Exhibit 10.5
CHANGE IN CONTROL SEVERANCE
AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE
AGREEMENT (this “ Agreement ”), dated as of
December 2, 2008 (the “ Effective Date ”),
is made between CONSOL Energy Inc., CNX Center, 1000 CONSOL Energy
Drive, Canonsburg, Pennsylvania 15317, a Delaware corporation (the
“ Company ”), and Peter Lilly (the “
Executive ”).
WITNESSETH:
WHEREAS, the Executive is a senior
executive of the Company and has made and is expected to continue
to make major contributions to the short- and long-term
profitability, growth and financial strength of the Company;
and
WHEREAS, the Board of Directors of
the Company (the “ Board ”) recognizes that, as
is the case with many publicly held corporations, the possibility
of a Change in Control (as defined below) exists and that such
possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of key
management personnel to the detriment of the Company and its
stockholders; and
WHEREAS, the Board has determined
that appropriate steps should be taken to reinforce and encourage
the continued attention and dedication of members of the
Company’s management, including the Executive, to their
assigned duties without distraction in the face of potentially
disturbing circumstances arising from the possibility of a Change
in Control; and
WHEREAS, in consideration of the
Executive’s continued employment with the Company and the
Executive’s agreement to waive certain rights he may have to
receive severance compensation and benefits under any applicable
Company severance plan or policy, as set forth below, the Company
desires to provide the Executive with certain compensation and
benefits set forth in this Agreement in order to ameliorate the
financial and career impact on the Executive in the event the
Executive’s employment with the Company is terminated for a
reason related to a Change in Control; and
WHEREAS, the Executive agrees to
waive any rights he may have under any Company severance plan or
policy with respect to severance compensation and benefits in the
event the Executive’s employment with the Company is
terminated as the result of an Involuntary Termination Associated
With a Change in Control (as defined below).
NOW, THEREFORE, in consideration of
the foregoing and the mutual covenants and agreements hereinafter
set forth and intending to be legally bound hereby, the Company and
the Executive agree as follows:
1. Certain Defined Terms . In
addition to terms defined elsewhere herein, the following terms
have the following meanings when used in this Agreement with
initial capital letters:
(a) “Base Pay” means the
greater of (i) the Executive’s annual base salary rate,
exclusive of bonuses, commissions and other Incentive Pay, as in
effect immediately preceding the Executive’s Termination
Date, or (ii) the Executive’s annual base salary rate,
exclusive of bonuses, commissions and other Incentive Pay, as in
effect immediately prior to the Change in Control.
(b) “Board” means the
Board of Directors of the Company. If the Executive is also a
member of the Board, then in the case of any provision hereof that
requires action by, or a determination of, the Board in connection
with this Agreement, it is understood that such provision refers to
the members of the Board other than the Executive.
(c) “Cause” means a
determination by the Board that the Executive has committed any of
the following acts:
(i) the Executive has been convicted
of, or the Executive has pleaded guilty or nolo contendere to,
(x) any felony, or (y) any misdemeanor involving fraud,
embezzlement or theft; or
(ii) the Executive has wrongfully
disclosed material confidential information of the Company or any
Subsidiary, has intentionally violated any material express
provision of the Company’s code of conduct for executives and
management employees (as in effect on the date of the Change in
Control), or has intentionally failed or refused to perform any of
his material assigned duties for the Company; and any such failure
or refusal has been demonstrably and materially harmful to the
Company.
Notwithstanding the foregoing, the
Executive will not be deemed to have been terminated for
“Cause” under this subsection (ii) unless and
until there has been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
the majority of the members of the Board plus one member, finding
that, in the good faith opinion of the Board, the Executive has
committed an act constituting “Cause,” as herein
defined, and specifying the particulars thereof in detail. Prior to
any such determination, the Executive shall be provided with
reasonable notice of such pending determination and the Executive,
together with his counsel (if the Executive chooses to have counsel
present at such meeting), shall be provided with the opportunity to
be heard before the Board makes any such determination. Nothing
herein will limit the right of the Executive or his beneficiaries
to contest the validity or propriety of any such
determination.
(d) “Change in Control”
means the occurrence of any of the following events:
(i) the acquisition after the date
hereof by any individual, entity or group (within the meaning of
section 13(d)(3) or 14(d)(2) of the Exchange Act) (a “
Person ”) of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of more than 25%
of the combined voting power of the then outstanding Voting Stock
of the Company; provided, however, that for purposes of this
Section 1(d)(i), the following acquisitions will not
constitute a Change in Control: (A) any issuance of Voting
Stock of the Company directly from the Company that is approved by
the Incumbent Board (as defined in Section 1(d)(ii), below),
(B) any acquisition by the Company of Voting Stock of the
Company, (C) any acquisition of Voting Stock of the Company by
any employee benefit plan (or related trust) sponsored or
maintained by the Company or any Subsidiary, (D) any acquisition of
Voting Stock of the Company by an underwriter holding securities of
the Company in connection with a public offering thereof, or
(E) any acquisition of Voting Stock of the Company by any
Person pursuant to a Business Combination that complies with
clauses (A), (B) and (C) of Section 1(d)(iii), below;
or
(ii) individuals who constitute the
Board as of the Effective Date (the “ Incumbent Board
,” as modified by this Section 1(d)(ii)), cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a Director subsequent to such
date whose election, or nomination for election by the
Company’s stockholders, was approved by a vote of at least
two-thirds of the Directors then comprising the Incumbent Board
(either by a specific vote or by approval of the proxy statement of
the Company in which such person is named as a nominee for
director, without objection to such nomination) will be deemed to
have then been a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election
contest with respect to the election or removal of Directors or
other actual or threatened solicitation of proxies or consents by
or on behalf of a Person other than the Board; or
(iii) consummation of a
reorganization, merger or consolidation of the Company or a direct
or indirect wholly owned subsidiary thereof, a sale or other
disposition
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(whether by sale, taxable or
nontaxable exchange, formation of a joint venture or otherwise) of
all or substantially all of the assets of the Company, or other
transaction involving the Company (each, a “ Business
Combination ”), unless, in each case, immediately
following such Business Combination, (A) all or substantially
all of the individuals and entities who were the beneficial owners
of Voting Stock of the Company immediately prior to such Business
Combination beneficially own, directly or indirectly, more than 50%
of the combined voting power of the then outstanding shares of
Voting Stock of the entity resulting from such Business Combination
or any direct or indirect parent corporation thereof (including,
without limitation, an entity which as a result of such transaction
owns the Company or all or substantially all of the Company’s
assets either directly or through one or more subsidiaries),
(B) no Person other than the Company beneficially owns 25% or
more of the combined voting power of the then outstanding shares of
Voting Stock of the entity resulting from such Business Combination
or any direct or indirect parent corporation thereof (disregarding
all “acquisitions” described in subsections
(A)—(C) of Section 1 (d) (i)), and (C) at
least a majority of the members of the Board of Directors of the
entity resulting from such Business Combination or any direct or
indirect parent corporation thereof were members of the Incumbent
Board at the time of the execution of the initial agreement or of
the action of the Board providing for such Business Combination;
or
(iv) approval by the stockholders of
the Company of a complete liquidation or dissolution of the
Company, except pursuant to a Business Combination that complies
with clauses (A), (B) and (C) of Section
1(d)(iii).
(e) “COBRA” means the
Consolidated Omnibus Budget Reconciliation Act of 1986, as
amended.
(f) “Code” means the
Internal Revenue Code of 1986, as amended.
(g) “Consultancy Period”
and “Consultancy Position” shall have the respective
meanings assigned to those terms in Section 2(d)
hereof.
(h) “Constructive Termination
Associated With a Change in Control” means the termination of
the Executive’s employment with the Company by the Executive
as a result of the occurrence without the Executive’s written
consent of one of the following events:
(i) a material adverse change in the
Executive’s position with the Company and/or a Subsidiary (or
any successor thereto by operation of law or otherwise) (but
excluding any loss of any position with a Subsidiary with respect
to which the Executive is not separately compensated) as compared
to the Executive’s position with the Company (and/or a
Subsidiary) immediately prior to the Change in Control;
(ii) (A) a material reduction in the
Executive’s annual base salary rate, exclusive of bonuses,
commissions and other Incentive Pay, as in effect immediately prior
to the Change in Control; (B) a material reduction in the
Executive’s Target Bonus opportunity in effect immediately
prior to the Change in Control; or (C) a material reduction in
the level of Employee Benefits provided to the Executive
immediately prior to the Change in Control (excluding any reduction
that is generally applicable to all or substantially all salaried
Company employees);
(iii) a material adverse change in
circumstances has occurred following a Change in Control,
including, without limitation, a material change in the scope of
the business or other activities for which the Executive was
responsible immediately prior to the Change in Control, which has
rendered the Executive unable to carry out, has materially hindered
the Executive’s performance of, or has caused the Executive
to suffer a material reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position held
by the Executive immediately prior to the Change in Control; a good
faith determination by the
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Executive (that a material adverse
change has occurred) will be conclusive and binding upon the
parties hereto unless otherwise shown by the Company to be not in
good faith);
(iv) in connection with the
liquidation, dissolution, merger, consolidation or reorganization
of the Company or transfer of all or substantially all of its
business and/or assets, the Company breached this Agreement by not
requiring the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which all
or substantially all of its business and/or assets have been
transferred (by operation of law or otherwise) to assume all duties
and obligations of the Company under this Agreement pursuant to
Section 14(a); or
(v) the relocation of the
Executive’s principal work location (other than in connection
with a relocation contemplated by the Company as of the date hereof
or pursuant to organizational changes in accordance with past
practice) to a location that increases the Executive’s normal
work commute by fifty (50) miles or more as compared to the
Executive’s normal work commute immediately prior to the
Change in Control (excluding in the case of an Executive who is a
Vice President/General Manager of Coal Operations, a transfer to a
comparable position at another Company or Subsidiary mining
facility), or that the Executive’s required travel away from
his office in the course of discharging his responsibilities or
duties of his job is materially increased as compared to that which
was required of the Executive in any of the three (3) full
years immediately prior to the Change in Control.
Without limiting the generality or
effect of the foregoing, the Executive shall have no right to
terminate employment in a Constructive Termination Associated With
a Change in Control in connection with an event described above
unless (A) the Executive provides written notice to the
Company within one month of the occurrence of such event that
identifies such event with particularity, and (B) the Company
fails to correct such event within thirty (30) days after
receipt of such notice from the Executive, and (C) such
termination must occur within sixty (60) days after the
expiration of the failure of the Company to correct the
event.
In no event shall the termination of
the Executive’s employment with the Company on account of the
Executive’s death or Disability or because the Executive
engaged in conduct constituting Cause be deemed to be a
Constructive Termination Associated With a Change in
Control.
(i) “Disability” means
the Executive becomes permanently disabled within the meaning of,
and begins actually to receive disability benefits pursuant to, the
long-term disability plan in effect for, or applicable to, the
Executive.
(j) “Employee Benefits”
means the perquisites, benefits and service credit for benefits as
provided under any and all employee retirement income and welfare
benefit policies, plans, programs or arrangements in which the
Executive is entitled to participate, including, without
limitation, any stock option, performance share, performance unit,
stock purchase, stock appreciation, savings, pension, supplemental
executive retirement, or other retirement income or welfare
benefit, deferred compensation, incentive compensation, group or
other life, health, medical/hospital or other insurance (whether
funded by actual insurance or self-insured by the Company or a
Subsidiary), disability, salary continuation, expense reimbursement
and other employee benefit policies that may exist as of a Change
in Control or any successor policies, plans or arrangements that
provide substantially similar perquisites or benefits.
(k) “Exchange Act” means
the Securities Exchange Act of 1934, as amended.
(l) “Incentive Pay”
means the greater of: (i) the Executive’s Target Bonus
for which the Executive was eligible during the period that
includes the Termination Date, or (ii) the average of the
annual bonuses paid by the Company to the Executive for the three
years prior to the year that includes
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the Termination Date. For purposes of this
definition, “Target Bonus” means 100% of the amount
established under the CONSOL Energy Inc. Executive Annual Incentive
Plan, and any other annual bonus, applicable incentive, commission
or other sales incentive compensation, or comparable incentive
payment opportunity which, in the sole discretion of the Company,
is deemed to constitute a Target Bonus, in addition to Base Pay,
for which the Executive was eligible to receive, but did not
receive prior to his Termination Date, in regard to services
rendered in the year covered by the Executive’s Termination
Date and which is to be made pursuant to any bonus, incentive,
profit-sharing, performance, discretionary pay or similar
agreement, policy, plan, program or arrangement (whether or not
funded) of the Company or a Subsidiary, or any successor thereto.
For purposes of this definition, “Incentive Pay” does
not include any stock option, stock appreciation, stock purchase,
restricted stock, the CONSOL Energy Inc. Long-Term Incentive
Programs or similar plan, program, arrangement or grant, one time
bonus or payment (including, but not limited to, any sign-on
bonus), any amounts contributed by the Company for the benefit of
the Executive to any qualified or nonqualified deferred
compensation plan, whether or not provided under an arrangement
described in the prior sentence, or any amounts designated by the
parties as amounts other than Incentive Pay.
(m) “Involuntary Termination
Associated With a Change in Control” means the termination of
the Executive’s employment related to a Change in Control:
(i) involuntarily by the Company for any reason other than
Cause, the Executive’s death or the Executive’s
Disability, or (ii) on account of a Constructive Termination
Associated With a Change in Control.
(n) “Restricted
Business” means any business function with a direct
competitor of the Company that is substantially similar to the
business function performed by the Executive with the Company
immediately prior to his Termination Date.
(o) “Restricted
Territory” means the counties, towns, cities or states of any
country in which the Company operates or does business.
(p) “Subsidiary” means
any Company controlled affiliate.
(q) “Termination Date”
means the last day of the Executive’s employment with the
Company.
(r) “Termination of
Employment” means, except as provided in the following
sentence and subject to the provisions of Section 19(b), the
termination of the Executive’s active employment relationship
with the Company on account of an Involuntary Termination
Associated With a Change in Control. For purposes of the
non-solicitation provision of Section 10 of this Agreement,
the term “Termination of Employment” shall mean the
termination of the Executive’s employment relationship with
the Company for any reason.
(s) “Voting Stock” means
securities entitled to vote generally in the election of
directors.
2. Termination Associated With a
Change in Control .
(a) Involuntary Termination
Associated With a Change in Control . In the event the
Executive’s employment is terminated after, or in connection
with, a Change in Control, on account of (i) an Involuntary
Termination Associated With a Change in Control within the two year
period after the Change in Control, or (ii) an involuntary
termination by the Company (other than for Cause or due to the
Executive’s death or Disability) that (A) occurs not
more than three (3) months prior to the date on which a Change
in Control occurs, or (B) is requested by a third party who
initiates a Change in Control, the Executive shall be entitled to
the benefits provided in subsection (b) of this
Section 2. For purposes of subsection 2(a)(ii)(B) above, to be
eligible to receive amounts described in Section 2(b) below, a
Change in Control must be consummated within the twelve
(12) month period following the Executive’s
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Termination Date, except in circumstances
pursuant to which the consummation of the Change in Control is
delayed, through no failure of the Company or the third person, by
a governmental or regulatory authority or agency with jurisdiction
over the matter, or as a result of other similar circumstances
where a third party approval is necessary and is delayed. In such a
circumstance, the remainder of the twelve (12) month period
shall be tolled and shall recommence upon termination of the
delaying event.
(b) Compensation and Benefits
Upon Involuntary Termination Associated With a Change in
Control . In the event a termination described in subsection
(a) of this Section 2 occurs, and subject to the
Executive’s compliance with the provisions of Section 4
hereof, the Company shall pay and provide to the Executive after
his Termination Date:
(i) A lump sum cash payment equal to
(A) 2.5 times Base Pay, plus (B) 2.5 times Incentive
Pay.
(ii) The Executive shall receive a
pro rated payment of his Incentive Pay for the year in which his
Termination of Employment occurs. The pro rated payment shall be
based on the Executive’s Incentive Pay as of the
Executive’s Termination Date, multiplied by a fraction, the
numerator of which is the number of days during which the Executive
was employed by the Company in the year of his termination and the
denominator of which is 365.
(iii) For the thirty (30) month
period immediately following the Date of Termination or, if later,
the closing dates for the Change in Control:
(1) If the Executive elects COBRA
Continuation Coverage, the Executive shall continue to participate
in all medical, dental and vision insurance plans he was
participating in on the Termination Date, and the Company shall pay
the applicable premium. During the applicable period of coverage
described in the foregoing sentences, the Executive shall be
entitled to benefits on substantially the same basis and cost as
would have otherwise been provided had the Executive not separated
from service. To the extent that such benefits are available under
the above-referenced benefit plans and the Executive had such
coverage immediately prior to termination of employment, such
continuation of benefits for the Executive shall also cover the
Executive’s dependents for so long as the Executive is
receiving benefits under this paragraph (iv). The COBRA
Continuation Period for medical and dental insurance under this
paragraph (iv) shall be deemed to run concurrent with the
continuation period federally mandated by COBRA (generally 18
months), or any other legally mandated and applicable federal,
state, or local coverage period for benefits provided to terminated
employees under the health care plan. For purposes of this
Agreement, (1) “COBRA” means the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended, and
(2) “COBRA Continuation Period” shall mean the
continuation period for medical and dental insurance to be provided
under the terms of this Agreement which shall commence on the first
day of the calendar month following the month in which the date of
termination falls and generally shall continue for an 18 month
period.
(2) Following the conclusion of the
18 month COBRA period described above, the Company will provide
coverage as follows:
(A) If the relevant plan is self
insured (within the meaning of Code Section 105(h)), and such
plan permits coverage for the Executive, then the Company will
continue to provide coverage under the plan for an additional
twelve (12) months and will annually impute income to the
Executive for the fair market value of the premium.
(B) If, however, any such plan does
not permit the continued participation following the end of the
COBRA Continuation Period as contemplated above, then
the
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Company will reimburse the Executive
for the actual cost to the Executive of any individual health
insurance policy obtained by Employee in accordance with the
procedures set forth in subsection (iv) below.
(iv) If the Executive would have
been eligible for post-retirement medical and dental coverage had
he retired from employment during the period of thirty
(30) months following his Termination Date, but is not so
eligible as the result of his termination, then, at the conclusion
of the benefit continuation period described in (iii) above,
the Company shall take all commercially reasonable efforts to
provide the Executive with additional continued group medical and
dental coverage comparable to that which would have been available
to him from time to time under the Company’s post-retirement
medical and dental benefit program, for as long as such coverage
would have been available under such program. It is specifically
acknowledged by the Executive that if such coverage is provided
under a Company sponsored self insured plan, it will be provided on
an after- tax basis and the Executive will have income imputed to
him annually equal to the fair market value of the premium. If this
coverage cannot be provided by the Company, (or where such
continuation would adversely affect the tax status of the plan
pursuant to which the coverage is provided), then as an
alternative, the Company will reimburse the Executive in lieu of
such coverage an amount equal to the Executive’s actual and
reasonable after-tax cost of continuing comparable
coverage.
Reimbursement to the Executive
pursuant to subsections (iii) or (iv) above will be
available only to the extent that (1) such expense is actually
incurred for any particular calendar year and reasonably
substantiated; (2) reimbursement shall be made no later than
the end of the calendar year following the year in which such
expense is incurred by the Executive; (3) no reimbursement
provided for any expense incurred in one taxable year will affect
the amount available in another taxable year; and (4) the
right to this reimbursement is not subject to liquidation or
exchange for another benefit. Notwithstanding the foregoing, no
reimbursement will be provided for under subsection (iii) for
any expense incurred following the additional twelve
(12) months or for any expense which relates to coverage after
such date.
(v) A lump sum cash payment equal to
the total amount that the Executive would have received under the
Company’s 401(k) plan as a Company match if the Executive was
eligible to participate in the Company’s 401(k) plan for the
thirty (30) month period after his Termination Date and he
contributed the maximum amount to the plan for the match. Such
amount shall be determined based on the assumption that the
Executive would have received annual Base Pay plus Incentive Pay
during such period in the amounts set forth in Sections 2(b)(i) and
(ii) above.
(vi) A lump sum cash payment equal
to the difference between the present value of the
Executive’s accrued pension benefits at his Termination Date
under the Company’s qualified defined benefit plan and (if
eligible) any plan or plans sponsored by the Company providing
nonqualified retirement benefits (which currently includes the
CONSOL Energy Inc. Supplemental Retirement Plan and The Retirement
Restoration Plan of CONSOL Energy Inc.) (the qualified and
nonqualified plans together being referred to as the “
pension plans ”) and the present value of the accrued
pension benefits to which the Executive would have been entitled
under the pension plans if the Executive had continued
participation in those plans for the thirty (30) month period
after his Termination Date. Such amount shall be determined based
on the assumption that the Executive would have received annual
Base Pay plus Incentive Pay during such period in the amounts set
forth in Sections 2(b)(i) and (ii) above.
(vii) A lump sum cash payment of
$25,000 in order to cover the cost of outplacement assistance
services for the Executive and other expenses associated with
seeking another employment position.
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(viii) The Executive shall receive
any amounts earned, accrued or owing but not yet paid to the
Executive as of his Termination Date, payable in a lump sum, and
any benefits accrued or earned in accordance with the terms of any
applicable benefit plans and programs of the Company.
(ix) All payments under this
subsection 2(b) will be made in a lump sum no later than 60 days
after the date of termination (or, if later, the closing date of
the Change in Control, as applicable); provided, however, that the
benefits due under subsections (iii) and (iv) shall be
provided as specified thereunder.
(c) Vesting of Equity Rights
. Notwithstanding any provision to the contrary in any applicable
plan, program or agreement, upon the occurrence of a Change in
Control, all stock options, stock appreciation rights, restricted
stock, restricted stock units and other equity rights held by the
Executive will become fully vested and/or exercisable, as the case
may be, on the date on which the Change in Control occurs, and all
stock options or stock appreciation rights held by the Executive
shall remain exercisable for the period set forth in the award
agreement covering the options or rights.
(d) Consultancy Period Option
. In the case of any Involuntary Termination Associated With a
Change in Control, the Company may, in its sole discretion, elect
to require reasonable cooperation from the Executive following the
Executive’s Termination Date for a period (the “
Consultancy Period ”) not to exceed 30 months. In the
event that the Company so elects, the Executive shall, during the
pendency of the Consultancy Period, be availa
