Executive
shall return to Company all documents and other tangible items containing
Company information which are in the Executive's possession, custody or
control.
9. Change of Control. As used in this Agreement, the terms set forth
below shall have the following respective meanings:
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2
of the General Rules and Regulations under the Exchange Act, as in effect
on the date of this Agreement.
"Associate" shall mean, with reference to any Person, (a) any
corporation, firm, partnership, association, unincorporated organization or
other entity (other than New Parent or a subsidiary of New Parent) of which
such Person is an officer or general partner (or officer or general partner
of a general partner) or is, directly or indirectly, the Beneficial Owner
of 10% or more of any class of equity securities, (b) any trust or other
estate in which such Person has a substantial beneficial interest or as to
which such Person serves as trustee or in a similar fiduciary capacity and
(c) any relative or spouse of such Person, or any relative of such spouse,
who has the same home as such Person.
"Beneficial Owner" shall mean, with reference to any securities, any
Person if:
(a) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, is the "beneficial owner" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on the date of this Agreement) such
securities or otherwise has the right to vote or dispose of such
securities, including pursuant to any agreement, arrangement or
understanding (whether or not in writing); provided, however, that a
Person shall not be deemed the "Beneficial Owner" of, or to
"beneficially own," any security under this subsection (a) as a result
of an agreement, arrangement or understanding to vote such security if
such agreement, arrangement or understanding: (i) arises solely from a
revocable proxy or consent given in response to a public (i.e., not
including a solicitation exempted by Rule 14a-2(b)(2) of the General
Rules and Regulations under the Exchange Act) proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act
and (ii) is not then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report);
(b) such Person or any of such Person's Affiliates and Associates,
directly or indirectly, has the right or obligation to acquire such
securities (whether such right or obligation is exercisable or effective
immediately or only after the passage of time or the occurrence of an
event) pursuant to any agreement, arrangement or understanding (whether
or not in writing) or upon the exercise of conversion rights, exchange
rights, other rights, warrants or options, or otherwise; provided,
however, that a Person shall not be deemed the Beneficial Owner of, or
to "beneficially own," (i) securities tendered pursuant to a tender or
exchange offer made by such Person or any of such Person's Affiliates or
Associates until such tendered securities are accepted for purchase or
exchange or (ii) securities issuable upon exercise of Exempt Rights; or
13
(c) such Person or any of such Person's Affiliates or Associates
(i) has any agreement, arrangement or understanding (whether or not in
writing) with any other Person (or any Affiliate or Associate thereof)
that beneficially owns such securities for the purpose of acquiring,
holding, voting (except as set forth in the proviso to subsection (a) of
this definition) or disposing of such securities or (ii) is a member of
a group (as that term is used in Rule 13d-5(b) of the General Rules and
Regulations under the Exchange Act) that includes any other Person that
beneficially owns such securities;
provided, however, that nothing in this definition shall cause a Person
engaged in business as an underwriter of securities to be the Beneficial
Owner of, or to "beneficially own," any securities acquired through such
Person's participation in good faith in a firm commitment underwriting
until the expiration of 40 days after the date of such acquisition. For
purposes hereof, "voting" a security shall include voting, granting a
proxy, consenting or making a request or demand relating to corporate
action (including, without limitation, a demand for a stockholder list, to
call a stockholder meeting or to inspect corporate books and records) or
otherwise giving an authorization (within the meaning of Section 14(a) of
the Exchange Act) in respect of such security.
The terms "beneficially own" and "beneficially owning" shall have
meanings that are correlative to this definition of the term "Beneficial
Owner."
"Change of Control" shall mean the first to occur of any of the
following occurring after the Agreement Effective Date (it being understood
and agreed that for purposes of this Agreement, neither the Merger, nor
approval by the shareholders of Phillips or the Company thereof, shall
constitute a "Change of Control" under this Agreement):
(a) any Person (other than an Exempt Person) shall become the
Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding or 20% or more of the combined voting power of the Voting
Stock of New Parent then outstanding; provided, however, that no Change
of Control shall be deemed to occur for purposes of this subsection (a)
if such Person shall become a Beneficial Owner of 20% or more of the
shares of Common Stock or 20% or more of the combined voting power of
the Voting Stock of New Parent solely as a result of (i) an Exempt
Transaction or (ii) an acquisition by a Person pursuant to a
reorganization, merger or consolidation, if, following such
reorganization, merger or consolidation, the conditions described in
clauses (i), (ii) and (iii) of subsection (c) of this definition are
satisfied;
(b) individuals who, immediately following the consummation of the
Merger, constitute the New Parent Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the New Parent
Board; provided, however, that any individual becoming a director
thereafter whose election, or nomination for election by New Parent's
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board; provided,
further, that there shall be excluded, for this purpose, any such
individual whose initial assumption of office occurs as a result of any
actual or threatened election contest that is subject to the provisions
of Rule 14a-11 of the General Rules and Regulations under the Exchange
Act;
(c) the shareholders of New Parent shall approve a reorganization,
merger or consolidation, in each case, unless, following such
reorganization, merger or consolidation, (i) more than 70% of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation and the combined voting
power of the then outstanding Voting Stock of such corporation
beneficially owned, directly or indirectly, by all or substantially all
of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such reorganization, merger or consolidation
in substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
outstanding Common Stock, (ii) no Person (excluding any Exempt Person or
any Person beneficially owning, immediately prior to such
reorganization, merger or consolidation, directly or indirectly, 20% or
more of the Common Stock then outstanding or 20% or more of the combined
14
voting power of the Voting Stock of New Parent then outstanding)
beneficially owns, directly or indirectly, 20% or more of the then
outstanding shares of common stock of the corporation resulting from
such reorganization, merger or consolidation or the combined voting
power of the then outstanding Voting Stock of such corporation and (iii)
at least a majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the
initial agreement or initial action by the New Parent Board providing
for such reorganization, merger or consolidation; or
(d) the shareholders of New Parent shall approve (i) a complete
liquidation or dissolution of New Parent unless such liquidation or
dissolution is approved as part of a plan of liquidation and dissolution
involving a sale or disposition of all or substantially all of the
assets of New Parent to a corporation with respect to which, following
such sale or other disposition, all of the requirements of clauses
(ii)(A), (B) and (C) of this subsection (d) are satisfied, or (ii) the
sale or other disposition of all or substantially all of the assets of
New Parent, other than to a corporation, with respect to which,
following such sale or other disposition, (A) more than 70% of the then
outstanding shares of common stock of such corporation and the combined
voting power of the Voting Stock of such corporation is then
beneficially owned, directly or indirectly, by all or substantially all
of the Persons who were the Beneficial Owners of the outstanding Common
Stock immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior
to such sale or other disposition, of the outstanding Common Stock, (B)
no Person (excluding any Exempt Person and any Person beneficially
owning, immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the Common Stock then outstanding or 20% or
more of the combined voting power of the Voting Stock of New Parent then
outstanding) beneficially owns, directly or indirectly, 20% or more of
the then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding Voting Stock of such
corporation and (C) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement or initial action of the
New Parent Board providing for such sale or other disposition of assets
of New Parent.
"Common Stock" shall mean the common stock, par value $.01 per share,
of New Parent.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Exempt Person" shall mean any of New Parent, any subsidiary of New
Parent, any employee benefit plan of New Parent or any subsidiary of New
Parent, and any Person organized, appointed or established by New Parent
for or pursuant to the terms of any such plan.
"Exempt Rights" shall mean any rights to purchase shares of Common
Stock or other Voting Stock of New Parent if at the time of the issuance
thereof such rights are not separable from such Common Stock or other
Voting Stock (i.e., are not transferable otherwise than in connection with
a transfer of the underlying Common Stock or other Voting Stock), except
upon the occurrence of a contingency, whether such rights exist as of the
Agreement Effective Date or are thereafter issued by New Parent as a
dividend on shares of Common Stock or other Voting Securities or otherwise.
"Exempt Transaction" shall mean an increase in the percentage of the
outstanding shares of Common Stock or the percentage of the combined voting
power of the outstanding Voting Stock of New Parent beneficially owned by
any Person solely as a result of a reduction in the number of shares of
Common Stock then outstanding due to the repurchase of Common Stock or
Voting Stock by New Parent, unless and until such time as (a) such Person
or any Affiliate or Associate of such Person shall purchase or otherwise
become the Beneficial Owner of additional shares of Common Stock
constituting 1% or more of the then outstanding shares of Common Stock or
additional Voting Stock representing 1% or more of the combined voting
power of the then outstanding Voting Stock, or (b) any other Person (or
Persons) who is (or collectively are) the Beneficial Owner of shares of
Common Stock constituting 1% or more of the then outstanding shares of
Common Stock or Voting
15
Stock representing 1% or more of the combined voting power of the then
outstanding Voting Stock shall become an Affiliate or Associate of such
Person.
"Person" shall mean any individual, firm, corporation, partnership,
association, trust, unincorporated organization or other entity.
"Voting Stock" shall mean, with respect to a corporation, all
securities of such corporation of any class or series that are entitled to
vote generally in the election of directors of such corporation (excluding
any class or series that would be entitled so to vote by reason of the
occurrence of any contingency, so long as such contingency has not
occurred).
10. Successors.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of, and be enforceable by, the
Executive's heirs, executors and other legal representatives.
(b) This Agreement shall inure to the benefit of, and be binding upon,
the Company and may only be assigned to a successor described in Section
10(c).
(c) As of the Agreement Effective Date, New Parent shall be
substituted for the Company as the obligor under this Agreement, and each
reference to the Company with respect to periods on or after the Agreement
Effective Date shall be replaced with a reference to New Parent, and each
reference to the Company with respect to periods prior to the Agreement
Effective Date shall mean Conoco Inc., except where the context requires
otherwise. 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 assume
expressly 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. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Miscellaneous.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, without reference to principles of
conflict of laws that would require the application of the laws of any
other state or jurisdiction.
(b) The Executive acknowledges that the Company currently has and may
in the future institute comprehensive security programs associated with the
Executive and his position with the Company. The Executive further
acknowledges that such programs are instituted by the Company to protect
the Company's interest in the Executive's continued performance of his
responsibilities as Chairman of the New Parent Board. To that end, the
Executive agrees to comply with such programs and, to the extent
practicable, to cause members of his family to comply with such programs if
such individuals are covered thereby. The Executive further acknowledges
that the Company has a substantial interest in the health of the Executive
and agrees to comply with preventive medical policies and programs
established by the Company. Such policies currently include a requirement
that the Executive annually obtain a complete physical examination at the
Johns Hopkins Medical Center (or another facility of similar stature at the
election of the Executive).
(c) This Agreement may not be amended or modified otherwise than by a
written agreement executed by the parties hereto or their respective
successors and heirs, executors and other legal representatives.
(d) All notices and other communications hereunder shall be in writing
and shall be given, if by the Executive to the Company, by telecopy or
facsimile transmission at the telecommunications
16
number set forth below and, if by either the Company or the Executive,
either by hand delivery to the other party or by registered or certified
mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Archie W. Dunham
Conoco Inc.
600 North Dairy Ashford
Petroleum Building, Suite PE3034
Houston, Texas 77079-6651
If to the Company:
Conoco Inc. or New Parent
600 North Dairy Ashford
Houston, Texas 77079-6651
Telecommunications Number: (281) 293-1054
Attention: General Counsel
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(e) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(f) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(g) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert
any right the Executive or the Company may have hereunder, including,
without limitation, the right of the Executive to terminate employment for
Good Reason pursuant to Section 3(c) of this Agreement, shall not be deemed
to be a waiver of such provision or right or any other provision or right
of this Agreement.
(h) As of the Agreement Effective Date, but not before, this Agreement
supersedes the Prior Employment Agreement. The provisions of this Agreement
shall govern in the event of a conflict or inconsistency with respect to
any other agreement concerning Executive's employment relationship with the
Company, including the provisions of any benefit plan, program or practice.
(i) This Agreement shall be effective as of the Agreement Effective
Date.
17
IN WITNESS WHEREOF, the Executive has hereunto set his hand and, pursuant
to the authorization from the Company, Board and the New Parent Board,
respectively, the Company and New Parent each have caused these presents to be
executed in its name on its behalf.
CONOCO INC.
By:
--------------------------------------
Thomas C. Knudson
Senior Vice President
Human Resources, Information
Management and Corporate
Communications
CORVETTEPORSCHE CORP.
By:
--------------------------------------
--------------------------------------
--------------------------------------
--------------------------------------
Archie W. Dunham
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ANNEX A
CERTAIN DEFINITIONS
Accounting Firm is defined in Section 7(b).
Accounting Opinion is defined in Section 7(b).
Accrued Obligation is defined in Section 4(a)(i)(A).
Affiliate is defined in Section 9.
Agreement Effective Date is defined in the Preamble.
Annual Base Salary is defined in Section 2(b)(i).
Annual Bonus is defined in Section 2(b)(ii).
Associate is defined in Section 9.
Base Rate is defined in Section 6(a)
Beneficial Owner is defined in Section 9.
Benefit Continuation Period is defined in Section 4(a)(ii).
Cause is defined in Section 3(b).
Change of Control is defined in Section 9.
Chief Executive Officer or CEO is defined in Section 2(a).
Code is defined in Section 2(b)(iii).
Common Stock is defined in Section 9.
Company is defined in the Preamble and in Section 10(c).
Company Board is defined in the Preamble.
Company Prior Arrangements is defined in Section 2(b).
Compensatory Award is defined in Section 4(a)(i)(F).
Confidential Information is defined in Section 8.
Covered Person is defined in Section 4(a)(i)(F).
Date of Termination is defined in Section 3(f).
Directors' Charitable Gift Plan is referenced in Section 4(f).
Disability is defined in Section 3(a).
Disability Effective Date is defined in Section 3(a).
Employment Period is defined in Section 1.
Exchange Act is defined in Section 9.
Excise Tax is defined in Section 7(f).
Executive is defined in the Preamble.
Exempt Person is defined in Section 9.
Exempt Rights is defined in Section 9.
Exempt Transaction is defined in Section 9.
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Final Expiration Date is defined in Section 4(a)(i)(C).
Good Reason is defined in Section 3(c).
Grace Period is defined in Section 3(b).
Gross-Up Payment is defined in Section 7(a).
Highest Price Per Share is defined in Section 4(a)(i)(F).
Incumbent Board is defined in Section 9.
Merger is defined in the Preamble.
Merger Agreement is defined in the Preamble.
Most Favorable is defined in Section 2(b)(iii).
New Parent is defined in the Preamble.
New Parent Board is defined in the Preamble.
Other Benefits is defined in Section 4(a)(iii).
Other Termination by the Executive is defined in Section 3(d).
Payment is defined in Section 7(f).
Person is defined in Section 9.
Phillips is defined in the Preamble.
Phillips Prior Arrangements is defined in Section 2(b).
Post-Employment Compensation is defined in Section 4(f).
Prior Compensatory Award is defined in Annex B, Section (i)(E).
Prior Employment Agreement is defined in the Preamble.
Prior Final Expiration Date is defined in Annex B, Section (i)(B).
Remaining Employment Period is defined in Section 4(a)(i)(C).
Remaining Prior Employment Period is defined in Annex B, Section (i)(B).
Required Board Majority is defined in Section 2(a).
Retirement is defined in Section 3(d).
Underpayment is defined in Section 7(b).
Voting is defined in Section 9.
Voting Stock is defined in Section 9.
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ANNEX B
In consideration for the execution of this Agreement, New Parent, the
Company and the Executive hereby agree to the following:
(i) promptly following the Agreement Effective Date, the Company shall
pay or provide to or in respect of the Executive the following amounts and
benefits:
A. in a lump sum in cash, within 10 days after the Agreement
Effective Date, an amount equal to the sum of (1) the Executive's Annual
Base Salary (as defined in the Prior Employment Agreement) through the
Agreement Effective Date, (2) any deferred compensation previously
awarded to or earned by the Executive (together with any accrued
interest or earnings thereon) and (3) any compensation for unused
vacation time for which the Executive is eligible in accordance with the
most favorable plans, policies, programs and practices of the Company,
in each case to the extent not theretofore paid;
B. in a lump sum in cash, undiscounted, within 10 days after the
Agreement Effective Date, an amount equal to the sum of (i) the amount
of Annual Base Salary (as defined in the Prior Employment Agreement)
that would have been paid to the Executive pursuant to the Prior
Employment Agreement for the period (the "Remaining Prior Employment
Period") beginning on the Agreement Effective Date and ending on the
date that is three years following the Agreement Effective Date (the
"Prior Final Expiration Date") if the Executive's employment had
continued uninterrupted pursuant to the Prior Employment Agreement and
(ii) the Annual Bonus (as defined in the Prior Employment Agreement)
that would have been paid or awarded to or for the benefit of the
Executive during the Remaining Prior Employment Period if the
Executive's employment continued uninterrupted pursuant to the Prior
Employment Agreement and if the amount of the Annual Bonus (as defined
in the Prior Employment Agreement) for each fiscal year or portion
thereof during such period were equal to the average of the two highest
Annual Bonuses (as defined in the Prior Employment Agreement) paid or
awarded to or for the benefit of the Executive in respect of the three
full fiscal years preceding the Agreement Effective Date, prorated in
the case of any period of less than a full fiscal year;
C. in a lump sum in cash, undiscounted, within 30 days after the
Agreement Effective Date, an amount equal to the economic equivalent of
the benefits the Executive (and his dependents or beneficiaries) would
have received or become entitled to under Section 2(b)(iii) of the Prior
Employment Agreement for the Remaining Prior Employment Period if the
Executive's employment continued uninterrupted pursuant to the Prior
Employment Agreement;
D. effective as of the Agreement Effective Date, (1) if the
Executive has not received a grant of stock options in respect of any
calendar year during the Employment Period (as defined in the Prior
Employment Agreement) or the Remaining Prior Employment Period, for each
such calendar year, a stock option grant covering the same number of
shares and on the same terms and conditions as the average of the prior
stock option grants to the Executive for the three full fiscal years
preceding the Agreement Effective Date, prorated in the case of any
period of less than a full fiscal year (except that the option will vest
after two years of service, subject to earlier vesting upon the
occurrence of certain events in accordance with the Agreement and/or the
Company's customary stock option grants), and (2) if the Executive has
not received a grant of restricted stock and/or restricted stock units
and/or other similar equity-based awards in respect of any calendar year
during the Employment Period (as defined in the Prior Employment
Agreement) or the Remaining Prior Employment Period, for each such
calendar year, a grant covering the same number of shares and on the
same terms and conditions as the average of the prior grants of such
awards to the Executive for the three full fiscal years preceding the
Agreement Effective Date, prorated in the case of any period of less
than a full fiscal year; provided that any awards required by (1) or (2)
shall be prorated based on the length of the Remaining Prior Employment
Period as compared to the customary terms of such awards for purposes of
a recipient becoming entitled to full vesting in such award;
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E. effective as of the Agreement Effective Date, (1) immediate
vesting and exercisability of, and termination of any restrictions on
sale or transfer (other than any such restriction arising by operation
of law) with respect to, each and every stock option, restricted stock
award, restricted stock unit award and other equity-based award and
performance award that is outstanding as of the Agreement Effective Date
(including, without limitation, each of the foregoing granted pursuant
to paragraph (i)(D)(2) of this Annex B, but excluding for this purpose
the option grant made pursuant to paragraph (i)(D)(1) of this Annex B)
(each, a "Prior Compensatory Award"), and (2) the extension of the term
during which each and every Prior Compensatory Award may be exercised by
the Executive until the earlier of (x) the first anniversary of the
Agreement Effective Date or (y) the date upon which the right to
exercise any Prior Compensatory Award would have expired if the
Executive had continued to be employed by the Company under the terms of
the Prior Employment Agreement until the Prior Final Expiration Date;
and
F. effective as of the Agreement Effective Date or as soon as
practicable thereafter, the Company shall pay to the Executive any
Gross-Up Payments due to the Executive pursuant to Section 7 of this
Agreement on account of any payments made pursuant to this Annex B or
otherwise; provided, that in the case of any Gross-Up Payment relating
to a payment that is deferred as provided for below, such Gross-Up
Payment shall be paid as and when actually due in respect of such
deferred payment; and provided, further, that the Company may, in its
sole discretion, withhold and pay over to the Internal Revenue Service
or any other applicable taxing authority, for the benefit of the
Executive, all or any portion of such Gross-Up Payments, and the
Executive hereby consents to such withholding.
(ii) for the Remaining Prior Employment Period, or such longer period
as any plan, program, practice or policy may provide, the Company shall
continue benefits to the Executive and/or the Executive's family at least
equal to those benefits which would have been provided to them in
accordance with the most favorable plans, programs, practices and policies
described in Section 2(b)(iv) of the Prior Employment Agreement if the
Executive's employment had continued uninterrupted. For purposes of
determining eligibility of the Executive for retiree benefits pursuant to
such plans, practices, programs and policies, the Executive shall be
considered to have remained employed until at least the Prior Final
Expiration Date and to have retired on such date;
(iii) for the Remaining Prior Employment Period, to the extent not
previously paid or provided, the Company shall timely pay or provide to the
Executive and/or the Executive's family any other amounts or benefits
required to be paid or provided, or which the Executive and/or the
Executive's family would have been eligible to receive, pursuant to the
Prior Employment Agreement and under any plan, program, policy or practice
or contract or agreement of the Company as in effect and applicable
generally to other executives and their families immediately prior to the
Agreement Affective Date or, if more favorable to the Executive, as in
effect generally thereafter with respect to other executives of the Company
and their families; and
(iv) unless otherwise provided herein, until the Executive (or any
family member or family entity assignee of the Executive) no longer holds
any stock options granted by the Company to the Executive, the Company will
provide to the Executive at no cost to the Executive (including a complete
gross up for any taxes incurred by the Executive as a result of receiving
such benefits), the benefits described in Sections 2(b)(x) and 2(b)(xi) of
the Prior Employment Agreement, but in no event beyond the date of death of
the Executive.
Any payments to be made pursuant to this Annex B may be deferred pursuant
to an election by the Executive on or before March 31, 2002, but in no event
later than the date 30 days before the Agreement Effective Date. Any amounts so
deferred shall be deferred pursuant to the Global Variable Compensation Deferral
Plan.
The parties agree that the compensation and benefits to be provided in this
Annex B are in addition to the compensation and benefits to be provided under
this Agreement, and in no event shall the payments
22
and benefits provided under Annex B reduce or offset the amount or duration of
payments and benefits to be provided pursuant to this Agreement, and in no event
shall the payments and benefits provided pursuant to this Agreement reduce or
offset the amount or duration of payments and benefits to be provided under this
Annex B; provided, that notwithstanding the foregoing, during any period when
the Executive or his family are entitled to receive, pursuant to this Agreement,
benefits otherwise required to be provided pursuant to clause (ii), (iii) or
(iv) of this Annex B, the Executive shall be entitled to receive benefits under
the most favorable of such arrangements, but there shall be no duplication of
such benefits and no extension of the period during which such benefits are
otherwise required to be provided under Annex B or this Agreement.
23