**EXHIBIT10.12**

 

EXECUTIVEEMPLOYMENT AGREEMENT

 

AGREEMENTby and between POGO PRODUCING COMPANY, a Delaware corporation (the “Company”)and Paul G. Van Wagenen (the “Executive”), dated as of the 1st day of February,2003.

 

TheBoard of Directors of the Company (the “Board”), has determined that it is inthe best interests of the Company and its shareholders to assure that theCompany will have the continued dedication of the Executive, and to provide theExecutive with compensation and benefits arrangements which are competitivewith those of other corporations and which ensure that the compensation andbenefits expectations of the Executive will be satisfied.  The Board also believes it is imperative todiminish the inevitable distraction of the Executive by virtue of the personaluncertainties and risks created by a pending or threatened Change of Controland to encourage the Executive’s full attention and dedication to the Companycurrently and in the event of any threatened or pending Change of Control, andto insure the continuation of favorable compensation and benefits upon a Changeof Control.  Therefore, in order toaccomplish these objectives, the Board has caused the Company to enter intothis Agreement, which shall supersede both the Employment Agreement betweenCompany and Executive dated as of February 1, 2001 and extended and renewedmost recently as of February 1, 2002 and the Excess Benefits Letter Agreementbetween the Company and the Executive dated as of March 2, 1995.

 

NOW,THEREFORE, IT IS HEREBY AGREED AS FOLLOWS;

 

1.                                       CertainDefinitions.  (a) The “Effective Date” shall mean the date of this Agreement.

 

(b)                                 The“Employment Period” shall mean the period commencing on the Effective Date andending on the second anniversary of such date. On each annual anniversary of the Effective Date (the “Renewal Date”),the Employment Period shall be reviewed, to determine whether, in thediscretion of the Company, it should be extended for one additional year so asto terminate two years from such Renewal Date. A determination by the Company to extend the term for one year shall beeffective only if, prior to the Renewal Date, the Company shall give notice tothe Executive that the Employment Period shall be so extended.  Upon a Change of Control the EmploymentPeriod shall be extended to the fifth anniversary of the Change of Control.

 

2.                                       Changeof Control.  For the purpose of this Agreement, a “Changeof Control” shall mean:

 

(a)                                  Theacquisition by any Person of beneficial ownership of Outstanding Company VotingSecurities (including any such acquisition of beneficial ownership deemed tohave occurred pursuant to Rule 13d-5 under the Exchange Act) if, immediatelythereafter, such Person is the beneficial owner of 20% or more of either (i)the then Outstanding Company Common Stock or (ii) the then Outstanding CompanyVoting Securities, unless such acquisition is made (a) directly from theCompany in a transaction approved by a majority of the members of the IncumbentBoard, (b) by any employee benefit plan (or related trust) sponsored or 

 

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maintained by the Company or anycorporation controlled by the Company, or (c) by a parent corporation resultingfrom a Business Corporation (other than the Company) pursuant to a BusinessCombination if, following such Business Combination, the conditions specifiedin clauses (i), (ii) and (iii) of subsection (c) of this Section 2 aresatisfied;

 

(b)                                 Individualswho, as of the date hereof, constitute the Board (the “Incumbent Board”) ceasefor any reason to constitute at least a majority of the Board; provided,however, that any individual becoming a director subsequent to the date hereofwhose election, or nomination for election by the Company’s shareholders, wasapproved by a vote of at least a majority of the directors then comprising theIncumbent Board shall be considered as though such individual were a member ofthe Incumbent Board, except that any such individual shall not be considered amember of the Incumbent Board if his or her initial assumption of office occursas a result of either an actual or threatened election contest (as such term isused in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) orother actual or threatened solicitation of proxies or consents by or on behalfof a Person other than the Board;

 

(c)                                  Approvalby the shareholders of the Company of a Business Combination (or if there is nosuch approval by shareholders, consummation of such Business Combination)unless, immediately following such Business Combination, (i) more than 60% of,respectively, the then outstanding shares of common stock of the parentcorporation resulting from such Business Combination and the combined votingpower of the then outstanding voting securities of such parent corporationentitled to vote generally in the election of directors will be (or is) thenbeneficially owned, directly or indirectly, by all or substantially all of theindividuals and entities who were the beneficial owners, respectively, of theOutstanding Company Common Stock and Outstanding Company Voting Securitiesimmediately prior to such Business Combination in substantially the sameproportions as their ownership immediately prior to such Business Combinationof the Outstanding Company Common Stock and Outstanding Company Voting Securities,as the case may be, (ii) no Person (other than any employee benefit plan (orrelated trust) of the Company or any parent corporation resulting from suchBusiness Combination) beneficially owns, directly or indirectly, 20% or more,respectively, of the then outstanding shares of common stock of the parentcorporation resulting from such Business Combination or the combined votingpower of the then outstanding voting securities of such corporation entitled tovote generally in the election of directors and (iii) at least a majority ofthe members of the board of directors of the parent corporation resulting fromsuch Business Combination were members of the Incumbent Board immediately priorto the consummation of such Business Combination; or

 

(d)                                 Approvalby the shareholders of the Company of (i) a complete liquidation or dissolutionof the Company or (ii) a Major Asset Disposition (or if there is no suchapproval by shareholders, consummation of such Major Asset Disposition) unless,immediately following such Major Asset Disposition, (A) individuals andentities that were beneficial owners of the Outstanding Company Common Stockand the Outstanding Company Voting Securities immediately prior to such MajorAsset Disposition beneficially own, directly or indirectly, more than 60% of,respectively, the then outstanding shares of common stock and the combinedvoting power of the then outstanding shares of voting stock of the Company (ifit continues to exist) and of the Acquiring Entity; (B) no Person, other thanany employee benefit plan (or related trust) of the Company or such entitybeneficially owns, directly or indirectly, 20% or more of, respectively, thethen outstanding shares of common stock and the combined voting power of thethen outstanding voting securities of the Company (if it continues to exist)and of the Acquiring 

 

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Entity and (C) at least a majority of themembers of the board of directors of the Company (if it continues to exist) andof the Acquiring Entity were members of the Incumbent Board at the time of theexecution of the initial agreement or action of the Board providing for suchMajor Asset Disposition.

 

For purposes of the foregoing definition,

 

(1)  the term“Person” means an individual, entity or group;

 

(2)  the term “group” is used as it is definedfor purposes of Section 13(d)(3) of the Securities Exchange Act of 1934 (the“Exchange Act”);

 

(3)  the terms “beneficial owner”, “beneficiallyownership” and “beneficially own” are used as defined for purposes of Rule13d-3 under the Exchange Act;

 

(4)  the term “Business Combination” means (x) amerger or consolidation involving the Company or its stock or (y) anacquisition by the Company, directly or through one or more subsidiaries, ofanother entity or its stock or assets;

 

(5)  the term “Outstanding Company Common Stock”shall mean the outstanding shares of Common Stock, par value $1 per share, ofthe Company;

 

(6)  the term “Outstanding Company VotingSecurities” means outstanding voting securities of the Company entitled to votegenerally in the election of directors; and any specified percentage or portionof the Outstanding Company Voting Securities (or of other voting stock orvoting securities) shall be determined based on the relative combined votingpower of such securities;

 

(7)  the term “parent corporation resulting froma Business Combination” means the Company if its stock is not acquired orconverted in the Business Combination and otherwise means the entity which as aresult of such Business Combination owns the Company or all or substantiallyall of the Company’s assets either directly or through one or moresubsidiaries;

 

(8)  the term “Major Asset Disposition” means thesale or other disposition in one transaction or a series of relatedtransactions of 60% or more of the assets of the Company and its subsidiarieson a consolidated basis; and any specified percentage or portion of the assetsof the Company shall be based on fair market value, as determined by a majorityof the members of the Incumbent Board; and

 

(9)  “Acquiring Entity” means the entity thatacquires the largest portion of the assets sold or otherwise disposed of in aMajor Asset Disposition (or the entity, if any, that owns a majority of theoutstanding voting stock of such acquiring entity entitled to vote generally inthe election of directors or members of a comparable governing body).

 

3.                                       EmploymentAgreement.  The Company hereby agrees to continue theExecutive in its employ in accordance with the terms and provisions of thisAgreement, for the Employment Period.

 

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4.                                       Termsof Employment.  (a)  Positionand Duties.  (i) During theEmployment Period, (A) the Executive’s position (including status,offices, titles and reporting requirements), authority, duties andresponsibilities shall be (x) prior to a Change of Control, at leastcommensurate in all material respects with the most significant of those held,exercised and assigned at any time during the 90-day period immediatelypreceding the later of the Effective Date or the most recent Renewal Date and(y) upon and after a Change of Control, the Executive’s position shall be atleast commensurate in all respects (disregarding a change or changes that arein the aggregate de minimis) with the most significant of those held, exercisedand assigned at any time during the 180-day period immediately preceding theApplicable Date and (B) the Executive’s services shall be performed at thelocation where the Executive was employed immediately preceding the ApplicableDate or any office which is the headquarters of the Company and is less than 25miles from such location.  For purposesof this Agreement, “Applicable Date” shall mean, at any time of determination,the latest to have occurred of the Effective Date, the most recent RenewalDate, or any date on which a Change of Control has occurred.

 

(ii)                                  Duringthe Employment Period, and excluding any periods of vacation and sick leave towhich the Executive is entitled, the Executive agrees to devote reasonableattention and time during normal business hours to the business and affairs ofthe Company.  During the EmploymentPeriod it shall not be a violation of this Agreement for the Executive to(A) serve on corporate, civic or charitable boards or committees,(B) deliver lectures, fulfill speaking engagements or teach at educationalinstitutions and (C) manage personal investments, so long as suchactivities do not significantly interfere with the performance of theExecutive’s responsibilities as an employee of the Company in accordance withthis Agreement; provided Executive may not serve on the board of a publiclytraded for profit corporation or similar body of a publicly traded for profitbusiness organized in other than corporate form without the consent of theNominating and Corporate Governance Committee of the Board of Directors of theCompany.  It is expressly understood andagreed that to the extent that any such activities have been conducted by theExecutive prior to the Applicable Date, the continued conduct of suchactivities (or the conduct of activities similar in nature and scope thereto)subsequent to the Applicable Date shall not thereafter be deemed to interferewith the performance of the Executive’s responsibilities to the Company.

 

(b)                                 Compensation.  (i)                                               BaseSalary.  During the Employment Period, the Executiveshall receive an annual base salary (“Annual Base Salary”), which shall be paidon a monthly basis, at least equal to twelve times the highest  monthly base salary paid or payable to theExecutive by the Company and its affiliated companies in respect of thetwelve-month period immediately preceding the month in which the Applicable Dateoccurs.  During the Employment Period,the Annual Base Salary shall be reviewed at least annually and may be increasedat any time and from time to time as shall be substantially consistent withincreases in base salary generally awarded in the ordinary course of businessto other executives of the Company and its affiliated companies.  Following a Change of Control, Annual BaseSalary shall be increased not less frequently than annually in an amount notless than the percentage increase, if any, in the United States Department ofLabor’s U.S. Consumer Price Index – All Items (All Urban Consumers) from thelast day of the last full month preceding the Change of Control to the lastmonth preceding the date of increase.** **Anyincrease in Annual Base Salary shall not serve to limit or reduce any otherobligation to the Executive under this Agreement.  As used in this 

 

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Agreement, the term “affiliatedcompanies” shall include any company controlled by, controlling or under commoncontrol with the Company.

 

(ii)                                  AnnualBonus.  In addition to Annual Base Salary, theExecutive may be awarded at the discretion of the Company for any fiscal yearending during the Employment Period, a bonus.

 

(iii)                               Incentive,Savings and Retirement Plans.  During the Employment Period, the Executiveshall be entitled to participate in all incentive, savings and retirementplans, practices, policies and programs applicable generally to otherexecutives of the Company and its affiliated companies.  Such plans, practices, policies and programsshall provide the Executive with incentive opportunities (measured with respectto both regular and special incentive opportunities, to the extent, if any,that such distinction is applicable), savings opportunities and retirementbenefit opportunities, in each case, equal to the most favorable of thoseprovided by the Company and its affiliated companies for the Executive undersuch plans, practices, policies and programs as in effect at any time duringthe 90-day period immediately preceding the Applicable Date.

 

(iv)                              ExcessRetirement Benefit Payments.  In addition to the benefits availablepursuant to Section 4(b)(iii):

 

(A)                              Uponthe termination of the Executive’s services with the Company for any reasonother than death, the Company shall pay to the Executive a monthly benefit forlife (or the lump-sum equivalent thereof with the consent of the Executive’sspouse), in an amount equal to the monthly annuity payment that the Executivewould be entitled to receive under the Retirement Plan for Pogo ProducingCompany (or any successor thereto) (the “Retirement Plan”) if the limitationson retirement benefits under Sections 415 and 401(a)(17) of the InternalRevenue Code of 1986, as amended (the “Code”), were not applicable, less themonthly annuity payment actually payable to the Executive under the RetirementPlan.  Such monthly benefit willcommence on the same date that the Executive’s “Retirement Allowance” (asdefined in the Retirement Plan) commences under the Retirement Plan, will be calculatedusing the actuarial assumptions utilized under the Retirement Plan and will becalculated as if cash bonus payments to the Executive were includible as“considered compensation” under the Retirement Plan; and

 

(B)                                Uponthe death of the Executive while in the service of the Company or aftertermination of Service with the Company, the Company shall pay to theExecutive’s spouse, if she survives the Executive and is eligible for a“Spouse’s Allowance” (as defined in the Retirement Plan) under the RetirementPlan, a monthly lifetime benefit (or the lump-sum equivalent thereof), in anamount equal to the monthly installment that she would be entitled to receiveas a Spouse’s Allowance under the Retirement 

 

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Planif the limitations on retirement benefits provided in Sections 415 and401(a)(17) of the Code were not applicable, less the monthly annuity paymentactually payable to her as a Spouse’s Allowance under the Retirement Plan. Suchmonthly benefit shall commence on first day of the month following theExecutive’s death, will be calculated using the actuarial assumptions utilizedunder the Retirement Plan and will be calculated as if cash bonus payments tothe Executive were includible as “considered compensation” under the RetirementPlan.

 

(v)                                 WelfareBenefit Plans.  During the Employment Period, the Executiveand/or the Executive’s family, as the case may be, shall be eligible forparticipation in and shall receive all benefits under welfare benefit plans,practices, policies and programs provided by the Company and its affiliatedcompanies (including, without limitation, medical, prescription, dental,disability, salary continuance, employee life, group life, accidental death andtravel accident insurance plans and programs) to the extent applicablegenerally to other executives of the Company and its affiliated companies.  Such plans, practices, policies and programsshall provide the Executive with benefits which are equal, in the aggregate, tothe most favorable of such plans, practices, policies and programs in effectfor the Executive at any time during the 90-day period immediately precedingthe Applicable Date.

 

(vi)                              Expenses.  During the Employment Period, the Executiveshall be entitled to receive prompt reimbursement for all reasonable expensesincurred by the Executive in accordance with the most favorable policies,practices and procedures of the Company and its affiliated companies in effectfor the Executive at any time during the 90-day period immediately precedingthe Applicable Date.

 

(vii)                           FringeBenefits.  During the Employment Period, the Executiveshall be entitled to fringe benefits in accordance with the most favorableplans, practices, programs and policies of the Company and its affiliatedcompanies in effect for the Executive at any time during the 90-day periodimmediately preceding the Applicable Date.

 

(viii)                        Officeand Support Staff.  During the Employment Period, the Executiveshall be entitled to an office or offices of a size and with furnishings andother appointments, and to personal secretarial and other assistance, at leastequal to the most favorable of the foregoing provided to the Executive by theCompany and its affiliated companies at any time during the 90-day periodimmediately preceding the Applicable Date.

 

(ix)                                Vacation.  During the Employment Period, the Executiveshall be entitled to paid vacation in accordance with the most favorable plans,policies, programs and practices of the Company and its affiliated companies asin effect 

 

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forthe Executive at any time during the 90-day period immediately preceding theApplicable Date.

 

(x)                                   StockOptions.  In addition to Annual Base Salary and annualbonus, the Executive may be awarded a stock option grant at the discretion ofthe Company for any fiscal year ending during the Employment Period.

 

5.                                       Terminationof Employment.  (a)  Deathor Disability.  The Executive’semployment shall terminate automatically upon the Executive’s death during theEmployment Period.  If the Companydetermines in good faith that the Disability of the Executive has occurredduring the Employment Period (pursuant to the definition of Disability set forthbelow), it may give to the Executive written notice in accordance withSection 12(c) of this Agreement of its intention to terminate theExecutive’s employment.  In such event,the Executive’s employment with the Company shall terminate effective on the30th day after receipt of such notice by the Executive (the “DisabilityEffective Date”), provided that, within the 30 days after such receipt, theExecutive shall not have returned to full-time performance of the Executive’sduties.  For purposes of this Agreement,“Disability” shall mean the absence of the Executive from the Executive’sduties with the Company on a full-time basis for 180 consecutive business daysas a result of incapacity due to mental or physical illness which is determinedto be total and permanent by a physician selected by the Company or itsinsurers and acceptable to the Executive or the Executive’s legalrepresentative (such agreement as to acceptability not to be withheldunreasonably).

 

(b)                                 Cause.  The Company may terminate the Executive’semployment during the Employment Period for Cause.  For purposes of this Agreement, “Cause” shall mean (i) amaterial violation by the Executive of the Executive’s obligations underSection 4(a) of this Agreement (other than as a result of incapacity dueto physical or mental illness) which is willful and deliberate on theExecutive’s part, which is committed in bad faith or without reasonable beliefthat such violation is in the best interests of the Company and which is notremedied in a reasonable period of time after receipt of written notice fromthe Company specifying such violation or (ii) the final and non-appealableconviction by a court of competent jurisdiction of the Executive of a felonyinvolving moral turpitude.

 

(c)                                  GoodReason; Window Period; Other Terminations.  The Executive’s employment may be terminated(i) during the Employment Period by the Executive for Good Reason,(ii) during the Window Period by the Executive without any reason or (iii)by Executive other than (A) for Good Reason or (B) during a Window Period.

 

Forpurposes of this Agreement, the “Window Period” shall mean the 30-day periodimmediately following the first anniversary of the date a Change of Controloccurs.  The Company shall inform theExecutive promptly following the occurrence of a Change of Control of the dateon which the Change of Control occurred, with such supporting detail as may benecessary to establish such date.  If,in the reasonable judgment of Executive, there exists uncertainty as to the dateon which a Change of Control occurred and in the absence of agreement betweenthe Company and the Executive as to such date, the Executive shall be entitled,for purposes of determining the Window Period, to treat the Change of Controlas having occurred on such date as the Executive reasonably determines, itbeing the intention of the parties that Executive not be deprived ofsubstantive rights hereunder by reason of uncertainties or disputes regardingthe date on which a Change of Control occurred.  Anything in 

 

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thisAgreement to the contrary notwithstanding, if a Change of Control occurs and ifthe Executive’s employment with the Company is terminated prior to the date onwhich the Change of Control occurs, and if it is reasonably demonstrated by theExecutive that such termination of employment or cessation of status as anofficer (i) was at the request of a third party who has taken steps reasonablycalculated to effect the Change of Control or (ii) otherwise arose inconnection with or anticipation of the Change of Control, then for all purposesof this Agreement the “date a Change of Control occurs” shall mean the dateimmediately prior to the date of such termination of employment or cessation ofstatus as an officer.

 

Forpurposes of this Agreement, “Good Reason” shall mean

 

(i)                                     theassignment to the Executive of any duties inconsistent with the Executive’sposition (including status, offices, titles and reporting requirements),authority, duties or responsibilities as contemplated by Section 4(a) ofthis Agreement, or any other action by the Company which results in adiminution in such position, authority, duties or responsibilities excludingfor this purpose an insubstantial or inadvertent action which is remedied bythe Company promptly after receipt of notice thereof given by the Executive;

 

(ii)                                  anyfailure by the Company to comply with any of the provisions ofSection 4(b) of this Agreement, other than an insubstantial or inadvertentfailure which is remedied by the Company promptly after receipt of noticethereof given by the Executive;

 

(iii)                               theCompany’s requiring the Executive to be based at any office or location otherthan that described in Section 4(a)(i)(B) hereof;

 

(iv)                              anypurported termination by the Company of the Executive’s employment otherwisethan as expressly permitted by this Agreement;

 

(v)                                 anyfailure by the Company to comply with and satisfy Section 11(c) of thisAgreement; or

 

(vi)                              followinga Change of Control, any failure to provide both an annual bonus (in cashand/or property) and stock option grant no less favorable to Executive than thesingle highest bonus and grant provided to the Executive during the 24 monthsimmediately prior to a Change of Control, appropriately increased to reflectannual salary increases provided for in Section 4(b)(i) and/or additionalpositions or responsibilities.

 

Anextension of the Employment Period pursuant to Section 1(b) will not, initself, impair or render invalid or defective a Notice of Termination given inconnection with termination of employment for Good Reason based on whole or inpart on facts or circumstances occurring prior to the extension.

 

(d)                                 Noticeof Termination.  Any termination by the Company for Cause, orby the Executive without any reason during the Window Period or for GoodReason, shall be communicated by Notice of Termination to the other partyhereto given in accordance with Section 12(c) of this Agreement.  For purposes of this Agreement, a “Notice ofTermination” 

 

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means a written notice which (i) indicates the specifictermination provision in this Agreement relied upon, (ii) to the extentapplicable, sets forth in reasonable detail the facts and circumstances claimedto provide a basis for termination of the Executive’s employment under theprovision so indicated and (iii) if the Date of Termination (as definedbelow) is other than the date of receipt of such notice, specifies thetermination date (which date shall be not more than fifteen days after thegiving of such notice).  The failure bythe Executive or the Company to set forth in the Notice of Termination any factor circumstance which contributes to a showing of Good Reason or Cause shallnot waive any right of the Executive or the Company hereunder or preclude theExecutive or the Company from asserting such fact or circumstance in enforcingthe Executive’s or the Company’s right hereunder.

 

(e)                                  Dateof Termination.  “Date of Termination” means (i) if theExecutive’s employment is terminated by the Company for Cause, or by theExecutive during the Window Period or for Good Reason, the date of receipt ofthe Notice of Termination or any later date specified therein, as the case maybe, (ii) if the Executive’s employment is terminated by the Company otherthan for Cause or Disability, the Date of Termination shall be the date onwhich the Company notifies the Executive of such termination, (iii) if theExecutive’s employment is terminated by reason of death or Disability, the Dateof Termination shall be the date of death of the Executive or the DisabilityEffective Date, as the case may be, and (iv) if the Executive’s employment isterminated by the Executive other than for Good Reason or during a WindowPeriod, the date of the receipt of the Notice of Termination or any later datespecified therein.

 

6.                                       Obligationsof the Company upon Termination.

 

(a)                                  Priorto a Change of Control:  GoodReason;  Other than for Cause, Death orDisability.  If, during the Employment Period, theCompany shall terminate the Executive’s employment other than for Cause orDisability or the Executive shall terminate employment for Good Reason:

 

(i)                                     theCompany shall pay to the Executive in a lump-sum in cash within 30 days afterthe Date of Termination the aggregate of the following amounts:

 

A.  thesum of (1) the Executive’s Annual Base Salary through the Date ofTermination to the extent not theretofore paid and (2) any compensationpreviously deferred by the Executive (together with any accrued interest orearnings thereon) and any accrued vacation pay, in each case to the extent nottheretofore paid (the sum of the amounts described in clauses (1) and (2) shallbe hereinafter referred to as the “Accrued Obligations”); and

 

B.  theamount (such amount shall be hereinafter referred to as the “Severance Amount”)equal to the product of:

 

(1) three,and

 

(2) thesum of

 

(x) theExecutive’s Annual Base Salary, and

 

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(y) anybonus described in Section 4(b)(ii) paid or payable in respect of the mostrecently completed fiscal year of the Company or, if no such bonus has beenpaid or is payable in respect of such year, any bonus described inSection 4(b)(ii) paid or payable in respect of the next preceding fiscalyear; and, provided further, that such amount shall be reduced by the presentvalue (determined as provided in Section 280G(d)(4) of the Code) of anyother amount of severance relating to salary or bonus continuation to bereceived by the Executive upon termination of employment of the Executive underany severance plan, severance policy or severance arrangement of the Company;and

 

C.                                     aseparate lump-sum supplemental retirement benefit equal to the differencebetween (1) the actuarial equivalent (utilizing for this purpose theactuarial assumptions utilized with respect to the Retirement Plan during the90-day period immediately preceding the Applicable Date) of the benefit payableunder the Retirement Plan and/or Section 4(b)(iv) hereof which the Executivewould receive if the Executive’s employment continued at the compensation levelprovided for in Sections 4(b)(i) and 4(b)(ii) of this Agreement for the3-year period following termination of employment, assuming for this purposethat all accrued benefits are fully vested and that benefit accrual formulasare no less advantageous to the Executive than those in effect during the90-day period immediately preceding the Applicable Date, and (2) theactuarial equivalent (utilizing for this purpose the actuarial assumptionsutilized with respect to the Retirement Plan during the 90-day periodimmediately preceding the Applicable Date) of the Executive’s actual benefit(paid or payable), if any, under the Retirement Plan and Section 4(b)(iv) (theamount of such benefit shall be hereinafter referred to as the “SupplementalRetirement Amount”);

 

D.                                    aseparate sum equal to the amount of any unvested and unpaid cash bonusesawarded to the Executive;

 

(ii)                                  forthe remainder of the Employment Period, or such longer period as any plan,program, practice or policy may provide, the Company shall continue benefits tothe Executive and/or the Executive’s family at least equal to those which wouldhave been provided to them in accordance with the plans, programs, practicesand policies described in Section 4(b)(v) of this Agreement if theExecutive’s employment had not been terminated in accordance with the mostfavorable plans, practices, programs or policies of the Company and itsaffiliated companies as in effect and applicable generally to other executivesand their families during the 90-day period immediately preceding theApplicable Date, provided, however, that if the Executive becomes reemployedwith another employer and is eligible to receive medical or other welfarebenefits under another employer provided plan, the medical and other welfarebenefits described 

 

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hereinshall be secondary to those provided under such other plan during suchapplicable period of eligibility (such continuation of such benefits for theapplicable period herein set forth shall be hereinafter referred to as “WelfareBenefit Continuation”).  For purposes ofdetermining eligibility of the Executive for retiree benefits pursuant to suchplans, practices, programs and policies, the Executive shall be considered tohave remained employed until the end of the Employment Period and to haveretired on the last day of such period;

 

(iii)                               tothe extent not theretofore paid or provided, the Company shall timely pay orprovide to the Executive and/or the Executive’s family any other amounts orbenefits required to be paid or provided or which the Executive and/or theExecutive’s family is eligible to receive pursuant to this Agreement and underany plan, program, policy or practice or contract or agreement of the Companyand its affiliated companies as in effect and applicable generally to otherexecutives and their families during the 90-day period immediately precedingthe Applicable Date (such other amounts and benefits shall be hereinafterreferred to as the “Other Benefits”);

 

(iv)                              effectiveas of the Date of Termination, immediate vesting and exercisability of, andtermination of any restrictions on sale or transfer (other than any suchrestriction arising by operation of law) with respect to, each and every stockoption, restricted stock award, restricted stock unit award and otherequity-based award and performance award that is outstanding as of the Date ofTermination;

 

(v)                                 theCompany shall timely pay to the Executive and/or his spouse any benefits duepursuant to the Retirement Plan and/or Section 4(b)(iv).

 

(b)                                 Followinga Change of Control:  During the WindowPeriod; Good Reason;  Other than forCause, Death or Disability.  If, during the Employment Period, theCompany shall terminate the Executive’s employment other than for Cause orDisability following a Change of Control, the Executive shall terminateemployment for Good Reason following a Change of Control or the Executive shallterminate employment without any reason during the Window Period, then theCompany shall pay or provide to the Executive all the amounts and benefits setforth in Section 6(a) above; provided however, that:

 

(i)                                     insteadof the Severance Amount payable pursuant to Section 6(a)(i)(B) above, thecompany shall pay to the Executive a Severance Amount equal to the product of:

 

(1) five,and

 

(2) thesum of

 

(x) theExecutive’s Annual Base Salary, and

 

(y) anybonus described in Section 4(b)(ii) paid or payable in respect of the most recentlycompleted fiscal year of the Company or, if no such bonus has been paid or ispayable in respect of such

 

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year,any bonus described in Section 4(b)(ii) paid or payable in respect of thenext preceding fiscal year; and

 

(ii)                                  insteadof the Supplemental Retirement Amount payable pursuant to Section 6(a)(i)(C)above, the Company shall pay to the Executive a separate lump-sum supplementalretirement benefit equal to the difference between (1) the actuarialequivalent (utilizing for this purpose the actuarial assumptions utilized withrespect to the Retirement Plan during the 90-day period immediately precedingthe Applicable Date) of the benefit payable under the Retirement Plan andSection 4(b)(iv) which the Executive would receive if the Executive’semployment continued at the compensation level provided for inSections 4(b)(i) and 4(b)(ii) of this Agreement for the 5-year periodfollowing termination of employment, assuming for this purpose that all accruedbenefits are fully vested and that benefit accrual formulas are no lessadvantageous to the Executive than those in effect during the 90-day periodimmediately preceding the Applicable Date, and (2) the actuarialequivalent (utilizing for this purpose the actuarial assumptions utilized withrespect to the Retirement Plan during the 90-day period immediately precedingthe Applicable Date) of the Executive’s actual benefit (paid or payable), ifany, under the Retirement Plan and Section 4(b)(iv);

 

(iii)                               inaddition to the amounts payable pursuant to Sections 6(a)(i)(A) and 6(a)(i),the Company shall pay to the Executive a separate lump-sum amount equal to thevalue of the equity awards that the Executive would have received during thefive years following termination, determined in accordance with Exhibit Aattached hereto; and

 

(iv)                              theCompany shall timely pay to the Executive and/or his spouse any benefits duepursuant to the Retirement Plan and/or Section 4(b)(iv).

 

(c)                                  Death.  If the Executive’s employment is terminatedby reason of the Executive’s death during the Employment Period, this Agreementshall terminate without further obligations to the Executive’s legalrepresentatives under this Agreement, other than for (i) payment ofAccrued Obligations (which shall be paid to the Executive’s estate orbeneficiary, as applicable, in a lump-sum in cash within 30 days of the Date ofTermination) and the timely payment or provision of the Welfare BenefitContinuation and Other Benefits, (ii) payment to the Executive’s estate orbeneficiary, as applicable, in a lump-sum in cash within 30 days of the Date ofTermination of an amount equal to the sum of the Severance Amount and theSupplemental Retirement Amount and (iii) timely payment to the Executiveand/or his spouse of any benefits due pursuant to the Retirement Plan and/orSection 4(b)(iv).  Upon the deathof the Executive occurring after the termination of the Executive’s employment,the Company shall timely pay to the Executive’s spouse benefits due, if any,pursuant to the Retirement Plan and Section 4(b)(iv).

 

(d)                                 Disability.  If the Executive’s employment is terminatedby reason of the Executive’s Disability during the Employment Period, thisAgreement shall terminate without further obligations to the Executive, otherthan for (i) payment of Accrued Obligations (which shall be paid to theExecutive in a lump-sum in cash within 30 days of the Date of Termination) andthe timely payment or provision of the Welfare Benefit Continuation and Other Benefits(excluding, in each case, Disability Benefits (as defined below)),(ii) payment to the Executive in a lump-sum in cash within 30 days of theDate of Termination of an amount equal to the greater 

 

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of(A) the sum of the Severance Amount and the Supplemental Retirement Amountand (B) the present value (determined as provided inSection 280G(d)(4) of the Code) of any cash amount to be received by theExecutive as a disability benefit pursuant to the terms of any long termdisability plan, policy or arrangement of the Company and its affiliatedcompanies, but not including any proceeds of disability insurance covering theExecutive to the extent paid for on a contributory basis by the Executive(which shall be paid in any event as an Other Benefit) (the benefits includedin this clause (B) shall be hereinafter referred to as the “DisabilityBenefits”) and (iii) timely payment to the Executive and/or his spouse of anybenefits due pursuant to the Retirement Plan and/or Section 4(b)(iv)..

 

(e)                                  Cause;By Executive Other than for Good Reason And Other Than During a Window Period.  If the Executive’s employment shall beterminated for Cause during the Employment Period, this Agreement shallterminate without further obligations to the Executive other than theobligation to pay to the Executive Annual Base Salary through the Date ofTermination plus the amount of any compensation previously deferred by theExecutive, in each case to the extent theretofore unpaid and the obligation tomake timely payment to the Executive and/or his spouse of any benefits duepursuant to the Retirement Plan and/or Section 4(b)(iv).  If the Executive terminates employmentduring the Employment Period, excluding a termination either for Good Reason orwithout any reason during the Window Period, this Agreement shall terminatewithout further obligations to the Executive, other than for AccruedObligations, the timely payment or provision of Other Benefits and the timelypayment to the Executive and/or his spouse of any benefits due pursuant to theRetirement Plan and/or Section 4(b)(iv). In such case, all Accrued Obligations shall be paid to the Executive ina lump-sum in cash within 30 days of the Date of Termination.

 

7.                                       Non-exclusivityof Rights.  Except as provided in Section 6(a)(ii),6(c) and 6(d) of this Agreement, nothing in this Agreement shall prevent orlimit the Executive’s continuing or future participation in any plan, program,policy or practice provided by the Company or any of its affiliated companiesand for which the Executive may qualify, nor shall anything herein limit orotherwise affect such rights as the Executive may have under any contract oragreement with the Company or any of its affiliated companies.  Amounts which are vested benefits or whichthe Executive is otherwise entitled to receive under any plan, policy, practiceor program of or any contract or agreement with the Company or any of itsaffiliated companies at or subsequent to the Date of Termination shall bepayable in accordance with such plan, policy, practice or program or contractor agreement except as explicitly modified by this Agreement.

 

8.                                       FullSettlement; Resolution of Disputes.  (a) The Company’s obligation to makepayments provided for in this Agreement and otherwise to perform itsobligations hereunder shall not be affected by any set-off, counterclaim,recoupment, defense or other claim, right or action which the Company may haveagainst the Executive or others.  In noevent shall the Executive be obligated to seek other employment or take anyother action by way of mitigation of the amounts payable to the Executive underany of the provisions of this Agreement and, except as provided inSection 6(a)(ii), 6(c) and 6(d) of this Agreement, such amounts shall notbe reduced whether or not the Executive obtains other employment.  If there is any contest by the Companyconcerning the Payments or benefits to be provided to the Executive or hisspouse hereunder whether through litigation, arbitration or mediation, or withrespect to the validity or enforceability of, or liability under, any provisionof this Agreement or any guarantee of performance thereof, and the Executive orhis spouse is the prevailing party, the Company agrees 

 

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topay promptly upon conclusion of the contest all legal fees and expenses whichthe Executive may reasonably have incurred.

 

(b)                                 Ifthere shall be any dispute between the Company and the Executive (i) inthe event of any termination of the Executive’s employment by the Company,whether such termination was for Cause, or (ii) in the event of anytermination of employment by the Executive, whether Good Reason existed, then,unless and until there is a final, nonappealable judgment by a court ofcompetent jurisdiction declaring that such termination was for Cause or thatGood Reason did not exist, the Company shall pay all amounts, and provide allbenefits, to the Executive and/or the Executive’s family or other beneficiaries,as the case may be, that the Company would be required to pay or providepursuant to Section 6(a) or 6(b) hereof as though such termination were bythe Company without Cause or by the Executive with Good Reason; provided,however, that the Company shall not be required to pay any disputed amountspursuant to this paragraph except upon receipt of an undertaking (which neednot be secured) by or on behalf of the Executive to repay all such amounts towhich the Executive is ultimately adjudged by such court not to be entitled.

 

9.                                       CertainAdditional Payments by the Company.  (a) Anything in this Agreement to thecontrary notwithstanding, in the event it shall be determined that any paymentor distribution by the Company to or for the benefit of the Executive (whetherpaid or payable or distributed or distributable pursuant to the terms of thisAgreement or otherwise, but determined without regard to any additionalpayments required under this Section 9) (a “Payment”) would be subject tothe excise tax imposed by Section 4999 of the Code or any interest orpenalties are incurred by the Executive with respect to such excise tax (suchexcise tax, together with any such interest and penalties, are hereinaftercollectively referred to as the “Excise Tax”), then the Executive shall beentitled to receive an additional payment (a “Gross-Up Payment”) in an amountsuch that after payment by the Executive of all taxes (including any interestor 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, the Executive retains anamount of the Gross-Up Payment equal to the Excise Tax imposed upon thePayments.

 

(b)                                 Subjectto the provisions of Section 9(c), all determinations required to be madeunder this Section 9, including whether and when Gross-Up Payment isrequired and the amount of such Gross-Up Payment and the assumptions to beutilized in arriving at such determination, shall be made by the Company’s thencurrent independent public accountants (the “Accounting Firm”) which shallprovide detailed supporting calculations both to the Company and the Executivewithin 15 business days of the receipt of notice from the Executive that therehas been a Payment, or such earlier time as is requested by the Company.  In the event that the Accounting Firm isserving as accountant or auditor for the individual, entity or group effectingthe Change of Control, the Executive shall appoint another nationallyrecognized accounting firm to make the determinations required hereunder (whichaccounting firm shall then be referred to as the Accounting Firmhereunder).  All fees and expenses ofthe Accounting Firm shall be borne solely by the Company.  Any Gross-Up Payment, as determined pursuantto this Section 9, shall be paid by the Company to the Executive withinfive days of the receipt of the Accounting Firm’s determination.  The Accounting Firm shall furnish theExecutive with a written opinion that reporting the Excise Tax, or the failureto report the Excise Tax, as applicable, on the Executive’s applicable federalincome tax return in accordance with the determination made by the AccountingFirm pursuant to this Section 9(b) should not result in the 

 

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impositionof a negligence or similar penalty.  Anydetermination by the Accounting Firm shall be binding upon the Company and theExecutive.  As a result of theuncertainty in the application of Section 4999 of the Code at the time ofthe initial determination by the Accounting Firm hereunder, it is possible thatGross-Up Payments which will not have been made by the Company should have beenmade (“Underpayment”), consistent with the calculations required to be madehereunder.  In the event that theCompany exhausts its remedies pursuant to Section 9(c) and the Executivethereafter is required to make a payment of any Excise Tax, the Accounting Firmshall determine the amount of the Underpayment that has occurred and any suchUnderpayment shall be promptly paid by the Company to or for the benefit of theExecutive.

 

(c)                                  TheExecutive shall notify the Company in writing of any claims by the InternalRevenue Service that, if successful, would require the payment by the Companyof the Gross-Up Payment.  Suchnotification shall be given as soon as practicable but no later than tenbusiness days after the Executive is informed in writing of such claim and shallapprise the Company of the nature of such claim and the date on which suchclaim is requested to be paid.  TheExecutive shall not pay such claim prior to the expiration of the 30-day periodfollowing the date on which it gives such notice to the Company (or suchshorter period ending on the date that any payment of taxes with respect tosuch claim is due).  If the Companynotifies the Executive in writing prior to the expiration of such period thatit desires to contest such claim, the Executive shall:

 

(i)                                     givethe Company any information reasonably requested by the Company relating tosuch claim,

 

(ii)                                  takesuch action in connection with contesting such claim as the Company shallreasonably request in writing from time to time, including, without limitation,accepting legal representation with respect to such claim by an attorneyreasonably selected by the Company and reasonably acceptable to the Executive,

 

(iii)                               cooperatewith the Company in good faith in order effectively to contest such claim, and

 

(iv)                              permitthe 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 suchcontest and shall indemnify and hold the Executive harmless, on an after-taxbasis, for any Excise Tax or income tax (including interest and penalties withrespect thereto) imposed as a result of such representation and payment ofcosts and expenses.  Without limitationon the foregoing provisions of this Section 9(c), the Company shallcontrol all proceedings taken in connection with such contest and, at its soleoption, may pursue or forego any and all administrative appeals, proceedings,hearings and conferences with the taxing authority in respect of such claim andmay, at its sole option, either direct the Executive to pay the tax claimed andsue for a refund or contest the claim in any permissible manner, and theExecutive agrees to prosecute such contest to a determination before anyadministrative tribunal, in a court of initial jurisdiction and in one or moreappellate courts, as the Company shall determine; provided, however, that ifthe 

 

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Companydirects the Executive to pay such claim and sue for a refund, the Company shalladvance the amount of such payment to the Executive, on an interest-free basisand shall indemnify and hold the Executive harmless, on an after-tax basis,from any Excise Tax or income tax (including interest or penalties with respectthereto) imposed with respect to such advance or with respect to any imputedincome with respect to such advance; and further provided that any extension ofthe statute of limitations relating to payment of taxes for the taxable year ofthe Executive with respect to which such contested amount is claimed to be dueis limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited toissues with respect to which a Gross-Up Payment would be payable hereunder andthe Executive shall be entitled to settle or contest, as the case may be, anyother issue raised by the Internal Revenue Service or any other taxingauthority.

 

(d)                                 If,after the receipt by the Executive of an amount advanced by the Company pursuantto Section (c), the Executive becomes entitled to receive any refund withrespect to such claim, the Executive shall (subject to the Company’s complyingwith the requirements of Section 9(c)) promptly pay to the Company theamount of such refund (together with any interest paid or credited thereonafter taxes applicable thereto).  If,after the receipt by the Executive of an amount advanced by the Companypursuant to Section 9(c), a determination is made that the Executive shallnot be entitled to any refund with respect to such claim and the Company doesnot notify the Executive in writing of its intent to contest such denial ofrefund prior to the expiration of 30 days after such determination, then suchadvance shall be forgiven and shall not be required to be repaid and the amountof such advance shall be offset, to the extent thereof, the amount of Gross-UpPayment required to be paid.

 

10.                                 ConfidentialInformation.  Except for mental impressions retained bythe Executive, the Executive shall hold in a fiduciary capacity for the benefitof the Company all secret or confidential information, knowledge or datarelating to the Company or any of its affiliated companies, and theirrespective businesses, which shall have been obtained by the Executive duringthe Executive’s employment by the Company or any of its affiliated companiesand which shall not be or become public knowledge (other than by acts by theExecutive or representatives of the Executive in violation of this Agreement).  Except for mental impressions ofconfidential information retained by the Executive and utilized in the ordinarycourse of business by the Executive in any subsequent employment, aftertermination of the Executive’s employment with the Company, the Executive shallnot, without the prior written consent of the Company or as may otherwise berequired by law or legal process, communicate or divulge any such information,knowledge or data to anyone other than the Company and those designated by it.  In no event shall an asserted violation ofthe provisions of this Section 10 constitute a basis for deferring orwithholding any amounts otherwise payable to the Executive under thisAgreement.

 

11.                                 Successors.  (a) This Agreement is personal to theExecutive and without the prior written consent of the Company shall not beassignable by the Executive otherwise than by will or the laws of descent anddistribution.  This Agreement shallinure to the benefit of and be enforceable by the Executive’s legalrepresentatives.

 

(b)                                 ThisAgreement shall inure to the benefit of and be binding upon the Company and itssuccessors and assigns.

 

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(c)                                  TheCompany will require any successor (whether direct or indirect, by purchase,merger, consolidation or otherwise) to all or substantially all of the businessand/or assets of the Company to assume expressly and agree to perform thisAgreement in the same manner and to the same extent that the Company would berequired to perform it if no such succession had taken place.  As used in this Agreement, “Company” shallmean the Company as hereinbefore defined and any successor to its businessand/or assets as aforesaid which assumes and agrees to perform this Agreementby operation of law, or otherwise.  If aBusiness Combination is consummated that would have resulted in a Change ofControl but for the satisfaction of the conditions specified in clauses (i),(ii) and (iii) of Section 2(c) and if the parent corporation resulting from theBusiness Combination is other than the Company (hereinafter a “New Parent”),then, as a condition to consummation of this Business Combination, the NewParent shall be considered a successor for purposes of this Section 11.

 

12.                                 Miscellaneous.  (a) This Agreement shall be an unfundedobligation of the Company.

 

(b)                                 ThisAgreement shall be governed by and construed in accordance with the laws of theState of Texas, without reference to principles of conflict of laws.  The captions of this Agreement are not partof the provisions hereof and shall have no force or effect.  This Agreement may not be amended ormodified otherwise than by a written agreement executed by the parties heretoor their respective successors and legal representatives.

 

(c)                                  Allnotices and other communications hereunder shall be in writing and shall begiven by hand delivery to the other party or by registered or certified mail,return receipt requested, postage prepaid, addressed as follows:

 

Ifto the Executive:

 

PaulG. Van Wagenen

P.O.Box 2504

Houston,Texas 77252-2504

 

Ifto the Company:

 

PogoProducing Company

P.O.Box 2504

Houston,Texas 77252-2504

Attention:Chief Administrative Officer

 

orto such other address as either party shall have furnished to the other inwriting in accordance herewith.  Noticeand communications shall be effective when actually received by the addressee.

 

(d)                                 Theinvalidity or unenforceability of any provision of this Agreement shall notaffect the validity or enforceability of any other provision of this Agreement.

 

(e)                                  TheCompany may withhold from any amounts payable under this Agreement suchFederal, state or local taxes as shall be required to be withheld pursuant toany applicable law or regulation.

 

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(f)                                    TheExecutive’s or the Company’s failure to insist upon strict compliance with anyprovision hereof or any other provision of this Agreement or the failure toassert any right the Executive or the Company may have hereunder, including,without limitation, the right of the Executive to terminate employment for GoodReason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not bedeemed to be a waiver of such provision or right or any other provision orright of this Agreement.

 

(g)                                 ThisAgreement supersedes the Employment Agreement between Company and the Executivedated as of February 1, 2001 and extended and renewed most recently as ofFebruary 1, 2002, which shall no longer be of any force or effect.

 

(h)                                 ThisAgreement supersedes the Excess Benefits Letter Agreement between the Companyand the Executive dated as of March 2, 1995.

 

INWITNESS WHEREOF, the Executive has hereunto set the Executive’s hand and,pursuant to the authorization from its Board of Directors, the Company hascaused these presents to be executed in its name on its behalf, all as of theday and year first above written.

 

 
|   | /s/ PAUL G. VAN WAGENEN   |                   |   |
|--------|---------------------------|------------------------|--------|
|   | Paul G. Van Wagenen       |                   |   |
|   |                      |                   |   |
|   | *POGO  PRODUCING COMPANY* |                   |   |
|   |                      |                   |   |
|   | By                        | /s/ JOHN O. McCOY, JR. |   |
|   |                      | John O. McCoy, Jr.     |   |
|        |                           |                        |        |  |

 

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**EXHIBITA**

 

Forpurposes of Section 6(b), the value of the option grants that the Executivewould have received in the five years following termination shall be determinedby multiplying the Black-Scholes value of the Executive’s most recent annualgrant of stock options (or, if greater, the most recent annual grant prior to aChange of Control) by a factor of four, using the highest Black-Scholesvaluation during the period beginning one-year period prior to the Change ofControl and ending on the date of the Executive’s termination; provided,however, that if the Executive has been promoted and/or has received a salaryincrease since the date of the last annual option grant that would otherwise bedeterminative under this provision, the value shall be adjusted upward toreflect the anticipated increase in grant size associated with the promotionand/or salary increase, and the value shall also be adjusted upward to reflectat least the minimum annual salary increases provided for in Section 4(b)(i).

 

Theassumptions used to determine the Black-Scholes value will be consistent withCompany practice.  The assumptions usedto value the most recent option grant are as follows:

 
| Volatility:               |   | 33.9%                                                                           |
|---------------------------|--------|---------------------------------------------------------------------------------|
| Risk-Free Rate of Return: |   | 4.14% (the rate of interest on 10 year  treasury bonds as of the date of grant) |
| Dividend Opportunity:     |   | $.20/share                                                                      |
| Term:                     |   | 10 years                                                                        |

 

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