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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
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COMMISSION FILE NUMBER 0-17389
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TEJAS GAS CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 76-0263364
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1301 MCKINNEY, SUITE 700
HOUSTON, TEXAS 77010
(Address of principal executive offices) (Zip Code)
(713) 658-0509
(Registrant's telephone number, including area code)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [_]
As of April 30, 1997, Tejas Gas Corporation had 20,557,140 shares of
common stock, par value $.25 per share, outstanding.
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<PAGE>
TEJAS GAS CORPORATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The consolidated financial statements of Tejas Gas Corporation ("Tejas")
included herein have been prepared, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
notes normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations. It is suggested that these financial statements
be read in conjunction with the audited financial statements and the notes
thereto included in Tejas' Annual Report on Form 10-K for the year ended
December 31, 1996.
Because of the seasonal nature of Tejas' operations, among other factors,
the results of operations for the interim periods presented are not necessarily
indicative of the results to be expected for an entire year.
1
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TEJAS GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1997 1996
---------- ----------
(IN THOUSANDS)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................... $ 22,605 $ 45,247
Accounts receivable ............................ 177,729 384,652
Exchange gas receivable ........................ 11,591 10,792
Storage gas inventory .......................... 27,991 45,389
Prepaids and other current assets .............. 16,591 29,154
Deferred income tax assets ..................... 2,097 2,097
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Total current assets ........................ 258,604 517,331
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PROPERTY, PLANT AND EQUIPMENT - AT COST ............ 1,562,334 1,526,499
Less accumulated depreciation .................. 219,247 217,261
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Property, plant and equipment, net .......... 1,343,087 1,309,238
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GOODWILL, NET ...................................... 10,258 9,811
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INVESTMENTS AND OTHER ASSETS ....................... 106,905 68,168
---------- ----------
TOTAL ....................................... $1,718,854 $1,904,548
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Gas purchases payable .......................... $ 198,130 $ 363,748
Exchange gas payable ........................... 12,399 9,237
Accounts payable ............................... 18,857 26,124
Accrued liabilities ............................ 44,690 82,160
Current maturities of long-term obligations .... 7,482 7,382
---------- ----------
Total current liabilities ................... 281,558 488,651
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OTHER LIABILITIES .................................. 485 --
---------- ----------
LONG-TERM DEBT ..................................... 851,355 847,755
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DEFERRED INCOME TAXES .............................. 79,745 72,072
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COMMITMENTS AND CONTINGENCIES ...................... -- --
---------- ----------
MINORITY INTERESTS ................................. 52,879 54,610
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value; 6,000,000
shares authorized
200,000 shares of 9.96% Cumulative
Preferred Stock issued and
outstanding in 1997 and 1996; $250
liquidation preference per share .......... 200 200
260,000 shares of 5 1/4% Convertible
Preferred Stock issued and outstanding
in 1997 and 1996; $250 liquidation
preference per share ...................... 260 260
Common Stock, $.25 par value; 30,000,000
shares authorized;
20,557,140 and 20,551,051 shares issued
and outstanding in 1997 and 1996,
respectively .............................. 5,139 5,138
Capital surplus ................................ 294,763 294,599
Retained earnings .............................. 152,470 141,263
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Total stockholders' equity .................. 452,832 441,460
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TOTAL ....................................... $1,718,854 $1,904,548
========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended March 31, 1997 1996
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
REVENUES ............................................... $ 689,617 $ 432,401
--------- ---------
COSTS AND EXPENSES:
Cost of sales ...................................... 613,838 389,072
Operating expenses ................................. 17,153 9,516
Depreciation and amortization ...................... 13,756 8,079
General and administrative ......................... 11,910 6,047
--------- ---------
Total ..................................... 656,657 412,714
--------- ---------
EARNINGS FROM OPERATIONS ............................... 32,960 19,687
--------- ---------
OTHER INCOME (EXPENSE):
Equity in earnings (loss) of unconsolidated entities 4,077 3,666
Interest income .................................... 400 302
Interest expense ................................... (14,725) (5,155)
Minority interests ................................. (1,403) (947)
Other, net ......................................... (62) 92
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Total ..................................... (11,713) (2,042)
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EARNINGS BEFORE INCOME TAXES ........................... 21,247 17,645
--------- ---------
INCOME TAXES:
Current ............................................ 268 3,939
Deferred ........................................... 7,674 2,768
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Total ..................................... 7,942 6,707
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NET EARNINGS ........................................... 13,305 10,938
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PREFERRED STOCK DIVIDEND REQUIREMENTS .................. 2,098 2,098
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NET EARNINGS APPLICABLE TO COMMON STOCK ................ $ 11,207 $ 8,840
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WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING ................................. 20,555 17,405
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EARNINGS PER COMMON SHARE .............................. $ 0.55 $ 0.51
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
TEJAS GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended March 31, 1997 1996
-------- --------
(IN THOUSANDS)
OPERATING ACTIVITIES:
Net earnings ........................................ $ 13,305 $ 10,938
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization ................. 13,756 8,079
Amortization of deferred loan costs ........... 665 221
Deferred income taxes ......................... 7,674 2,768
Equity in (earnings) loss of
unconsolidated entities ..................... (4,077) (3,666)
Distributions from unconsolidated entities .... 5,152 2,389
Other, net .................................... 95 238
-------- --------
36,570 20,967
-------- --------
Net increase in working capital, net of
effects from acquisitions ..................... 27,931 53,169
-------- --------
Net cash provided by operating activities ........ 64,501 74,136
-------- --------
INVESTING ACTIVITIES:
Capital expenditures and investments ................ (89,232) (8,559)
Other, net .......................................... 2,054 425
-------- --------
Net cash used in investing activities ............... (87,178) (8,134)
-------- --------
FINANCING ACTIVITIES:
Net borrowings (repayments) under
line-of-credit agreements ......................... 3,600 3,000
Retirement of long-term debt ........................ -- (67,000)
Preferred stock dividends ........................... (2,098) (2,098)
Net (distribution)/contribution to
minority interest holders ......................... (1,632) --
Other, net .......................................... 165 7
-------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES .............................. 35 (66,091)
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ................ (22,642) (89)
-------- --------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ......... 45,247 29,935
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............... $ 22,605 $ 29,846
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
TEJAS GAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements and notes thereto for
Tejas Gas Corporation ("Tejas") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Accordingly, certain
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. In connection with the preparation of
these financial statements, management was required to make estimates and
assumptions that affect the reported amount of assets, liabilities, revenues,
expenses and disclosure of contingent liabilities. Actual results could differ
from such estimates. The accompanying consolidated financial statements and
notes thereto should be read in conjunction with the consolidated financial
statements and notes thereto included in Tejas' Annual Report on Form 10-K for
the year ended December 31, 1996.
Certain amounts in the Consolidated Financial Statements for periods prior
to 1997 have been reclassified to conform to the current presentation.
In the opinion of Tejas' management, all adjustments (all of which are
normal and recurring) have been made which are necessary to fairly state the
consolidated financial position of Tejas and subsidiaries as of March 31, 1997,
the results of their operations for the three month periods ended March 31, 1997
and 1996 and the cash flows for the three month periods ended March 31, 1997 and
1996.
2. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
Effective January 1, 1997, Tejas increased its ownership in Coral Energy,
L.P. ("Coral") to fifty percent. Coral was previously owned one-third by Tejas
and two-thirds by Shell Oil Company.
3. STOCKHOLDERS' EQUITY
On April 11, 1996, the Tejas Board of Directors authorized a three-for-two
split of the Common Stock of Tejas effected in the form of a stock dividend
payable to stockholders of record as of April 26, 1996. All references to shares
issued and outstanding, average shares outstanding and earnings per common share
included in the financial statements and accompanying notes and schedules for
1996 have been restated to give effect to the stock split. During the first
quarter of 1997 Tejas granted options for 114,950 shares to its employees.
During the same period, options for 5,975 shares were exercised.
5
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4. SUPPLEMENTAL CASH FLOW INFORMATION
The "Net change in working capital, net of effects from acquisitions"
amount included in the Consolidated Statements of Cash Flows is comprised of the
following:
Three Months Ended March 31,
--------------------
1997 1996
--------- --------
(IN THOUSANDS)
Decrease (increase) in:
Accounts receivable .................. $ 206,923 $ (3,377)
Exchange gas receivable .............. (799) 457
Storage gas inventory ................ 16,821 28,249
Prepaids and other current assets .... 11,519 6,082
Increase (decrease) in:
Gas purchases payable ................ (165,618) 13,743
Exchange gas payable ................. 3,162 4,460
Accounts payable ..................... (7,267) 1,421
Accrued liabilities .................. (36,810) 194
Income taxes payable ................. -- 1,940
--------- --------
Total .............................. $ 27,931 $ 53,169
--------- --------
5. COMMITMENTS AND CONTINGENCIES
THE LONG TRUST LITIGATION
Tejas is a defendant or party in various lawsuits that have risen in the
ordinary course of Tejas' business. In particular, a subsidiary of Tejas is a
defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial District
Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs assert
claims and allege damages for breach of contract and failure to take-or-pay for
natural gas pursuant to three natural gas purchase contracts. Plaintiffs allege
that, in addition to failing to take-or-pay for gas, Tejas breached (a) one of
the contracts by failing to take a minimum quantity of gas and to install and
maintain pipeline facilities sufficient to permit Tejas to meet its quantity
purchase obligations, and (b) all three contracts by failing to take gas in
quantities sufficient to enable plaintiffs to produce ratably with other
producers in a common reservoir. In plaintiffs' Seventh Amended Original
Petition filed April 11, 1997, the plaintiffs are seeking take-or-pay damages
for the twelve year period 1984-1996 in excess of $36 million, plus prejudgment
interest, post-judgment interest, attorneys' fees and court costs and other
unspecified actual damages. In connection with their depositions in this matter,
certain expert witnesses retained by The Long Trusts have presented damage
models purporting to show approximately $60 million in take-or-pay damages and
$70 million for failure to take The Long Trusts' gas ratably. Management
disputes The Long Trusts' claims and believes that The Long Trusts' damage
models are seriously flawed. On January 6, 1993, the court entered an
interlocutory summary judgment order granting in part and denying in part
plaintiffs' motions for summary judgment. The court found, among other things,
as a matter of law that (a) Tejas breached the minimum take obligations under
one of the contracts, (b) Tejas is not entitled to any credits or offsets for
natural gas purchased by third parties, and (c) the "availability" of natural
gas for take-or-pay purposes is established by the delivery capacity testing
procedures in the contracts. Damages, if any, have not been determined. The
effect of this order on Tejas' case is unclear and Tejas has sought
clarification and rehearing, but intends nevertheless to defend its position
aggressively.
6
<PAGE>
Because of the relationship between The Long Trusts', contracts and
certain contracts between Tejas and Valero Transmission Company ("VTC"), and in
order to resolve existing and potential claims and disputes, Tejas, VTC and
Valero Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which,
among other things, Tejas, VTC and VTLP would cooperate in the conduct of The
Long Trusts' litigation, and VTC and VTLP would bear a substantial portion of
the costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant claiming that Tejas Gas
Corporation operated with its subsidiary, Tejas Gas Corp., as a single business
entity and should therefore be liable for the alleged wrongful acts of Tejas Gas
Corp. Plaintiff alleges similar claims against Valero Energy Corporation with
respect to VTC and VTLP.
Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.
Tejas' West Clear Lake Storage Facility ("WCLSF") requires the maintenance
of cushion gas in order to sustain anticipated operational requirements. Such
cushion gas requirements have been satisfied by a combination of natural gas
purchased by Tejas and third party natural gas stored in the facility. At March
31, 1997, Tejas had purchased approximately 12.5 billion cubic feet ("Bcf") of
cushion gas. In late 1994, Tejas entered into an agreement with a third party
whereby the third party agreed to purchase up to 35 Bcf of natural gas at a cost
not to exceed $65 million and to store such gas in the WCLSF. The agreement with
the third party was scheduled to expire in September 2000. Effective January 16,
1997, the third party agreement described above was amended and extended. The
principal modifications to the agreement included the extension of the contract
expiration date to December 31, 2002 and, at Tejas' option, an increase in the
maximum volume of natural gas that may be stored in Tejas' facilities, including
the Greasy Creek Storage Facility, to 70 Bcf. In order to secure Tejas' ability
to purchase the natural gas from the third party, the agreement provides for the
payment by Tejas of a reservation fee to the third party which is adjusted
quarterly based upon the third party's financing costs. On certain option dates,
Tejas may elect to purchase specified volumes of the third party's gas based
upon market prices. Should Tejas decline to purchase the natural gas, the third
party may instruct Tejas to sell such volumes on the third party's behalf. In
such case, it will be necessary for Tejas to obtain cushion gas through other
means in order to meet the anticipated operational requirements of the WCLSF. At
March 31, 1997, the third party had approximately 16.4 Bcf of natural gas in
storage at the WCLSF, which such party purchased for $31 million. Tejas
estimates the net 1997 cost related to the reservation of the 16.4 Bcf of
natural gas to be approximately $1.4 million.
Tejas bears the cost of physical loss, if any, incurred during storage.
Management estimates that physical losses will not be significant and has
insured against physical losses due to catastrophic events.
7
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6. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which requires dual presentation of basic and diluted earnings per share
for entities with complex capital structures. Basic earnings per share excludes
dilution and is computed by dividing net income by the weighted average number
of shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The adoption of SFAS No. 128 would not change basic
earnings per share for the quarters ended March 31, 1997 and 1996 and would not
have a material impact on diluted earnings per share for either period.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER 1997 VERSUS FIRST QUARTER 1996
A summary of natural gas average daily throughput is set forth below:
Three Months Ended March 31, 1997(3) 1996
- -------------------------------------------------------------- ----- -----
Average daily throughput in million cubic feet ("MMcf")
System sales ............................................. 2,050 1,860
Transportation ........................................... 2,054 1,480
Partnership volumes (Tejas' share)(1) .................... 164 113
----- -----
Total system throughput .................................. 4,268 3,453
Gas processed and other .................................. 279 80
----- -----
Total throughput ..................................... 4,547 3,533
===== =====
Natural gas processing data:
Average daily natural gas liquids production in
thousands of gallons ................................. 1,381 143
Average daily inlet volumes in MMcf ...................... 538 75
Natural gas treating data:
Average daily inlet volumes in MMcf(2) .................. 32 24
----- -----
(1) Includes Tejas' share of unconsolidated partnerships.
(2) Treated volumes are also included in transportation volumes since such
volumes are transported by Tejas' natural gas pipelines.
(3) Includes Transok operations.
Tejas' net earnings for the first three months of 1997 were $13.3 million
as compared to $10.9 million for the first three months of 1996, an increase of
$2.4 million. Net earnings applicable to common stock for the first quarter of
1997 were $11.2 million as compared to $8.8 million for the first quarter of
1996, an increase of $2.4 million. Earnings per common share increased to $.55
for the 1997 first quarter as compared to $.51 for the 1996 first quarter, after
restatement for the three-for-two stock split (see Note 3 of "Notes to
Consolidated Financial Statements"). Net earnings applicable to common stock and
per share results are after provisions for dividends on Tejas' 9.96% Cumulative
Preferred Stock (the "9.96% Preferred Stock") and Tejas' 5 1/4% Convertible
Preferred Stock (the "5 1/4% Preferred Stock").
9
<PAGE>
As more fully discussed below, Tejas' growth for the 1997 period is the
result of several factors, the most significant of which is the inclusion of the
operating results of Transok, Inc. ("Transok") which was acquired from Central
and Southwest Corporation (the "Transok operations") in June 1996.
REVENUES
Revenues for the first three months of 1997 were $689.6 million as
compared to $432.4 million for the first three months of 1996, an increase of
$257.2 million. The 59% growth in revenues is primarily a result of the
acquisition of Transok in June 1996, the availability of natural gas and the
operational flexibility at the West Clear Lake Storage Facility (the "WCLSF").
NATURAL GAS SYSTEMS
Sales and transportation of natural gas through its owned and/or operated
natural gas pipeline systems is Tejas' core business. For the first quarter of
1997, Tejas' system volumes increased 24% from the first quarter of 1996 to a
total of 4.3 billion cubic feet ("Bcf") per day. Improved sales and
transportation volumes resulted in a $28.8 million increase in gross profit for
the first three months of 1997 as compared to the first three months of 1996. A
significant portion of this improvement resulted from an increase in system
throughput due to the inclusion of the Transok operations in 1997, the
availability of natural gas and the operational flexibility at the WCLSF.
ENERGY MARKETING PARTNERSHIP- CORAL ENERGY, L.P.
Coral Energy, L.P. ("Coral"), the energy marketing venture between Tejas
and Shell, commenced operations in November 1995. Coral's total sales volume for
the first quarter of 1997 averaged 5.8 Bcf per day. The income from the
partnership contributed $3.7 million to Tejas' pre-tax income. Effective January
1, 1997, Tejas increased its ownership in Coral from one-third to fifty percent.
NATURAL GAS PROCESSING/TREATING/OFF-SYSTEM MARKETING
During the first quarter of 1997, Tejas' natural gas processing, treating
and off-system marketing activities contributed gross profit of $6.1 million as
compared to $2.5 million for the corresponding period in 1996. The $3.6 million
increase in gross profit for such activities is primarily attributable to
Transok operations in the first quarter of 1997.
OPERATING EXPENSES/DEPRECIATION/GENERAL AND ADMINISTRATIVE EXPENSES
Operating expenses, depreciation, and general and administrative expenses
increased by $19.2 million to $42.8 million for the first quarter of 1997 as
compared to the 1996 first quarter. The increase was primarily due to the
inclusion of Transok operations in 1997.
OTHER INCOME (EXPENSE)
Interest expense increased by $9.6 million to $14.7 million in the first
quarter of 1997 as compared to the first quarter of 1996 as a result of the
additional financing required for the acquisition of Transok in June 1996.
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<PAGE>
CAPITAL RESOURCES, LIQUIDITY AND OUTLOOK
CASH FLOWS FROM OPERATING ACTIVITIES
For the quarter ended March 31, 1997, net cash provided by operating
activities totaled $64.5 million as compared to $74.1 million for the same
period in 1996. This $9.6 million decrease in net cash provided by operations is
primarily due to changes in working capital. Excluding net changes in working
capital components, Tejas' operating activities generated $36.6 million in cash
during the first three months of 1997 as compared to $21 million in the first
three months of 1996, an increase of $15.6 million due primarily to higher
cash earnings.
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used in investing activities during the first quarter of 1997
totaled $87.2 million. Approximately $89 million was used to expand the storage
and transportation facilities in Oklahoma and to increase Tejas' ownership in
Coral to fifty percent.
LIQUIDITY
Tejas' working capital decreased $51.7 million to a negative $23 million
at March 31, 1997 from $28.7 million at December 31, 1996. This decrease was due
primarily to cash outlays during the first quarter of 1997 for capital
expenditures and investments in unconsolidated subsidiaries. In order to
effectively utilize its cash balances, Tejas will continue to make periodic
borrowings under its revolving credit facilities and money market credit lines
to meet immediate cash needs.
At March 31, 1997, Tejas' long-term debt with banks totaled $643.2
million, consisting of $443.8 million borrowed under Tejas' $480 million
revolving credit facilities established for its subsidiaries Tejas- Acadian
Holding Company ("TAHC") and Tejas Natural Gas Company ("TNGC"), $195.8 million
borrowed under a $275 million credit facility established for its subsidiary
Transok and $3.6 million borrowed under various money market credit lines. In
addition, Tejas has $200 million of long-term debt that was retained by Transok
as part of the Transok acquisition and $8.2 million in notes payable, net of $2
million in current maturities, related to Industrial Development Refunding
Revenue Bonds issued by Lewis and Pleasants Counties, West Virginia.
The $455 million TAHC and $25 million TNGC credit facilities (the "Credit
Agreements") bear interest at Tejas' option, based on either the prime rate or
the London Interbank Offered Rate ("LIBOR"). The margins over LIBOR that TAHC
and TNGC must pay vary, depending on TAHC's funded debt to capitalization ratio,
from a minimum of 0.5% to a maximum of 1.25%. Based upon borrowings at March 31,
1997, of $443.8 million, and after considering restrictions to provide for a $10
million letter of credit and borrowings under its money market credit lines
(offset by cash available pursuant to the terms of such money market credit
lines), approximately $26.2 million of additional borrowings were available
under these amended facilities. Additionally, at March 31, 1997, based upon
TAHC's funded debt to capitalization ratio test, both the TAHC and TNGC credit
facilities bore interest at Tejas' option, of prime or LIBOR plus 0.75%. Under
the terms of the Credit Agreements, after two years the revolving credit
facilities will convert into six-year reducing revolving credit agreements
unless extended at the option of the lenders. Commitment reductions aggregating
$15 million per quarter are scheduled to begin March 31, 1999 with the final
remaining commitment reduction to occur on December 31, 2004. Based upon the
current terms of the Credit Agreements and the outstanding principal balances
thereunder at March 31, 1997, no principal payments are required until the year
1999.
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<PAGE>
The Transok credit facility bears interest, at Tejas' option, based upon
either the prime rate or LIBOR. Depending upon Transok's funded debt to
capitalization ratio, the margins over LIBOR that Transok must pay vary, subject
to a minimum margin for a limited period of time, from a minimum of 0.5% to a
maximum of 1.25%. Based upon the March 31, 1997 outstanding balance of
approximately $196 million, the Transok credit facility had available borrowings
of approximately $79 million and bore interest at Tejas' option, of prime or
LIBOR plus 1.0%. Under the terms of the Transok credit facility, after two years
the revolver will, unless extended at the option of the lenders, convert into a
six year reducing revolver. Unless extended, commitment reductions of
approximately $8.6 million per quarter will begin March 31, 1999 with the final
remaining commitment reduction to occur on December 31, 2004. Nevertheless,
based upon the current terms of the Transok credit facility and the outstanding
principal balance thereunder at March 31, 1997, no principal payments are
required until the year 2001.
The obligations under the Transok credit facility are secured by certain
intercompany notes, the capital stock of all of Transok's subsidiaries and
certain partnership interests held by Transok, and are guaranteed by such
subsidiaries. The obligations under the Credit Agreements are secured by the
capital stock, partnership interests and various intercompany notes of all
material subsidiaries and partnerships of TAHC (excluding the capital stock of
Acadian Gas Corporation ("Acadian"), but including the capital stock and
partnership interests of the material operating subsidiaries and partnerships of
Acadian) and are guaranteed by such subsidiaries and partnerships. The notes
payable related to the Lewis and Pleasants Counties' bonds are secured by bank
letters of credit which in turn are secured by mortgages on two natural gas
processing plants located in West Virginia. The notes are also subject to
certain covenants and require that Tejas' subsidiaries, TAHC and Gulf Energy
Gathering & Processing Corporation, maintain certain financial standards. All of
Tejas' credit facilities are subject to certain covenants, including the
maintenance of certain financial ratios, with which Tejas expects to be able to
comply in the ordinary course of business.
Although TAHC, TNGC and Transok have additional borrowing capacity
available under the Credit Agreements and the Transok credit facility, the
amount of loans, advances and dividends that may be made to Tejas from TAHC,
TNGC and Transok under the Credit Agreements and the Transok credit facility is
subject to certain limitations. At March 31, 1997, the permitted amount of such
payments was $179.6 million. Such limitations as herein described are not
expected to have any material effect on the ability of Tejas to meet its cash
obligations. Tejas' liquidity is ultimately dependent on cash generated by
operations, and Tejas believes its earnings from operations will generate
sufficient cash to fund expansion projects, make required debt payments and meet
anticipated dividend requirements of the 9.96% Preferred Stock and 5 1/4%
Preferred Stock in the foreseeable future.
Tejas has uncommitted money market credit lines which allow Tejas to
borrow up to $50 million for periods of up to two months. Any such borrowings
are unsecured and may be extended for additional periods if agreed to by the
lenders. At March 31, 1997, Tejas had borrowings of $3.6 million outstanding
under such lines. Tejas has agreed to maintain funds including, but not limited
to, availability under the Credit Agreements and the Transok credit facility
sufficient to repay borrowings under the money market credit lines.
A subsidiary of Tejas, Tejas-Magnolia Energy, L.L.C. ("Tejas-Magnolia"),
makes distributions on preferred equity interests that were issued to a third
party in return for a capital investment of $55 million. The distributions
constitute a return on capital (at an effective fixed after tax cost to Tejas of
4.2%) and return of capital over an eight-year term. Annual distributions
(including returns on and of capital) are approximately $8.7 million through
2001, approximately $9.5 million in each of 2002 and 2003 and approximately $2.3
million in 2004.
As part of the Transok acquisition in June 1996 and the acquisition of
pipeline and related facilities from Exxon in September 1993, Tejas (the
"lessee") entered into separate five-year operating leases with third parties
(the "lessor") for
12
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seven natural gas processing plants ("Plant Lease") and a pipeline system
("System Lease"), respectively. Lease payments under the two leases are adjusted
quarterly based upon the respective lessor's financing costs. However, Tejas has
entered into interest rate derivative agreements in a notional amount of $269.5
million to fully hedge the effects of such adjustments on the required minimum
lease payments. The Plant Lease expires June 6, 2001 unless extended by mutual
consent of the lessor and lessee for up to two additional two-year periods. The
System Lease currently expires on September 14, 1998. Upon expiration of the
leases, Tejas, at its option, may either purchase the leased properties or pay a
termination fee of $106 million under the Plant Lease and $122.8 million under
the System Lease.
In the normal course of business, Tejas regularly reviews opportunities
such as Transok for the possible acquisition of additional natural gas pipelines
and companies that own natural gas pipelines. When potential acquisition
opportunities are deemed to be consistent with Tejas' growth strategy, bids or
offers in amounts and with terms acceptable to Tejas may be submitted. It is
uncertain whether any such bids or offers which may be submitted by Tejas would
be acceptable to the sellers of such acquisition targets. In the event of a
future significant acquisition, Tejas may require additional financing in
connection therewith.
OUTLOOK
Tejas' first quarter 1997 results of operations were favorable when
compared to the first quarter of 1996. Tejas believes there are more
opportunities available for future growth and continued expansion of operations.
The Transok acquisition provides Tejas with the opportunity to increase the sale
of natural gas to certain new markets in Oklahoma and to increase the flow of
natural gas, within the state, West to East. Proposed rules and regulations in
Oklahoma may open significant additional industrial end-user and city gate
markets to competition. These proposals, if passed or adopted, would present
Transok with opportunities to compete for supply arrangements with customers not
previously available to Transok. At the same time, these proposals and
competitive bidding procedures that are being implemented by electric utilities
expose Transok to the risk that other pipeline and marketing companies will seek
to compete for Transok's existing supply and transportation arrangements with
utilities, such as Public Service Company of Oklahoma ("PSO"). Although Transok
presently transports substantially all of the natural gas requirements for PSO's
gas-fired power stations in Oklahoma, competitors will begin transportation of
natural gas for PSO in 1998. While no prediction can be made as to the
continuation of the favorable impact of Coral on Tejas' prospects, Tejas
believes that over the next several years Coral should be in a position to take
advantage of the unutilized capacity in Tejas' major long-distance transmission
lines. In addition, the large number of interconnects between Tejas' pipelines
and other intrastate and interstate pipelines have the potential to become
important supply points for Coral. The capital invested by Tejas at the WCLSF
since September 1993 has increased the availability of natural gas and the
operational flexibility of the WCLSF. This flexibility permits Tejas to sell
approximately 25 Bcf of additional natural gas volumes annually out of this
storage facility and to provide additional daily storage injection and
withdrawal capabilities to accommodate the seasonal needs of customers. Further
development of the WCLSF is possible and Tejas will continue to monitor and
review the economic benefit of such development. While there can be no assurance
that market conditions, including the average cost of natural gas held in
storage, will always be conducive to maintaining the current level of
profitability, Tejas has historically shown the ability to adapt to changing
operational requirements and capitalize on new market opportunities. Although
the foregoing factors present Tejas with opportunities to grow and expand, there
can be no assurance that such factors will result in future growth and expansion
of Tejas' operations, revenues or earnings.
Tejas anticipates using substantially all of its available cash in 1997
and 1998 for capital expenditures, investments and acquisitions. To enhance
throughput on Transok's pipeline system, in 1997 Tejas completed construction of
a 24-inch pipeline which included eight additional compressors. Total capital
13
<PAGE>
expenditures and investments for 1997 are anticipated to be approximately $180
million, of which Tejas has already spent or committed to contractual
obligations of approximately $104 million. Actual capital and investment
expenditures may vary from budgeted amounts due to many factors.
The statements included in this Report on Form 10-Q regarding future
financial performance and results and the other statements that are not
historical facts are forward-looking statements. The words "expect," "project,"
"estimate," "predict," "anticipate," "believes" and similar expressions are also
intended to identify forward-looking statements. Such statements and Tejas'
results are subject to numerous risks, uncertainties and assumptions, including
but not limited to, changes in general economic conditions in the United States,
changes in laws and regulations to which Tejas is subject, the cost and effects
of legal and administrative claims and proceedings against Tejas or its
subsidiaries or which may be brought against Tejas or its subsidiaries,
conditions in the capital markets utilized by Tejas to access capital to finance
operations, Tejas' ability to develop expanded markets and product offerings as
well as maintain existing markets, energy prices, competition from other
pipelines and alternate fuels, the general level of natural gas and petroleum
product demand and weather conditions, among other things, and other risks and
uncertainties described in this Report on Form 10-Q and in Tejas' other filings
with the Securities and Exchange Commission. Further, natural gas prices, which
directly impact transportation and gathering and processing throughput and
operating profits, may fluctuate in unpredictable ways. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those indicated.
Tejas' management knows of no trends or uncertainties that will impair
Tejas' ability to comply with its debt covenants or pay the dividends on the
9.96% Preferred Stock and 5 1/4% Preferred Stock.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Tejas is a defendant or party in various lawsuits that have risen in the
ordinary course of Tejas' business. In particular, a subsidiary of Tejas is a
defendant in THE LONG TRUSTS V. TEJAS GAS CORP. ET. AL., 123rd Judicial District
Court, Panola County, Texas, filed March 1, 1989, in which plaintiffs assert
claims and allege damages for breach of contract and failure to take-or-pay for
natural gas pursuant to three natural gas purchase contracts. Plaintiffs allege
that, in addition to failing to take-or-pay for gas, Tejas breached (a) one of
the contracts by failing to take a minimum quantity of gas and to install and
maintain pipeline facilities sufficient to permit Tejas to meet its quantity
purchase obligations, and (b) all three contracts by failing to take gas in
quantities sufficient to enable plaintiffs to produce ratably with other
producers in a common reservoir. In plaintiffs' Seventh Amended Original
Petition filed April 11, 1997, the plaintiffs are seeking take-or-pay damages
for the twelve year period 1984-1996 in excess of $36 million, plus prejudgment
interest, post-judgment interest, attorneys' fees and court costs and other
unspecified actual damages. In connection with their depositions in this matter,
certain expert witnesses retained by The Long Trusts have presented damage
models purporting to show approximately $60 million in take-or-pay damages and
$70 million for failure to take The Long Trusts' gas ratably. Management
disputes The Long Trusts' claims and believes that The Long Trusts' damage
models are seriously flawed. On January 6, 1993, the court entered an
interlocutory summary judgment order granting in part and denying in part
plaintiffs' motions for summary judgment. The court found, among other things,
as a matter of law that (a) Tejas breached the minimum take obligations under
one of the contracts, (b) Tejas is not entitled to any credits or offsets for
natural gas purchased by third parties, and (c) the "availability" of natural
gas for take-or-pay purposes is established by the delivery capacity testing
procedures in the contracts. Damages, if any, have not been determined. The
effect of this order on Tejas' case is unclear and Tejas has sought
clarification and rehearing, but intends nevertheless to defend its position
aggressively.
Because of the relationship between The Long Trusts' contracts and certain
contracts between Tejas and Valero Transmission Company ("VTC"), and in order to
resolve existing and potential claims and disputes, Tejas, VTC and Valero
Transmission, L.P. ("VTLP") entered into an agreement, pursuant to which, among
other things, Tejas, VTC and VTLP would cooperate in the conduct of The Long
Trusts' litigation, and VTC and VTLP would bear a substantial portion of the
costs of any appeal and of the amount of any nonappealable final judgment
rendered against Tejas. On April 15, 1994, the plaintiffs named VTC and VTLP
(collectively "Valero") as additional defendants to the lawsuit, alleging that
Valero intentionally and maliciously interfered with the plaintiffs' contracts
with Tejas. In its Seventh Amended Original Petition, plaintiffs are seeking
damages against Valero in an amount in excess of $200 million for loss of
profits which plaintiffs claim they would have realized but for Valero's alleged
acts of interference. Plaintiffs further allege that Tejas conspired with Valero
in interfering with the contracts and that Tejas should be jointly liable with
Valero for the damages plaintiffs have asserted against Valero. Plaintiffs also
seek from Valero exemplary damages treble the amount of the actual, economic
damages, if any, found by the court for the interference claim. Plaintiffs have
also added Tejas Gas Corporation as a defendant claiming that Tejas Gas
Corporation operated with its subsidiary, Tejas Gas Corp., as a single business
entity and should therefore be liable for the alleged wrongful acts of Tejas Gas
Corp. Plaintiff alleges similar claims against Valero Energy Corporation with
respect to VTC and VTLP.
Although Tejas has not obtained a formal opinion, based on discussions
with outside counsel and an internal examination of this lawsuit, management
believes that it has adequate defenses or recourse to third parties relating to
such lawsuit and does not believe this matter will have a material adverse
effect on Tejas' financial condition.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Amendment No. 1 to Split Dollar Agreement for Jay A. Precourt
effective January 1, 1997.
10.2 Change of Control Agreement for Jay A. Precourt dated May 8,
1997.
10.3 Change of Control Agreement for James W. Whalen dated May 8,
1997.
10.4 Change of Control Agreement for Rene R. Joyce dated May 8,
1997.
10.5 Change of Control Agreement for P. Anthony Lannie dated May 8,
1997.
10.6 Change of Control Agreement for James E. Street dated May 8,
1997.
10.7 Change of Control Agreement for Frank T. Whittinghill, III
dated May 8, 1997.
11.1 Computation of Earnings Per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the first quarter of 1997.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TEJAS GAS CORPORATION
(Registrant)
By: /s/ JAMES W. WHALEN
James W. Whalen
Senior Executive Vice President - Chief
Financial Officer (principal financial
officer and principal accounting
officer)
Date: May 14, 1997
16
EXHIBIT 10.1
SPLIT DOLLAR AGREEMENT
AMENDMENT 1
This AMENDMENT TO SPLIT DOLLAR AGREEMENT (this "Amendment") is made as of
the 1st day of January, 1997 between Tejas Gas Corporation ("Tejas"), a Delaware
corporation having its headquarters at 1301 McKinney, Suite 700, Houston, Texas
77010, and Precourt Interests, Ltd. (the "Owner").
WHEREAS, Tejas, the Owner and Jay A. Precourt (the "Participant") entered
into that certain Split Dollar Agreement on December 21, 1994 (the "Agreement");
WHEREAS, Tejas, the Owner and the Participant desire to amend the
Agreement to increase the amount of payments made by Tejas annually in payment
of premiums for life insurance policies which constitute the Agreed Premium
Amount;
WHEREAS, the Compensation Committee of the Board of Directors of Tejas has
authorized such increase in the Agreed Premium Amount;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
described herein, Tejas, the Owner and the Participant hereby agree as follows:
1. DEFINITIONS. Terms used herein that are defined in the Agreement shall
have their meanings as defined in the Agreement, unless otherwise defined
herein.
2. AMENDMENT TO THE AGREEMENT.
The Agreement is amended to change the amount "$60,000" to
"$110,000" so that Section 1.(a) of the Agreement hereafter shall read in its
entirety as follows:
"(a) BY TEJAS: Each year commencing with the year 1997, Tejas shall pay
to the Insurance Companies an amount equal to $110,000 plus the
amount that otherwise would have been contributed for such year by
Tejas, for the account of the Participant, to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust, which
amount shall hereinafter sometimes be referred to as the "Agreed
Premium Amount," as its share of the annual premium for the
Insurance Contracts, unless and until this Agreement terminates as
provided below."
3. LIMITED EFFECT. Except as amended hereby, the Agreement shall continue
to be, and shall remain, in full force and effect in accordance with its terms
as currently written.
<PAGE>
4. SUCCESSORS, ASSIGNS AND OTHERS. This Amendment is binding upon Tejas,
the Participant (and the Participant's successors, executors, administrators,
and transferees), the Owner (and the Owner's successors and transferees) and any
beneficiary of the Insurance Contracts.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment on the
16th day of April, 1997, to have effect as of the day and year first above
written.
Tejas Gas Corporation
By: /S/ FREDERIC C. HAMILTON
Frederic C. Hamilton
Chairman of the Board
Precourt Interests, Ltd.
By: /S/ JAY A. PRECOURT
Jay A. Precourt
Managing Partner
Agreed to and ratified by: /s/ JAY A. PRECOURT
Participant: Jay A. Precourt
/s/ MOLLY H. PRECOURT
Spouse of Participant: Molly H. Precourt
- 2 -
EXHIBIT 10.2
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the meaning provided in Rule 405 of Regulation C of the Securities Act of 1933,
as amended.
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 2
Notwithstanding the foregoing, however, in the event that the Executive's
employment is involuntarily terminated by the Company (other than due to death
or for Good Cause or Disability, as hereinafter defined) subsequent to such time
as the Company has entered into a letter of intent or a definitive agreement
which subsequently results in a Change of Control, then such termination (an
"Advance Termination") shall be deemed to be a termination which entitles the
Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to 2.99 multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 6
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall reduce such payments
and benefits provided to the Executive under Section 4 of this Agreement to the
extent necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code; but only if, by reason of such reduction,
the net after-tax benefit to the Executive shall exceed the net after-tax
benefit if such reduction were not made. "Net after-tax benefit" for these
purposes shall mean the sum of (i) the total amount payable to the Executive
under Section 4 of this Agreement, plus (ii) all other payments and benefits
which the Executive receives or is then entitled to receive from the Company or
any affiliate that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to the Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
payment under Section 4), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code. The amount of any reduction made under this Section 8(a) in
the payment to which the Executive is entitled under Section 4 of this Agreement
is hereinafter referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly.
<PAGE>
Change of Control Agreement
Jay A. Precourt
May 8, 1997
Page 7
In no event will the Executive be required to reimburse the Company for any of
the costs and expenses incurred by the Company relating to any judicial
proceeding or arbitration.
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /s/ FREDERIC C. HAMILTON
Frederic C. Hamilton
Chairman of the Board
Accepted and agreed to this 8th day of May, 1997:
/s/ JAY A. PRECOURT
Jay A. Precourt (Executive)
EXHIBIT 10.3
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 2
meaning provided in Rule 405 of Regulation C of the Securities Act of 1933, as
amended. Notwithstanding the foregoing, however, in the event that the
Executive's employment is involuntarily terminated by the Company (other than
due to death or for Good Cause or Disability, as hereinafter defined) subsequent
to such time as the Company has entered into a letter of intent or a definitive
agreement which subsequently results in a Change of Control, then such
termination (an "Advance Termination") shall be deemed to be a termination which
entitles the Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to 2.99 multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 6
amended (the "Code"), the Company shall reduce such payments and benefits
provided to the Executive under Section 4 of this Agreement to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Code; but only if, by reason of such reduction, the net
after-tax benefit to the Executive shall exceed the net after-tax benefit if
such reduction were not made. "Net after-tax benefit" for these purposes shall
mean the sum of (i) the total amount payable to the Executive under Section 4 of
this Agreement, plus (ii) all other payments and benefits which the Executive
receives or is then entitled to receive from the Company or any affiliate that
would constitute a "parachute payment" within the meaning of Section 280G of the
Code, less (iii) the amount of federal income taxes payable with respect to the
foregoing calculated at the maximum marginal income tax rate for each year in
which the foregoing shall be paid to the Executive (based upon the rate in
effect for such year as set forth in the Code at the time of the payment under
Section 4), less (iv) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) and (ii) above by Section 4999 of the
Code. The amount of any reduction made under this Section 8(a) in the payment to
which the Executive is entitled under Section 4 of this Agreement is hereinafter
referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly. In no event will the Executive be
required to reimburse the Company for any of the costs and expenses incurred by
the Company relating to any judicial proceeding or arbitration.
<PAGE>
Change of Control Agreement
James W. Whalen
May 8, 1997
Page 7
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /s/ JAY A. PRECOURT
Jay A. Precourt
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 9th day of May, 1997:
/s/ JAMES W. WHALEN
James W. Whalen (Executive)
EXHIBIT 10.4
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the meaning provided in Rule 405 of Regulation C of the Securities Act of 1933,
as amended.
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 2
Notwithstanding the foregoing, however, in the event that the Executive's
employment is involuntarily terminated by the Company (other than due to death
or for Good Cause or Disability, as hereinafter defined) subsequent to such time
as the Company has entered into a letter of intent or a definitive agreement
which subsequently results in a Change of Control, then such termination (an
"Advance Termination") shall be deemed to be a termination which entitles the
Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to 2.99 multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 6
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall reduce such payments
and benefits provided to the Executive under Section 4 of this Agreement to the
extent necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code; but only if, by reason of such reduction,
the net after-tax benefit to the Executive shall exceed the net after-tax
benefit if such reduction were not made. "Net after-tax benefit" for these
purposes shall mean the sum of (i) the total amount payable to the Executive
under Section 4 of this Agreement, plus (ii) all other payments and benefits
which the Executive receives or is then entitled to receive from the Company or
any affiliate that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to the Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
payment under Section 4), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code. The amount of any reduction made under this Section 8(a) in
the payment to which the Executive is entitled under Section 4 of this Agreement
is hereinafter referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly.
<PAGE>
Change of Control Agreement
Rene R. Joyce
May 8, 1997
Page 7
In no event will the Executive be required to reimburse the Company for any of
the costs and expenses incurred by the Company relating to any judicial
proceeding or arbitration.
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /s/ JAY A. PRECOURT
Jay A. Precourt
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 9th day of May, 1997:
/s/ RENE R. JOYCE
Rene R. Joyce (Executive)
EXHIBIT 10.5
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the meaning provided in Rule 405 of Regulation C of the Securities Act of 1933,
as amended.
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 2
Notwithstanding the foregoing, however, in the event that the Executive's
employment is involuntarily terminated by the Company (other than due to death
or for Good Cause or Disability, as hereinafter defined) subsequent to such time
as the Company has entered into a letter of intent or a definitive agreement
which subsequently results in a Change of Control, then such termination (an
"Advance Termination") shall be deemed to be a termination which entitles the
Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to 2.99 multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 6
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall reduce such payments
and benefits provided to the Executive under Section 4 of this Agreement to the
extent necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code; but only if, by reason of such reduction,
the net after-tax benefit to the Executive shall exceed the net after-tax
benefit if such reduction were not made. "Net after-tax benefit" for these
purposes shall mean the sum of (i) the total amount payable to the Executive
under Section 4 of this Agreement, plus (ii) all other payments and benefits
which the Executive receives or is then entitled to receive from the Company or
any affiliate that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to the Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
payment under Section 4), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code. The amount of any reduction made under this Section 8(a) in
the payment to which the Executive is entitled under Section 4 of this Agreement
is hereinafter referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly.
<PAGE>
Change of Control Agreement
P. Anthony Lannie
May 8, 1997
Page 7
In no event will the Executive be required to reimburse the Company for any of
the costs and expenses incurred by the Company relating to any judicial
proceeding or arbitration.
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /S/ JAY A. PRECOURT
Jay A. Precourt
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 9th day of May, 1997:
/S/ P. ANTHONY LANNIE
P. Anthony Lannie (Executive)
EXHIBIT 10.6
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the meaning provided in Rule 405 of Regulation C of the Securities Act of 1933,
as amended.
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 2
Notwithstanding the foregoing, however, in the event that the Executive's
employment is involuntarily terminated by the Company (other than due to death
or for Good Cause or Disability, as hereinafter defined) subsequent to such time
as the Company has entered into a letter of intent or a definitive agreement
which subsequently results in a Change of Control, then such termination (an
"Advance Termination") shall be deemed to be a termination which entitles the
Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to two (2) multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 6
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code"), the Company shall reduce such payments
and benefits provided to the Executive under Section 4 of this Agreement to the
extent necessary so that no portion thereof shall be subject to the excise tax
imposed by Section 4999 of the Code; but only if, by reason of such reduction,
the net after-tax benefit to the Executive shall exceed the net after-tax
benefit if such reduction were not made. "Net after-tax benefit" for these
purposes shall mean the sum of (i) the total amount payable to the Executive
under Section 4 of this Agreement, plus (ii) all other payments and benefits
which the Executive receives or is then entitled to receive from the Company or
any affiliate that would constitute a "parachute payment" within the meaning of
Section 280G of the Code, less (iii) the amount of federal income taxes payable
with respect to the foregoing calculated at the maximum marginal income tax rate
for each year in which the foregoing shall be paid to the Executive (based upon
the rate in effect for such year as set forth in the Code at the time of the
payment under Section 4), less (iv) the amount of excise taxes imposed with
respect to the payments and benefits described in (i) and (ii) above by Section
4999 of the Code. The amount of any reduction made under this Section 8(a) in
the payment to which the Executive is entitled under Section 4 of this Agreement
is hereinafter referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly.
<PAGE>
Change of Control Agreement
James E. Street
May 8, 1997
Page 7
In no event will the Executive be required to reimburse the Company for any of
the costs and expenses incurred by the Company relating to any judicial
proceeding or arbitration.
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /s/ JAY A. PRECOURT
Jay A. Precourt
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 9th day of May, 1997:
/s/ JAMES E. STREET
James E. Street (Executive)
EXHIBIT 10.7
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT ("Agreement") is entered into this 8th
day of May, 1997, between Tejas Gas Corporation, a Delaware Corporation (the
"Company"), and the undersigned (the "Executive").
The Board of Directors of the Company considers the maintenance of sound
management to be essential to protecting and enhancing the best interests of the
Company and its stockholders. In this connection, the Company recognizes the
possibility that a change of control may occur, and that this possibility, and
the uncertainty and questions it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders. Accordingly, the Board of Directors has determined that
appropriate steps should be taken to encourage the continued attention and
dedication of members of the Company's management, including the Executive, to
their assigned duties without the distraction which may arise from the
possibility of a change of control of the Company.
This Agreement does not alter the Executive's status as an at-will
employee of the Company. However, the Company believes that, both prior to and
at the time a change of control is anticipated or occurring, it would be
necessary to have the Executive's continued attention and dedication to assigned
duties without distraction, and this Agreement is intended as an inducement to
continue to serve as an employee of the Company (subject, however, to either
party's right to terminate such employment). Therefore, the Company agrees that
the Executive shall receive the severance benefits hereinafter set forth in the
event the Executive's employment with the Company terminates subsequent to a
Change of Control (as defined in Section 5 hereof) under the circumstances
described below.
Certain capitalized terms used herein are defined in Section 5 below.
IT IS, THEREFORE, AGREED:
SECTION 1. TERM OF AGREEMENT. This Agreement shall be effective from and
after the date hereof to and including January 1, 2002; provided, however, that
commencing on January 1, 2002 and each January 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless not
later than January 4 of the preceding year, the Company shall have given the
Executive written notice that it does not wish to extend this Agreement; and
provided, further, that, if a Change of Control of the Company shall have
occurred during the term of this Agreement, then notwithstanding any such notice
by the Company not to extend, this Agreement shall be deemed to be extended to
and including the second anniversary of the date of such Change of Control. This
Agreement shall be immediately terminated, and the Executive shall have no right
to the payment of any benefit under this Agreement, in the event that the
Executive's employment with the Company and its affiliates (taken as a group) is
for any reason terminated prior to the occurrence of a Change of Control
(including by reason of such Executive's employer ceasing to be an affiliate of
the Company). For purposes of this Agreement, the term "affiliate" shall have
the
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 2
meaning provided in Rule 405 of Regulation C of the Securities Act of 1933, as
amended. Notwithstanding the foregoing, however, in the event that the
Executive's employment is involuntarily terminated by the Company (other than
due to death or for Good Cause or Disability, as hereinafter defined) subsequent
to such time as the Company has entered into a letter of intent or a definitive
agreement which subsequently results in a Change of Control, then such
termination (an "Advance Termination") shall be deemed to be a termination which
entitles the Executive to the severance benefits hereinafter set forth.
SECTION 2. OTHER BENEFIT ARRANGEMENTS.
(a) This Agreement shall supersede any and all existing understandings and
agreements between the Executive and the Company or any of its affiliates and
any and all plans and policies of the Company or any of its affiliates (in the
case of any affiliates, including without limitation agreements, plans and
policies entered into or established before such affiliates became affiliates of
the Company), with regard to severance benefits to be paid to the Executive on
account of involuntary termination of the employment of the Executive; provided
that this Agreement does not supersede benefits required by law or provided
under the terms of any employee benefit plan of the Company or its affiliates
that is not primarily designed to provide benefits for involuntary termination
of employment. Except as otherwise provided in this Section 2, payments and
benefits to the Executive hereunder shall be made and provided without regard to
and in addition to any other payments or benefits required to be paid and
provided to the Executive at any time hereafter under any other agreement, plan
or policy of the Company or any of its affiliates relating to compensation,
retirement or other benefits, including without limitation any amounts payable
to the Executive under the Company's Annual Incentive Plan and Employee Stock
Option Plan. Except as otherwise provided in this Agreement, no payments or
benefits to the Executive under this Agreement shall be reduced by any amount
the Executive may earn or become entitled to receive from employment with the
Company or any of its affiliates, from employment with another employer, or from
any other source.
(b) Notwithstanding the provisions of Section 2(a), this Agreement shall
supersede the terms and provisions of the severance pay policies of the Company
or any of its affiliates only during the period from and after the date of the
occurrence of a Change of Control to and including the second anniversary of
such date.
SECTION 3. ELIGIBILITY FOR BENEFITS.
(a) The Executive shall be eligible for benefits under this Agreement if
at any time during the term of this Agreement a Change of Control occurs and (i)
an Advance Termination has occurred, or (ii) at the time of the Change of
Control or within two years thereafter (A) the Executive involuntarily ceases to
be an employee of the Company and its affiliates (taken as a group) for any
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 3
reason other than termination for Good Cause, Disability or death or (B) the
Executive terminates his or her employment with the Company and its affiliates
(taken as a group) for Good Reason (the date of the Executive's termination of
employment under either clause (i) or (ii) is hereinafter referred to as the
"Termination Date").
(b) If, following a Change of Control or pursuant to a transaction or
series of transactions resulting in a Change of Control, business operations of
the Company or any of its affiliates are transferred to a corporation or other
entity having as its chief executive officer the chief executive officer of the
Company immediately prior to the date of such Change of Control and such officer
continues in such capacity for the remaining term of this Agreement (or, if
earlier, until his death or disability) and such corporation or entity continues
the employment of the Executive as a successor employer (in a capacity which
would not constitute Good Reason for the voluntary termination of employment by
the Executive as provided in this Agreement), then the Executive shall not be
deemed to have involuntarily ceased to be an employee of the Company and its
affiliates (taken as a group), and instead the term an "employee of the Company
and its affiliates (taken as a group)" as used in this Agreement shall be deemed
to include an employee of such successor employer. The obligations of the
Company under this Agreement to provide payments or benefits to the Executive as
set forth herein shall continue in effect and apply to any subsequent
termination of the Executive's employment with such successor employer which
would have given rise to an obligation to provide benefits or payments to the
Executive had the Executive remained an employee of the Company and its
affiliates (taken as a group), notwithstanding any assumption of this Agreement
pursuant to Section 10(a), unless such obligations are fully satisfied by the
successor employer.
SECTION 4. BENEFITS. If the Executive is eligible for benefits under
Section 3, then the Executive shall receive the cash amount set forth under
Section 4(a) within ten days after the later of the Change of Control or the
Termination Date, and shall be eligible for continued welfare benefits under
Section 4(b).
(a) The Executive shall be paid, subject to Section 8 below, a lump-sum
cash payment in an amount equal to two (2) multiplied by the Executive's base
salary at the Termination Date and target annual bonus potential under the bonus
plan in effect at the Termination Date, but prior to any reduction in
compensation that constitutes Good Reason (but not less than the base salary and
target annual bonus potential at the time of the Change of Control) (the "Annual
Compensation"); provided that Annual Compensation shall be adjusted during each
year to include (i) the amounts of compensation deferred under the Company's
Thrift Plan and Thrift Benefit Restoration Plan and (ii) the amounts, if any,
paid by the Company as premiums on split dollar life insurance in excess of the
amounts that otherwise would have been contributed to the Pension Benefit
Restoration Trust and the Thrift Benefit Restoration Trust.
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 4
(b) The medical, dental and group life insurance coverage in effect with
respect to the Executive and his or her dependents as of the date of the Change
of Control shall be continued until the earlier of (i) 12 months after the later
of the Change of Control or the Termination Date or (ii) the date the Executive
becomes a participant in the group insurance benefit program of a new employer
providing substantially equivalent or greater benefits to the Executive and his
or her dependents.
SECTION 5. DEFINITIONS. For purposes of this Agreement:
(a) A "Change of Control" shall be deemed to have occurred if any person
or group (other than Frederic C. Hamilton, Charles C. Gates or Jay A. Precourt
or any affiliate (either directly or through one or more intermediaries) of any
of them) shall become the record or beneficial owner of securities of the
Company entitling the owner thereof to vote more than 50% of all of the votes
which may be cast with respect to matters submitted to a vote of the holders of
the Common Stock of the Company (the "New Control Group") and, in connection
therewith or thereafter, the Continuing Directors (defined below) cease to
constitute a majority of the Board of Directors of the Company, or if all or
substantially all of the assets of the Company are acquired by any persons, or
if the Company adopts a plan of liquidation. For purposes of this Agreement,
where a Change of Control results from a series of related transactions, the
Change of Control shall be deemed to have occurred on the date of the
consummation of the last such transaction. As used herein, the term "Continuing
Directors" means the directors of the Company on January 1, 1997, together with
any directors subsequently nominated or elected by at least 80% of the
Continuing Directors then serving on the Board of Directors so long as such
subsequently nominated or elected directors were not nominated by the New
Control Group and are not at any time while serving on the Board of Directors,
and have never been prior to serving on the Board of Directors, employees,
agents, or affiliates of any member of the New Control Group.
(b) "Good Cause" shall mean (i) the conviction of the Executive for any
felony involving dishonesty, fraud or breach of trust or (ii) the willful
engagement by the Executive in gross misconduct in the performance of his or her
duties that materially injures the Company or any of its affiliates. If a Change
of Control occurs, this definition of "Good Cause" shall be deemed to be the
definition of "cause" for purposes of any Employee Stock Option Agreement that
would incorporate the term "cause" by reference to an employment agreement with
the Executive.
(c) "Disability" shall have the meaning set forth in the Federal Social
Security Act of 1935, as amended, and if the Executive is unable to perform
service for the Company for any physical or mental reason that does not
constitute "Disability" due to its temporary nature, the Executive shall not be
deemed to have voluntarily terminated employment.
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 5
(d) "Good Reason" shall exist if, without the written consent of the
Executive, (i) the Executive is assigned duties (or has his or her duties
diminished in a fashion) materially inconsistent with his or her position,
duties, responsibilities and status with the Company and its affiliates as of
the time of a Change of Control, (ii) the Company or any of its affiliates
reduces the aggregate compensation or incentive package of the Executive as in
effect at the time of a Change of Control by 10% or more, (iii) the Company or
any of its affiliates reduces the benefit package for health and welfare benefit
plans, pension and 401(k) plans of the Executive, as in effect at the time of
the Change of Control, except for changes in the benefit package applicable to
all employees of the Company or its affiliates, (iv) the Company takes any other
action which materially and adversely changes the conditions or perquisites of
the Executive's employment in effect as of the time of the Change of Control
(provided that no material or adverse change shall be deemed to have occurred
solely on account of a change in the individual(s) in the office or on the board
of directors to whom the Executive reports), or (v) the Company or any of its
affiliates requires the Executive regularly to perform his or her duties of
employment beyond a 90-mile radius from the location of his or her employment as
of the time of the Change of Control. The Executive shall give notice of any
termination of the Executive's employment for Good Reason due to any of the
events described above by delivery of written notice thereof to the Company
within 120 days after the first occurrence of the event giving rise to such Good
Reason.
(e) The terms "beneficial owner," "group" and "person" shall have meanings
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
SECTION 6. CONTINUED EMPLOYMENT. As consideration for the benefits to be
provided by the Company under this Agreement, prior to the occurrence of a
Change of Control the Executive agrees to deliver to the Company 30 days' prior
written notice of any voluntary termination by the Executive of his or her
employment with the Company or its affiliates.
SECTION 7. PAYMENT OF INTEREST. Any payment not made within ten business
days after it is due in accordance with this Agreement shall thereafter bear
interest at two percent over the "prime rate" as published in THE WALL STREET
JOURNAL from time to time, which is the base rate on corporate loans posted by
at least 75% of the nation's thirty largest banks.
SECTION 8. SECTION 280G LIMITATION ON PAYMENTS.
(a) The Company shall make the payment and provide the benefits under
Section 4 of this Agreement; provided, however, that if all or any portion of
the benefits provided under Section 4 of this Agreement, either alone or
together with other payments and benefits which the Executive receives or is
then entitled to receive from the Company or any affiliate, would constitute a
"parachute payment" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 6
amended (the "Code"), the Company shall reduce such payments and benefits
provided to the Executive under Section 4 of this Agreement to the extent
necessary so that no portion thereof shall be subject to the excise tax imposed
by Section 4999 of the Code; but only if, by reason of such reduction, the net
after-tax benefit to the Executive shall exceed the net after-tax benefit if
such reduction were not made. "Net after-tax benefit" for these purposes shall
mean the sum of (i) the total amount payable to the Executive under Section 4 of
this Agreement, plus (ii) all other payments and benefits which the Executive
receives or is then entitled to receive from the Company or any affiliate that
would constitute a "parachute payment" within the meaning of Section 280G of the
Code, less (iii) the amount of federal income taxes payable with respect to the
foregoing calculated at the maximum marginal income tax rate for each year in
which the foregoing shall be paid to the Executive (based upon the rate in
effect for such year as set forth in the Code at the time of the payment under
Section 4), less (iv) the amount of excise taxes imposed with respect to the
payments and benefits described in (i) and (ii) above by Section 4999 of the
Code. The amount of any reduction made under this Section 8(a) in the payment to
which the Executive is entitled under Section 4 of this Agreement is hereinafter
referred to as the "Relinquished Amount."
(b) If the Executive's payment under Section 4 of this Agreement is
reduced under Section 8(a) and, notwithstanding such reduction, the Executive
subsequently pays or becomes obligated to pay any excise tax under Section 4999
of the Code on any payment or benefit he or she receives (whether pursuant to
this Agreement or otherwise) in connection with the event giving rise to his or
her right to receive payments and benefits under Section 4 of this Agreement,
the Company shall pay to the Executive an amount equal to the Relinquished
Amount, together with interest thereon at the rate set forth in Section 7 of
this Agreement from the date of the payment to the Executive pursuant to Section
4 of this Agreement to and including the date of payment of the Relinquished
Amount, and an amount ("Special Reimbursement") which, after payment by the
Executive of any federal, state and local taxes, including any further excise
tax under Section 4999 of the Code on, with respect to or resulting from all
payments and benefits received (whether pursuant to this Agreement or otherwise,
and including the Relinquished Amount and this Special Reimbursement), equals
the total excise tax paid or payable.
SECTION 9. FEES AND EXPENSES. The Company shall pay the Executive's
out-of-pocket expenses, including reasonable attorneys' fees and expenses, in
connection with any judicial proceeding or arbitration to enforce this Agreement
or to construe, or to determine or defend the validity of, this Agreement or
otherwise in connection herewith. The Company shall reimburse the Executive for
all reasonable attorneys' and accountants' fees incurred in connection with
determining whether a reduction under Section 8(a) is appropriate. The Company
will make such payments or reimbursements under this Section 9 on a current
basis no less frequently than quarterly. In no event will the Executive be
required to reimburse the Company for any of the costs and expenses incurred by
the Company relating to any judicial proceeding or arbitration.
<PAGE>
Change of Control Agreement
Frank T. Whittinghill, III
May 8, 1997
Page 7
SECTION 10. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company to assume expressly and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform it if no succession had taken place.
(b) This Agreement shall inure to the benefit of and be enforceable by the
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount is still payable to the Executive hereunder, such amount
shall be paid in accordance with the terms of this Agreement to his or her
devisee, legatee or other designee, or if there is no such designee, to the
Executive's estate.
SECTION 11. COUNTERPARTS. This Agreement may be signed in one or more
counterparts, any one of which shall constitute an original, but all of which
taken together shall be deemed to be one and the same Agreement.
SECTION 12. CHOICE OF LAW. This Agreement shall be construed and
interpreted pursuant to the internal laws of the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first herein written.
TEJAS GAS CORPORATION
By: /s/ JAY A. PRECOURT
Jay A. Precourt
Vice Chairman of the Board and
Chief Executive Officer
Accepted and agreed to this 13th day of May, 1997:
/s/ FRANK T. WHITTINGHILL, III
Frank T. Whittinghill, III (Executive)
Exhibit 11.1
TEJAS GAS CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(UNAUDITED)
Three Months Ended March 31, 1997 1996
------- -------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
Weighted average number of common shares outstanding ..... 20,555 17,405
Incremental common shares resulting from
assumed exercise of stock options based
on the stock's daily average market price ............ -- --
------- -------
Weighted average number of common shares
outstanding and common equivalent shares
for primary calculation .............................. 20,555 17,405
Incremental common shares resulting from
assumed exercise of stock options based
on the more dilutive of the stock's daily
average market price or ending price ................. -- --
------- -------
Weighted average number of common shares
outstanding and common equivalent shares
assuming full dilution ............................... 20,555 17,405
------- -------
NET EARNINGS APPLICABLE TO COMMON STOCK .................. $11,207 $ 8,840
------- -------
EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
Primary .............................................. $ 0.55 $ 0.51
------- -------
Fully-diluted ........................................ $ 0.55 $ 0.51
------- -------
NOTE: Weighted average number of Common Shares outstanding and primary and
fully-diluted earnings per common share for the 1996 period have been
restated to reflect the three-for-two split of the Common Stock, effected
in the form of a stock dividend payable to stockholders of record as of
April 26, 1996.
18
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 22,605
<SECURITIES> 0
<RECEIVABLES> 189,320
<ALLOWANCES> 0
<INVENTORY> 27,991
<CURRENT-ASSETS> 258,604
<PP&E> 1,562,334
<DEPRECIATION> 219,247
<TOTAL-ASSETS> 1,718,854
<CURRENT-LIABILITIES> 218,558
<BONDS> 853,355
49,366
460
<COMMON> 5,139
<OTHER-SE> 447,233
<TOTAL-LIABILITY-AND-EQUITY> 1,718,854
<SALES> 689,617
<TOTAL-REVENUES> 689,617
<CGS> 613,838
<TOTAL-COSTS> 644,747
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,725
<INCOME-PRETAX> 21,247
<INCOME-TAX> 7,942
<INCOME-CONTINUING> 13,305
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,305
<EPS-PRIMARY> 0.55
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