8-KMaterial AgreementsExhibits & Filings

DEVON ENERGY CORP/DE 8-K Report, Material Agreement (Apr 25, 2011)

Filed April 25, 2011For Securities:DVN

Summary

Devon Energy Corp./DE (DVN) filed an 8-K on April 25, 2011, to disclose material changes to its executive employment agreements. Specifically, the Company amended these agreements with its executive officers, effective April 19, 2011, to eliminate tax gross-up obligations related to change-in-control severance payments. This amendment aims to mitigate potential excise taxes imposed on excess parachute payments under Section 4999 of the Internal Revenue Code. Under the amended terms, instead of the Company covering any excise taxes through gross-up payments, executive officers will either have their severance benefits reduced to avoid the tax, or receive the full severance without any additional tax coverage, whichever is more beneficial on an after-tax basis for the executive. This change is significant for investors as it reflects a move to better manage executive compensation costs and potential liabilities associated with change-in-control events.

Key Highlights

  • 1Amendment to executive employment agreements eliminates Company tax gross-up obligations for change-in-control severance.
  • 2Objective is to avoid excise taxes imposed on excess parachute payments (Section 4999 of the IRC).
  • 3Executives will either have severance reduced to avoid taxes or receive full severance without gross-up, based on better after-tax outcome.
  • 4Effective date of the amendment is April 19, 2011.
  • 5Filing is an 8-K Current Report filed on April 25, 2011.
  • 6The Form of Amendment No. 1 is incorporated by reference from a prior 10-K filing.

Frequently Asked Questions

A tax gross-up payment is an additional amount paid by the Company to an executive officer to cover any excise taxes that may be imposed on certain benefits, such as severance payments, received upon a change in control. The amendment eliminates the Company's obligation to make these gross-up payments.

The amendment changes how potential excise taxes on severance are handled. Previously, the Company would pay the tax. Now, either the severance amount will be adjusted downwards to avoid the excise tax altogether, or the executive will receive the full severance but will be responsible for any associated excise tax, whichever option provides the executive a better net financial outcome after taxes.

This amendment is important as it can lead to reduced potential costs for the Company. By eliminating tax gross-up obligations, Devon Energy avoids absorbing the excise tax burden on executive compensation related to change-in-control events, which can be a significant financial liability. This demonstrates a focus on managing executive compensation expenses and shareholder value.