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EXHIBIT 10.2
EXECUTIVE RETENTION AGREEMENT
THIS AGREEMENT is entered into this 29th day of May, 1997
("EFFECTIVE DATE"), by and between THE MORNINGSTAR GROUP INC., a Delaware
corporation ("COMPANY") and Darron K. Ash ("EXECUTIVE").
A. The Board of Directors of the Company desires to
assure continuity and cooperation of management in the event of a change in
ownership and the continued attention of Executive to his duties without any
distraction arising out of the circumstances surrounding a change or potential
change in ownership.
B. The Company and Executive desire to enter into a
supplemental compensation arrangement in recognition of the additional efforts
of Executive to assist in and prepare for any potential change in ownership,
and to encourage Executive to diligently perform his duties and
responsibilities to ensure a smooth transition following any change in
ownership.
For good and valuable consideration, including the mutual
covenants herein, the parties hereto agree as follows:
1. Definitions. The following terms shall have the
following meanings for purposes of this Agreement.
"ANNUAL PAY" means the sum of (i) an amount equal to the
highest annual base salary rate payable to the Executive by the Company at any
time before or after a Change in Control plus (ii) an amount equal to the
target bonus established for the Executive for the Company's fiscal year in
which his termination of employment occurs or for the immediately preceding
fiscal year, whichever has the higher amount. The highest annual base salary
rate payable to the Executive up to the date hereof was $125,000.
"CAUSE" means the Executive's (i) willful and intentional
misconduct or gross negligence in the performance of, or willful neglect of,
the Executive's duties, which has caused demonstrable and serious injury
(monetary or otherwise) to the Company, or (ii) conviction of, or plea of nolo
contendere to, a felony; provided, however, that no act or omission shall
constitute "Cause" for purposes of this Agreement unless the Board of Directors
of the Company provides to the Executive (a) written notice
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clearly and fully describing the particular acts or omissions which the Board
reasonably believes in good faith constitutes "Cause" and (b) an opportunity,
within 30 days following his receipt of such notice, to meet in person with the
Board of Directors to explain or defend the alleged acts or omissions relied
upon by the Board and, to the extent practicable, to cure such acts or
omissions. Further, no act or omission shall be considered as "willful" or
"intentional" if the Executive reasonably believed such acts or omissions were
in the best interests of the Company. Executive shall have the right to
contest a determination of Cause by the Company by requesting arbitration in
accordance with the terms of Section 6.1 hereof.
"CHANGE IN CONTROL" means (1) any "person" (as such term is
used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), becomes the "beneficial owner" (as determined pursuant to
Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of
the Company representing thirty percent (30%) or more of the combined voting
power of the Company's then outstanding securities; or (2) during any period of
two (2) consecutive years (not including any period prior to the execution of
this Agreement), individuals who at the beginning of such period constitute the
members of the Company's Board of Directors (the "Board") and any new director,
whose election to the Board or nomination for election to the Board by the
Company's stockholders was approved by a vote of at least two-thirds (2/3) of
the directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the Board; or (3)
the Company shall merge with or consolidate into any other corporation, other
than a merger or consolidation which would result in the holders of the voting
securities of the Company outstanding immediately prior thereto holding
immediately thereafter securities representing more than seventy percent (70%)
of the combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation; or
(4) the stockholders of the Company approve a plan of complete liquidation of
the Company or an agreement for the sale or disposition by the Company of all
or substantially all of the Company's assets or such a plan is commenced.
"CODE" means the Internal Revenue Code of 1986, as amended.
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"GOOD REASON" means any of the following events occurring,
without Executive's prior written consent specifically referring to this
Agreement, within three (3) years following a Change in Control:
(1) (A) any reduction in the amount of Executive's annual
salary or aggregate incentive compensation opportunities, (B)
any significant reduction in the aggregate value of
Executive's benefits as in effect from time to time (unless
such reduction is pursuant to a general change in benefits
applicable to all similarly situated employees of the Company
and its affiliates) or (C) any material and willful breach by
the Company of any provision of this agreement or any written
employment agreement with Executive;
(2) (A) assignment to Executive of any duties
inconsistent with his status as Vice President and Chief
Financial Officer of the Company, (B) the removal of Executive
from his position as Vice President and Chief Financial
Officer of the Company or (C) any significant reduction in the
nature or status of Executive's duties or responsibilities;
(3) (A) transfer of Executive's principal place of
employment to a location more than 20 miles from Executive's
place of employment immediately prior to the Change in
Control, provided that the distance between the new principal
place of employment and Executive's primary residence is
greater than 10 miles from the distance between the principal
place of employment prior to such transfer and Executive's
primary residence immediately prior to the Change in Control
or (B) Executive is required to travel outside of the
continental United States more than four times during any
calendar year or for more than 20 days in the aggregate in any
calendar year; or
(4) failure by the Company to obtain the assumption agreement
referred to in Section 9 of this Agreement prior to the
effectiveness of any succession referred to therein, unless
the purchaser, successor or assignee referred to therein is
bound to perform this Agreement by operation of law.
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Notwithstanding the above, the occurrence of any of the events described in (1)
through (4) above will not constitute Good Reason unless the Executive gives
the Company written notice, within 90 calendar days after the Executive knew or
should have known of the occurrence of any of the events described in (1)
through (4) above, that such event constitutes Good Reason, and the Company
thereafter fails to cure the event within thirty (30) days after receipt of
such notice.
2. Term. The term of this Agreement commences on the
Effective Date and expires on the third anniversary thereof if no Change in
Control occurs before then. In the event of a Change in Control occurring
before the third anniversary of the Effective Date, this Agreement shall remain
in effect until all obligations and payments hereunder have been fully
satisfied.
3. Retention Bonus. To compensate Executive for his
assistance, good faith cooperation and additional efforts beyond his regular
duties with respect to the period prior to a Change in Control, and to induce
Executive to continue his employment with the Company through a Change in
Control, the Company shall pay to Executive no later than three days following
a Change in Control a cash lump sum equal to his Annual Pay if Executive
remains employed by the Company on the date of a Change in Control or is
terminated by the Company without Cause in contemplation of and within 180 days
preceding a Change in Control; provided, however, that the Company's
obligations under this Section 3 shall terminate and be null and void if no
Change in Control occurs on or prior to September 30, 1998.
4. Involuntary Termination Payment and Benefits
4.1 Involuntary Termination. In the event Executive's
employment with the Company or its successor is terminated by the Company
without Cause or by Executive for Good Reason (A) in contemplation of and
within 180 days preceding a Change in Control or (B) on or within three years
after a Change in Control, Executive shall be entitled to the following
payments and other benefits:
a. An amount equal to the sum of (i) Executive's accrued
and unpaid salary, vacation and personal days as of his date
of termination of employment, (ii) his accrued and unpaid
bonus, if any, for the Company's prior fiscal year, plus (iii)
his target annual bonus for the Company's fiscal year in
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which his employment terminated, multiplied by a fraction, the
numerator of which is the number of days elapsed in such
fiscal year to the day his employment terminated, and the
denominator of which is 365. This amount shall be paid on the
date of Executive's termination of employment.
b. An amount equal to one and one-half times Executive's
Annual Pay ("TERMINATION PAY"). Termination Pay shall be paid
in accordance with and subject to Sections 4.2 and 4.3 below.
c. Company shall reimburse Executive for the reasonable
costs of an office, secretarial assistance and executive
outplacement services, but the cost to the Company shall not
exceed $25,000.
d. Executive and his eligible dependents shall be
entitled for a period of eighteen (18) months following his
date of termination of employment to continued coverage, on
the same basis as similarly situated active employees, under
the Company's group health, dental, long-term disability and
life insurance plans as in effect from time to time (but not
any other welfare benefit plans or any retirement plans);
provided that coverage under any particular benefit plan shall
expire with respect to the period after Executive becomes
covered under another employer's plan providing for a similar
type of benefit. In the event the Company is unable to
provide such coverage on account of any limitations under the
terms of any applicable contract with an insurance carrier or
third party administrator, the Company shall pay Executive an
amount equal to the cost of such coverage.
e. Executive shall be permitted to retain the laptop
computer and home fax machine provided to the Executive by the
Company prior to Executive's termination.
f. An amount equal to the Executive's unvested account
balance under the Company's 401(k) Plan.
Except as provided in Section 4.2 below, the foregoing
payments and benefits shall be in addition to and not in lieu of any payments
or benefits to which Executive
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and his dependents may otherwise be entitled to under the Company's
compensation and employee benefit plans, policies or practices. Nothing herein
shall be deemed to restrict the right of the Company from amending or
terminating any such plan in a manner generally applicable to similarly
situated active employees of the Company and its affiliates, in which event
Executive shall be entitled to participate on the same basis (including payment
of applicable contributions) as similarly situated active executives of the
Company and its affiliates.
4.2. Offset for Other Severance Pay. There shall be no
duplication of severance pay in any manner. In this regard, Executive shall
not be entitled to Termination Pay hereunder for more than one position with
the Company and its affiliates. Further, Termination Pay shall be in lieu of
any other payments or benefits in the nature of severance pay or benefits to
which Executive has received or will receive from the Company or any of its
affiliates. Any other arrangement providing severance benefits shall be deemed
to be amended to eliminate any obligation for benefits to be provided
thereunder. If Executive is entitled to any notice or payment in lieu of any
notice of termination of employment required by Federal, state or local law,
including but not limited to the Worker Adjustment and Retraining Notification
Act, the Severance Compensation to which the Executive would otherwise be
entitled under this Agreement shall be reduced by the amount of any such
payment, in lieu of notice.
4.3. Mutual Release. Termination Pay described in paragraph
(b) of Section 4.1 shall be conditioned upon the execution by Executive and the
Company of a valid mutual release, to be prepared by the Company, in which
Executive and Company shall mutually release the other, to the maximum extent
permitted by law, from any and all claims either party may have against the
other party that relate to or arise out of Executive's employment or
termination of employment, except such claims arising under this Agreement, any
employee benefit plan or any other written plan or agreement ("Mutual
Release").
The full amount of Termination Pay shall be paid in a lump sum
in cash to Executive within ten (10) days following receipt by the Company of a
Mutual Release which is properly executed by Executive and is not revoked by
Executive before the eighth day following its receipt by the Company.
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4.4. No Mitigation. The Executive shall not be obligated
to secure new employment, but shall be obligated to report promptly to the
Company any actual employment obtained during the period for which employee
benefits continue pursuant to Section 4.1.
5. Excise Taxes.
a. Anything in this Agreement to the contrary
notwithstanding and except as set forth below, if it is determined that any
payment or distribution by the Company to or for the benefit of 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 5) (a "Payment") would be subject to the
excise tax imposed by Section 4999 of the Code, or any interest or penalties
are incurred by 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 Executive shall be entitled to receive
an additional payment ("Gross-Up Payment") in an amount such that after payment
by 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, Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this paragraph "a", if it is determined that Executive
is entitled to a Gross-Up Payment, but that Executive, after taking into
account the Payments and the Gross-Up Payment, would not receive a net
after-tax benefit of at least $10,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to Executive and the Payments, in the aggregate, shall be
reduced to the Reduced Amount.
b. Subject to the provisions of paragraph "c" of this
Section 5, all determinations required to be made under this Section 5,
including whether and when a Gross-Up Payment is required and the amount of
such Gross-Up Payment and the assumptions to be used in arriving at such
determination, shall be made by a certified public
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accounting firm selected by the Company and reasonably acceptable to Executive
(the "Accounting Firm"), which shall be retained to provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that there has been a Payment, or such earlier
time as is requested by the Company. If the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
in Control, Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses
of the Accounting Firm shall be paid solely by the Company. Any Gross-Up
Payment, as determined pursuant to this Section 5, shall be paid by the Company
to Executive within five (5) days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and 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. If the Company
exhausts its remedies pursuant to paragraph "c" of this Section 5 and Executive
thereafter is required to make a payment of any Excise Tax, the Accounting Firm
shall determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Executive.
c. 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 the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten (10) business days after
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 or appealed. 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 Executive in
writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
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(a) give the Company any information reasonable requested
by the Company relating to such claim,
(b) take such action in connection with contesting such
claims 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,
(c) cooperate with the Company in good faith in order to
effective contest such claim, and
(d) 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 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 on the foregoing provisions
of this paragraph "c", the Company shall control all proceedings taken in
connection with such contest 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 Executive to pay the tax claimed and sue for a refund or to contest the
claim in any permissible manner, and 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 Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such
payment to Executive, on an interest-free basis, and shall indemnify and hold
Executive harmless, on an after-tax basis, from any Excise 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 Executive with respect to
which such contested amount is claimed to be due is limited solely to
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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 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 Executive of an amount
advanced by the Company pursuant to paragraph "c" of this Section 5, Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of paragraph
"c" of this Section 5) 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 Executive of an amount advanced by the
Company pursuant to paragraph "c" of this Section 5, a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify 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.
6. Claims.
6.1 Arbitration of Claims. Executive shall settle by
arbitration any dispute or controversy arising in connection with this
Agreement, whether or not such dispute involves a plan subject to the Employee
Retirement Income Security of 1974, as amended ("ERISA"). Such arbitration
shall be conducted in accordance with the rules of the American Arbitration
Association before a panel of three arbitrators sitting in Dallas, Texas. The
award of the arbitrators shall be final and nonappealable, and judgment may be
entered on the award of the arbitrators in any court having proper
jurisdiction. All expenses of such arbitration shall be borne by the Company
in accordance with Section 6.2 hereof.
6.2 Payment of Legal Fees and Costs. The Company agrees
to pay as incurred, to the full extent permitted by law, all legal fees and
expenses which Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, Executive or others of any
action taken pursuant to the terms of this Agreement, or of the validity or
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enforceability of, or liability under, any provision of this Agreement, or any
guarantee of performance thereof (including as a result of any contest by
Executive about the amount of payment pursuant to this Agreement), plus in each
case interest on any delayed payment at the applicable federal rate provided
for in Section 7872(f)(2)(A) of the Code.
6.3 Agent for Service of Legal Process. Service of legal
process with respect to a claim under this Agreement shall be made upon the
General Counsel of the Company.
7. Tax Withholding. All payments to the Executive under
this Agreement will be subject to the withholding of all applicable employment
and income taxes.
8. Severability. In the event that any provision or
portion of this Agreement shall be determined to be invalid or unenforceable
for any reason, the remaining provisions of this Agreement shall be unaffected
thereby and shall remain in full force and effect.
9. Successors. This Agreement shall be binding upon and
incur to the benefit of the Company and any successor of the Company. The
Company will require any successor to all or substantially all of the business
and/or assets of the Company to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no succession had taken place.
10. Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof. This Agreement may not be modified in any manner except by a written
instrument signed by both the Company and the Executive.
11. Notices. Any notice required under this Agreement
shall be in writing and shall be delivered by certified mail return receipt
requested to each of the parties as follows:
To the Executive:
Darron K. Ash
122 Ridgewood
Coppell, Texas 75019
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To the Company:
The Morningstar Group Inc.
5956 Sherry Lane, Suite 1500
Dallas, Texas 75225
Attn: General Counsel
12. Governing Law. The provisions of this Agreement
shall be construed in accordance of the laws of the state of Texas, except to
the extent preempted by ERISA.
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IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date and year first above written.
THE MORNINGSTAR GROUP INC.
/s/ MICHAEL J. CRAMER
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Name: Michael J. Cramer
Title: Vice President and Secretary
/s/ DARRON K. ASH
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Darron K. Ash
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