EXHIBIT 10.6
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (this "Agreement") is made
by and between Fortis, Inc. (the "Company") and J. Kerry Clayton (the
"Executive"), an officer of the Fortis, Inc. Division (as defined in Section
1(e) below), and is dated as of the 1st day of January, 2002.
The Executive's Multiplier (as defined in Section 1(k) below) is 3.
PURPOSE AND BACKGROUND
The purpose of this Agreement is to provide the Executive with certain
cash severance payments and welfare benefits in the event that the Executive
becomes unemployed as a result of a change in control of the Division and, thus,
has no employment with the Company or its affiliates, or with the Person that
acquires the Division or that Person's affiliates. This Agreement is intended to
provide the Executive with no payments or benefits in the event that the
Executive remains employed by the Company or any of its affiliates, or becomes
employed by the Person that acquires the Division or such Person's affiliates.
On the date of this Agreement, the Executive is employed by either the
Company or by one of the Company's affiliates that is involved in the operations
of the Division. The provisions of this Agreement that provide for the Company
to have rights or obligations or to take actions with respect to the Executive's
employment shall be interpreted to mean that either the Company or the Company's
affiliate that actually employs the Executive shall have such rights and
obligations and may take such actions.
Generally, this Agreement contemplates that, if the Executive is
employed by the Company or any of its affiliates with respect to the Division
immediately prior to the occurrence of a change in control of the Division, a
two-year trigger period will begin to run. During such two-year period, if the
Executive becomes unemployed under certain specified circumstances, then either
the Company or the Person that acquired the Division will provide the Executive
with the payments and benefits required by this Agreement.
Thus, two events must happen before the Executive is entitled to
payments or benefits under this Agreement: (i) there must have actually occurred
a change in control of the Division or the Company, and (ii) the Executive's
employment must be terminated with respect to the Company and its affiliates
without the Executive being offered employment with the Person that acquires the
Division or any of its affiliates. This Agreement is intended to provide the
Executive with financial assistance in the event that the Executive becomes
unemployed, but it is not intended to provide the Executive with a bonus.
By way of example, assume that the Executive is presently employed by
Fortis Benefits Insurance Company, which is an affiliate of the Company, with
respect to the Fortis Family Division, which is indirectly controlled by the
Company. Also assume that all of the assets of the Fortis Family Division are
sold to a third party not affiliated with the Company. Such sale would be a
change in control of the Division. If the Executive's employment with respect to
the Division continues, even though the Executive is then employed by the Person
that acquired the Division or one of its affiliates rather than the Company or
one of its affiliates, for at least two
years after the change in control date, then the Executive would not be entitled
to any payments or other benefits under this Agreement. However, if the
Executive's employment with respect to the Division terminates under the
conditions specified in this Agreement within two years after the change in
control date, the Executive would be entitled to an amount of severance that
generally is a multiple of his or her annual base salary plus short-term bonus,
paid in installments and subject to certain offsets if the Executive becomes
re-employed. The multiple that is applicable to the Executive is set forth in
this Agreement and is related to the Executive's current position with the
Company.
The Board of Directors of Fortis, Inc. (the "Board") believes that
providing the Executive with such assurance of financial assistance in
circumstances of a change in control will cause the Executive to have less
personal uncertainty in connection with any such possible loss of employment.
The Executive should, therefore, have less distraction in the performance of his
or her duties for the Company, and both the Executive and the Company benefit.
Thus, the Board believes that it is in the best interests of the Company and its
shareholders for the Company to enter into this Agreement.
Certain capitalized terms that are used throughout this Agreement are
defined in Section 1 below. This "Purpose and Background" preamble is intended
to assist in understanding the Agreement, but it is qualified in its entirety by
reference to the more precise and specific provisions of the Agreement as set
forth below.
IN CONSIDERATION OF THE MUTUAL PROMISES SET FORTH HEREIN, THE PARTIES
AGREE AS FOLLOWS:
1. Certain Definitions. Each of the following terms, when used in this
Agreement, has the meaning set forth below:
(a) "Agreement Term" means the period of time beginning on the
date of this Agreement and ending on December 31, 2002, unless
this Agreement has been previously terminated as provided in
Section 10(f). The Company may in its complete and sole
discretion, at any time and from time to time, extend the
Agreement Term by giving a written notice to the Executive;
provided, however, that if an agreement has been executed by
the Company or any of its affiliates that contemplates a
transaction that will be a Change in Control when consummated,
the Agreement Term will be automatically extended until the
earlier of the date of such consummation or the termination of
such agreement prior to any such consummation.
(b) "Business Combination" means any reorganization, merger, share
exchange or consolidation of a Person, or the sale or other
disposition, directly or indirectly, of 50% or more of the net
assets of a Person.
(c) "Change in Control" means any one of the following events:
(i) Any event that results in the Division no longer
being controlled, directly or indirectly, by Fortis,
Inc.; provided, however, that (1) a sale of the
Division's investment assets in the ordinary course
of business, including,
-2-
without limitation, any sale of assets in connection
with financial reinsurance, shall not be a Change in
Control of the Division; (2) the liquidation,
termination of operations, or other winding down of
the Division shall not be a Change in Control of the
Division; and (3) the final and binding determination
of whether a Change of Control has occurred for
purposes of this subsection 1(c)(i) shall be made by
the Board of Directors of the Company acting in good
faith.
(ii) The acquisition by any Person of direct or indirect
beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Securities Exchange Act
of 1934, as amended, and including, without
limitation, such beneficial ownership by means of
owning any parent corporation of the Company) of 50%
or more of the combined voting power of the then
outstanding voting securities of the Company entitled
to vote generally in the election of directors (the
"Current Securities"); provided, however, that for
purposes of this subsection 1(c)(ii), the following
acquisitions shall not constitute a Change in
Control: (1) any acquisition by Fortis NV, Fortis SA,
or a Person who is on the date of this Agreement the
beneficial owner, directly or indirectly, of 50% or
more of the Current Securities; (2) any acquisition
by any employee benefit plan (or related trust)
sponsored or maintained by the Company or any Person
controlled by Fortis; or (3) any acquisition by any
Person pursuant to a transaction that complies with
clauses (1), (2) and (3) of subsection (iii) of this
Section 1(c).
(iii) Consummation of a Business Combination of the
Company, unless immediately following such Business
Combination the following three conditions are met:
(1) all or substantially all of the Persons who were
the beneficial owners of the Current Securities
immediately prior to such Business Combination
beneficially own, directly or indirectly, more than
50% of the combined voting power of the then
outstanding voting securities entitled to vote
generally in the election of directors of the
corporation resulting from such Business Combination
(including, without limitation, a corporation that as
a result of such transaction owns the Company or all
or substantially all of the Company's assets either
directly or through one or more subsidiaries) in
substantially the same proportions as their ownership
of the Current Securities immediately prior to such
Business Combination; (2) no Person (excluding any
corporation resulting from such Business Combination
or any employee benefit plan (or related trust) of
the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or
indirectly, 50% or more of the combined voting power
of the then outstanding voting securities of such
corporation except to the extent that such ownership
existed prior to the Business Combination, and (3) at
least a majority of the members of the board of
directors of the corporation resulting from such
Business Combination were members of the Board at the
time of the execution of the initial Business
Combination agreement, or of the action of the Board
providing for such Business Combination.
-3-
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company,
unless the Division has been transferred to some
other Person controlled, directly or indirectly, by
Fortis prior to such liquidation or dissolution.
(d) "Disability" means that the Executive becomes entitled to
recover benefits under any group long-term disability plan or
policy maintained by Fortis or its affiliates that is by its
terms applicable to the Executive.
(e) "Division" means the business unit of the Company within which
the Executive works from time to time during the Agreement
Term.
(f) "Fortis" means the joint venture created by Fortis SA and
Fortis NV.
(g) "Fortis, Inc." means the Nevada corporation that presently
controls, either directly or indirectly, the Division.
(h) "Fortis NV" means Fortis N.V., a Netherlands corporation and
currently an indirect beneficial owner of 50% of the Current
Securities of the Company, or any successor thereof; for the
avoidance of doubt, Fortis N.V. is the successor to Fortis
(NL) N.V. pursuant to a merger that occurred on or about
December 17, 2001 in which Fortis (NL) N.V. was merged with
and into Fortis N.V.
(i) "Fortis SA" means Fortis SA/NV, a Belgium corporation and
currently an indirect beneficial owner of 50% of the Current
Securities of the Company, or any successor thereof; for the
avoidance of doubt, Fortis SA/NV is the successor to Fortis
(B) SA/NV pursuant to a merger that occurred on or about
December 17, 2001 in which Fortis (B) SA/NV was merged with
and into Fortis SA/NV.
(j) "Installment Period" means the number of months that is
one-half the number derived by multiplying the Multiplier set
forth in the second paragraph of this Agreement by 12.
(k) "Multiplier" means the number set forth in the second
paragraph of this Agreement; provided however, that if the
Executive has, prior to the CIC Date, publicly announced his
or her Retirement or voluntary termination of employment, the
Multiplier will be a fraction with the numerator equal to the
remaining whole or partial months between the Date of
Termination of employment and the effective date of such
announced Retirement or voluntary termination of employment,
and with the denominator equal to 12, but in no event shall
such fraction be equal to a number greater than the number set
forth in the second paragraph of this Agreement.
(l) "Person" means any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended).
(m) "Retirement" means retirement as defined in the Company's
then-current tax qualified defined benefit pension plan, or if
there is no such retirement plan,
-4-
"Retirement" means voluntary termination of employment after
age 55 with ten or more years of service, or after age 65 with
five or more years of service.
(n) Each of the following terms is defined in the Section
indicated:
Term Section
---- -------
Accounting Firm 8(b)
Accrued Obligations 4(a)(i)(A)(3)
Base Salary 4(a)(i)(A)(1)
Board 8th Paragraph
Cause 3(b)
CIC Date 2
Code 7
Current Securities 1(c)(ii)
Date of Termination 3(e)
Deferred Compensation 4(g)
Disability Effective Date 3(a)
Employer Affiliate 10(i)
Excise Tax 8(a)
Extended Severance 4(a)(i)(C)
Good Reason 3(c)
Gross-Up Payment 8(a)
Initial Severance 4(a)(i)(B)
Notice of Termination 3(d)
Other Benefits 4(a)(iii)
Payment 8(a)
Post-CIC Period 2
Rabbi Trust 4(h)
Target Bonus 4(a)(i)(A)(2)
Underpayment 8(b)
Welfare Benefits 4(a)(ii)
2. Post-CIC Period. If the Executive is employed by the Company
immediately prior to the first date during the Agreement Term on which
a Change in Control occurs (the "CIC Date"), then the Executive's
employment during the two-year period beginning on the CIC Date and
ending on the second anniversary of such date (the "Post-CIC Period")
shall be subject to all the terms and conditions of this Agreement,
including, without limitation, the termination events described in
Section 3 below.
3. Termination of Employment During Post-CIC Period.
(a) Death, Retirement or Disability. During the Post-CIC Period,
the Executive's employment shall terminate automatically upon
the Executive's death or Retirement. If the Company determines
in good faith that the Disability of the Executive has
occurred during the Post-CIC Period, the Company may, in its
discretion, give the Executive a written notice in accordance
with Section 10(b) of
-5-
this Agreement of the Company's intention to terminate the
Executive's employment. In such event, the Executive's
employment with the Company shall terminate effective on the
30th day after receipt of such notice by the Executive (the
"Disability Effective Date").
(b) Cause. The Company may terminate the Executive's employment
during the Post-CIC Period with or without Cause. For purposes
of this Agreement, "Cause" means either of the following
circumstances:
(i) Failure to Perform. The willful and continued failure
of the Executive to perform substantially the
Executive's duties with the Division (other than any
such failure resulting from incapacity due to
physical or mental illness), after a written demand
for substantial performance is delivered to the
Executive by the Board or the Chief Executive Officer
of the Company. Such written demand must specifically
identify the manner in which the Board or Chief
Executive Officer believes that the Executive has not
substantially performed the Executive's duties.
(ii) Engaging in Illegal Conduct or Gross Misconduct. The
willful engaging by the Executive in illegal conduct
or gross misconduct that is materially injurious to
the Company or the Division.
For purposes of this Section 3(b), no act or failure to act,
on the part of the Executive, shall be considered "willful"
unless it is done, or omitted to be done, by the Executive in
bad faith or without reasonable belief that the Executive's
action or omission was in the best interests of the Division.
(c) Good Reason.
(i) The Executive's employment may be terminated by the
Executive during the Post-CIC Period for Good Reason
or for no reason. For purposes of this Agreement,
"Good Reason" means any of the following
circumstances:
(1) Diminution of Position. A material
diminution in the Executive's position,
authority, duties or responsibilities, not
including a change in job title or reporting
responsibilities.
(2) Reduction of Compensation. Any material
reduction in the aggregate value of the
Executive's annual base salary, short-term
cash bonus target amount, long-term
incentive plan target amount, and
Company-provided welfare benefits, all as in
effect immediately prior to the CIC Date, or
any failure by the Company to pay any such
amounts to the Executive as earned by the
Executive. An inadvertent failure by the
Company to make any payment of compensation
to the Executive that does not occur in bad
faith and that is remedied by the Company
promptly after the
-6-
Company receives notice thereof from the
Executive, is excluded from the definition
of "Good Reason."
(3) Employment Location. The Company's requiring
the Executive to be based at any location
that is more than fifty (50) miles from the
location at which the Executive is based
immediately prior to the CIC Date.
(4) Other Termination. Any termination by the
Company of the Executive's employment other
than as expressly permitted by this
Agreement.
In the event of a Change in Control as defined in
subsection 1(c)(ii), (iii) or (iv), for purposes of
this Section 3(c), any good faith determination of
"Good Reason" made by the Executive shall be
conclusive. In the event of a Change in Control as
defined in subsection 1(c)(i), there shall be no such
presumption in favor of the Executive's
determination.
(ii) Notwithstanding the foregoing, "Good Reason" shall
not exist until after (1) the Executive has given the
Company written notice of the applicable event not
later than 30 days after the occurrence of such
event, specifying in reasonable detail the
circumstances of the event and stating the
Executive's intent to terminate his or her employment
if not remedied, and (2) the Company has not remedied
such event within 30 days after receipt of such
notice; provided, however, that if the specified
event reasonably cannot be remedied within such
30-day period, the Company commences reasonable steps
within such 30-day period to remedy such event and
diligently continues such steps thereafter until a
remedy is effected, and the remedy is effected within
60 days after the Company's receipt of the
Executive's notice, then such event shall not
constitute "Good Reason."
(iii) Notwithstanding the foregoing, "Good Reason" shall
not exist if the Executive is offered employment with
the Company or an affiliate thereof in a position
other than with the Division, or if the Executive is
offered employment with the Person that acquires the
Division or any of such Person's affiliates, and in
either case such offer of employment includes a
position, compensation and employment location that
are consistent with the requirements of subsections
3(c)(i)(1), (2) and (3).
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, must be
communicated by Notice of Termination to the other party, and
must be given in accordance with Section 10(b) of this
Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice that:
(i) indicates the specific termination provision in this
Agreement relied upon, and
-7-
(ii) to the extent applicable, sets 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, and
(iii) if the Date of Termination is other than the date of
receipt of such notice, specifies the termination
date (which date shall be not more than 30 days after
the giving of such notice, except as provided in
Section 3(c)(ii) above).
If the Executive or the Company fails to set forth in a Notice
of Termination any additional fact or circumstance that
contributes to a showing of Good Reason or Cause, but
otherwise delivers a Notice of Termination in accordance with
this Agreement, such party will not be precluded from
asserting the additional fact or circumstance in enforcing
such party's rights hereunder.
(e) Date of Termination. "Date of Termination" means whichever of
the following is applicable:
(i) If the Company terminates the Executive's employment
for Cause, the Date of Termination shall be the date
of receipt of the Notice of Termination or any later
date specified in such Notice.
(ii) If the Company terminates the Executive's employment
other than for Cause or Disability, the Date of
Termination shall be the date on which the Company
notifies the Executive of such termination or any
later date specified in such notice.
(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.
(iv) If the Executive terminates his or her employment for
Good Reason, the Date of Termination shall be in
accordance with Section 3(c)(ii) of this Agreement.
4. Obligations of the Company upon Termination.
(a) Good Reason; Other Than for Cause or Disability. If, during
the Post-CIC Period, the Company terminates the Executive's
employment other than for Cause or Disability, or the
Executive terminates his or her employment for Good Reason,
then in consideration of Executive's services rendered prior
to such termination all of the following shall take place:
(i) Cash Payments.
A. Current Compensation. The Company shall pay
to the Executive in a lump sum in cash
within 30 days after the Date of Termination
the sum of:
-8-
(1) the Executive's annual base salary
as in effect immediately prior to
the CIC Date ("Base Salary")
through the Date of Termination to
the extent not theretofore paid,
(2) the product of (x) the Executive's
target annual bonus under the
Division's short-term incentive
bonus plan for the year in which
the Date of Termination occurs (the
"Target Bonus") and (y) a fraction,
the numerator of which is the
number of days in the current
fiscal year of the Division through
the Date of Termination, and the
denominator of which is 365, and
(3) any accrued vacation pay to the
extent not theretofore paid (the
sum of the amounts described in
clauses (1) and (2) immediately
above and this clause (3) shall be
hereinafter referred to as the
"Accrued Obligations").
B. Initial Severance. The Company shall pay to
the Executive an amount of cash severance
(the "Initial Severance") in a lump sum
within 30 days after the Date of Termination
equal to one-half of the product of the
Multiplier times the sum of (1) the
Executive's Base Salary and (2) the
Executive's Target Bonus.
C. Extended Severance. The Company shall pay to
the Executive an amount of cash severance
(the "Extended Severance") equal to one-half
of the product of the Multiplier times the
sum of (1) the Executive's Base Salary and
(2) the Executive's Target Bonus. Such
Extended Severance will be paid to the
Executive in cash in equal monthly
installments over the Installment Period
immediately following the Date of
Termination, with the first such monthly
payment being due on the first business day
of the calendar month that begins at least
30 days after the Date of Termination, and
each subsequent monthly installment being
due on the first business day of each
calendar month thereafter. Notwithstanding
the foregoing, the Executive shall be
entitled to only that portion of the
Extended Severance that exceeds the amount
of pre-tax compensation otherwise earned by
the Executive for services that he or she
renders during the Installment Period
immediately following the Date of
Termination, whether as an employee or
independent contractor, and the Executive
will provide the Company with copies of his
or her Form W-2 or Form 1099, or other
similar documentation, upon the reasonable
request of the Company. In the event of a
Change in Control as defined in subsection
1(c)(i), the Executive's provision of such
documentation to the Company shall be a
condition to the Executive's right to
receive the Extended Severance.
-9-
(ii) Welfare Benefits. For 18 months after the Date of
Termination, the Company shall continue to provide
the same medical, dental, life and/or disability
insurance coverages to the Executive and/or the
Executive's dependents that the Company and its
affiliates provide generally during such 18-month
period to their employees who hold positions similar
to the position held by the Executive immediately
prior to the Date of Termination (the "Welfare
Benefits"). For those Welfare Benefits to which COBRA
applies, the Company will only be obligated to
provide such Welfare Benefits through the Executive's
making the elections permitted under COBRA. In order
to receive the Welfare Benefits, the Executive shall
pay the same amount therefor that he or she paid for
such Welfare Benefits immediately prior to the
Termination Date, and the Executive must make these
elections and pay all required premiums on a timely
basis. If the Executive becomes employed with another
employer, including, without limitation, the Person
that acquired the Division or any of its affiliates,
and
(A) the Executive is eligible to receive medical
or dental insurance coverages under another
employer provided plan, then the medical and
dental insurance coverages provided by the
Company pursuant to this subsection 4(a)(ii)
shall be secondary to the medical and dental
insurance coverages, respectively, provided
under such other plan to the Executive
and/or the Executive's dependents during
such applicable period of eligibility;
and/or
(B) the Executive is eligible to receive life or
disability insurance coverages under another
employer provided plan, then the Company
shall have no further obligation to provide
the Executive and/or the Executive's
dependents with life or disability insurance
coverage.
The Company shall not be required to compensate the Executive
for any taxes that the Executive may incur as a result of the
provision of Welfare Benefits hereunder. If the Executive has
prior to the CIC Date publicly announced his or her Retirement
or voluntary termination of employment, the Executive will
receive the Welfare Benefits under this subsection 4(a)(ii)
only to the effective date of such announced Retirement or
voluntary termination of employment.
(iii) Other Benefits Due at Date of Termination. To the
extent not then already paid or provided, the Company
shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or
provided through the Date of Termination, or which
the Executive is eligible to receive through and
after the Date of Termination, under any plan,
program, policy or practice of, or contract or
agreement with, the Company and its affiliated
companies, including such plans that have change in
control provisions in the plans (such other amounts
and benefits shall be hereinafter referred to as the
"Other Benefits").
-10-
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Post-CIC Period, this
Agreement shall terminate without further obligations to the
Executive's legal representatives, other than for payment of
Accrued Obligations and Deferred Compensation, and the timely
payment or provision of Other Benefits. The Company shall pay
all Accrued Obligations to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination, and shall pay all Deferred
Compensation to the Executive's estate or beneficiary, as
applicable, in accordance with the terms of the plan under
which such compensation was deferred.
(c) Retirement. If the Executive's employment is terminated by
reason of the Executive's Retirement during the Post-CIC
Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of
Accrued Obligations and Deferred Compensation, and the timely
payment or provision of Other Benefits. The Company shall pay
all Accrued Obligations to the Executive in a lump sum in cash
within 30 days of the Date of Termination, and shall pay all
Deferred Compensation to the Executive in accordance with the
terms of the plan under which such compensation was deferred.
(d) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Post-CIC
Period, this Agreement shall terminate without further
obligations to the Executive, other than for payment of
Accrued Obligations and Deferred Compensation, and the timely
payment or provision of Other Benefits. The Company shall pay
all Accrued Obligations to the Executive in a lump sum in cash
within 30 days of the Date of Termination, and shall pay all
Deferred Compensation to the Executive in accordance with the
terms of the plan under which such compensation was deferred.
(e) Cause; Other than for Good Reason. If the Company terminates
the Executive's employment for Cause during the Post-CIC
Period, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay
to the Executive (x) his Base Salary through the Date of
Termination, (y) any Deferred Compensation, and (z) Other
Benefits, in each case to the extent not then already paid. If
the Executive voluntarily terminates employment during the
Post-CIC Period (excluding a termination for Good Reason),
this Agreement shall terminate without further obligations to
the Executive, other than for Accrued Obligations, Deferred
Compensation and the timely payment or provision of Other
Benefits. In either case described in this Section 4(e), the
Company shall pay all Accrued Obligations to the Executive in
a lump sum in cash within 30 days of the Date of Termination,
and shall pay all Deferred Compensation to the Executive in
accordance with the terms of the plan under which such
compensation was deferred.
(f) Outplacement Services. The Executive shall have the right to
make full use of the Company's outplacement services to its
officers upon termination of the Executive's employment,
except in the event that the Executive's employment is
terminated for Cause.
-11-
(g) Deferred Compensation. Any compensation previously deferred by
the Executive ("Deferred Compensation") shall be paid to the
Executive in accordance with the terms of the plan under which
it was deferred.
(h) Funding of Certain Obligations. Not later than the CIC Date,
regardless of whether the Executive's employment has then
terminated or any termination of such employment has then been
announced, the Company shall take all actions necessary or
appropriate to establish and fund a "rabbi" trust (i.e., a
trust based on the model trust contained in Revenue Procedure
92-64, and with a trustee selected by the Company, but that is
independent of the Company) (hereafter the "Rabbi Trust") for
the purpose of ensuring that the Executive will receive the
Initial Severance and the Extended Severance in accordance
with the terms of this Agreement. The Rabbi Trust shall
expressly provide that after the CIC Date occurs, the Rabbi
Trust may be amended or revoked only with the prior written
consent of the Executive. Without limiting the generality of
the foregoing, on or before the CIC Date, the Company will
deposit in the Rabbi Trust an amount of cash equal to the
aggregate amount of the Initial Severance and the Extended
Severance to which the Executive would be entitled if his or
her employment terminated on the CIC Date; provided, however,
that if such amount deposited in the Rabbi Trust together with
any interest or earnings thereon is determined later to be
less than or more than the amount, if any, that actually
becomes due to the Executive hereunder, the Executive shall be
entitled to the amount required by this Agreement and not the
amount that is held in such trust. In the event that the
Executive does not become entitled to the Initial Severance or
any or all of the Extended Severance, as determined by the
trustee of the Rabbi Trust, the amount remaining in the Rabbi
Trust shall be returned to the Company after the expiration of
the Post-CIC Period. The Rabbi Trust shall be used solely for
the purpose of holding deposits of funds for the potential
Initial Severance and Extended Severance obligations to the
Executive hereunder, and other similar obligations to
similarly situated employees of the Company. Notwithstanding
anything in this Agreement to the contrary, the Company shall
have no funding or other obligations under this Section 4(h)
if the Change in Control that results in the CIC Date is a
Change in Control of the Division as defined in subsection
1(c)(i) and not a Change in Control of the Company in any
other way.
5. Termination in Anticipation of a Change in Control. Notwithstanding
anything in this Agreement to the contrary, if: (1) a Change in Control
occurs during the Agreement Term, AND (2) within one year prior to the
CIC Date the Executive's employment with the Company has been
terminated either by the Company without Cause or by the Executive for
Good Reason, then if the Executive can reasonably demonstrate that such
termination of employment (i) was at the request of or with the express
prior consent of a third party who has taken steps reasonably
calculated to effect such Change in Control or (ii) otherwise arose in
anticipation of such Change in Control, then all of the following shall
take place:
(a) Section 2 of this Agreement shall not apply to the Executive;
Section 4 of this Agreement shall apply to the Executive as
described in subsection (b) below; and
-12-
all other provisions of this Agreement shall apply to the
Executive in accordance with their terms.
(b) The Company shall pay to the Executive the aggregate of all
amounts described in Sections 4(a)(i) and 4(a)(iii) in a lump
sum in cash within 30 days after the CIC Date, using as the
Executive's Base Salary and Target Bonus his or her annual
base salary and target short-term incentive bonus,
respectively, as in effect immediately prior to the Date of
Termination. The Company shall pay any Deferred Compensation
to the Executive in accordance with the terms of the plan
under which such compensation was deferred.
(c) The Company shall provide to the Executive the Welfare
Benefits as and for the time period described in Section
4(a)(ii), except that the Company shall reimburse the
Executive for the cost of obtaining such Welfare Benefits
between the Date of Termination and the CIC Date by paying to
the Executive a lump sum in cash equal to the amount that the
Executive paid to obtain such Welfare Benefits for such period
less the amount that the Executive was paying to obtain such
Welfare Benefits immediately prior to the Date of Termination.
If the Executive has, prior to the CIC Date, publicly
announced his or her Retirement or voluntary termination of
employment, the Executive will receive the Welfare Benefits
under this subsection 5(c) only to the effective date of such
announced Retirement or voluntary termination of employment.
6. Non-exclusivity of Rights. 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 or any of its
affiliated companies and for which the Executive may qualify, nor,
except as explicitly provided herein, shall anything in this Agreement
limit or otherwise affect such rights as the Executive may have under
any contract or agreement with the Company or any of its affiliated
companies. Amounts that are vested benefits or that the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of or any contract or agreement with the Company or any of its
affiliated companies 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 explicitly modified by this Agreement.
7. No Company Set-Off; Legal Fees; Interest. Except as provided in Section
4(a)(i)(C), and except in the event that the Executive's employment is
terminated with Cause, the Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action that the Company
may have against the Executive or others. In no event shall the
Executive be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Executive
under any of the provisions of this Agreement. The Company agrees to
pay as incurred, to the full extent permitted by law, all legal fees
and expenses that the Executive may reasonably incur in good faith as a
result of any contest (regardless of the outcome thereof) by the
Company, the Executive or others of the validity or enforceability of,
or liability under, any provision of this Agreement or any guarantee of
-13-
performance thereof (including as a result of any contest by the
Executive about the amount of any payment pursuant to this Agreement),
provided such contest occurs after the CIC Date, plus in each case
interest on any delayed payment at the applicable federal rate provided
for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as
amended (the "Code").
8. 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 or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or
distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any
additional payments required under this Section 8) (a
"Payment") would be subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties are
incurred by the Executive with respect to such excise tax
(such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive
an additional payment (a "Gross-Up Payment") in an amount such
that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes),
including, without limitation, any income 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.
(b) Subject to the provisions of Section 8(c), all determinations
required to be made under this Section 8, including whether
and when a Gross-Up Payment is required and the amount of such
Gross-Up Payment and the assumptions to be utilized in
arriving at such determination, shall be made by a certified
public accounting firm selected by the Executive and
reasonably acceptable to the Company (the "Accounting Firm")
which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is reasonably requested by
the Company. 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 8, shall be paid by the
Company to the Executive within five days after 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 which will not have been made by the
Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
Section 8(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
-14-
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 claim
by the Internal Revenue Service that, if successful, would
require the payment by the Company of a Gross-Up Payment (or
an additional Gross-Up Payment). Such notification shall be
given as soon as practicable but no later than ten business
days after the Executive is informed in writing of such claim
and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of
the 30-day period following the date on which it gives such
notice to the Company (or such shorter period ending on the
date that any payment of taxes with respect to such claim is
due). If the Company notifies the Executive in writing prior
to the expiration of such period that it desires to contest
such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay
directly all costs and expenses (including additional interest
and penalties) incurred in connection with such contest and
shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and
expenses. Without limitation of the foregoing provisions of
this Section 8(c), the Company shall control all proceedings
taken in connection with such contest (to the extent
applicable to the Excise Tax and the Gross-Up Payment) and, at
its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, 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
-15-
Tax or income tax (including interest or penalties with
respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year
of the Executive with respect to which such contested amount
is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest
shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be
entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8(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 8(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 8(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.
9. Successors.
(a) This Agreement is personal to the Executive and arises from
his or her current title, employment responsibilities and
managerial reporting relationship. Without the prior written
consent of the Company, this Agreement shall not be assignable
by the Executive other than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of, be
enforceable by and be binding upon the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of, be enforceable
by and be binding upon the Company and its successors and
assigns.
(c) The Company shall have the right, in its discretion, to assign
this Agreement to 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
Division, but such assignment shall in no way prevent the
Executive from pursuing his or her rights hereunder against
Fortis, Inc. unless the Executive agrees to such assignment in
writing.
-16-
10. Miscellaneous.
(a) Governing Law; Captions; Amendments. This Agreement shall be
governed by and construed in accordance with the laws of the
State of New York, without reference to principles of conflict
of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified other than by a
written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) Notices. All notices and other communications made pursuant to
this Agreement must be in writing and must be given by hand
delivery, or by certified mail, return receipt requested, or
by overnight courier, or by telecopy with a confirmation copy
sent by either overnight courier or first-class mail, and
addressed as follows:
If to the Executive:
J. Kerry Clayton
90 Druid Hill Road
Summit, NJ 07901
If to the Company:
Fortis, Inc.
One Chase Manhattan Plaza
41st Floor
New York, NY 10005
Attention: General Counsel
or to such other address as either party shall have furnished
to the other in writing in accordance with this Section.
Notice and communications shall be effective when actually
received by the addressee.
(c) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(d) Withholding. The Company may withhold from any amounts payable
under this Agreement such federal, state, local or foreign
taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(e) Waiver. The failure of either party to insist upon strict
compliance with any provision of this Agreement, or the
failure of either party to assert any right such party may
have under this Agreement shall not be deemed to be a waiver
of such provision or right or any other provision or right of
this Agreement.
-17-
(f) "At Will" Employment; Termination of Agreement.
(i) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other
written agreement between the Executive and the
Company and to the extent otherwise permitted under
applicable law, the employment of the Executive by
the Company is "at will" and the Executive's
employment may be terminated by either the Executive
or the Company at any time prior to the CIC Date. If
the Executive's employment is terminated for any
reason before the CIC Date, the Executive shall have
no further rights under this Agreement, except as
provided in Section 5.
(ii) Unless the Executive's employment is terminated, this
Agreement may not be terminated by the Company during
the Agreement Term and before the CIC Date. From and
after the CIC Date, this Agreement may not be
terminated by the Company. This Agreement shall
supersede any other agreement between the parties
with respect to the subject matter hereof.
(g) Nondisclosure. Without obtaining the Company's prior written
consent, the Executive agrees that he or she will not disclose
the existence or the terms of this Agreement to any Person,
except for the Executive's advisors, beneficiaries and other
Persons that need to know about the Agreement. The Executive
agrees that no Person associated with the Company falls within
such exception that would permit disclosure by the Executive.
(h) Release. In the event of a Change in Control as defined in
subsection 1(c)(i) only, as a condition to the Company's
obligation to pay the Initial Severance and the Extended
Severance pursuant to subsections 4(a)(i)(B) and 4(a)(i)(C)
above, the Executive must execute and deliver to the Company a
full and complete release of liability in a form satisfactory
to the Company and in compliance with applicable state law.
(i) Employer Affiliate. Notwithstanding any indication in this
Agreement that the Executive is employed directly by the
Company, the parties acknowledge and agree that, on the date
of this Agreement, the Executive is employed directly either
by the Company or by an affiliate of the Company that is
involved in the operations of the Division (the "Employer
Affiliate"). The parties further agree that the provisions of
this Agreement that provide for the Company to have rights or
obligations or to take actions with respect to the Executive's
employment shall be interpreted to mean that either the
Company or the Employer Affiliate shall have such rights and
obligations and may take such actions. The Company shall have
the discretion to determine whether it or the Employer
Affiliate shall exercise such rights, fulfill such obligations
and take such actions, and, if the Company determines that an
obligation will be fulfilled by the Employer Affiliate, the
Company agrees to cause the Employer Affiliate to fulfill such
obligations as if the Employer Affiliate were a party to this
Agreement.
-18-
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused this Agreement to be executed in its name on its behalf by its
undersigned officer thereunto, duly authorized, all as of the day and year first
above written.
FORTIS, INC.
By: /s/ ROBERT B. POLLOCK
---------------------------
Robert B. Pollock
Executive Vice President
EXECUTIVE
/s/ J. KERRY CLAYTON
-------------------------------
J. KERRY CLAYTON
-19-