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EXHIBIT 10.1
EMPLOYEE BENEFITS AGREEMENT, dated as of _____ __, 1998, between
Pennzoil Company, a Delaware corporation ("Pennzoil"), and Pennzoil Products
Company, a Delaware corporation ("Downstream").
WHEREAS, Pennzoil has decided to consolidate the operations of
its worldwide businesses of refining, processing and marketing of motor oil,
refined products and industrial specialties and franchising, owning and
operating fast lubrication centers (collectively, the "Downstream Businesses")
into Downstream and Downstream's subsidiaries and affiliates and to distribute
the common stock of Downstream to the stockholders of Pennzoil (the
"Distribution");
WHEREAS, immediately following the Distribution, Downstream
Merger Company, a Delaware corporation and a wholly-owned subsidiary of
Downstream ("Merger Sub"), will merge (the "Merger") with and into Quaker State
Corporation, a Delaware corporation ("Quaker State"), pursuant to the terms of
the Agreement and Plan of Merger dated as of April 14, 1998, by and among
Pennzoil, Downstream, Merger Sub and Quaker State (the "Merger Agreement");
WHEREAS, Pennzoil and Downstream have entered into a Distribution
Agreement, dated April 14, 1998 (the "Distribution Agreement"), and certain
other agreements that will govern certain matters relating to the Distribution
and the relationship of Pennzoil and Downstream and their respective
Subsidiaries following the Distribution;
WHEREAS, pursuant to the Services Agreement to be entered into
between Richland Services Company ("ServiceCo"), Pennzoil and Downstream, the
form of which is attached as an exhibit to the Distribution Agreement (the
"Services Agreement"). ServiceCo will provide certain services to Downstream
for the period commencing on the Distribution Date and ending on the first
anniversary thereof (unless earlier terminated in accordance with the terms of
such Services Agreement); and
WHEREAS, pursuant to the Distribution Agreement, Pennzoil and
Downstream have agreed to enter into this Agreement for the purpose of
allocating current and former employees and assets, liabilities, and
responsibilities with respect to employee compensation, benefit and other
matters;
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NOW, THEREFORE, in consideration of the mutual promises contained
herein and in the Distribution Agreement, the Parties (as that term is defined
in the Distribution Agreement) agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions
For purposes of this Agreement, capitalized terms used herein
shall have the following respective meanings:
"Aggregate Spread" means: (a) in the case of a Pennzoil Stock
Option, the difference between the exercise price per share of Pennzoil Common
Stock covered by such Pennzoil Stock Option and the Pennzoil Pre-Distribution
Stock Price, multiplied by the number of shares of Pennzoil Common Stock
covered by such Pennzoil Stock Option; and (b) in the case of a Pennzoil SAR,
the difference between the reference appreciation price per share of Pennzoil
Common Stock covered by such Pennzoil SAR and the Pennzoil Pre-Distribution
Stock Price, multiplied by the number of shares of Pennzoil Common Stock
covered by such Pennzoil SAR.
"Agreement" means this Employee Benefits Agreement, and all
exhibits, schedules, appendices and annexes hereto.
"ASO Contract" means an administrative services only contract,
related prior practice, or related understanding with a third-party
administrator that pertains to any Pennzoil Health and Welfare Plan or
Downstream Health and Welfare Plan.
"Close of the Distribution Date" means 11:59:59 P.M., Eastern
Standard Time or Eastern Daylight Time (whichever shall then be in effect), on
the Distribution Date.
"Conversion Award" has the meaning given in Section 7.1(c).
"Distribution" has the meaning given in the first recital to this
Agreement.
"Distribution Agreement" has the meaning given in the third
recital to this Agreement.
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"Distribution Date" has the meaning given in the Distribution
Agreement.
"Downstream" has the meaning given in the first paragraph of this
Agreement.
"Downstream Businesses" has the meaning given in the Distribution
Agreement.
"Downstream Common Stock" has the meaning given in the
Distribution Agreement.
"Downstream Employee" means any individual who, as of the Close
of the Distribution Date, is actively employed by, or on an approved leave of
absence or lay-off with right of recall from, a member of the Downstream Group.
"Downstream Employee" shall, as of the date provided in Section 2.1(b), also
include any Transition Employee.
"Downstream Executive Plans" means the Plans established by
Downstream pursuant to Section 3.1 that correspond to the Pennzoil Executive
Plans.
"Downstream Former Employee" means any individual who as of the
Close of the Distribution Date, is neither then actively employed by, nor then
on an approved leave of absence or lay-off with the right of recall from, a
member of the Downstream Group, but (i) whose most recent (through the Close of
the Distribution Date) active employment with Pennzoil or a past or present
affiliate of Pennzoil was with an entity or a corporate division of the
Downstream Businesses, and the predecessors of any such entities, to the extent
such information is available, and whose employment was primarily related to
the Downstream Businesses or (ii) who otherwise is identified pursuant to a
methodology approved by Pennzoil, Downstream and Quaker State prior to the
Distribution Date, which methodology shall be consistent with the intent of the
parties that former employees of Pennzoil or a past or present affiliate of
Pennzoil will be the responsibility of Downstream if such former employee's
employment had related primarily to the Downstream Businesses. "Downstream
Former Employee" shall, from and after the date provided in Section 2.1(c),
also include any Transition Former Employee.
"Downstream Group" has the meaning given in the Distribution
Agreement.
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"Downstream Health and Welfare Plans" means the Plans established
by Downstream pursuant to Section 3.1 that correspond to the Pennzoil Health
and Welfare Plans.
"Downstream Incentive Plan" means the Downstream 1998 Incentive
Plan, in the form attached as an Exhibit to the Merger Agreement (as it may be
amended or modified prior to the Distribution Date in accordance with the terms
of the Merger Agreement) which shall be established as provided herein and
pursuant to which Conversion Awards shall be granted, on the terms and subject
to the conditions provided herein and in such Plan.
"Downstream Individual" means each Downstream Employee and each
Downstream Former Employee. In addition, during the period from the signing of
the Merger Agreement through the Distribution Date, Pennzoil, Downstream and
Quaker State shall negotiate in good faith to identify former employees of
Pennzoil (or classes thereof) that were employed in discontinued operations of
Pennzoil that shall be Downstream Individuals, and former employees of such
discontinued operations (or classes thereof) that shall be treated as Pennzoil
Individuals, so that the assets and liabilities with respect to such employees
of such discontinued operations shall generally be shared following the
Distribution in a ratio that approximates 65 (Downstream) to 35 (Pennzoil).
"Downstream Liabilities" has the meaning given in Section 2.2(a).
"Downstream Mirror Plans" means the Downstream Pension Plans, the
Downstream Health and Welfare Plans, the Downstream Savings Plan and the
Downstream Executive Plans.
"Downstream Plans" means the Downstream Mirror Plans, the
Downstream 1998 Incentive Plan and the Downstream Stand-Alone Plans.
"Downstream Pension Plans" means the Plans established by
Downstream pursuant to Section 3.1 that correspond to the Pennzoil Pension
Plans.
"Downstream Post-Distribution Stock Price" means the average of
the closing prices per share of Downstream Common Stock as reported on the
principal stock exchange on which the Downstream stock is listed on the first
three full trading dates following the Distribution Date.
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"Downstream Savings Plan" means the Plan established by
Downstream that corresponds to the Pennzoil Savings and Investment Plan.
"Downstream Stand-Alone Plan" means any Plan maintained by any
member of the Downstream Group for the exclusive benefit of Downstream
Individuals, including but not limited to those Plans set forth on Schedule 1
hereto.
"Final Asset Transfer" has the meaning given in Section
4.2(c)(ii).
"Foreign Plans" are listed on Schedule 2 hereto.
"HMO" means a health maintenance organization that provides
benefits under the Pennzoil Health and Welfare Plans or the Downstream Health
and Welfare Plans, as applicable.
"HMO Agreements" means contracts, letter agreements, practices,
and understandings with HMOs that provide medical services under the Pennzoil
Health and Welfare Plans or the Downstream Health and Welfare Plans, as
applicable.
"Indemnitee" has the meaning given in Section 9.12.
"Indemnitor" has the meaning given in Section 9.12.
"Individual Agreement" means an individual employment contract or
other similar agreement that specifically pertains to any Downstream
Individual, including but not limited to the employment agreements set forth on
Schedule 6 hereto.
"Initial Asset Transfer" has the meaning given in Section
4.2(c)(i).
"Liabilities" means any and all losses, claims, charges, debts,
demands, actions, costs and expenses (including administrative and related
costs and expenses of any plan, program, or arrangement), of any nature
whatsoever, whether absolute or contingent, matured or unmatured, liquidated or
unliquidated, accrued or unaccrued, known or unknown, whenever arising.
"Merger" has the meaning given in the second recital to this
Agreement.
"Merger Sub" has the meaning given in the second recital to this
Agreement.
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"Non-parties" has the meaning given in Section 9.4(b)(ii).
"Participating Company" means any Person (other than an
individual) that is participating in a Plan sponsored by a member of the
Pennzoil Group or a member of the Downstream Group, as the context requires.
"Pennzoil" has the meaning given in the first paragraph of this
Agreement.
"Pennzoil Award" means an award under a Pennzoil Incentive Plan.
"Pennzoil Common Stock" has the meaning given in the Distribution
Agreement.
"Pennzoil CSAU" has the meaning given in Section 7.1(e).
"Pennzoil Executive Plans" means (a) the Pennzoil Executive
Severance Plan, (b) the Pennzoil Change in Control Agreements, (c) the Pennzoil
Benefit Acceleration Agreements, (d) the Pennzoil Section 415 Excess Benefits
Agreements, (e) the Pennzoil Salary Continuation Plan, (f) the Pennzoil 1981
Deferred Compensation Plan, (g) the Pennzoil Medical Expenses Reimbursement
Plan, (h) the Pennzoil Supplemental Disability Plan, (i) the Pennzoil
Supplemental Life Insurance Plan, (j) the six individual agreements providing
for supplemental retirement and medical benefits set forth on Schedule 3 hereto
and (k) the Pennzoil Tax Protection Agreements.
"Pennzoil Group" has the meaning given in the Distribution
Agreement.
"Pennzoil Health and Welfare Plans" are set forth on Schedule 4
hereto [Pennzoil Health and Welfare Plans that will be mirrored by Downstream,
including, for these purposes, the Pennzoil Supplemental Life Insurance Plan].
"Pennzoil Incentive Plans" means (a) the Pennzoil 1998 Annual
Incentive Plan, (b) the Pennzoil 1998, 1997 and 1996 Long Term Incentive Plans,
(c) the Pennzoil 1997 Incentive Plan, (d) the Pennzoil 1997 Stock Option Plan,
(e) the Pennzoil 1995 Stock Option Plan, (f) the Pennzoil 1992 Stock Option
Plan, (g) the Pennzoil 1990 Stock Option Plan, (h) the Pennzoil 1982 Stock
Option Plan, (i) the Pennzoil 1981 Stock Option Plan, (j) the Pennzoil 1978
Stock Option Plan, (k) the Pennzoil 1993 Conditional Stock Award Program, (l)
the Pennzoil 1990 Conditional Stock Award Program, (m) the Pennzoil 1985
Conditional Stock Award Program and (n) the Pennzoil 1998 Stock Option Plan.
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"Pennzoil Pension Plans" are set forth on Schedule 5 hereto
[Pennzoil Pension Plans that will be mirrored by Downstream].
"Pennzoil Plan" means any Plan maintained or sponsored by
Pennzoil or any of its subsidiaries or affiliates (or any of their respective
predecessors) at any time on or prior to the Distribution Date for the benefit
of any current or former employee of any such person.
"Pennzoil Post-Distribution Stock Price" means the average of the
closing prices per share of Pennzoil Common Stock as reported on the principal
stock exchange on which the Pennzoil stock is listed on the first three full
trading dates following the Distribution Date.
"Pennzoil Pre-Distribution Stock Price" means the average of the
closing prices per share for Pennzoil Common Stock on the three business days
occurring before the Distribution Date on the principal stock exchange is then
listed, provided that if any such closing stock price is an ex dividend price
with respect to the special dividend of Downstream Common Stock to be made in
connection with the Distribution, any such closing stock price shall be
increased by the Downstream Post-Distribution Stock Price.
"Pennzoil SAR" has the meaning given in Section 7.1(d).
"Pennzoil Stock Option" has the meaning given in Section 7.1(d).
"Pennzoil Actuary" means William M. Mercer, Inc.
"Pension Plan Asset Transfer Amount" means, in the case of a
transfer of assets and liabilities from a Pennzoil Pension Plan to a Downstream
Pension Plan, the amount necessary to fund the projected benefit obligations
under the Pennzoil Pension Plans of the Downstream Individuals, determined in
accordance with the actuarial assumptions (including, without limitation, the
mortality tables, turnover assumptions and discount rates) used by the
applicable Pennzoil Pension Plan with respect to the last completed actuarial
report of such Pennzoil Plan, plus the applicable share of any assets in excess
of the liabilities calculated in accordance with the preceding parts of this
sentence under such Pennzoil Pension Plan, to be allocated between such
Pennzoil Plan and the applicable Downstream Plan using the principles
enumerated in Section 414(l)(2) of the Code (assuming for this purpose that the
amount of assets required to be transferred on the basis of projected benefit
obligations in accordance with the preceding part of this sentence were the
amount of assets required to be allocated to the applicable Downstream Plan
under Section 414(l)(1)) unless the Pennzoil Pension Plan has
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insufficient assets to fund all liabilities on a plan termination basis, in
which event the Pension Plan Asset Transfer Amount shall mean the minimum
amount required to be transferred to such plan in accordance with Section
414(l) of the Code and the regulations thereunder. To the extent that a
Pennzoil Pension Plan will be transferred in toto to Downstream, i.e., a
Downstream Stand-Alone Plan, the Pension Plan Asset Transfer shall mean all the
assets of such plan.
"Person" means an individual, a general or limited partnership, a
corporation, a trust, a joint venture, an unincorporated organization, a
limited liability entity, any other entity, and any governmental authority.
"Plan" means any plan, policy, program, payroll practice,
on-going arrangement, contract, trust, insurance policy or other agreement or
funding vehicle, whether written or unwritten, providing compensation or
benefits to employees, or former employees of the Downstream Group or the
Pennzoil Group.
"Quaker State" has the meaning given in the second recital to
this Agreement.
"Retained Individual" means any individual who, as of the Close
of the Distribution Date, is actively employed by, or on an approved leave of
absence or lay-off with right of recall from, a member of the Pennzoil Group or
any individual who was at any time on or prior to the Distribution Date
employed by Pennzoil or any of its subsidiaries or affiliates (and any
predecessor thereto) and who is not a Downstream Individual.
"Retained Liabilities" has the meaning given in Section 2.2(b).
"Services Agreement" has the meaning given the fourth recital to
this Agreement.
"Transition Employee" has the meaning given in Section 2.1(b).
"Transition Former Employee" has the meaning given in Section
2.1(c).
"Transition Individual" means any Transition Employee and any
Transition Former Employee.
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"Transition Period" means the period beginning immediately after
the Distribution Date and ending on the first anniversary of such date or, if
sooner, upon the termination of the Services Agreement in accordance with the
terms thereof.
ARTICLE II
EMPLOYEES; ASSUMPTION OF LIABILITIES
Section 2.1 Employees; Transition Individuals
(a) General. Effective as of the Distribution Date,
Downstream Employees shall be employees of the Downstream Group and Retained
Employees shall be employees of the Pennzoil Group. Notwithstanding the
foregoing, any individual who was employed by a member of the Pennzoil Group on
the date of the Merger Agreement and who is employed by a member of the
Downstream Group as of the Close of the Distribution Date shall not be a
Downstream Employee (and shall be a Retained Employee) except for (i) any such
individual whose employment duties prior to the date of the Merger Agreement
related primarily to the Downstream Businesses and (ii) any such individual
whose transfer to the Downstream Group was approved by Downstream and Quaker
State (whether a specific approval or an approval of reasonably identifiable
and limited class of employees), such approval not to be unreasonably withheld.
(b) Transition Employees. During the Transition Period,
Pennzoil and Downstream shall negotiate in good faith to determine which
individuals who are employed by ServiceCo during the Transition Period shall be
transferred to Downstream on or prior to the last day of the Transition Period.
Effective as of the date such transferred individual is hired by Downstream,
which date shall in any event be on or prior to the last day of the Transition
Period, such individual shall be a Downstream Employee.
(c) Transition Former Employees. During the Transition
Period, Pennzoil and Downstream shall negotiate in good faith to determine
which individuals who were employed by ServiceCo prior to the Distribution
Date, or who were actively employed by ServiceCo on the Distribution Date and
whose employment with ServiceCo terminated during the Transition Period (other
than as a result of becoming a Transition Employee), shall be designated
Transition Former Employees. Effective as of the last day of the Transition
Period such agreed upon individuals shall be Downstream Former Employees.
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(d) Non-Termination of Employment. Except as otherwise
expressly provided herein, no provision of this Agreement or the Distribution
Agreement shall be construed to create any right, or accelerate entitlement, to
any compensation or benefit whatsoever on the part of any Downstream Individual
or other future, present, or former employee of the Pennzoil Group or the
Downstream Group under any Pennzoil Plan or Downstream Plan or otherwise.
Without limiting the generality of the foregoing, neither the Distribution nor
the termination of the Participating Company status of a member of the
Downstream Group nor a transfer of a Transition Employee to Downstream shall
cause any employee to be deemed to have incurred a termination of employment
which entitles such individual to the commencement of benefits under any of the
Pennzoil Plans, any of the Downstream Plans, or any of the Individual
Agreements
(e) No Right to Continued Employment. Nothing contained in
this Section 2.1 shall confer on any Downstream Employee or Pennzoil Employee
any right to continued employment.
Section 2.2 Assumption of Liabilities
(a) By Downstream. Subject to the satisfaction by Pennzoil of
its obligations hereunder, Downstream hereby assumes and agrees to pay,
perform, fulfill, and discharge, in accordance with their respective terms, all
of the following, regardless of when or where such Liabilities arose or arise
or were or are incurred (collectively, the "Downstream Liabilities"):
(i) all Liabilities to or relating to Downstream
Individuals and other employees or former employees of a member
of the Downstream Group, and their dependents and beneficiaries,
to the extent relating to, arising out of or resulting from
future, present or former employment with a member of the
Downstream Group or Pennzoil while Downstream was owned by
Pennzoil or its affiliates (including Liabilities under Pennzoil
Plans and Downstream Plans);
(ii) all Liabilities under any Individual Agreements
relating to Downstream Individuals; and
(iii) all other Liabilities relating to, arising out of,
or resulting from obligations, liabilities, and responsibilities
expressly assumed or retained by a member of the Downstream
Group, or a Downstream Plan pursuant to this Agreement.
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Downstream shall have assumed all such Liabilities described in this Agreement,
unless the Liability is a Retained Liability or is otherwise explicitly
retained in writing by Pennzoil or excluded in writing by Pennzoil from those
being assumed by Downstream.
(b) By Pennzoil. All Liabilities with respect to Retained
Individuals shall be assumed or retained by Pennzoil, and Pennzoil agrees to
pay, perform, fulfill, and discharge, in accordance with their respective
terms, all of such Liabilities, regardless of when or where such Liabilities
arose or arise or were or are incurred ("Retained Liabilities").
ARTICLE III
DOWNSTREAM PLANS GENERALLY
Section 3.1 Establishment of Downstream Plans
Downstream shall have adopted, or shall have caused to be
adopted, before the Close of the Distribution Date, the Downstream Mirror Plans
and the Downstream 1998 Incentive Plan. Downstream shall become the plan
sponsor of, and from and after the Distribution Date, shall have sole
responsibility (together with its subsidiaries) for each Downstream Stand-Alone
Plan. The Downstream Mirror Plans as in effect immediately after the
Distribution Date shall be substantially identical in all material respects to
the corresponding Pennzoil Plans as in effect as of the Close of the
Distribution Date. The Downstream Incentive Plan shall be adopted by
Downstream and approved by Pennzoil as sole shareholder of Downstream, before
the Close of the Distribution Date.
Section 3.2 Terms of Participation by Downstream Individuals
The Downstream Plans shall be, with respect to Downstream
Individuals, in all respects the successors in interest to, shall recognize all
rights and entitlements as of the Close of the Distribution Date under, and
shall not provide benefits that duplicate benefits provided by, the
corresponding Pennzoil Plans for such Downstream Individuals. Pennzoil and
Downstream shall agree on methods and procedures, including amending the
respective Plan documents, to prevent Downstream Individuals from receiving
duplicative benefits from the Pennzoil Plans and the Downstream Plans.
Downstream shall not permit any Downstream Plan to commence benefit payments to
any Downstream Individual until it receives notice from Pennzoil regarding the
date on which payments under the corresponding Pennzoil Plan shall cease. With
respect to Downstream Individuals, each Downstream Plan shall provide that all
service, all
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compensation, and all other benefit-affecting determinations that, as of the
Close of the Distribution Date, were recognized under the corresponding
Pennzoil Plan (for periods immediately before the Close of the Distribution
Date) shall, as of immediately after the Distribution Date, receive full
recognition, credit, and validity and be taken into account under such
Downstream Plan to the same extent as if such items occurred under such
Downstream Plan, except to the extent that duplication of benefits would
result. All beneficiary designations made by Downstream Individuals for
Pennzoil Plans shall be transferred to and be in full force and effect under
the corresponding Downstream Plans until such beneficiary designations are
replaced or revoked by the Downstream Individual who made the beneficiary
designation. Notwithstanding the foregoing, nothing in this Agreement other
than those provisions specifically set forth herein to the contrary shall
preclude Downstream, at any time after the Close of the Distribution Date, from
amending, merging, modifying, terminating, eliminating, reducing, or otherwise
altering in any respect any Downstream Plan, any benefit under any Plan or any
trust, insurance policy or funding vehicle related to any Downstream Plan.
Section 3.3 Participation in Pennzoil Plans Prior to the
Distribution
(a) Participation in Pennzoil Plans. Subject to the terms and
conditions of this Agreement, each member of the Downstream Group that is, as
of the date of this Agreement, a Participating Company in any of the Pennzoil
Plans shall continue as such through the Close of the Distribution Date.
Effective as of any date before the Distribution Date, a member of the
Downstream Group not described in the preceding sentence may, at its request
and with the consent of Pennzoil (which shall not be unreasonably withheld),
become a Participating Company in any or all of the Pennzoil Plans.
(b) Pennzoil's General Obligations as Plan Sponsor. Pennzoil
shall continue through the Close of the Distribution Date to administer, or
cause to be administered, in accordance with their terms and applicable law,
the Pennzoil Plans; provided that Downstream shall be responsible for
administering, or causing to be administered, in accordance with their terms
and applicable law, the Downstream Stand-Alone Plans.
(c) Downstream's General Obligations as Participating Company.
Downstream shall perform with respect to its participation in the Pennzoil
Plans, and shall cause each other member of the Downstream Group that is a
Participating Company in any Pennzoil Plan to perform the duties of a
Participating Company as set forth in such Plans or any procedures adopted
pursuant thereto.
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Section 3.4 Termination of Participating Company Status
Effective as of the Close of the Distribution Date, Downstream
and each other member of the Downstream Group shall cease to be a Participating
Company in the Pennzoil Plans (other than the Downstream Stand-Alone Plans).
Any member of the Downstream Group that is a Participating Company in any
Downstream Stand-Alone Plans as of the Close of the Distribution Date shall not
cease to be a Participating Company therein as a result of the Distribution.
Section 3.5 Restriction on Plan Amendments
During the Transition Period, neither Pennzoil nor Downstream
shall adopt any amendment, or allow any amendment to be adopted, to any of
their respective Pension Plans or Savings Plans, except for any amendment that,
in the opinion of counsel acceptable to both Pennzoil and Downstream, is
required to continue to cause any such plan to meet the requirements of Section
401(a) of the Code, provided, however, either party may adopt such an amendment
with the prior written consent of both the other party and Quaker State.
ARTICLE IV
DEFINED BENEFIT PLANS
Section 4.1 Establishment of Mirror Pension Trusts
Downstream shall establish, or cause to be established, one or
more trusts which shall be qualified under Code Sec. 401(a), exempt from
taxation under Code Sec. 501(a)(1), and forming part of the Downstream Pension
Plans. In the case of pension assets and liabilities attributable to a
Pennzoil Pension Plan that, as of the date of the Merger Agreement, covers only
Downstream Individuals, i.e., a Downstream Stand-Alone Plan, Downstream shall
assume responsibility as plan sponsor and grantor under such Pennzoil Pension
Plan and related trust, effective as of a time not later than the Distribution
Date.
Section 4.2 Assumption of Pension Plan Liabilities and
Allocation of Interests in the Pennzoil Pension
Trusts.
(a) Assumption of Liabilities by Downstream Pension Plan.
Subject to the satisfaction of Pennzoil's obligations under this Section 4.2,
immediately after the Distribution Date, all Liabilities to or relating to
Downstream Individuals under the
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Pennzoil Pension Plans shall cease to be Liabilities of the Pennzoil Pension
Plans and shall be assumed in full and in all respects by the corresponding
Downstream Pension Plans.
(b) Calculation of Pension Plan Asset Allocation. As soon as
practicable after the Close of the Distribution Date, Pennzoil's Actuary shall
calculate and certify the Pension Plan Asset Transfer Amount for each such
Downstream Pension Plans as of the Close of the Distribution Date. Such
calculation shall be subject to audit as provided in Section 9.4(a).
(c) Transfer of Assets to Downstream Pension Trusts.
(i) Effective immediately after the Distribution Date,
Pennzoil shall cause to be transferred from the trusts
established under the Pennzoil Pension Plans (each, a "Pennzoil
Trust") to the trusts established under the corresponding
Downstream Pension Plan (each, a "Downstream Trust") an initial
amount of assets (the "Initial Asset Transfer"). The amount of
the Initial Asset Transfer shall be equal to 75% of the Pension
Plan Asset Transfer Amount with respect to such Downstream Plan,
as determined in good faith by the actuary referred to in Section
4.2(b).
(ii) As soon as practicable after the calculation of
each Downstream Plan's Pension Plan Asset Transfer Amount
pursuant to Section 4.2, Pennzoil will cause the appropriate
amount of assets to be transferred from such Pennzoil Trust to
the corresponding Downstream Trust (the "Final Asset Transfer").
If additional assets are necessary to be transferred, the amount
of assets to be transferred in the Final Asset Transfer shall be
equal to the Pension Plan Asset Transfer Amount with respect to
such Downstream Plan, less (A) the Initial Asset Transfer, less
(B) the aggregate amount of any actual benefit payments made in
respect of Downstream Individuals from and after the Distribution
Date by the Pennzoil Pension Plan plus (C) interest, compounded
monthly, from the date of the Initial Asset Transfer to the Final
Asset Transfer at an annual rate equal to the discount rate used
by the corresponding Pennzoil Plan for purposes of determining
the present value of the underlying benefit liabilities. If the
Initial Asset Transfer exceeds the Pension Plan Asset Transfer
Amount, such excess plus interest, compounded monthly at an
annual rate
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equal to the discount rate used by the corresponding Pennzoil
Plan for purposes of determining the present value of the
underlying benefit liabilities, shall be transferred to the
Pennzoil Pension Plan.
(iii) The assets to be transferred from any of the
Pennzoil Trusts to any of the Downstream Trusts in either the
Initial Asset Transfer or the Final Asset Transfer shall be made
in cash or in assets which represent a reasonable cross-section
of the asset classes in such Pennzoil Trust. If any assets are
to be transferred from any Downstream Trust to a Pennzoil Trust,
such assets shall consist of cash.
ARTICLE V
DEFINED CONTRIBUTION PLANS
Section 5.1 Savings Plan
(a) Savings Plan Trust. Effective immediately after the
Distribution Date, Downstream shall establish, or cause to be established, a
trust qualified under Code Sec. 401(a), exempt from taxation under Code Sec.
501(a)(1), and forming part of the Downstream Savings Plan.
(b) Assumption of Liabilities and Transfer of Assets.
Effective immediately after the Distribution Date: (i) the Downstream Savings
Plan shall assume and be solely responsible for all Liabilities to or relating
to Downstream Individuals under the Pennzoil Savings Plan; (ii) the Downstream
Savings Plan shall assume and be solely responsible for all ongoing rights of
or relating to Downstream Individuals for future participation (including the
right to make contributions through payroll deductions) in the Downstream
Savings Plan; and (iii) Pennzoil shall cause the accounts of the Downstream
Individuals under the Pennzoil Savings Plan which are held by its related trust
as of the Close of the Distribution Date to be transferred to the Downstream
Savings Plan and its related trust, and Downstream shall cause such transferred
accounts to be accepted by such plan and trust. Effective no later than
immediately after the Distribution Date, Downstream shall use its reasonable
best efforts to enter into such agreements to accomplish such assumptions and
transfers, the maintenance of the necessary participant records, the
appointment of an initial trustee under the Downstream Savings Plan, and the
engagement of an initial record keeper under such plans. As soon as
practicable after the Close of the Distribution Date, assets related to the
accounts of all Downstream Individuals shall be transferred from the Pennzoil
Savings Plan to the
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Downstream Savings Plan in cash or in kind, at Pennzoil's discretion, and to
the extent practicable, shall be invested in comparable investment options in
the Downstream Savings Plan as such accounts were invested immediately before
the Close of the Distribution Date.
(c) Non-Employer Stock Funds. Effective immediately after the
Distribution Date, a Downstream common stock fund shall be added as an
investment option to the Pennzoil Savings Plan and the Downstream Savings Plan
shall provide for both a Pennzoil common stock fund and a Downstream common
stock fund as investment options. The Downstream common stock fund in the
Pennzoil Savings Plan and the Pennzoil capital stock fund in the Downstream
Savings Plan are each referred to as a "Non-Employer Stock Fund" with respect
to the applicable plan. Each Non-Employer Stock Fund shall be maintained under
the respective Plan at least through December 31, 2000. The Pennzoil Savings
Plan and the Downstream Savings Plan shall each provide that, after the
Distribution Date, no new contributions may be invested in, and no amounts may
be transferred from other investment options to, the Non-Employer Stock Fund
under the respective Plan.
(d) Miscellaneous Funds. In the event that Pennzoil
determines that it is not feasible or appropriate to transfer in-kind the
assets of a particular investment fund from the Pennzoil Savings Plan to the
Downstream Savings Plan, then the value of the assets, as of the close of
business on the Distribution Date (plus earnings attributable to such amount
from the Distribution Date to the date the assets are actually transferred)
shall be transferred in cash to the Downstream Savings Plan and Downstream
shall, to the extent practicable, cause such cash to be invested in its plan
and trust in the same manner and proportion as it was invested in the Pennzoil
Savings Plan or otherwise at the direction of each affected participant.
ARTICLE VI
HEALTH AND WELFARE PLANS
Section 6.1 Assumption of Health and Welfare Plan Liabilities
Immediately after the Distribution Date, all Liabilities for or
relating to Downstream Individuals under the Pennzoil Health and Welfare Plans
shall cease to be Liabilities of Pennzoil or the Pennzoil Plans and shall be
assumed by Downstream and the Downstream Health and Welfare Plans; provided
that Pennzoil shall either (i) transfer to Downstream or cause to be
transferred or allocated for the benefit of Downstream or the Downstream
Individuals an amount equal to the value of any assets set aside by
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Pennzoil or any member of the Pennzoil Group for the payment of, or to meet the
obligations in respect of, any such health and welfare benefits or (ii)
represent in writing to Downstream that no such assets have set aside.
Section 6.2 Vendor Contracts
(a) ASO Contracts, Group Insurance Policies, HMO Agreements
and Letters of Understanding.
(i) Before the Distribution Date, Pennzoil shall use
its commercially reasonable best efforts to permit Downstream and
the other members of the Downstream Group to participate in the
terms and conditions of each ASO Contract, Group Insurance
Policy, HMO Agreement or letters of understanding and
arrangements in existence as of the date of this Agreement from
Immediately after the Distribution Date through the end of the
Transition Period. Pennzoil shall cause any ASO Contract, Group
Insurance Policy, HMO Agreement or letter of understanding into
which Pennzoil enters after the date of this Agreement, but
before the Close of the Distribution Date, to allow Downstream
and the other members of the Downstream Group to participate in
the terms and conditions thereof. Nothing contained in this
Section 6.2(a) shall preclude Pennzoil from choosing to enter
into ASO Contracts, Group Insurance Policies, HMO Agreements or
other letters of understandings and arrangements with new or
different vendors.
(ii) Pennzoil and Downstream shall cooperate to
determine the manner in which the Downstream Group's
participation in the terms and conditions of ASO Contracts, Group
Insurance Policies, HMO Agreements, letters of understanding and
arrangements as set forth above shall be effectuated.
(b) Effect of Change in Rates. Pennzoil and Downstream shall
use their reasonable best efforts to cause each of the insurance companies,
HMOs, paid provider organizations and third-party administrators providing
services and benefits under the Pennzoil Health and Welfare Plans and the
Downstream Health and Welfare Plans to maintain the premium and/or
administrative rates based on the aggregate number of participants in both the
Pennzoil Health and Welfare Plans, after the Close of the Distribution Date,
and the Downstream Health and Welfare Plans through the end of the Transition
Period, separately rated or adjusted for the demographics, experience or other
relevant factors related to the covered participants of the Pennzoil Group and
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Downstream Group, respectively. To the extent they are not successful in such
efforts, Pennzoil and Downstream shall each bear the revised premium or
administrative rates for health and welfare benefits attributable to the
individuals covered by their respective Plans.
Section 6.3 Postretirement and Welfare Health Benefits
Downstream shall be solely responsible for any and all
Liabilities relating to any post-retirement health and welfare benefits
available to any Downstream Individual, whether or not such Downstream
Individual qualified for such benefits under the terms and conditions of the
Pennzoil Health and Welfare Plans as of the Close of the Distribution Date,
provided that Pennzoil shall either (i) transfer to Downstream or cause to be
transferred or allocated for the benefit of Downstream or the Downstream
Individuals an amount equal to the value of any assets set aside by Pennzoil or
any member of the Pennzoil Group for the payment of, or to meet the obligations
in respect of, any such post-retirement health benefits or (ii) represent in
writing to Downstream that no such assets have been set aside.
Section 6.4 COBRA and HIPAA
Downstream shall be responsible for administering compliance with
the continuation coverage requirements for "group health plans" under Title X
of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and
the portability requirements under the Health Insurance Portability and
Accountability Act of 1996 with respect to Downstream Individuals for period
immediately after the Close of the Distribution Date.
Section 6.5 Leave of Absence Programs
Downstream shall be responsible for the administration and
compliance of all leaves of absences and related programs (including compliance
with the Family and Medical Leave Act) affecting Downstream Individuals for the
period immediately after the Close of the Distribution Date.
Section 6.6 Workers' Compensation Program
Effective as of immediately after the Distribute Date, Downstream
shall assume all Liabilities for Downstream Individuals related to any and all
workers' compensation matters under any law of any state, territory, or
possession of the U.S. or the District of Columbia and Downstream shall be
fully responsible for the administration
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of all such claims; provided that Pennzoil shall either (i) transfer to
Downstream or cause to be transferred or allocated for the benefit of
Downstream or the Downstream Individuals an amount equal to the value of any
assets set aside by Pennzoil or any member of the Pennzoil Group (including any
reserves established under any contract providing coverage against any such
claims) for the payment of, or to meet the obligations in respect of, any such
workers' compensation benefits or (ii) represent in writing to Downstream that
no such assets have been set aside. If Downstream is unable to assume any such
Liability or the administration of any such claim because of the operation of
applicable state law or for any other reason, Downstream shall fully indemnify
Pennzoil for all such Liabilities, including the costs of any administration
that Downstream has not been able to assume.
Section 6.7 Post-distribution Transitional Arrangements
(a) Continuance of Elections, Co-Payments and Maximum
Benefits.
(i) Downstream shall cause the Downstream Health and
Welfare Plans to recognize and maintain all coverage and
contribution elections made by Downstream Individuals under the
Pennzoil Health and Welfare Plans in effect for the period
immediately prior to the Distribution Date and shall apply such
elections under the Downstream Health and Welfare Plans for the
remainder of the period or periods for which such elections are
by their terms applicable.
(ii) Downstream shall cause the Downstream Health and
Welfare Plans to recognize and give credit for (A) all amounts
applied to deductibles, out-of-pocket maximums, and other
applicable benefit coverage limits with respect to such expenses
which have been incurred by Downstream Individuals under the
Pennzoil Health and Welfare Plans for the remainder of the
benefit limit year in which the Distribution occurs, and (B) all
benefits paid to Downstream Individuals under the Pennzoil Health
and Welfare Plans, during and prior to the benefit limit year in
which the Distribution occurs, for purposes of determining when
such persons have reached their lifetime maximum benefits under
the Downstream Health and Welfare Plans.
(iii) Downstream shall (A) provide coverage to Downstream
Individuals under the Downstream Health and Welfare Plans without
the need to undergo a physical examination or otherwise provide
evidence of insurability, and (B) recognize and maintain all
irrevocable assignments
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and elections made by Downstream Individuals in connection with
their life insurance coverage under the Pennzoil Health and
Welfare Plans and any predecessor plans.
ARTICLE VII
EXECUTIVE PLANS
Section 7.1 Pennzoil Incentive Plans
(a) Amendments to Pennzoil Incentive Plans. Pennzoil shall,
effective as of immediately before the Distribution Date (i) accelerate the
vesting of all Pennzoil Stock Options (as defined below), Pennzoil SARs (as
defined below) and Pennzoil CSAUs (as defined below) outstanding as of such
date under any Pennzoil Incentive Plan, whether such awards are held by a
Pennzoil Individual or a Downstream Individual, (ii) amend the terms of any
Pennzoil Incentive Plan under which any Downstream Employee holds any Pennzoil
Award to include employment by Downstream or any of its subsidiaries for
purposes of determining the expiration or time of payment of any such award,
(iii) take such other actions necessary to effectuate the provisions of this
Section 7.1. Any such amendments shall be subject to the prior review and
consent of Quaker State (such consent not to be unreasonably withheld). The
Downstream Incentive Plan shall provide that employment by Pennzoil or any of
its subsidiaries will be included in determining the expiration or time of
payment of any award granted under such plan pursuant to this Section 7.1.
(b) General. Pennzoil Awards shall be adjusted as provided in
this Section 7.1. The number of shares subject to options or stock
appreciation rights with respect to Downstream Common Stock shall not exceed
the number of shares that would have been subject to Downstream awards assuming
the conversion solely into awards with respect to Downstream Common Stock
(applying the formulas set forth in paragraphs (d) and (e) of this Section 7.1)
of Pennzoil Options and Pennzoil SARs covering 2.5 million shares (minus 68% of
the number of shares subject to any Pennzoil Options and Pennzoil SARs that are
exercised between the date of the Merger Agreement and the Distribution Date)
and having an average exercise price (or reference appreciation price) equal to
that determined in clause (x) below, and the total aggregate spread of such
awards shall not exceed the product of (x) the excess of the Pennzoil Pre-
Distribution Stock Price over the average exercise price (or reference
appreciation price) per share of all Pennzoil Options and Pennzoil SARs
outstanding immediately prior to the Distribution Date and (y) 2.5 million
minus 68% of the number of shares subject to any Pennzoil Options and Pennzoil
SARs that are exercised between the date of the Merger
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Agreement and the Distribution Date. Notwithstanding anything herein to the
contrary, Downstream shall be entitled to, and, no later than immediately
before the Distribution, Pennzoil shall transfer or cause to be transferred to
Downstream, an amount of cash or other readily available funds equal to 68% of
the aggregate total of the exercise prices per share of any Pennzoil Option
that is exercised in the period commencing on the date of the Merger Agreement
and ending immediately prior to the Distribution.
(c) Conversion Awards. A portion of each Pennzoil Award that
is outstanding as of the Close of the Distribution Date, effective immediately
after the Close of the Distribution Date, and without regard to whether the
holder of such Pennzoil Award is a Downstream Individual or a Pennzoil
Individual, shall be converted into an award of a similar nature with respect
to Downstream Common Stock, and the remaining portion of such Pennzoil Award
shall remain outstanding with respect to Pennzoil Common Stock (collectively,
"Conversion Awards"), the number of shares covered by, and the exercise or
reference appreciation price of, such Conversion Awards to be determined by
applying the rules set forth in paragraphs (d) and (e) of this Section 7.1, but
subject in all cases to the aggregate limitations set forth in the paragraph
(b) of this Section 7.1. To the extent possible, no holder of an Award having
any particular terms shall be treated any differently from any other holder of
an Award having the same terms. Each Conversion Award with respect to
Downstream Common Stock shall be issued under the Downstream Incentive Plan,
and shall have the same terms and conditions (including payment schedule in the
case of a Pennzoil CSAU) as the corresponding Pennzoil Award to which it
relates (except as adjusted as provided herein).
(d) Stock Options and Stock Appreciation Rights. With respect
to a Pennzoil Award consisting of an option to acquire Pennzoil Common Stock (a
"Pennzoil Stock Option") or a stock appreciation right with respect to Pennzoil
Common Stock (a "Pennzoil SAR"), the number of shares of Pennzoil Common Stock
and Downstream Common Stock and the exercise price per share of Pennzoil Common
Stock and Downstream Common Stock covered by the Conversion Award shall be
determined, as of the Close of the Distribution Date, in accordance with the
following conversion formula: The Aggregate Spread on each such Pennzoil Award
shall be maintained under the corresponding Conversion Awards by setting the
option prices (or reference appreciation prices) of the Conversion Award with
respect to the shares of Pennzoil Common Stock and Downstream Common Stock
subject to such Conversion Award, respectively, to ensure that the difference
between the total aggregate excesses of the applicable Pennzoil Post-
Distribution Stock Price or Downstream Post-Distribution Stock Price, as the
case may be, over the applicable exercise prices (or reference appreciation
prices), equals the Aggregate Spread. In addition, the option prices of the
Conversion Award (or reference appreciation prices) shall be set in such a way
that maintains the
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ratio of the per share exercise price (or reference appreciation prices) of
each Pennzoil Award being so converted to the Pennzoil Pre-Distribution Stock
Price. The number of shares of Pennzoil Common Stock and Downstream Common
Stock subject to such Conversion Award shall be adjusted as necessary to
maintain the Aggregate Spread and such ratio.
(e) Conditional Share Award. With respect to a Pennzoil Award
consisting of a conditional or restricted share unit award (a "Pennzoil CSAU"),
the number of shares of Downstream Common Stock and Pennzoil Common Stock that
are covered by the Conversion Award shall be determined based on the ratio used
in the distribution of Downstream Common Stock to the holders of Pennzoil
Common Stock in the Distribution.
(f) Performance Based Awards. Pennzoil Awards granted under
the Pennzoil 1998 Annual Incentive Plan or any of the Pennzoil 1996, 1997 or
1998 Long Term Incentive Plans shall be vested and earned as of the Close of
the Distribution Date, based on the actual results for the portion of such
incentive plan period(s) ending on the Close of the Distribution Date and pro
rated based on the proportionate number of days within such incentive period(s)
ending on the Close of the Distribution Date, and shall be paid in cash as
promptly as practicable following the Distribution Date (and without regard to
whether the holder of the Pennzoil Award is then employed by Pennzoil or
Downstream, or any of their respective subsidiaries).
(g) Administrative Matters. Pennzoil and Downstream shall
adopt such procedures and information sharing practices necessary or
appropriate to permit the other to administer any incentive or stock option
plan it maintains and under which an employee of the other has an award
(including, for example, timely informing the other of any termination of
employment that affects the exercise period or payment date of an award).
Section 7.2 Deferred Compensation Plan
(a) Pennzoil 1981 Deferred Compensation Plan. The liability
with respect to any Downstream Individual who is participating under the
Pennzoil Deferred Compensation Plan by reason of being the subject of a
Deferred Compensation Agreement as of the Close of the Distribution Date shall
be the sole responsibility of Downstream; provided that Pennzoil shall either
(i) transfer to Downstream or cause to be transferred or allocated for the
benefit of Downstream or the Downstream Individuals an amount equal to the
value of any assets set aside by Pennzoil or any member of the Pennzoil Group
for the payment of, or to meet the obligations in respect of, any such
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deferred compensation obligation or (ii) represent to Downstream in writing
that no such assets have been set aside.
Section 7.3 Other Executive Agreements
(a) Supplemental Retirement and Welfare Agreements. The
liability with respect to any Downstream Individual who is the subject of a
contract or agreement that is either a Pennzoil Section 415 Excess Benefit
Agreement or Pennzoil individual or other arrangement providing for retirement,
death or disability benefit as of the Distribution Date shall be the sole
responsibility of Downstream.
Section 7.4 Tax Protection Agreements
(a) Pennzoil Tax Protection Agreements. The liability with
respect to any Downstream Individual under Pennzoil's Tax Protection Agreements
as of the Distribution Date shall be the sole responsibility of Downstream.
ARTICLE VIII
CERTAIN MATTERS RELATING TO TRANSITION EMPLOYEES
Section 8.1 Transition Individuals/Recognition of Service
Subject to the satisfaction by Pennzoil of its obligations
hereunder, the Downstream Plans shall recognize service, compensation, and
other benefit determining factors with respect to Transition Individuals as if
the Transition Individual's service recognized by the Pennzoil Group or the had
been performed entirely for the Downstream Group.
Section 8.2 Pension Plans
(a) Assumption of Liabilities/Noncommencement of Pensions.
Effective as of the date a Transition Individual is transferred to a
Downstream: (i) Downstream's Pension Plan shall assume and be solely
responsible for all Liabilities to or relating to the Transition Individual
under the Pennzoil Pension Plan; and (ii) no pension benefits with respect to
the Transition Individual from the Pennzoil Pension Plan shall commence while
he or she is employed by the Downstream Group.
(b) Asset/Liability Allocations and Transfers. Pennzoil shall
arrange to transfer assets and liabilities relating to the projected benefit
obligations of each
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Transition Individual under the Pennzoil Pension Plans to the appropriate
Downstream Pension Plans. The liability related to each such Transition
Individual shall be calculated in accordance with the same procedures and
assumptions described in Section 4.2 effective as of the date the Transition
Individual is transferred to the Downstream Group. The transfer of assets
relating to such liability shall occur as soon as practicable after the
Transition Period and a single net aggregate transfer with respect to each such
pension plan shall take place in accordance with the procedures described in
the following paragraph.
The amount of assets related to each Transition Individual shall
be 100% of the benefit liability calculated at the effective date of the
transfer, adjusted to reflect interest from the effective date of the transfer
to the date the assets are transferred at a rate equal to the discount rate
used by Pennzoil's Actuary to determine the present value of such liabilities
in accordance with the provisions of Section 4.2, provided, however, if a
lesser amount is required to be transferred under the provision of Section
414(l) of the Code, then such lesser amount shall be transferred. The amount of
assets so calculated shall be aggregated with respect to each Pennzoil Pension
Plan for all Transition Individuals transferring from Pennzoil to Downstream.
Pennzoil shall arrange to transfer the net aggregate amount so calculated from
each Pennzoil Pension Plan and Pennzoil Trust to the appropriate Downstream
Pension Plan and related trust.
Section 8.3 Savings Plan
Upon a Transition Individual's transfer to the Downstream Group
(i) Pennzoil shall cause the accounts of the Transition Individual under the
Pennzoil Savings Plan which are held by their related trusts to be transferred
to the corresponding Downstream Savings Plan and their related trusts as soon
as practicable after the Transition Individual's date of transfer; and (ii)
Downstream shall cause the transferred accounts to be accepted by its plans and
trusts; and (iii) as soon as the assets relating to the Transition Individual's
account have been transferred, the Downstream Savings Plan shall assume and be
solely responsible for all Liabilities to or relating to the Transition
Individual under the Pennzoil Savings Plan. Assets may be transferred from the
Pennzoil Savings Plan to the Downstream Savings Plan in cash or in kind and, to
the extent practicable, the Transition Individual's accounts shall be invested
in comparable investment options under the Downstream Savings Plan as his or
her accounts were invested under the Pennzoil Savings Plan immediately before
the transfer.
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Section 8.4 Health and Welfare Plans
(a) Continuance of Elections, Co-Payments, and Maximum
Benefits. Downstream shall cause the Downstream Health and Welfare Plans to
recognize and maintain all coverage and contribution elections made by
Transition Individuals under the Pennzoil Health and Welfare Plans. Downstream
shall apply such elections under its Health and Welfare Plans for the remainder
of the period or periods for which the elections are by their terms originally
applicable. The Downstream Health and Welfare Plans shall recognize and give
credit for all amounts applied to deductibles, out-of-pocket maximums, and
other applicable benefit coverage limits with respect to the current year.
(b) Retiree Medical. If any Transition Former Employee is
eligible to receive postretirement health benefits under the Pennzoil Health
and Welfare Plans as of the end of the Transition Period, Downstream agrees to
provide substantially the same postretirement health benefits, on the same
terms and conditions (including the right to amend or terminate such
arrangement), provided that Pennzoil shall either (i) transfer to Downstream or
cause to be transferred or allocated for the benefit of Downstream or the
Transition Former Employees who are so eligible an amount equal to the value of
any assets set aside by Pennzoil or any member of the Pennzoil Group for the
payment of, or to meet the obligations in respect of, any such post-retirement
health benefits or (ii) represent in writing to Downstream that no such assets
have been set aside.
Section 8.5 Executive Plans
Effective as of the date a Transition Individual is transferred
to Downstream, any outstanding Pennzoil Award held by such Transition
Individual on such date shall be canceled and replaced by a Conversion Award on
the same terms and conditions as if such Transition Individual had been a
Downstream Individual immediately after the Distribution Date, using as the
value of the Pennzoil Common Stock, the average of the closing prices thereof
for the three trading days ended immediately prior to the date of such
transfer, and in the case of the Downstream Common Stock, the average of the
closing prices thereof on each of the first three trading days ended after the
date of such transfer.
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ARTICLE IX
GENERAL
Section 9.1 Payment of and Accounting Treatment for Expenses
and Balance Sheet Amounts
(a) Expenses. All expenses (and the accounting treatment
related thereto) through the Close of the Distribution Date regarding matters
addressed herein shall be handled and administered by Pennzoil and Downstream
in accordance with past Pennzoil accounting and financial practices and
procedures pertaining to such matters.
(b) Balance Sheet Amounts. The Downstream Liabilities shall
be reflected as liabilities on the Downstream Balance Sheet prepared under the
Distribution Agreement in accordance with GAAP (as defined in such agreement).
Section 9.2 Sharing of Participant Information
Pennzoil and Downstream shall share, Pennzoil shall cause each
applicable member of the Pennzoil Group to share, and Downstream shall cause
each applicable member of the Downstream Group to share, with each other and
their respective agents and vendors all participant information necessary for
the efficient and accurate administration of each of the Pennzoil Plans and the
Downstream Plans following the Distribution Date. Pennzoil and Downstream and
their respective authorized agents shall, subject to applicable laws on
confidentiality, be given reasonable and timely access to, and may make copies
of, all information relating to the subjects of this Agreement in the custody
of the other party, to the extent necessary for such administration.
Section 9.3 Non-solicitation of Employees
For a period of two years from the Close of the Distribution
Date, Downstream and its affiliates will not, without the prior written consent
of Pennzoil, and Pennzoil and its affiliates will not, without the prior
written consent of Downstream, whether directly or indirectly, solicit (in
writing or orally) for employment or other services, whether as an employee,
officer, director, agent, consultant or independent contractor, any person who
or which is at the time of such solicitation an employee, agent,
representative, officer or director of the other party; provided, however, that
this covenant shall continue to apply in the case of Persons who have left the
employ of either party within a thirty day period prior to being solicited by
the other party.
Section 9.4 Plan Audits
(a) Audit Rights with Respect to the Allocation or Transfer of
Plan Assets. The allocation of Pension Plan assets and liabilities pursuant to
this Agreement shall, at the election of Downstream, be audited on behalf of
both Pennzoil and Downstream by [NAME], or such other actuarial and benefit
consulting firm mutually
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selected by the parties. The actuarial and benefit consulting firm shall
provide its written report to both Pennzoil and Downstream. Each of Pennzoil
and Downstream, and their respective advisors and consultants, shall have the
right to make such presentations and present such information to such actuarial
and benefit consulting firm as deem appropriate. Downstream and Pennzoil shall
equally pay or shall be responsible for the payment of the costs of such audit.
To the extent such audit recommends a change to the value of assets allocated
to a Downstream Plan such recommendation shall be conclusive and binding on
Downstream and Pennzoil.
(b) Audit Rights With Respect to Information Provided.
(i) Each of Pennzoil and Downstream, and their duly
authorized representatives, shall have the right to conduct
audits at any time upon reasonable prior notice, at their own
expense, with respect to all information provided to it or to any
Plan record keeper or third party administrator by the other
party, provided, that audits with respect to the allocation or
transfer of Plan assets and liabilities shall be subject only to
Section 9.4(a). The auditing party shall have the right to make
copies of any records at its expense, subject to the
confidentiality provisions set forth in the Distribution
Agreement, which are incorporated by reference herein. The party
being audited shall provide the auditing party's representatives
with reasonable access during normal business hours to its
operations, computer systems and paper and electronic files, and
provide work space to its representatives. After any audit is
completed, the party being audited shall have the right to review
a draft of the audit findings and to comment on those findings in
writing within five business days after receiving such draft.
(ii) The auditing party's audit rights under this
Section 9.4(b) shall include the right to audit, or participate
in an audit facilitated by the party being audited, of any
subsidiaries and affiliates of the party being audited and of any
benefit providers and third parties with whom the party being
audited has a relationship, or agents of such party, to the
extent any such persons are affected by or addressed in this
Agreement (collectively, the "Non-parties"). The party being
audited shall, upon written request from the auditing party,
provide an individual (at the auditing party's expense) to
supervise any audit of any such benefit provider or third party.
The auditing party shall be responsible for supplying, at its
expense, additional personnel sufficient to complete the audit in
a reasonably timely manner.
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(c) Audits Regarding Vendor Contracts. From Immediately after
the Distribution Date until ninety (90) days after the end of the Transition
Period, Pennzoil and Downstream and their duly authorized representatives shall
have the right to conduct joint audits with respect to any vendor contracts
that relate to both the Pennzoil Health and Welfare Plans and the Downstream
Health and Welfare Plans. The scope of such audits shall encompass the review
of all correspondence, account records, claim forms, canceled drafts (unless
retained by the bank), provider bills, medical records submitted with claims,
billing corrections, vendor's internal corrections of previous errors and any
other documents or instruments relating to the services performed by the vendor
under the applicable vendor contracts. Pennzoil and Downstream shall agree on
the performance standards, audit methodology, auditing policy and quality
measures and reporting requirements relating to the audits described in this
Section 9.4(c) and the manner in which costs incurred in connection with such
audits will be shared.
Section 9.5 Requests for Internal Revenue Service Rulings and
United States Department of Labor Opinions
Downstream and Pennzoil shall cooperate on any issue relating to
the transactions contemplated by this Agreement for which Pennzoil or
Downstream elects to seek a determination letter or private letter ruling from
the Internal Revenue Service or an advisory opinion from the United States
Department of Labor.
Section 9.6 Collective Bargaining
To the extent any provision of this Agreement is contrary to the
provisions of any applicable collective bargaining agreement to which Pennzoil
or any affiliate of Pennzoil is a party, the terms of such collective
bargaining agreement shall prevail. Should any provisions of this Agreement be
deemed to relate to a topic determined by an appropriate authority to be a
mandatory subject of collective bargaining, Pennzoil or Downstream may be
obligated to bargain with the union representing affected employees concerning
those subjects. Neither party will agree to a modification of any applicable
collective bargaining agreement without the consent of the other. In the event
a force surplus affecting members of a bargaining unit in both the Pennzoil
Group (on the one hand) and the Downstream Group (on the other hand) directly
results, due to the provisions of such a collective bargaining agreement, in an
employee involuntarily leaving the payroll of the party not declaring the
surplus, then the party declaring the surplus shall bear the cost of any
severance payable to such employee.
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Section 9.7 Consent of Third Parties
If any provision of this Agreement is dependent on the consent of
any third party (such as a vendor or a union) and such consent is withheld,
Pennzoil and Downstream shall use their reasonable best efforts to implement
the applicable provisions of this Agreement to the full extent practicable. If
any provision of this Agreement cannot be implemented due to the failure of
such third party to consent, Pennzoil and Downstream shall negotiate in good
faith to implement the provision in a mutually satisfactory manner. The phrase
"reasonable best efforts" as used in this Agreement shall not be construed to
require the incurrence of any non-routine or unreasonable expense or liability
or the waiver of any right.
Section 9.8 Foreign Plans
As soon as practicable after the date of this Agreement, Pennzoil
and Downstream shall enter into an agreement regarding the treatment of Foreign
Plans consistent with this Section 9.8.
(a) Certain Terms. For purposes hereof, (i) "outside the
U.S." means outside the 50 United States, its territories and possessions, and
the District of Columbia, (ii) "employed outside the U.S." means compensated
under a payroll which is administered outside the U.S. and (iii) "legally
permitted" means permitted under the laws of the country, the labor union,
works council, or collective agreement without adverse consequences to
Pennzoil, Downstream or Downstream Individuals, as determined in good faith by
Pennzoil, including mandated waiting periods before which working conditions
(including benefits) cannot be changed, and upon receiving required agreement
from individual employees and/or Plan trustees, foundation boards and members,
and any other organizations having a recognized right to determine or affect
benefits and/or funding of the Plan.
(b) Plans Covering only Employees of Pennzoil or Downstream.
Effective as of the Close of the Distribution Date or such later date as may be
required by applicable law, union, or works council agreement, any Foreign Plan
that covers only individuals employed outside the U.S. by the Pennzoil Group
shall be the sole responsibility of the Pennzoil Group and no member of the
Downstream Group shall have any Liability with respect to such a Plan; and any
Foreign Plan that covers only individuals employed outside the U.S. by the
Downstream Group shall be the sole responsibility of the Downstream Group and
no member of the Pennzoil Group shall have any Liability with respect to such a
Plan.
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(c) Plans Covering Employees of Both Pennzoil and Downstream.
(i) TERMINATION OF PARTICIPATION. Effective as of the
Close of the Distribution Date, if legally permitted, or as soon
as possible thereafter, Downstream and each other applicable
member of the Downstream Group shall cease to be a Participating
Company in each Foreign Plan maintained by the Pennzoil Group and
Pennzoil and each other applicable member of the Pennzoil Group
shall cease to be a Participating Company in each Foreign Plan
maintained by the Downstream Group.
(ii) MIRROR PLANS.
(A) Effective immediately after the Distribution Date,
Downstream shall adopt, or cause to be adopted, Foreign Plans for
the benefit of employees of the Downstream Group employed outside
the United States who are eligible to participate in Pennzoil
Foreign Plans and shall cause such Downstream Foreign Plans to be
substantially identical in all material respects to the
corresponding Pennzoil Foreign Plans as in effect on the
Distribution Date; provided that Downstream may satisfy this
requirement by extending coverage to such individuals under a
Foreign Plan of the Downstream Group which was in effect before
the Distribution Date.
(B) Effective immediately after the Distribution Date,
Pennzoil shall adopt, or cause to be adopted, Plans for the
benefit of employees of the Pennzoil Group employed outside the
United States who are eligible to participate in Plans and shall
cause such Plans to be substantially identical in all material
respects to the corresponding Downstream Foreign Plans as in
effect on the Distribution Date; provided that Pennzoil may
satisfy this requirement by extending or continuing coverage to
such individuals under a Pennzoil Foreign Plan of the Pennzoil
Group which was in effect before the Distribution Date.
(C) The continuation by Pennzoil or Downstream of
separate employment terms and conditions for employees previously
covered by the other entity's Plans shall not continue beyond the
time legally required.
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(iii) TRANSFER OF ASSETS. As of the Close of the
Distribution Date, Pennzoil and Downstream will use their
reasonable best efforts to ensure that, to the extent legally
permitted: (i) Liabilities of the Foreign Plans of Pennzoil
relating to Downstream Individuals shall be assumed by the
appropriate Foreign Plans of Downstream; and (ii) an appropriate
portion of any assets of the Foreign Plans of Pennzoil shall be
transferred to the appropriate Foreign Plans of Downstream
(excluding any share of excess assets with respect to the Pension
Plan for Canadian Employees of Pennzoil Company), and vice versa.
Any such transfer shall be effected, to the extent legally
permitted, in accordance with the principles set forth in Section
4.2 with respect to the U.S. pension plans.
(d) Severance Issues. If under applicable law, any Downstream
Individual employed outside the U.S. is deemed to have incurred a termination
of employment as a result of the Distribution or any other transaction
contemplated by the Distribution Agreement or this Agreement, which entitles
such individual to receive any payment or benefit under any Foreign Plan,
governmental plan or arrangement or pursuant to any law or regulation,
including severance benefits, notwithstanding such individual's continued
employment by the Downstream Group, then Downstream shall be liable for any
such payment or benefit and, notwithstanding any other provision hereof, to the
extent legally permitted, appropriate adjustments shall be made to the
treatment of such individual during such continued employment, including not
giving such individual credit for prior service and/or treating such individual
as having been newly hired immediately after such deemed termination, for
purposes of all applicable Foreign Plans.
Section 9.9 Effect If Distribution Does Not Occur
If the Distribution does not occur, then all actions and events
that are, under this Agreement, to be taken or occur effective as of the Close
of the Distribution Date, immediately after the Distribution Date, or otherwise
in connection with the Distribution, shall not be taken or occur except to the
extent specifically agreed by Downstream and Pennzoil.
Section 9.10 Relationship of Parties
Nothing in this Agreement shall be deemed or construed by the
parties or any third party as creating the relationship of principal and agent,
partnership or joint venture between the parties, it being understood and
agreed that no provision contained
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herein, and no act of the parties, shall be deemed to create any relationship
between the parties other than the relationship set forth herein.
Section 9.11 Affiliates
Each of Pennzoil and Downstream shall cause to be performed, and
hereby guarantees the performance of, all actions, agreements and obligations
set forth in this Agreement to be performed by members of the Pennzoil Group or
members of the Downstream Group, respectively, where relevant.
Section 9.12 Indemnification
Effective on the Distribution Date, Downstream agrees to
indemnify and hold harmless each member of the Pennzoil Group and each of their
respective officers, directors, employees and agents and the Pennzoil Plans
from and against any and all Liabilities, claims, suits, damages, costs and
expenses (including without limitation, reasonable attorneys' fees and any and
all expenses reasonably incurred in investigating, preparing or defending
against any pending or seriously threatened litigation or claim) arising out of
or related to any Downstream Liability. Effective on the Distribution Date,
Pennzoil agrees to indemnify and hold harmless each member of the Downstream
Group and each of their respective officers, directors, employees and agents
and the Downstream Plans from and against any and all Liabilities, claims,
suits, damages, costs and expenses (including, without, limitation reasonable
attorneys' fees and any and all expenses reasonably incurred in investigating,
preparing or defending against any pending or seriously threatened litigation
or claim) arising out of or related to any Retained Liabilities.
If any action is brought or any claim is made against a member of
the Pennzoil Group or the Downstream Group or person in respect of which
indemnity may be sought pursuant to this Section 9.12 (the "Indemnitee"), the
Indemnitee shall, within ten days after the receipt of information indicating
that an action or claim is likely, notify in writing the person from whom
indemnification is sought (the "Indemnitor") of the institution of the action
or the making of the claim, and the Indemnitor shall have the right, and at the
request of the Indemnitee, shall have the obligation, to assume the defense of
the action or claim, including the employment of counsel. If the Indemnitor
assumes the defense of the action or claim, the Indemnitor shall be entitled to
settle the action or claim on behalf of the Indemnitee without the prior
written consent of the Indemnitee unless such settlement would, in addition to
the payment of money, materially affect the ongoing business or employment of
the Indemnitee.
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The Indemnitee shall have the right to employ its own counsel,
but the fees and expenses of that counsel shall be the responsibility of the
Indemnitee unless (i) the employment of that counsel shall have been authorized
in writing by the Indemnitor in connection with the defense of the action or
claim; (ii) the Indemnitor shall not have employed counsel to have charge of
the defense of such action or claim; or (iii) such Indemnitee shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to the Indemnitor (in which
case the Indemnitor shall not have the right to direct any different defense of
the action or claim on behalf of the Indemnitee). The Indemnitee shall, in any
event, be kept fully informed of the defense of any such action or claim.
Except as expressly provided above, in the event that the Indemnitor shall not
previously have assumed the defense of an action or claim, at such time as the
Indemnitor does assume the defense of the action or claim, the Indemnitor shall
not thereafter be liable to any Indemnitee for legal or other expenses
subsequently incurred by the Indemnitee in investigating, preparing or
defending against such action or claim.
Anything in this Section 9.12 to the contrary notwithstanding,
the Indemnitor shall not be liable for any settlement of any claim or action
effected without its written consent; provided, however, that if after due
notice the Indemnitor refuses to defend a claim or action, the Indemnitee shall
have the right to defend and/or settle such action, and the Indemnitee shall
not be precluded from making a claim against the Indemnitor for reasonable
expenses and liabilities resulting from such defense and/or settlement in
accordance with this Section 9.12.
Notwithstanding the foregoing provisions of this Section 9.12,
there may be particular actions or claims which reasonably could result in both
parties being liable to the other under the indemnification provisions of this
Agreement. In such events, the Parties shall endeavor, acting reasonably and
in good faith, to agree upon a manner of conducting the defense and settlement
of the action or claim with a view to minimizing the legal expenses and
associated costs that might otherwise be incurred by the parties, such as, by
way of illustration only, agreeing to use the same legal counsel.
The indemnification provisions of this Section 9.12 shall not
inure to the benefit of any third party. By way of illustration only, an
insurer who would otherwise be obligated to pay any claim shall not be relieved
of the responsibility with respect thereto, or, solely by virtue of the
indemnification provisions, hereof, have any subrogation rights with respect
thereto, it being expressly understood and agreed that no insurer or any other
third party shall be entitled to a "windfall" (i.e., a benefit they would not
be entitled to receive in the absence of the indemnification provisions) by
virtue of these indemnification provisions.
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Section 9.13 Survival
This Agreement shall survive the Distribution Date and the end of
the Transition Period.
Section 9.14 Notices
Any notice, demand, claim, or other communication under this
Agreement shall be in writing and shall given in accordance with the provisions
for giving notice under the Distribution Agreement.
Section 9.15 Interpretation
Words in the singular shall be held to include the plural and
vice versa and words of one gender shall be held to include the other genders
as the context requires. The terms "hereof," "herein," and "herewith" and words
of similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all Exhibits hereto) and not to any particular
provision of this Agreement. The word "including" and words of similar import
when used in this Agreement shall mean "including, without limitation," unless
the context otherwise requires or unless otherwise specified. The word "or"
shall not be exclusive.
Section 9.16 GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICT OF LAWS.
Section 9.17 No Assignment
This Agreement may not be assigned by either party (except by
operation of law) without the written consent of the other, and shall bind and
inure to the benefit of the parties hereto (including, for the avoidance of
down, each member of the Pennzoil Group and the Downstream Group) and their
respective successors and permitted assignees. This Agreement may not be
amended or supplemented except by an agreement in writing signed by Pennzoil
and Downstream. This Agreement may be executed in counterparts, each of which
shall be deemed an original and all of which together shall constitute one and
the same instrument.
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IN WITNESS WHEREOF, the parties have caused this Employee
Benefits Agreement to be duly executed as of the day and year first above
written.
PENNZOIL COMPANY
By:
----------------------------
Name:
Title:
PENNZOIL PRODUCTS COMPANY
By:
----------------------------
Name:
Title:
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