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EXHIBIT 10.19
CHANGE OF CONTROL AGREEMENT
THIS CHANGE OF CONTROL AGREEMENT (the Agreement), made and entered into effective as of
August 20, 2007 (the Effective Date), by and between Exterran Holdings, Inc., a Delaware
corporation (the Company), and (Executive).
WHEREAS, the Company and Executive desire to enter into an agreement regarding their
respective rights and obligations in connection with a Change of Control during the Term of this
Agreement;
THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Company and Executive agree as follows:
1. Term. This Agreement shall begin on the Effective Date and shall continue until August 20,
2009; provided, however, that commencing on August 20, 2008 and on each August 20 thereafter, the
term of this Agreement shall automatically be extended for one additional year (such initial
period, plus any extensions, plus, in the event of Executives Qualifying Termination of Employment
for Good Reason, any additional time period necessitated by the Companys right to cure as set
forth in the definition of Good Reason, the Term), unless at least 90 days prior to such August
20 date the Board shall give written notice to Executive that the Term of this Agreement shall
cease to be so extended. However, if a Change of Control shall occur during the Term, the Term
shall automatically continue in effect for a period of 18 months plus, in the event of Executives
Qualifying Termination of Employment for Good Reason, any additional time period necessitated by
the Companys right to cure as set forth in the definition of Good Reason, commencing on the date
of such Change of Control. This Agreement shall automatically terminate on Executives termination
of employment, except as provided in the definition of Protected Period. Termination of this
Agreement shall not alter or impair any rights of Executive arising under this Agreement on or
prior to such termination.
2. Qualifying Termination of Employment. If Executive incurs a Qualifying Termination of
Employment, Executive shall be entitled to the benefits provided in Sections 3 and 4 hereof. If
Executives employment terminates for any reason other than for a Qualifying Termination of
Employment, then Executive shall not be entitled to any benefits under this Agreement.
3. Benefits Upon a Qualifying Termination of Employment.
(a) Lump Sum. Following a Qualifying Termination of Employment, the Company shall pay
to Executive, within five business days after the Date of Termination (or, if Code Section
409A is applicable to the payment, as soon as such payment can be made without being subject
to the additional taxes and interest under Code Section 409A), an amount, in a lump sum
payment, equal to the sum of:
(i) The total of (A) Executives earned but unpaid Base Salary through the Date
of Termination plus (B) Executives Target Bonus for the current year (prorated to
Date of Termination) plus (C) any earned but unpaid
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Actual Bonus for the prior year (if the prior years Actual Bonus has not yet
been calculated as of the Date of Termination such amount shall be payable when
calculated, but in no event later than March 15th of the year following the
Termination Year); plus
(ii) Any portion of Executives vacation pay accrued, but not used, for the
Termination Year as of the Date of Termination; plus
(iii) The product of [two/three] multiplied by the sum of Executives Base
Salary and Target Bonus amount for the Termination Year (not prorated); plus
(iv) An amount equal to the total of the employer matching contributions that
would have been credited to Executives account under the 401(k) Plan and any other
deferred compensation plan of the Company (or any of its affiliated companies) had
Executive made the required amount of elective deferrals or contributions to receive
such maximum employer matching contributions under the 401(k) Plan and any other
deferred compensation plan (and regardless of whether Executive actually made any
such elective deferrals or contributions) during the 12-month period immediately
preceding the month of Executives Date of Termination, multiplied by [two/three],
such amount to be grossed up so that the amount Executive actually receives after
payment of any federal or state taxes payable thereon equals the amount first
described above; plus
(iv) Amounts previously deferred by Executive, if any, or earned but not paid,
if any, under any Company incentive and nonqualified deferred compensation plans or
programs as of the Date of Termination.
(b) Continuing Medical Coverage. For a period of [two/three] years from Executives
Date of Termination, or such longer period as may be provided by the terms of the
appropriate medical and/or welfare benefit plan, program, practice or policy, the Company
shall provide benefits to Executive and/or Executives eligible dependents equal to those
that would have been provided to them in accordance with the plans, programs, practices and
policies if Executives employment had not been terminated; provided, however, that with
respect to any of such plans, programs, practices or policies requiring an employee
contribution, Executive shall continue to pay the monthly employee contribution for same,
and provided further, that if Executive becomes employed by another employer and is eligible
to receive medical or other welfare benefits under another employer-provided plan, the
medical and other welfare benefits described herein shall be secondary to those provided
under such other plan during such applicable period of eligibility.
(c) Awards. All stock options, restricted stock, restricted stock units, or other
awards based in common stock of the Company, and all common units, unit appreciation rights,
unit options and other awards based in common units representing limited partner interests
of the Partnership, and all cash-based incentive awards held by Executive and
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not previously vested shall be 100% vested (except with respect to (i) an award that is
subject to Code Section 409A if such acceleration would result in the imposition of
applicable taxes and interest under Code Section 409A and (ii) awards denominated in or
relating to common units of the Partnership that, by their terms, continue to vest following
a termination of employment without cause or for good reason). Notwithstanding the terms of
any Company (or affiliate) plan or agreement between the Company (or affiliate) and
Executive to the contrary, the accelerated vesting of all stock options, restricted stock,
restricted stock units, or other awards required pursuant to the terms of this Section 3(c)
shall govern.
(d) Interest. If any payment due under the terms of this Agreement is not timely made
by the Company, its successors or assigns, interest shall accrue on such payment at the
highest maximum legal rate permissible under applicable law from the date such payment first
became due through the date it is paid.
(e) Release. Notwithstanding anything in this Agreement to the contrary, no payment
shall be made or benefits provided pursuant to this Agreement unless Executive signs and
returns to the Company within 50 days following the date of a Qualifying Termination of
Employment, and does not revoke within seven days thereafter, a complete release and waiver,
in exchange for the severance payments described in Section 3(a) above, among other items,
of all claims for liability and damages in any way related to Executives employment against
the Company, its affiliates, their directors, officers, employees and agents, and their
employee benefit plans and fiduciaries and agents of such plans in a form provided by the
Company.
(f) Severance Offset. Any cash severance payments provided under Section 3(a) shall be
offset or reduced by the amount of any cash severance amounts payable to Executive under any
other individual agreement the Company or an affiliate may have with Executive or any
severance plan or program maintained by the Company or any affiliate for employees in
general.
(g) Code Section 409A Matters.
(i) This Agreement is intended to comply with Code Section 409A and any
ambiguous provisions will be construed in a manner that is compliant with or exempt
from the application of Code Section 409A. If a provision of the Agreement would
result in the imposition of applicable taxes and interest under Code Section 409A,
such provision may be reformed to avoid imposition of such taxes and interest and no
action taken to comply with Code Section 409A shall be deemed to adversely affect
any rights or benefits of Executive hereunder.
(ii) All reimbursements and in-kind benefits provided pursuant to this
Agreement shall be made in accordance with Treasury Regulations Section
1.409A-3(i)(1)(iv) such that any reimbursements or in-kind benefits will be deemed
payable at a specified time or on a fixed schedule relative to a permissible payment
event. Specifically, (A) the amounts reimbursed and in-kind benefits under this
Agreement, other than with respect to medical benefits provided under
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Section 3(b), during Executives taxable year may not affect the amounts
reimbursed or in-kind benefits provided in any other taxable year, (B) the
reimbursement of an eligible expense shall be made on or before the last day of
Executives taxable year following the taxable year in which the expense was
incurred, and (C) the right to reimbursement or an in-kind benefit is not subject to
liquidation or exchange for another benefit.
(iii) If the Company determines, pursuant to policies adopted by the Board,
that Executive is a specified employee within the meaning of Code Section 409A as
of the date of his Date of Termination, no distributions or benefits that are
subject to Code Section 409A shall be made under this Agreement before the date that
is six months and two days after Executives Date of Termination (or, if earlier,
the date of Executives death). In addition, in the event of a payment delayed
under this Section 3(g)(iii), the Company agrees to pay to Executive, as of the date
it makes the delayed payment, simple interest on such delayed amount at the
applicable Federal rate provided for in Code Section 7872(f)(2)(A), based on the
number of days the payment was delayed. If Executive disagrees with the Companys
determination that Code Section 409A requires such six-month delay with respect to a
payment or benefit, such payment or benefit can be made prior to such delayed
payment date if Executive agrees in writing (in the form approved by the Company)
that should the IRS subsequently assert that some or all of the payments or benefits
made pursuant to this Agreement do not comply with the requirements of Code Section
409A, then (i) Executive agrees that he is solely responsible for all taxes, excise
taxes, penalties and interest resulting from such determination, and that he will
not seek contribution, reimbursement or any other recovery from the Company or any
of its affiliates, officers, employees or directors for any taxes, excise taxes,
interest or penalties paid or due or any costs he incurs in challenging such
position of the IRS, and (ii) Executive will reimburse, and hold the Company, its
affiliates, officers, employees or directors harmless for, any costs, including
attorneys fees and costs of court, penalties or fees, that it may incur in
connection with a later determination that the payments made pursuant to this
Agreement are covered by Code Section 409A and were not properly reported as such.
4. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding and except as set forth
below, in the event it shall be determined that any payment or distribution in the nature of
compensation (within the meaning of Code Section 280G(b)(2)) by the Company to or for the
benefit of Executive (whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise, but determined without regard to any additional
payments required under this Section 4) (a Payment) would be subject to the excise tax
imposed by Code Section 4999 or any interest or penalties are incurred by Executive with
respect to such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the Excise Tax), then Executive shall be
entitled to receive an additional payment (a Gross-Up Payment) in an amount such that
after payment by Executive of all taxes
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(including any interest or penalties imposed with respect to such taxes), including
without limitation, any income taxes (and any interest and penalties imposed with respect
thereto) and Excise Tax imposed upon the Gross-Up Payment, Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 4(a), if it shall be determined that Executive is
entitled to a Gross-Up Payment, but that Executive, after taking into account the Payments
and the Gross-Up Payment, would not receive a net after-tax benefit of at least $1,000
(taking into account both income taxes and any Excise Tax) as compared to the net after-tax
proceeds to Executive resulting from an elimination of the Gross-Up Payment and a reduction
of the Payments, in the aggregate, to an amount (the Reduced Amount) such that the receipt
of Payments would not give rise to any Excise Tax, then no Gross-Up Payment shall be made to
Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 4(c), all determinations required to be made
under this Section 4, including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such
determination shall be made by Deloitte & Touche LLP or, as provided below, such other
certified public accounting firm as may be designated by Executive (the Accounting Firm)
which shall provide detailed supporting calculations both to the Company and Executive
within 15 business days after the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity or group
effecting the Change of Control, Executive shall appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined
pursuant to this Section 4, shall be paid by the Company to Executive within five days after
the receipt of the Accounting Firms determination. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the uncertainty in the
application of Code Section 4999 at the time of the initial determination by the Accounting
Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the
Company should have been made (Underpayment), consistent with the calculations required to
be made hereunder. In the event that the Company exhausts its remedies pursuant to Section
4(c) and Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has occurred and any
such Underpayment shall be promptly paid by the Company to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by the IRS that, if
successful, would require the payment by the Company of the Gross-Up Payment (or an
additional Gross-Up Payment) in the event the IRS seeks higher payment. Such notification
shall be given as soon as practicable, but no later than ten business days after Executive
is informed in writing of such claim, and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. Executive shall not pay
such claim prior to the expiration of the 30-day period following the date on
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which he gives such notice to the Company (or such shorter period ending on the date
that any payment of taxes with respect to such claim is due). If the Company notifies
Executive in writing prior to the expiration of such period that it desires to contest such
claim, Executive shall:
(i) Give the Company any information reasonably requested by the Company
relating to such claim;
(ii) Take such action in connection with contesting such claim as the Company
shall reasonably request in writing from time to time, including without limitation,
accepting legal representation with respect to such claim by an attorney reasonably
selected by the Company;
(iii) Cooperate with the Company in good faith in order to effectively contest
such claim; and
(iv) Permit the Company to participate in any proceedings relating to such
claim;
provided, however, that the Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such costs and
shall indemnify and hold Executive harmless, on an after-tax basis, for any Excise Tax or
income tax (including interest and penalties with respect thereto) imposed as a result of
such representation and payment of costs and expenses. Without limitation of the foregoing
provisions of this Section 4(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and conferences with the taxing authority in
respect of such claim and may, at its sole option, either direct Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner, and Executive
agrees to prosecute such contest to determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs Executive to pay such claim and
sue for a refund, the Company shall provide the amount of such payment to Executive as an
additional payment (Supplemental Payment) (subject to Section 4(d)), and shall indemnify
and hold Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to such payment
or with respect to any imputed income with respect to such payment; and further provided
that any extension of the statute of limitations relating to payment of taxes for the
taxable year of Executive with respect to which such contested amount is claimed to be due
is limited solely to such contested amount. Furthermore, the Companys control of the
contest shall be limited to issues with respect to which a Gross-Up Payment or Supplemental
Payment would be payable hereunder and Executive shall be entitled to settle or contest, as
the case may be, any other issues raised by the IRS or any other taxing authority.
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(d) If, after the receipt by Executive of an amount advanced by the Company pursuant to
Section 4(c), Executive becomes entitled to receive any refund with respect to such claim,
Executive shall (subject to the Companys complying with the requirements of Section 4(c))
promptly pay to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto).
(e) If the amount of medical benefits provided under Section 3(b) or the value of such
benefit coverage (including, without limitation, any insurance premiums paid by the Company
to provide such benefits) is subject to any income, employment or similar tax imposed by
federal, state or local law, or any interest or penalties with respect to such tax (such tax
or taxes, together with any such interest and penalties, being hereafter collectively
referred to as the Income Tax) because such benefits cannot be provided under a
nondiscriminatory health plan described in Section 105 of the Code or for any other reason,
the Company will pay to Executive an additional payment or payments (collectively, an
Income Tax Payment). The Income Tax Payment will be in an amount such that, after payment
by Executive of all taxes (including any interest or penalties imposed with respect to such
taxes), Executive retains an amount of the Income Tax Payment equal to the Income Tax
imposed with respect to such welfare benefits or such welfare benefit coverage.
5. Restrictions and Obligations of Executive.
(a) Consideration for Restrictions and Covenants. The Company and Executive agree that
the principal consideration for the agreement to make the payments provided in this
Agreement by the Company to Executive is Executives compliance with the undertakings set
forth in this Section 5. Notwithstanding any other provision of this Agreement to the
contrary, Executive agrees to comply with the provisions of this Section 5 only if Executive
actually receives any such payments from the Company pursuant to this Agreement.
(b) Confidentiality. Executive acknowledges that the Company will provide Executive
with Confidential Information and has previously provided Executive with Confidential
Information. In return for consideration provided under this Agreement, Executive agrees
that Executive will not, while employed by the Company or any affiliate and thereafter for a
period of two years, disclose or make available to any other person or entity, or use for
Executives own personal gain, any Confidential Information, except for such disclosures as
required in the performance of Executives duties with the Company or as may otherwise be
required by law or legal process (in which case Executive shall notify the Company of such
legal or judicial proceeding as soon as practicable following his receipt of notice of such
a proceeding, and permit the Company to seek to protect its interests and information).
(c) Non-Solicitation or Hire. During the term of Executives employment with the
Company or any affiliate thereof and for a [two/three]-year period following the termination
of Executives employment for any reason, Executive shall not, directly or indirectly (i)
employ or seek to employ any person who is at the date of termination, or was at any time
within the six-month period preceding the date of termination, an officer,
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general manager or director or equivalent or more senior level employee of the Company
or any of its subsidiaries or otherwise solicit, encourage, cause or induce any such
employee of the Company or any of its subsidiaries to terminate such employees employment
with the Company or such subsidiary for the employment of another company (including for
this purpose the contracting with any person who was an independent contractor (excluding
consultant) of the Company during such period) or (ii) take any action that would interfere
with the relationship of the Company or its subsidiaries with their suppliers or customers
without, in either case, the prior written consent of the Companys Board of Directors, or
engage in any other action or business that would have a material adverse effect on the
Company.
(d) Non-Competition. During the term of Executives employment with the Company, or
any affiliate thereof and for a [two/three]-year period following the termination of
Executives employment for any reason, Executive shall not, directly or indirectly:
(i) Engage in any managerial, administrative, advisory, consulting, operational
or sales activities in a Restricted Business anywhere in the Restricted Area,
including, without limitation, as a director or partner of such Restricted Business,
or
(ii) Organize, establish, operate, own, manage, control or have a direct or
indirect investment or ownership interest in a Restricted Business or in any
corporation, partnership (limited or general), limited liability company, enterprise
or other business entity that engages in a Restricted Business anywhere in the
Restricted Area.
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