<PAGE>
THE PROVIDENCE ENERGY CORPORATION
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
--------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
--------------------- -------------------
Commission file number 1-10032
----------------------------------------------------
PROVIDENCE ENERGY CORPORATION
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Rhode Island 05-0389170
- --------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
- --------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
401-272-9191
- --------------------------------------------------------------------------
Registrant's telephone number, including area code
(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Common stock, $1.00 par value, 6,085,862 shares outstanding at July 30, 1999.
- -------------------------------------------------------------------------------
<PAGE>
PROVIDENCE ENERGY CORPORATION
FORM 10-Q
JUNE 30, 1999
<TABLE>
<CAPTION>
PAGE
<C> <S> <C>
PART I: FINANCIAL INFORMATION
Item 1 Financial Statements
Consolidated Statements of Income for the
three, nine and twelve months ended
June 30, 1999 and 1998 I-1
Consolidated Balance Sheets as of
June 30, 1999, June 30, 1998 and
September 30, 1998 I-2
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1999 and 1998 I-3
Consolidated Statements of Capitalization as of
June 30, 1999, June 30, 1998 and
September 30, 1998 I-4
Notes to Consolidated Financial Statements I-5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations I-10
PART II: OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K II-1
Signature II-2
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE PERIODS ENDED JUNE 30
-----------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS TWELVE MONTHS
------------------ ------------------- -------------------
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- --------
(thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Energy revenues $ 38,737 $ 39,462 $196,344 $195,200 $222,450 $228,715
Cost of energy 18,714 20,135 105,210 109,197 118,746 126,761
-------- -------- -------- -------- -------- --------
Operating margin 20,023 19,327 91,134 86,003 103,704 101,954
-------- -------- -------- -------- -------- --------
Operating expenses:
Operation and maintenance 11,877 13,193 40,236 38,996 53,233 51,847
Depreciation and amortization 4,267 3,660 12,995 11,029 16,451 14,248
Taxes:
State gross earnings 951 1,144 5,083 5,145 5,556 6,004
Local property and other 2,270 2,163 6,729 6,435 8,657 8,267
Federal income (393) (946) 6,954 6,355 4,227 4,830
-------- -------- -------- -------- -------- --------
Total operating expenses 18,972 19,214 71,997 67,960 88,124 85,196
-------- -------- -------- -------- -------- --------
Operating income 1,051 113 19,137 18,043 15,580 16,758
Other, net 691 181 984 524 1,036 509
-------- -------- -------- -------- -------- --------
Income before interest expense
and preferred dividends of
subsidiary 1,742 294 20,121 18,567 16,616 17,267
-------- -------- -------- -------- -------- --------
Interest expense:
Long-term debt 1,799 1,716 5,043 4,688 6,746 6,193
Other 370 355 1,553 1,596 1,955 2,025
Interest capitalized (120) (39) (290) (195) (351) (263)
-------- -------- -------- -------- -------- --------
2,049 2,032 6,306 6,089 8,350 7,955
-------- -------- -------- -------- -------- --------
Income (loss) after interest expense (307) (1,738) 13,815 12,478 8,266 9,312
Preferred dividends of subsidiary (69) (105) (278) (383) (382) (522)
-------- -------- -------- -------- -------- --------
Net income (loss) $ (376) $ (1,843) $ 13,537 $ 12,095 $ 7,884 $ 8,790
======== ======== ======== ======== ======== ========
Net income (loss) per
common share - basic $ (.06) $ (.31) $ 2.26 $ 2.05 $ 1.32 $ 1.49
======== ======== ======== ======== ======== ========
Net income (loss) per
common share - diluted $ (.06) $ (.31) $ 2.25 $ 2.04 $ 1.31 $ 1.49
======== ======== ======== ======== ======== ========
Weighted average number of
shares outstanding:
Basic 6,012.0 5,935.6 5,994.2 5,906.4 5,985.5 5,885.3
======== ======== ======== ======== ======== ========
Diluted 6,023.6 5,935.6 6,005.2 5,916.8 5,996.4 5,894.4
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-1
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(thousands)
<TABLE>
<CAPTION>
(Unaudited)
June 30, June 30, September 30,
1999 1998 1998
-------------------------------------
<S> <C> <C> <C>
ASSETS
- ------
Gas plant, at original cost $348,393 $318,369 $ 324,502
Less - Accumulated depreciation
and plant acquisition adjustments 137,302 123,666 125,976
-------- -------- -----------
211,091 194,703 198,526
-------- -------- -----------
Other property, net 2,527 3,485 2,692
-------- -------- -----------
Current assets:
Cash and temporary cash investments 3,104 8,435 2,006
Accounts receivable, less allowance of
$4,457 at 6/30/99, $4,054 at
6/30/98 and $2,720 at 9/30/98 22,209 23,613 14,067
Unbilled revenues 1,700 1,369 1,665
Inventories, at average cost -
Fuel oil and underground gas
storage 490 734 656
Materials and supplies 1,506 1,208 1,433
Prepaid and refundable taxes 3,946 5,024 5,355
Prepayments 1,965 1,841 1,853
-------- -------- -----------
34,920 42,224 27,035
-------- -------- -----------
Investments 8,775 - 2,169
-------- -------- -----------
Deferred charges and other assets 22,935 15,907 18,997
-------- -------- -----------
Deferred environmental costs 7,757 3,844 3,969
-------- -------- -----------
Total assets $288,005 $260,163 $ 253,388
======== ======== ===========
CAPITALIZATION AND LIABILITIES
- ------------------------------
Capitalization
(See accompanying statement) $193,855 $187,022 $ 173,232
-------- -------- -----------
Current liabilities:
Notes payable 22,150 7,836 20,079
Current portion of long-term debt 3,137 3,838 3,233
Accounts payable 12,107 9,433 9,310
Accrued compensation 1,764 1,216 1,337
Accrued environmental expense 5,000 - -
Accrued interest 1,318 1,431 1,496
Accrued taxes 5,533 6,932 2,714
Accrued vacation 2,048 1,951 1,706
Accrued workers compensation 563 502 530
Customer deposits 2,843 3,184 3,034
Deferred revenue (note 3) 1,259 - -
Other 3,836 2,555 4,115
-------- -------- -----------
61,558 38,878 47,554
-------- -------- -----------
Deferred credits and reserves:
Accumulated deferred Federal
income taxes 23,925 22,206 22,292
Unamortized investment tax credits 2,099 2,256 2,217
Accrued environmental expense - 1,750 1,750
Accrued pension 5,881 6,612 5,681
Other 687 1,439 662
-------- -------- -----------
32,592 34,263 32,602
-------- -------- -----------
Commitments and contingencies
Total capitalization and liabilities $288,005 $260,163 $ 253,388
======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-2
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE NINE MONTHS ENDED JUNE 30
---------------------------------
<TABLE>
<CAPTION>
(Unaudited)
-----------
1999 1998
--------------------
(thousands)
<S> <C> <C>
Cash provided by Operating Activities:
Income after interest expense $ 13,815 $ 12,478
Items not requiring cash:
Depreciation and amortization 12,995 10,943
Change as a result of regulatory actions (1,413) 1,500
Gain on sale of financial instruments (347) -
Deferred Federal income taxes 1,616 710
Amortization of investment tax credits (118) (119)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (8,142) 11,950
Unbilled revenues (35) 1,314
Deferred gas costs - 78
Inventories 93 (22)
Prepaid and refundable taxes 1,409 (958)
Prepayments (112) (788)
Accounts payable 2,797 (3,387)
Accrued compensation 427 (728)
Accrued interest (178) 232
Accrued taxes 2,744 4,420
Accrued vacation, accrued workers
compensation, customer deposits
and other 127 614
Accrued pension 200 (21)
Deferred charges and other (1,908) 281
Deferred environmental costs (538) 131
-------- --------
Net cash provided by operating activities 23,432 38,628
-------- --------
Investing Activities:
Expenditures for property, plant
and equipment, net (24,704) (19,004)
Expenditures for business acquisitions - (2,469)
Investment in joint venture (6,759) -
Proceeds from sale of financial
instruments, net 422 -
-------- --------
Net cash used in investing activities (31,041) (21,473)
-------- --------
Financing Activities:
Proceeds from exercise of stock options 14 83
Issuance of mortgage bonds 15,000 15,000
Redemption of preferred stock (1,600) (1,600)
Payments on long-term debt (2,710) (2,554)
Increase (decrease) in notes payable, net 2,071 (16,701)
Cash dividends on preferred shares (278) (383)
Cash dividends on common shares (3,790) (3,628)
-------- --------
Net cash provided by (used in) financing
activities 8,707 (9,783)
-------- --------
Increase in cash and temporary cash investments 1,098 7,372
Cash and temporary cash investments at beginning
of period 2,006 1,063
-------- --------
Cash and temporary cash investments at end $ 3,104 $ 8,435
of period ======== ========
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest (net of amount capitalized) $ 6,291 $ 5,652
Income taxes (net of refunds) $ 2,521 $ 1,741
Schedule of non-cash investing activities:
Capital lease obligations for equipment $ 115 $ -
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-3
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED STATEMENTS OF CAPITALIZATION
-----------------------------------------
(thousands)
<TABLE>
<CAPTION>
(Unaudited)
-----------
June 30, June 30, September 30,
1999 1998 1998
------------------------------------
<S> <C> <C> <C>
Common stockholders' investment:
Common stock, $1 par
Authorized - 20,000 shares
Outstanding 6,025 at 6/30/99,
5,949 at 6/30/98
and 5,969 at
9/30/98 $ 6,025 $ 5,949 $ 5,969
Amount paid in excess of par 60,227 58,788 59,198
Retained earnings 31,756 30,327 23,067
-------- -------- --------
Accumulated other comprehensive
earnings (loss):
Unrealized gain (loss) on
financial instruments (9) - 43
-------- -------- --------
Total common equity 97,999 95,064 88,277
-------- -------- --------
Cumulative preferred stock of subsidiary:
Redeemable 8.7% Series, $100 par
Authorized - 80 shares
Outstanding - 32 shares as of
6/30/99 and 48 shares
as of 6/30/98 and 9/30/98 3,200 4,800 4,800
-------- -------- --------
Long-term debt:
First Mortgage Bonds 90,728 84,600 77,328
Other long-term debt 4,142 5,065 4,890
Capital leases 923 1,331 1,170
-------- -------- --------
Total long-term debt 95,793 90,996 83,388
Less current portion 3,137 3,838 3,233
-------- -------- --------
Long-term debt, net 92,656 87,158 80,155
-------- -------- --------
Total capitalization $193,855 $187,022 $173,232
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
I-4
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Accounting Policies
-------------------
It is the Registrant's opinion that the financial information contained in
this report reflects all normal, recurring adjustments necessary to a fair
statement of the results for the periods reported; however, such results are not
necessarily indicative of results to be expected for the year, due to the
seasonal nature of the Registrant's operations. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of the
Securities and Exchange Commission. However, the disclosures herein when read
with the annual report for 1998 filed on Form 10-K are adequate to make the
information presented not misleading.
2. Reclassifications
-----------------
Certain prior period amounts have been reclassified for consistent
presentation with the current period.
3. Rates and Regulation
--------------------
The Providence Gas Company (ProvGas), a wholly-owned subsidiary of the
Registrant, is subject to the regulatory jurisdiction of the Rhode Island Public
Utilities Commission (RIPUC) with respect to rates and charges, standards of
service, accounting and other matters. In August 1997, the RIPUC approved the
Price Stabilization Plan Settlement Agreement (Energize RI or the Plan) among
ProvGas, the Rhode Island Division of Public Utilities and Carriers (the
Division), the Energy Council of Rhode Island, and the George Wiley Center.
Effective October 1, 1997 through September 30, 2000, Energize RI provides firm
customers with a price decrease of approximately four percent in addition to a
three-year price freeze. Under Energize RI, the Gas Charge Clause mechanism has
been suspended for the entire term. Also, in connection with the Plan, ProvGas
wrote off approximately $1.5 million of previously deferred gas costs in October
1997. Energize RI also provides for ProvGas to make significant capital
investments to improve its distribution system and support economic development.
Specific capital improvement projects funded under Energize RI are estimated to
total approximately $26 million over its three-year term. In addition, under
Energize RI, ProvGas provides funding for the Low-Income Assistance Program at
an annual level of $1 million, the Demand Side Management Rebate Program at an
annual level of $.5 million and the Low-Income Weatherization Program at an
annual level of $.2 million. Energize RI also continues the process of
unbundling by allowing ProvGas to provide unbundled service offerings for up to
10 percent per year of firm deliveries.
As part of Energize RI, ProvGas will reclassify and amortize approximately
$4.0 million of environmental costs. These costs and all environmental costs
incurred during the term of the Plan will be amortized over a 10-year period.
Under Energize RI, ProvGas may earn up to 10.9 percent annually on its average
common equity, which is capped at $81.0 million, $86.2 million, and $92.0
million in fiscal 1998, 1999, and 2000, respectively. In addition, ProvGas may
not earn less than a seven percent return on average common equity. In the
event that ProvGas earns in excess of 10.9 percent or less than seven percent,
ProvGas will defer revenues or costs through a deferred revenue account over the
term of the Plan. Any balance in the deferred revenue account at the end of the
Plan will be refunded to or recovered from customers in a manner to be
determined by all parties to the Plan and approved by the RIPUC.
As part of Energize RI, ProvGas is permitted to file annually with the
Division for the recovery of exogenous changes (Changes) which may occur during
the three-year term of the Plan. Changes are defined as "...significant
increases or decreases in ProvGas' costs or revenues which are beyond ProvGas'
reasonable control." Any disputes between ProvGas and the Division regarding
either the nature or quantification of the Changes are to be resolved by the
RIPUC. The impact of any such Changes will be debited or credited to a
regulatory asset or liability account throughout the term of Energize RI and
will be recovered or refunded at the expiration of the Plan through a method to
be determined.
I-5
<PAGE>
In fiscal 1998, ProvGas did not earn its allowed rate of return primarily as a
result of the extremely warm winter weather and the loss of non-firm margin.
ProvGas believed the causes of these two events were beyond its reasonable
control and thus considered them as Changes. In March 1999, ProvGas reached an
agreement with the Division, which allowed it to recover $2.45 million in
revenue losses attributable to Changes experienced by ProvGas in fiscal 1998.
The RIPUC has reviewed the Changes agreement to ensure consistency with the
terms of Energize RI and affirmed the agreement at its May 28, 1999 open
meeting.
During the third quarter of fiscal 1999, ProvGas recognized into revenue $2.45
million for the Changes recovery, and deferred approximately $1.45 million of
revenue under the provisions of the earnings cap of Energize RI. As of June 30,
1999, the deferred revenue account, substantially relating to the earnings cap,
had a balance of approximately $1.3 million.
4. Gas Supply
----------
As part of the Price Stabilization Plan Settlement Agreement described above
in Rates and Regulations, ProvGas entered into a full requirements gas supply
---------------------
contract with Duke Energy Trading and Marketing, L.L.C. (DETM), a joint venture
of Duke Energy Corporation and Mobil Corporation, for a term of three years.
Under the contract, DETM guarantees to meet ProvGas' supply requirements;
however, ProvGas must purchase all of its gas supply exclusively from DETM. In
addition, ProvGas transferred responsibility for its pipeline capacity
resources, storage contracts and liquefied natural gas (LNG) capacity to DETM.
In addition to providing supply for firm customers at a fixed price, DETM will
provide gas at market prices to cover ProvGas' non-firm sales customers' needs
and to make up the supply imbalances of transportation customers. DETM will
also provide various other services to ProvGas' transportation service customers
including enhanced balancing, standby and the storage and peaking services
available under ProvGas' approved Firm Transportation (FT-2) storage service
effective December 1, 1997. DETM will receive the supply-related revenues from
these services in exchange for providing the supply management inherent in these
services.
Included in the DETM contract are a number of other important features.
ProvGas has retained the right to continue to make portfolio changes to reduce
supply costs. To the extent ProvGas makes such changes, ProvGas must keep DETM
whole for the value lost over the remainder of the contract period. The
outsourcing of day-to-day supply management relieves ProvGas of the need to
perform certain upstream supply management functions which will make it possible
for ProvGas to take on the additional supply management workload required by the
further unbundling of firm sales customers without major staffing additions.
ProvGas has entered into an agreement replacing its existing service contract
with Algonquin LNG, Inc. (ALNG), a subsidiary of Duke Energy Corporation. ALNG
is the owner and operator of a LNG tank located in Providence, Rhode Island.
ProvGas relies upon this service to provide gas supply into its distribution
system during the winter period. The service provided for in the agreement,
subject to the successful completion of construction, is expected to begin on
November 1, 1999. Under the terms of the agreement, ALNG will replace and expand
the vaporization capability at the tank and make other necessary improvements to
modernize the tank and ensure its reliable operation in the future. ProvGas will
receive enhanced gas supply capability and will no longer be responsible for
compressing boil-off from the LNG tank before delivery into its distribution
system. Under the terms of the agreement, ProvGas will receive approximately
$2.6 million from ALNG. Of the $2.6 million, approximately $900,000 represents
reimbursement to ProvGas for costs incurred, as well as those that will result,
related to the project including labor, engineering and legal expenses. The
remaining portion of the payment, or approximately $1.7 million, will be paid to
DETM under ProvGas' contract with DETM as reimbursement for the additional costs
that DETM will incur when the ALNG storage capacity is released to DETM as
provided for in the gas supply contract described above.
In June 1999, the Federal Energy Regulatory Commission (FERC) issued an order
in Docket Number CP99-113 approving ALNG's project described above. In that
order FERC also approved the new 10-year contract between ALNG and ProvGas for
service from the tank. Also approved was ProvGas' parallel filing, PR99-8,
requesting regulatory
I-6
<PAGE>
authorization to charge ALNG for transportation of gas vaporized for other ALNG
customers and transported by ProvGas to the Algonquin pipeline on behalf of
those customers.
5. Environmental Matters
---------------------
Federal, state and local laws and regulations establishing standards and
requirements for the protection of the environment have increased in number and
in scope within recent years. The Registrant cannot predict the future impact of
such standards and requirements, which are subject to change and can take effect
retroactively. The Registrant continues to monitor the status of these laws and
regulations. Such monitoring involves the review of past activities and current
operations, and may include expending funds to investigate or clean up certain
sites. To the best of its knowledge, subject to the following, the Registrant
believes it is in substantial compliance with such laws and regulations.
At June 30, 1999, the Registrant was aware of five sites at which future costs
may be incurred.
Plympton Sites
- --------------
The Registrant has been designated as a potentially responsible party (PRP)
under the Comprehensive Environmental Response Compensation and Liability Act of
1980 at two sites in Plympton, Massachusetts on which waste material is alleged
to have been deposited by disposal contractors employed in the past either
directly or indirectly by the Registrant and other PRPs. With respect to one of
the Plympton sites, the Registrant has joined with other PRPs in entering into
an Administrative Consent Order with the Massachusetts Department of
Environmental Protection. The costs to be borne by the Registrant, in
connection with both Plympton sites, are not anticipated to be material to the
financial condition of the Registrant.
Providence Site
- ---------------
During 1995, the Registrant began a study at its primary gas distribution
facility located in Providence, Rhode Island. This site formerly contained a
manufactured gas plant operated by the Registrant. As of June 30, 1999,
approximately $2.8 million had been spent primarily on studies and the
formulation of remediation work plans at this site. In accordance with state
laws, such a study is monitored by the Rhode Island Department of Environmental
Management (DEM). The purpose of this study was to determine the extent of
environmental contamination at the site. The Registrant has completed the study
which indicates that remediation will be required for two-thirds of the
property. The remediation began in June and will continue for a duration of
approximately six months. During this remediation period, the remaining one-
third of the property will also be investigated and remediated if necessary.
The Registrant has compiled a preliminary range of costs, based on removal and
off-site disposal of contaminated soil, ranging from $5.0 million to $7.0
million. However, because of the uncertainties associated with environmental
assessment and remediation activities, the future cost of remediation could be
higher than the range noted. Based on the proposals for remediation work, the
Registrant accrued $5.0 million at June 30, 1999 for anticipated future
remediation costs at this site.
Westerly Site
- -------------
Tests conducted following the discovery of an abandoned underground oil
storage tank at the Registrant's Westerly, Rhode Island operations center in
1996 confirmed the existence of coal tar waste at this site. As a result, the
Registrant completed a site characterization test. Based on the findings of that
test, the Registrant concluded that remediation would be required. As of June
30, 1999, the Registrant had removed an underground oil storage tank and
regulators containing mercury disposed of
I-7
<PAGE>
on the site, as well as some localized contamination. The costs associated with
the site characterization test and partial removal of soil contaminants were
shared equally with the former owner of the property. The Registrant is
currently engaged in negotiations to transfer the property back to the previous
owner, who would continue to remediate the site. The purchase and sale agreement
is anticipated to be signed during the current fiscal year, at which time the
previous owner will assume responsibility for removal of coal tar waste on the
site. The Registrant remains responsible for cleanup of any mercury released
into adjacent water. Contamination from scrapped meters and regulators, which
was discovered in 1997, was reported to the DEM and the Rhode Island Department
of Health and the Registrant has completed the necessary remediation. Costs
incurred by the Registrant to remediate this site were approximately $100,000.
Allens Avenue Site
- ------------------
In November 1998, the Registrant received a letter of responsibility from DEM
relating to possible contamination on previously-owned property on Allens Avenue
in Providence. The current operator of the property has been similarly
notified. Both parties have been designated as PRPs. A work plan has been
created and approved by DEM. An investigation has begun in order to determine
the extent of the problem and the Registrant's responsibility. The Registrant
has entered into a cost sharing agreement with the current operator of the
property, under which the Registrant will be held responsible for approximately
20 percent of the costs related to the investigation. Costs incurred to date by
the Registrant for this investigation have been approximately $100,000. Until
the results of the investigation are known, the Registrant can not offer any
conclusions as to its responsibility.
General
- -------
In prior rate cases filed with the RIPUC, ProvGas requested that environmental
investigation and remediation costs be recovered by inclusion in its
depreciation factors consistent with the rate recovery treatment for all types
of cost of removal. Due to the magnitude of ProvGas' environmental
investigation and remediation expenditures, ProvGas sought current recovery for
these amounts. As a result, in accordance with the Price Stabilization Plan
Settlement Agreement described in Rates and Regulations, effective October 1,
1997, all environmental investigation and remediation costs incurred through
September 30, 1997, as well as all costs incurred during the three-year term of
the Plan, will be amortized over a ten-year period. Additionally, it is
ProvGas' practice to consult with the RIPUC on a periodic basis when, in
management's opinion, significant amounts might be expended for environmental-
related costs. As of June 30, 1999, ProvGas has incurred environmental
assessment and remediation costs of $3.6 million and has accrued an estimated
$5.0 million in future costs and has amortized $850,000 of these costs.
Management has begun discussions with other parties who may assist ProvGas in
paying the costs associated with the remediation of the above sites. Management
believes that its program for managing environmental issues, combined with rate
recovery and financial contributions from others, will likely avoid any material
adverse effect on its results of operations or its financial condition as a
result of the ultimate resolution of the above sites.
6. Net Income per Common Share
---------------------------
A reconciliation of the weighted average number of shares outstanding used in
the computation of the basic and diluted earnings per share for each of the
periods ended June 30 is as follows:
<TABLE>
<CAPTION>
Three Months Nine Months Twelve Months
1999 1998 1999 1998 1999 1998
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Weighted average
shares, basic 6,012.0 5,935.6 5,994.2 5,906.4 5,985.5 5,885.3
Effect of dilutive
stock options 11.6 - 11.0 10.4 10.9 9.1
------- ------- ------- ------- ------- -------
Weighted average
shares, diluted 6,023.6 5,935.6 6,005.2 5,916.8 5,996.4 5,894.4
======= ======= ======= ======= ======= =======
</TABLE>
I-8
<PAGE>
The net income used in the basic and diluted earnings per share calculations
agrees with the net income appearing in the consolidated financial statements.
7. Comprehensive Income
--------------------
Effective October 1, 1998, the Registrant adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
The following is a summary of the reclassification adjustments and the income
tax effects for the components of other comprehensive income (loss) for the nine
months ended June 30:
<TABLE>
<CAPTION>
Unrealized Holding Reclassification
Gains (Losses) on Adjustments for
Investments Gains (Losses) Other
Arising During the Included in Comprehensive
Period Net Income Income (Loss)
(In thousands)
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
Pretax income (loss) $6 $(84) $(78)
Income tax (benefit)
expense 2 (28) (26)
------------------ ---------------- -------------
Net change $4 $(56) $(52)
================== ================ =============
</TABLE>
I-9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Providence Energy Corporation (the Registrant) and its subsidiaries and their
representatives may from time to time make written or oral statements, including
statements contained in the Registrant's filings with the Securities and
Exchange Commission (SEC) and in its reports to shareholders, which constitute
"forward-looking" statements as that term is defined in the Private Securities
Litigation Reform Act of 1995 or by the SEC in its rules, regulations and
releases.
All statements other than statements of historical facts included in this Form
10-Q regarding the Registrant's financial position and strategic initiatives and
addressing industry developments, are forward-looking statements. Where, in any
forward-looking statement, the Registrant or its management expresses an
expectation or belief as to future results, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but there can
be no assurance that the statement of expectation or belief will result or be
achieved or accomplished. The following are some of the factors which could
cause actual results to differ materially from those anticipated: general
economic, financial and business conditions; changes in government regulations;
competition in the energy services sector; regional weather conditions; the
availability and cost of natural gas and oil; development and operating costs;
the success of promotional efforts; the availability and terms of capital; the
business abilities and judgment of personnel; the ability of the Registrant and
its suppliers and customers to modify or redesign their computer systems to work
properly in the year 2000; unanticipated environmental liabilities; the
Registrant's ability to grow its business through acquisitions and/or
significant customer growth; the costs and effects of unanticipated legal
proceedings; the impacts of unusual items resulting from ongoing evaluations of
business strategies and asset valuations; and changes in business strategy.
RESULTS OF OPERATIONS
The Registrant's energy revenues, operating margin and net income (loss) for
the three, nine and twelve months ended June 30, 1999 and for comparable periods
ended June 30, 1998 are as follows:
<TABLE>
<CAPTION>
(thousands)
Three Months Nine Months Twelve Months
Ended June 30 Ended June 30 Ended June 30
1999 1998 1999 1998 1999 1998
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Energy revenues $38,737 $39,462 $196,344 $195,200 $222,450 $228,715
======= ======= ======== ======== ======== ========
Operating margin $20,023 $19,327 $ 91,134 $ 86,003 $103,704 $101,954
======= ======= ======== ======== ======== ========
Net income (loss) $ (376) $(1,843) $ 13,537 $ 12,095 $ 7,884 $ 8,790
======= ======= ======== ======== ======== ========
</TABLE>
Operating Margin
- ----------------
During the latest quarter, operating margin increased approximately $700,000
or 3.6 percent compared to the same quarter last year.
The Providence Gas Company (ProvGas) experienced weather for the current
quarter that was 5.1 percent warmer than the same quarter last year. The warmer
temperatures resulted in decreased margin of approximately $500,000 compared to
the same quarter last year. Offsetting the warmer than normal weather, ProvGas
was permitted to recover $2.45 million in 1998 revenue losses attributable to
exogenous changes,reduced by approximately $1.4 million of revenues deferred
under the provisions of the earnings cap in the Energize RI program, which has
resulted in approximately $1.0 million of additional margin in the current
quarter. Also, the Registrant recognized $200,000 of additional margin as a
result of actual rate reductions of pipeline fixed costs as provided for in the
pipeline cost tracker feature of the Duke Energy Trading and Marketing, L.L.C.
contract.
I-10
<PAGE>
Nonregulated operating margin decreased approximately $200,000 versus the same
quarter last year. The decrease is attributable to warmer weather which
adversely affected both the sale of home heating oil and third party marketer
sales of natural gas.
During the current nine-month period, weather was 1.4 percent warmer when
compared to the same nine-month period last year. Due to the warmer weather,
ProvGas' margin decreased approximately $400,000. In comparison to the prior
year period, margin increased as a result of a one-time write-off of $1.5
million in fiscal year 1998 of previously deferred gas costs in connection with
Energize RI. Offsetting the warmer weather, for the current nine-month period,
was the $2.45 million of 1998 exogenous changes recovery, which was negotiated
with the Rhode Island Division of Public Utilities and Carriers, reduced by
$1.45 million of deferred revenue, in order to arrive at a net increase in
margin of $1 million. Lastly, ProvGas customer growth has resulted in
approximately $600,000 of additional margin.
Nonregulated operating margin for the nine-month period ended June 30, 1999
has increased $1.7 million. The increase is due primarily to an increase in the
number of customers. In addition, acquisitions made in November 1997 in the oil
industry fully impacted earnings for the current nine-month period.
ProvGas experienced weather that was 1.8 percent warmer for the twelve months
ended June 30, 1999 as compared to the same period last year. The warmer
temperatures decreased margin by $1.3 million compared to the prior year.
Offsetting the warmer than normal weather was approximately $1.0 million of
margin recognized under Energize RI as a net result of recording 1998 exogenous
changes awarded of $2.45 million, reduced by $1.45 million of deferred revenue.
Also offsetting the warmer weather was $600,000 of increased margin due to
customer growth.
Additionally, the last three months of fiscal year 1997 included the impact on
margin resulting from the use of seasonal gas cost factors. As a result of no
longer using these seasonal gas cost factors since October 1, 1997, margin
decreased approximately $1.4 million in total for the twelve-month period.
Nonregulated operating margin increased approximately $2.3 million for the
twelve months ended June 30, 1999 compared to the same period last year.
Increased sales of natural gas volumes and a growing customer base contributed
to increased operating margin. The Registrant's acquisition of oil distribution
companies during November 1997 also contributed to the twelve-month increase.
Despite warmer than normal weather for the twelve-month period, margin earned
increased due to the reasons described above.
Operating and Maintenance Expenses
- ----------------------------------
Overall operating and maintenance expenses decreased approximately $1.3
million or 10.0 percent versus the comparable three-month period ended June 30
last year. The primary contribution to the decrease was the current one-time
reimbursement of previously incurred and anticipated expenses under a newly-
approved contract with Algonquin LNG, Inc.
Operating and maintenance expenses increased approximately $1.2 million or 3.2
percent for the nine-month period ended June 30, 1999 as compared to the same
period last year. During the nine months ended June 30, 1999, the decrease
noted above has been more than offset by increases due to recruiting qualified
employees in a tight labor market and consulting and other costs related to
technology initiatives. Additionally, the Registrant's acquisitions of oil
distribution companies in November 1997 also contributed to the increase, since
the previous period only included 7.5 months of the companies' results.
Operating and maintenance expenses have increased approximately $1.4 million
or 2.7 percent for the twelve-month period ended June 30, 1999 as compared to
the twelve-month period ended June 30, 1998. Expenses impacting the nine-month
period were also responsible for the twelve month increase.
I-11
<PAGE>
Depreciation and Amortization Expense
- -------------------------------------
Depreciation and amortization expense increased approximately $600,000 or 16.6
percent for the three months ended June 30, 1999, approximately $2.0 million or
17.8 percent for the nine months ended June 30, 1999 and approximately $2.2
million or 15.5 percent for the twelve months ended June 30, 1999, versus the
same periods last year. These increases are the result of increased capital
spending; technology projects; Year 2000 costs, which were capitalized under the
RIPUC order in accordance with the provisions of Energize RI; and the
amortization of environmental costs.
Taxes
- -----
Taxes increased approximately $500,000 or 19.8 percent for the three months
ended June 30, 1999 and $800,000 or 4.6 percent for the nine months ended June
30, 1999. For the twelve months ended June 30, 1999, taxes decreased
approximately $700,000 or 3.5 percent. The changes are primarily due to
fluctuations in Federal income and state gross earnings taxes as a result of
varying levels of pretax income and operating revenues. Additionally, local
property taxes have increased as a result of capital spending.
Interest Expense
- ----------------
Interest expense increased approximately $17,000 or 1.0 percent for the three
months ended June 30, 1999, $200,000 or 3.6 percent for the nine months ended
June 30, 1999 and approximately $400,000 or 5.0 percent during the twelve months
ended June 30, 1999, versus the same periods last year. Long-term interest
expense decreased, as a result of ProvGas' Series S First Mortgage Bond issuance
in April 1998, which refinanced higher cost long-term debt, but this decrease
was more than offset by the Series T First Mortgage Bond issuance in February
1999, which refinanced short-term borrowings to maintain an appropriate
capitalization ratio.
FUTURE OUTLOOK
- --------------
A) Regulatory
Under Energize RI, ProvGas may earn up to 10.9 percent annually on its average
common equity, which is capped at $81.0 million, $86.2 million, and $92.0
million in fiscal 1998, 1999 and 2000, respectively. In addition, ProvGas may
not earn less than a seven percent return on average common equity. In the
event that ProvGas earns in excess of 10.9 percent or less than seven percent,
ProvGas will defer revenues or costs through a deferred revenue account over the
term of the Plan. Any balance in the deferred revenue account at the end of the
Plan will be refunded to or recovered from customers in a manner to be
determined by all parties to the Plan and approved by the Rhode Island Public
Utilities Commission (RIPUC).
As part of Energize RI, ProvGas is permitted to file annually with the Rhode
Island Division of Public Utilities and Carriers (Division) for the recovery of
exogenous changes (Changes) which may occur during the three-year term of the
Plan. Changes are defined as "...significant increases or decreases in ProvGas'
costs or revenues which are beyond ProvGas' reasonable control." Any disputes
between ProvGas and the Division regarding either the nature or quantification
of the Changes are to be resolved by the RIPUC. The impact of any Changes will
be debited or credited to a regulatory asset or liability account throughout the
term of Energize RI and will be recovered or refunded at the expiration of the
Plan through a method to be determined.
In fiscal 1998, ProvGas did not earn its allowed rate of return primarily as a
result of the extremely warm winter weather and the loss of non-firm margin
resulting from the competitive price of oil in the industrial market. ProvGas
believed the causes of these two events were beyond its reasonable control and
thus considered them as Changes. In March 1999, ProvGas reached an agreement
with the Division which allowed it to recover $2.45 million in revenue losses
attributable to Changes experienced by ProvGas in fiscal 1998. The RIPUC has
reviewed the Changes agreement to ensure consistency with the terms of Energize
RI and affirmed the agreement at its May 28, 1999 open meeting.
I-12
<PAGE>
During the third quarter of fiscal 1999, ProvGas recognized into revenue $2.45
million for the Changes recovery, and deferred approximately $1.45 million of
revenue under the provisions of the earnings cap of Energize RI. As of June 30,
1999, the deferred revenue account, substantially relating to the earnings cap,
had a balance of approximately $1.3 million.
At the conclusion of the latest transportation service enrollment period on
March 1, 1999, an additional 210 customers had signed up for Business Choice.
The program now has approximately 1,700 firm transportation customers with
annual deliveries of almost 6 billion cubic feet per year which is approximately
25 percent of ProvGas' total annual firm deliveries. There are 14 marketers
serving ProvGas customers and transporting on the system.
On April 1, 1999, ProvGas filed with the RIPUC a proposal for enhancements to
the Business Choice program. The proposed changes do not generate additional
revenue for ProvGas but rather affect the terms and conditions under which
transportation service is offered.
During April and May 1999, the Algonquin LNG tank in Providence was completely
emptied in order to allow access for internal inspection and, if necessary,
repair. As a result, 335,000 million cubic feet of LNG was vaporized from the
tank into the ProvGas distribution system. Since the vaporized gas had a heat
energy content approximately 30 percent higher than the pipeline supplies
normally used, ProvGas' customers' metered volumes were lower because a smaller
volume of gas produced the same energy requirement.
B) Business Opportunities
The Registrant's nonregulated companies have significantly contributed to
operating margin by adding customers and sales volume, although they continue to
generate a net loss as they position themselves to succeed in the rapidly
changing energy marketplace.
By focusing on growing its residential customer base and improving its profit
margins from commercial customers, Super Service Oil Company (Super Service Oil)
expects an improvement in its operating results for fiscal year 1999. For
fiscal year 2000, Super Service Oil intends to combine these initiatives with
future customer acquisitions to build the operational scale needed to compete
effectively in the marketplace.
The Registrant's retail energy marketing subsidiary, ProvEnergy Services, also
has substantial growth opportunities. In fiscal year 1999, New England gas
utilities have continued to unbundle the sale of the gas commodity from the
distribution of that gas. This has allowed ProvEnergy Services to add a
significant number of customers in those markets offering opportunities for
unbundled sales of the commodity.
The Registrant's joint venture to provide electricity, heat and air
conditioning (HVAC) and related services for most of the Providence Place Mall
(the Mall) continues to proceed on schedule. Construction of the energy systems
for the Mall began last summer and the Registrant expects the entire energy
project to be operational in advance of the Mall's scheduled mid-August 1999
opening.
LIQUIDITY AND CAPITAL RESOURCES
During the current year, the Registrant's cash flow from operating activities
decreased approximately $15.2 million for the nine months ended June 30, 1999
compared to the same period last year. On a comparative basis, the current year
cash flow decreased as a result of the prior year reflecting receipt of funds in
the first quarter of fiscal 1998 from the sale of ProvGas' working gas in
storage to Duke Energy Trading and Marketing, L.L.C. This decrease in operating
cash flow was offset by a temporary increase in accounts payable this year
related to the timing of such gas supply payments.
Capital expenditures for the nine months ended June 30, 1999 of $24.7 million
reflected an increase of $5.7 million or 30 percent when compared to $19.0
million for the same period last year. This spending increase was due primarily
to ProvGas' technology expenditures related to Year 2000 and system
enhancements. Capital expenditures for the remainder of fiscal year 1999 and
fiscal year 2000 are expected to total approximately $40.9 million.
During the current nine months, the Registrant's cash provided by financing
activities increased $18.5 million. ProvGas issued $15 million in Series T
First
I-13
<PAGE>
Mortgage Bonds on February 8, 1999. The proceeds were used to reduce borrowings
under its lines of credit as well as for general corporate purposes. The Series
T bonds are for a 30 year term at an interest rate of 6.5 percent. ProvGas
estimates savings of approximately $1.8 million over the life of the new debt.
ProvGas has received an order from the Division which permits the amortization
of the Series M bond repurchase premium over the life of the Series T bonds.
YEAR 2000 UPDATE
The Registrant's company-wide Year 2000 (Y2K) Project is proceeding on
schedule. The Project addresses the problem arising from the use in software
programs and computing infrastructure of two-digit years to define the
applicable year, rather than four-digit years, and from time-sensitive software
that may recognize a date using "00" as the last two digits of the year 1900,
rather than the year 2000.
Readiness
The Registrant recognizes that the products and services that the Registrant
provides to its customers are essential, and senior management has made Year
2000 readiness a top priority. The Registrant's Year 2000 Project Office has
been working with two international consulting firms to ensure the continuity of
mission critical business systems and processes before and beyond the Year 2000.
The Registrant has organized the Project around the following four major areas:
1. Information Technology (IT) Systems
The Registrant continues to implement its technology plan, which includes the
migration from a mainframe centric to a client server centric environment. The
migration includes the replacement of the Customer Information System (CIS)
which supports the business functions of customer inquiry, service orders and
billing. Migration also includes the replacement of business applications such
as financial, human resources, and procurement with an Enterprise Resource
Planning (ERP) system. These new business applications have been represented to
be Year 2000 ready by their respective vendors. Validation testing of these
systems for Year 2000 readiness has been completed. Both the CIS and ERP
systems have been successfully placed into operation. The Human Resource (HR)
module of the ERP system has not been put into operation. Although the project
is progressing well, full implementation of the HR module is expected on or
about October 1, 1999.
The Registrant completed an inventory and assessment of its existing IT
systems and IT infrastructure in March 1999. The Registrant has completed the
implementation phase to achieve Year 2000 readiness. The Registrant has created
a Year 2000 test lab to test many of its IT systems. All mission critical and
important systems are remediated and tested for Year 2000 readiness, except for
two systems associated with metering and billing for certain commercial
transportation customers. One vendor has indicated that the Y2K-ready release of
the computer applications will not be available until September 1999. The
vendor for the other computer application has delivered Y2K-ready code as of the
date of this report and the application is currently undergoing validation
testing.
The Registrant has implemented procurement policies as part of its efforts to
ensure Year 2000 readiness. These policies address any future changes to the
Registrant's IT systems environment and its future acquisitions of IT systems.
2. Embedded Systems
Embedded microprocessors are found in equipment deployed in the Registrant's
distribution and facility operations. The distribution area includes, but is
not limited to, the monitoring, storage, measurement and control of the flow of
natural gas. The facility area includes, but is not limited to, back-up power
supply, HVAC and security at the Registrant's offices.
The Registrant has successfully completed the assessment, remediation and
testing of all mission critical embedded systems including ProvGas' Supervisory
Control and Data Acquisition gas distribution system.
I-14
<PAGE>
3. Upstream/Downstream
The Registrant has contacted all of its major suppliers and none of them have
indicated concern for potential business disruption.
The Registrant's major suppliers critical to the delivery of natural gas to
its system, including interstate pipelines, Duke Energy Trading and Marketing,
New England Electric System and Bell Atlantic, have indicated that they are
following a comprehensive program on a timely schedule designed to achieve Year
2000 readiness. While the Registrant cannot guarantee Y2K readiness of these
and other suppliers, the information received from them indicates that they
expect to fulfill their obligations to the Registrant on and after January 1,
2000. The Registrant will continue to monitor the status of all critical
suppliers throughout 1999. Any risk areas that surface as a result of these
assessments will be addressed in contingency planning.
The Registrant is actively participating with the Rhode Island Y2K Association
which acts as a communication forum for key customers as well as the other
essential suppliers of services such as telecommunications, water and electric.
The Registrant is also communicating its Year 2000 readiness to customers in
bill stuffers, on its website and in state-sponsored "town meetings" throughout
its service territory. On February 17, 1999, ProvGas provided testimony to the
RIPUC regarding ProvGas' Year 2000 readiness.
4. Contingency Planning
The Registrant has contingency plans in place for response to certain
emergency operational situations. In addition, the Registrant has completed
over fifty workshops to develop actionable contingency plans which will
specifically address risks to the top seventy-two business processes related to
the Year 2000 computer problem. Such contingency plans may include using manual
procedures and arranging for alternative suppliers. The Registrant has
developed Year 2000 contingency plans for 96 percent of its critical business
processes. The remaining plans will be completed in the fourth quarter and
there will be continued refinement to the plans throughout 1999.
Year 2000 Costs
The Registrant expects to capitalize Year 2000 costs for ProvGas and ProvGas
will amortize these costs over a five-year amortization period consistent with
the regulatory treatment approved by the RIPUC under the Energize RI program.
Additionally, it is ProvGas' practice to communicate with the RIPUC on a
periodic basis when, in management's opinion, significant amounts might be
expended for Year 2000 costs.
As of June 30, 1999, the Registrant had deferred Year 2000 costs of
approximately $5.0 million. Costs for these activities, together with
previously deferred Year 2000 costs, are expected to range from $5.1 million to
$6.1 million. These estimated costs include external contractors and service
providers and the balance of the unrecovered legacy CIS system that was
replaced, as well as the purchase of computer hardware and software. These
estimates do not include Year 2000 costs which may be incurred by joint ventures
or partnerships for which the Registrant does not have primary operating
responsibility or for the costs of implementing the new CIS and ERP systems
pursuant to ProvGas' ongoing technology plan.
Additionally, the Registrant does not separately track the internal costs
incurred for the Year 2000 project. Such costs are principally the related
payroll costs for the information systems group.
These cost estimates and the dates on which the Registrant plans to complete
contingency planning are based on management's current best estimates which were
derived utilizing numerous assumptions of future events, including the continued
availability of technological and certain other resources, the accuracy of third
party assurances and other factors. There can be no guarantee that these
estimates will be achieved, and actual results may differ from those discussed
above.
I-15
<PAGE>
Risk Assessment
No amount of preparation and testing can guarantee Year 2000 readiness.
However, the Registrant believes that it has taken and will take appropriate
preventative measures designed to minimize disruption before, during and after
January 1, 2000.
A disruption in the extraction or processing, transmission or storage of gas
or its distribution due to Year 2000 problems experienced by the Registrant's
gas suppliers could prevent those suppliers from delivering a sufficient amount
of gas to enable ProvGas and ProvEnergy Services to serve certain customer
segments. Even if the flow of gas is not disrupted, customers may not be able to
receive gas if electrical service is disrupted.
In the event Super Service Oil Company is unable to obtain supplies of oil
from third parties, its customers may not be able to receive oil necessary to
heat their facilities or residences.
Because of the difficulty of assessing Year 2000 readiness of these suppliers
and others outside the control of the Registrant, the Registrant considers
potential disruptions by these third parties to present the "reasonably likely
worst case scenario." The Registrant's inability to serve its customers could
result in increased costs, loss of revenue and potential claims.
This Year 2000 update contains "forward-looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to risks and uncertainties and actual results may differ
materially from those described herein.
I-16
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
- ----------------------------------------------
PART II. OTHER INFORMATION
- ------- -----------------
Item 6 (a). Exhibits
- ---------------------
10a. Employment agreement dated May 27, 1999 between Susann G. Mark, Vice
President, General Counsel and Corporate Secretary and the Registrant.
10b. Employment agreement date May 2, 1999 between James M. Stephens,
President and Providence Energy Services, Inc.
10c. Change of control agreement dated May 10, 1999 between Kenneth W. Hogan,
Vice President, Chief Financial Officer and Treasurer and the Registrant.
10d. Employment agreement dated October 1, 1998 between Peter J. Gill, Vice
President of Information Technology and The Providence Gas Company.
Item 6 (b). Reports on Form 8-K
- --------------------------------
On June 9, 1999 the Registrant filed a report on Form 8-K regarding an
agreement for recovery of exogenous changes which allowed ProvGas to recover
$2.45 million.
II-1
<PAGE>
PROVIDENCE ENERGY CORPORATION AND SUBSIDIARIES
----------------------------------------------
It is the opinion of management that the financial information contained in this
report reflects all adjustments necessary for a fair statement of results for
the period reported, but such results are not necessarily indicative of results
to be expected for the year due to the seasonal nature of the Registrant's gas
operations. All accounting policies and practices have been applied in a manner
consistent with prior periods.
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Providence Energy Corporation
(Registrant)
BY: /s/ KENNETH W. HOGAN
----------------
KENNETH W. HOGAN
Vice President, Chief
Financial Officer and
Treasurer
Dated: August 12, 1999
---------------
II-2
<PAGE>
Exhibit 10a
CONTENTS
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Outplacement Assistance 14
Section 11. Assignment 15
Section 12. Dispute Resolution and Notice 15
Section 13. Miscellaneous 16
Section 14. Governing Law 16
</TABLE>
<PAGE>
PROVIDENCE ENERGY CORPORATION
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this
27th day of May, 1999 (hereinafter referred to as the "Effective Date"), by and
between Providence Energy Corporation, together with its subsidiaries and
affiliates (hereinafter referred to as the "Company"), a Rhode Island
corporation having its principal offices at Providence Rhode Island and SUSANN
G. MARK (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY OF THE COMPANY;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of three years, commencing as
of the Effective Date of this Agreement, as indicated above; subject, however,
to earlier termination as expressly provided in Section 6 herein.
The initial three (3) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial three (3) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial three (3) year period, or at
the end of any successive term thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
1
<PAGE>
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of her Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) three (3) years beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
SECTION 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as Senior Vice
President of the Company. In her capacity as Senior Vice President, the
Executive shall maintain the level of duties and responsibilities as in effect
as of the Effective Date, or such higher level of duties and responsibilities as
she may be assigned during the term of this Agreement. The Executive shall have
the same status, privileges, and responsibilities normally inherent in such
capacities in corporations of similar size and character.
SECTION 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote substantially
her full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that she shall:
(a) Devote her full and best efforts to the fulfillment of her employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of
conduct in the performance of her duties.
2
<PAGE>
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require her services in the daily
operations of the affairs of the companies in which such investments are made.
SECTION 4. COMPENSATION
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 BASE SALARY. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $130,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 ANNUAL CASH INCENTIVE COMPENSATION. The Company shall provide the Executive
with the opportunity to earn an annual cash incentive compensation payment, at a
level which is in accordance with the provisions of the Performance and Equity
Incentive Plan or any such successor plan, and which is commensurate with the
opportunity typically offered to executives having the same or similar duties
and responsibilities as the Executive at companies similar in size and character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 LONG-TERM INCENTIVES. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing,
3
<PAGE>
and/or amending the Performance and Equity Incentive Plan, so long as such
changes are similarly applicable to all executives generally.
4.4 RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 EMPLOYEE BENEFITS. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 PERQUISITES. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of her
duties hereunder.
4.7 RIGHT TO CHANGE PLANS. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 DEFERRALS. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash
component of the Executive's Annual Incentive Compensation. If any such
deferral election is permitted, the Company shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
4
<PAGE>
SECTION 5. EXPENSES
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
her duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
SECTION 6. EMPLOYMENT TERMINATIONS
6.1 TERMINATION DUE TO RETIREMENT. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which she would be entitled during the year
in which she retires, and shall receive all rights and benefits that she is
vested in, pursuant to other plans and programs of the Company including, but
not limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 TERMINATION DUE TO DEATH. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which she
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during her lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right to pursuant
to this Agreement.
6.3 TERMINATION DUE TO DISABILITY. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
her duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
5
<PAGE>
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which she would be entitled during the year in which disability
occurs and shall receive all rights and benefits that she is vested in, pursuant
to other plans and programs of the Company, including, but not limited to,
short- and long-term disability benefits, and retirement benefits as described
in Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of her
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that her
Disability will exist for more than such a period of time, shall not constitute
a failure by her to perform her duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of
6
<PAGE>
such termination (such period not to include vacation). The termination
automatically shall become effective upon the expiration of the thirty (30) day
notice period.
Upon the effective date of such termination, the Company shall pay to the
Executive her full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
7
<PAGE>
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive her full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of her duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 TERMINATION FOR GOOD REASON. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination
8
<PAGE>
shall become effective, and the Company shall pay and provide to the Executive
the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an officer
of the Company, or a reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from those in effect
during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or arrangements
in which the Executive participates as of the Effective Date; provided,
however, that reductions in the levels of participation in any such plans
shall not be deemed to be "Good Reason" if the Executive's reduced level
of participation in each such program remains substantially consistent
with the average level of participation of other executives who have
positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued
9
<PAGE>
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason herein.
SECTION 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide her with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the thenexisting fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixtyfive (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
10
<PAGE>
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination).
7.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control of the Company shall
be deemed to have occurred as of the first day any one or more of the following
conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is defined
in Rule 13d-3 promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, of securities of the Company
possessing twenty percent (20%) or more of the voting power for the
election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive such
transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease for
any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's shareholders, of each new
director of the Company was approved by a vote of at least two-thirds
(2/3) of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period; or
11
<PAGE>
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's independent
auditors and acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or
12
<PAGE>
(ii) the amount of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Human Resources and Planning
Committee.
7.6 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
SECTION 8. CONFIDENTIALITY AND NONCOMPETITION
8.1 CONFIDENTIALITY. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to her own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company or any of the Company's subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and affiliates shall
be collectively referred to as the "Company Group"), except as may be in the
public domain other than by violation of this Agreement.
8.2 NONCOMPETITION. From the date hereof until two (2) years after the
termination of her employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not
13
<PAGE>
exceeding five percent (5%) of any class of outstanding securities), or be an
employee, agent, director, advisor, or consultant to or for any corporation
(other than the Company Group), business enterprise or any person engaged
anywhere in the State of Rhode Island or the Commonwealth of Massachusetts,
whether on her own behalf or on behalf of any person other than the Company
Group, in the manufacture, procuring, sale, marketing, promotion or distribution
of any product or product lines functioning competitively with any product or
product lines of the Company Group during the term of this Agreement, and the
Executive will not assist in, manage or supervise any of the foregone
activities; (ii) undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business with the Company
Group; (iii) cause, induce or in any way facilitate the employment by any other
persons or organization of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon the termination of
the Executive's employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise of any position on
any matter involving the Company and pending before any state or other public
agency, when such position is adverse to the position being promoted before such
agency at the time by the Company.
8.3 TRADE SECRETS. "Trade secrets" as used herein means all secret discoveries,
invention, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Employee of any of the covenant continued in this
Paragraph 8 shall rely the company of all further payment obligation under
Paragraph 6 or Paragraph 7.
Section 9. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of her duties and obligations under the terms of this
Agreement.
SECTION 10. OUTPLACEMENT ASSISTANCE
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination
14
<PAGE>
pursuant to Section 6.5) and two (2) year (for terminations pursuant to Section
6.7 or 7.1) periods after the effective date of termination; provided, however,
that the total reimbursement shall be limited to an amount equal to fifteen
percent (15%) of the Executive's Base Salary as of the effective date of
termination.
SECTION 11. ASSIGNMENT
11.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
SECTION 12. DISPUTE RESOLUTION AND NOTICE
12.1 ARBITRATION. Any dispute or controversy arising under or in connection with
this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of her employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
15
<PAGE>
12.2 NOTICE. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address she has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
SECTION 13. MISCELLANEOUS
13.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
13.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 TAX WITHHOLDING. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Board or the Board's designee. The Executive may make
or change such designation at any time.
SECTION 14. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
16
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
______________________________
ATTEST Providence Energy Corporation
By:_________________________ By:___________________________
Corporate Secretary Chairman, President and CEO
17
<PAGE>
Exhibit 10b
CONTENTS
- -----------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 9
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Outplacement Assistance 14
Section 11. Assignment 14
Section 12. Dispute Resolution and Notice 15
Section 13. Miscellaneous 15
Section 14. Governing Law 16
</TABLE>
<PAGE>
PROVIDENCE ENERGY SERVICES, INC.
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this 2nd
day of May, 1999 (hereinafter referred to as the "Effective Date"), by and
between Providence Energy Services, Inc. (hereinafter referred to as the
"Company"), a Rhode Island corporation and wholly owned subsidiary of Providence
Energy Corporation ("PEC"), and JAMES M. STEPHENS (hereinafter referred to as
the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
PRESIDENT, pursuant to an employment agreement dated March 19, 1997 ("Existing
Agreement");
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance; and
WHEREAS, the Company and the Executive wish to replace the Existing Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of one (1) year, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial one (1) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial one (1) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial one (1) year period, or at
the end of any successive year thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
1
<PAGE>
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, there occurs a Change in Control (as defined in
Section 7 herein), then this Agreement shall become immediately irrevocable for
the longer of: (a) one (1) year beyond the month in which the effective date of
such Change in Control occurs; or (b) until all obligations of the Company
hereunder have been fulfilled, and until all benefits provided hereunder have
been paid.
SECTION 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as President
of the Company. In his capacity as President, the Executive shall maintain the
level of duties and responsibilities as in effect as of the Effective Date, or
such higher level of duties and responsibilities as he may be assigned during
the term of this Agreement. The Executive shall have the same status,
privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
SECTION 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
2
<PAGE>
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
SECTION 4. COMPENSATION
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 BASE SALARY. The Company shall pay the Executive a Base Salary in an amount
which shall be established from time to time by the Board of Directors of the
Company or the Board's designee provided, however, that such Base Salary shall
not be less than $120,000.00 per year. This Base Salary shall be paid to the
Executive in equal monthly installments throughout the year, consistent with the
normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 ANNUAL CASH INCENTIVE COMPENSATION. The Company shall provide the
Executive with the opportunity to earn an annual cash incentive compensation
payment, at a level which is in accordance with the provisions of PEC's
Performance and Equity Incentive Plan or any such successor plan, and which is
commensurate with the opportunity typically offered to executives having the
same or similar duties and responsibilities as the Executive at companies
similar in size and character to the Company, based on goals and measures for
the Company and the Executive to be established annually by the Human Resources
and Planning Committee of the Board of Directors of PEC.
Nothing in this paragraph shall be construed as obligating PEC to refrain from
changing and/or amending the Performance and Equity Incentive Plan so long as
such changes are similarly applicable to all executives generally.
4.3 LONG-TERM INCENTIVES. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of PEC's Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company, based on goals and measures for the Company and the Executive to
be established annually by the Human Resources and Compensation Committee of the
Board of Directors of PEC.
3
<PAGE>
Nothing in this paragraph shall be construed as obligating PEC to refrain from
changing, and/or amending the Performance and Equity Incentive Plan, so long as
such changes are similarly applicable to all executives generally.
4.4 RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all PEC qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in PEC's Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company, subject to the eligibility and
participation requirements of such plan.
Nothing in this paragraph shall be construed as obligating PEC to refrain from
changing, and/or amending the qualified and nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 EMPLOYEE BENEFITS. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives of PEC are
entitled to receive, as commensurate with the Executive's position. Such
benefits shall include, but not be limited to, group term life insurance, whole
life insurance, comprehensive health and major medical insurance, dental
insurance, vision insurance, and short-term and long-term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of
PEC.
4.6 PERQUISITES. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of PEC are entitled to receive
and such other perquisites which are suitable to the character of Executive's
position with the Company and adequate for the performance of his duties
hereunder.
4.7 RIGHT TO CHANGE PLANS. By reason of Paragraphs 4.5 and 4.6 herein,
neither PEC nor the Company shall be obligated to institute, maintain, or
refrain from changing, amending, or discontinuing any benefit plan, program, or
perquisite, so long as such changes are similarly applicable to executive
employees of PEC generally.
4.8 DEFERRALS. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash component
of the Executive's Annual Incentive Compensation. If any such deferral election
is permitted, the Company shall, in its sole discretion, establish rules and
procedures for such payment deferrals.
4
<PAGE>
SECTION 5. EXPENSES
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
SECTION 6. EMPLOYMENT TERMINATIONS
6.1 TERMINATION DUE TO RETIREMENT. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and long-
term), calculated at target, to which he would be entitled during the year in
which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of PEC including, but not limited to,
the retirement benefits as described in Paragraph 4.4 herein.
6.2 TERMINATION DUE TO DEATH. In the event of the death of the Executive during
the term of this Agreement, or during any period of Disability during which he
is receiving compensation pursuant to Paragraph 6.3 herein, the Company shall
pay to the Executive's surviving spouse, or other beneficiary as so designated
by the Executive during his lifetime, or to the Executive's estate, as
appropriate, all benefits to which the Executive had a vested right pursuant to
this Agreement.
6.3 TERMINATION DUE TO DISABILITY. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
5
<PAGE>
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of PEC, including, but not limited to, short- and long-
term disability benefits, and retirement benefits as described in Paragraph 4.4.
The terms "Disabled" and "Disability" shall mean, for all purposes of this
Agreement, the incapacity of the Executive, due to injury, illness, disease, or
bodily or mental infirmity, to engage in the performance of substantially all of
the usual duties of employment with the Company as contemplated by Section 2
herein, such Disability to be determined by the Board of Directors of the
Company upon receipt and in reliance on competent medical advice from one or
more individuals, selected by the Board, who are qualified to give such
professional medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default, and the Executive shall receive full compensation for any
such period of Disability or for any other temporary illness or incapacity
during the term of this Agreement.
6.4 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
6
<PAGE>
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. PEC shall also provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein.
With the exception of the covenants contained in Sections 8.1, 8.3 and 8.4
herein (which shall survive such termination), the Company and the Executive
thereafter shall have no further obligations under this Agreement.
6.5 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. At all times prior to
six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination), the Company and the
Executive thereafter shall have no further obligations under this Agreement.
7
<PAGE>
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a termination for cause is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 TERMINATION FOR GOOD REASON. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
8
<PAGE>
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an officer
of the Company, or a reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from those in effect
during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's or PEC's short- and/or long-term incentive compensation
plans, or employee benefit or retirement plans, policies, practices, or
arrangements in which the Executive participates as of the Effective Date;
provided, however, that reductions in the levels of participation in any
such plans shall not be deemed to be "Good Reason" if the Executive's
reduced level of participation in each such plan remains substantially
consistent with the average level of participation of other executives who
have positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
SECTION 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATION IN CONNECTION WITH A CHANGE IN CONTROL. In the event
of a Qualifying Termination (as defined below) within six (6) full calendar
months prior to the effective date of a Change in Control, or within twenty-four
(24) months following the effective
9
<PAGE>
date of a Change in Control, then in lieu of all other benefits provided to the
Executive under the provisions of this Agreement, the Company shall pay to the
Executive in a lump sum payment and provide him with the following severance
benefits (hereinafter referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the then-existing fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixty-five (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level or coverage shall change for all
employees of PEC, the cost and/or coverage level, likewise, shall change
for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause (as provided in Section
10
<PAGE>
6.6 herein); (2) by reason of death, Disability (as provided in Section 6.3
herein), or Retirement (as such term is then defined in the Company's tax
qualified defined benefit retirement plans; provided that a termination which
qualifies as a Retirement and which would otherwise qualify as a termination for
Good Reason under Section 6.7 herein will be deemed to be a Qualifying
Termination).
7.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control shall be deemed to
have occurred as of the first day any one or more of the following conditions
shall have been satisfied:
(a) Any individual, corporation (other than the Company or PEC, its
subsidiaries or affiliates), partnership, trust, association, pool,
syndicate, or any other entity or any group of persons acting in concert
becomes the beneficial owner, as that concept is defined in Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, of securities of PEC possessing twenty percent (20%)
or more of the voting power for the election of directors of PEC;
(b) There shall be consummated any consolidation, merger, or other business
combination involving PEC or the securities of PEC in which holders of
voting securities of PEC immediately prior to such consummation own, as a
group, immediately after such consummation, voting securities of PEC (or,
if PEC does not survive such transaction, voting securities of the
corporation surviving such transaction) having less than sixty percent
(60%) of the total voting power in an election of directors of PEC (or
such other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of PEC cease for any
reason to constitute at least a majority thereof unless the election, or
the nomination for election by PEC's shareholders, of each new director of
PEC was approved by a vote of at least two-thirds (2/3) of the directors
of PEC then still in office who were directors of PEC at the beginning of
any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company or PEC (on a consolidated
basis) to a party which is not controlled by or under common control with
the Company or PEC.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash
11
<PAGE>
an additional amount (the "Gross-Up Payment") such that the net amount retained
by the Executive after deduction of any Excise Tax upon the Total Payments and
any Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control or the Executive's termination of
employment (whether pursuant to the terms of this or any other plan,
arrangement, or agreement with the Company, or with any person (which
shall have the meaning set forth in Section 3(a)(9) of the Securities
Exchange Act of 1934, including a "group" as defined in Section 13(d)
therein) whose actions result in a Change in Control) shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2) of the Code,
and all "excess parachute payments" within the meaning of Section
280G(b)(1) shall be treated as subject to the Excise Tax, unless in the
opinion of tax counsel as supported by the Company's independent auditors
and acceptable to the Executive, such other payments or benefits (in whole
or in part) do not constitute parachute payments, or unless such excess
parachute payments (in whole or in part) represent reasonable compensation
for services actually rendered within the meaning of Section 280G(b)(4) of
the Code in excess of the base amount within the meaning of Section
280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
12
<PAGE>
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service adjusts
the computation of the Company under Section 7.4 herein so that the Executive
did not receive the greatest net benefit, the Company shall reimburse the
Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Company.
7.6 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this
Section 7 to which the Executive becomes entitled under this Agreement, or as a
result of the Company's contesting the validity, enforceability, or
interpretation of this Agreement, or as a result of any conflict (including
conflicts related to the calculation of parachute payments) between the parties
pertaining to this Agreement.
SECTION 8. CONFIDENTIALITY AND NONCOMPETITION
8.1 CONFIDENTIALITY. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, any "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company, PEC or any of the Company's or PEC's
subsidiaries or affiliates (hereinafter, the Company, PEC and their respective
subsidiaries and affiliates shall be collectively referred to as the "Company
Group"), except as may be in the public domain other than by violation of this
Agreement.
8.2 NONCOMPETITION. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or proprietary interest in (except for ownership of
shares in a publicly traded company not exceeding five percent (5%) of any class
of outstanding securities), or be an employee, agent, director, advisor, or
consultant to or for any corporation (other than the Company Group), business
enterprise or any person engaged anywhere in the State of Rhode Island and the
Commonwealth of Massachusetts, whether on his own behalf or on behalf of any
person other than the Company Group, in the manufacture, procuring, sale,
marketing, promotion or distribution of any product or product lines functioning
competitively with any product or product lines of the Company Group during the
term of this Agreement, and the Executive will not assist in, manage or
supervise any of the foregone activities; (ii) undertake any action to induce or
cause any customer or client of the Company Group to discontinue any part of its
business with the Company Group; (iii) cause, induce or in any way facilitate
the employment by any other persons or organization of any employee of or
consultant to the Company Group, provided, that this covenant shall become
operative only upon the termination of the Executive's employment; or (iv) take
or assist directly or indirectly in the taking, by acting as consultant to a
third party or otherwise of any position on any matter involving the Company and
pending before any state or other public agency, when such position is adverse
to the position being promoted before such agency at the time by the Company.
13
<PAGE>
8.3 TRADE SECRETS. "Trade Secrets" as used herein means all secret discoveries,
inventions, formulae, designs, methods, processes, techniques of production and
know-how relating to the Company Group's business. "Confidential Information" as
used herein means the Company Group's internal policies and procedures,
suppliers, customers, financial information and marketing practices, as well as
secret discoveries, inventions, formulae, designs, techniques of production,
know-how and other information relating to the Company Group's business not
rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the Company of all further payment obligations under
Paragraph 6 or Paragraph 7.
SECTION 9. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
SECTION 10. OUTPLACEMENT ASSISTANCE
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section 6.5) and two (2) year (for
terminations pursuant to Section 6.7 or 7.1) periods after the effective date of
termination; provided, however, that the total reimbursement shall be limited to
an amount equal to fifteen percent (15%) of the Executive's Base Salary as of
the effective date of termination.
SECTION 11. ASSIGNMENT
11.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.5 herein.
14
<PAGE>
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
SECTION 12. DISPUTE RESOLUTION AND NOTICE
12.1 ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
12.2 NOTICE. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
SECTION 13. MISCELLANEOUS
13.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto, including without
limitation the Existing Agreement, with respect to the subject matter hereof and
constitutes the entire agreement of the parties with respect thereto.
13.3 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be
15
<PAGE>
determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
13.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 TAX WITHHOLDING. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Company. The Executive may make or change such
designation at any time.
SECTION 14. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
_____________________________________
Providence Energy Services, Inc.
By:__________________________________
Chairman of the Board
16
<PAGE>
GUARANTY
--------
The undersigned PROVIDENCE ENERGY CORPORATION, a Rhode Island corporation and
owner of all of the capital stock of Providence Energy Services, Inc. ("PES"),
hereby guarantees to James M. Stephens the payment and performance, when due, by
PES of all of its obligations to him under that certain Employment Agreement
dated as of the 2nd day of May, 1999 between James M. Stephens and PES.
PROVIDENCE ENERGY CORPORATION
By __________________________________
Its __________________________________
Dated: ____________________
17
<PAGE>
Exhibit 10c
PROVIDENCE ENERGY CORPORATION
CHANGE OF CONTROL AGREEMENT
This AGREEMENT is made, entered into, and is effective as of this 10th day of
May, 1999 (hereinafter referred to as the "Effective Date"), by and between
Providence Energy Corporation, together with its subsidiaries and affiliates
(hereinafter referred to as the "Company"), a Rhode Island corporation having
its principal offices at Providence Rhode Island and KENNETH W. HOGAN
(hereinafter referred to as the "Executive").
WHEREAS, the Executive has been offered employment by the Company in the
capacity of VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND TREASURER;
WHEREAS, the Executive possesses considerable experience and knowledge of
business affairs and operations and, as such, the Executive has unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of encouraging the full attention by the
Executive to his duties in his capacity aforesaid and wishes to make provisions
for certain protections of the Executive in the event of the termination of his
employment under specified conditions.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1 TERMINATION FOR GOOD REASON. At any time during the six (6) full
calendar month period prior to the effective date of a Change in Control (as
defined in Section 2.2) or the twenty four (24) month period following the
effective date of a Change in Control (as defined in Section 2.2), the Executive
may terminate this Agreement for Good Reason (as defined below) by giving the
Board of Directors of the Company thirty (30) calendar days written notice of
intent to terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 2.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
1
<PAGE>
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an officer
of the Company, or a reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from those in effect
during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, which Base Salary is One Hundred Fifty-Four Thousand
Dollars ($154,000.00) as of the Effective Date, or a reduction from any
subsequent increase to the Base Salary as of the Effective Date;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or arrangements
in which the Executive participates as of the Effective Date; provided,
however, that reductions in the levels of participation in any such plans
shall not be deemed to be "Good Reason" if the Executive's reduced level
of participation in each such program remains substantially consistent
with the average level of participation of other executives who have
positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 5.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 2.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
2
<PAGE>
SECTION 2
CHANGE IN CONTROL
2.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the thenexisting fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixtyfive (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
3
<PAGE>
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 2, a Qualifying Termination shall mean any
termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause ; (2) by reason of death, Disability, or Retirement (as such term is then
defined in the Company's tax qualified defined benefit retirement plan;
[provided that a termination which qualifies as a Retirement and which would
otherwise qualify as a termination for Good Reason under Section 1 herein will
be deemed to be a Qualifying Termination)].
2.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company), partnership, trust,
association, pool, syndicate, or any other entity or any group of persons
acting in concert becomes the beneficial owner, as that concept is defined
in Rule 13d-3 promulgated by the Securities and Exchange Commission under
the Securities Exchange Act of 1934, of securities of the Company
possessing twenty percent (20%) or more of the voting power for the
election of directors of the Company;
(b) There shall be consummated any consolidation, merger, or other business
combination involving the Company or the securities of the Company in
which holders of voting securities of the Company immediately prior to
such consummation own, as a group, immediately after such consummation,
voting securities of the Company (or, if the Company does not survive such
transaction, voting securities of the corporation surviving such
transaction) having less than sixty percent (60%) of the total voting
power in an election of directors of the Company (or such other surviving
corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of the Company cease for
any reason to constitute at least a majority thereof unless the election,
or the nomination for election by the Company's shareholders, of each new
director of the Company was approved by a vote of at least two-thirds
(2/3) of the directors of the Company then still in office who were
directors of the Company at the beginning of any such period; or
4
<PAGE>
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company (on a consolidated basis)
to a party which is not controlled by or under common control with the
Company.
2.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
2.4 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's independent
auditors and acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and
5
<PAGE>
(c) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
2.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 2.4 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Human Resources and Planning
Committee.
2.6 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 2 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to their Agreement.
SECTION 3. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
SECTION 4. OUTPLACEMENT ASSISTANCE
Following a termination of the Executive's employment as described in Sections 1
or 2 herein, the Executive shall be reimbursed by the Company for the costs of
all outplacement services obtained by the Executive within the six (6) months
prior and two (2) year periods after the effective date of termination;
provided, however, that the total reimbursement shall be limited to an amount
equal to fifteen percent (15%) of the Executive's Base Salary as of the
effective date of termination.
6
<PAGE>
SECTION 5. ASSIGNMENT
5.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of a termination
by the Company, as provided in Section 2.1 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
5.2 ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
SECTION 6. DISPUTE RESOLUTION AND NOTICE
6.1 ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
6.2 NOTICE. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
7
<PAGE>
SECTION 7. MISCELLANEOUS
7.1 Entire Agreement. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
7.2 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
7.3 SEVERABILITY. In the event that any provision or portion of this Agreement
shall be determined to be invalid or unenforceable for any reason, the remaining
provisions of this Agreement shall be unaffected thereby and shall remain in
full force and effect.
7.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
7.5 TAX WITHHOLDING. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
7.6 BENEFICIARIES. The Executive may designate one or more persons or entities
as the primary and/or contingent beneficiaries of any amounts to be received
under this Agreement. Such designation must be in the form of a signed writing
acceptable to the Board or the Board's designee. The Executive may make or
change such designation at any time.
SECTION 8. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
8
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
_____________________________________
ATTEST Providence Energy Corporation
By:______________________ By:__________________________________
Corporate Secretary Chairman, President and CEO
9
<PAGE>
Exhibit 10d
CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Term of Employment 1
Section 2. Position and Responsibilities 2
Section 3. Standard of Care 2
Section 4. Compensation 3
Section 5. Expenses 5
Section 6. Employment Terminations 5
Section 7. Change in Control 10
Section 8. Confidentiality and Noncompetition 13
Section 9. Indemnification 14
Section 10. Outplacement Assistance 14
Section 11. Assignment 15
Section 12. Dispute Resolution and Notice 15
Section 13. Miscellaneous 16
Section 14. Governing Law 16
</TABLE>
<PAGE>
PROVIDENCE GAS COMPANY
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT is made, entered into, and is effective as of this 1st
day of October, 1998 (hereinafter referred to as the "Effective Date"), by and
between Providence Gas Company (hereinafter referred to as the "Company"), a
Rhode Island corporation having its principal offices in Providence, Rhode
Island and PETER J. GILL (hereinafter referred to as the "Executive").
WHEREAS, the Executive is presently employed by the Company in the capacity of
VICE PRESIDENT OF INFORMATION TECHNOLOGY OF THE COMPANY;
WHEREAS, the Executive possesses considerable experience and an intimate
knowledge of the business and affairs of the Company, its policies, methods,
personnel, and operations; and
WHEREAS, the Company recognizes that the Executive's contribution has been
substantial and meritorious and, as such, the Executive has demonstrated unique
qualifications to act in an executive capacity for the Company; and
WHEREAS, the Company is desirous of assuring the continued employment of the
Executive in the above stated capacity, and Executive is desirous of having such
assurance.
NOW THEREFORE, in consideration of the foregoing and of the mutual covenants and
agreements of the parties set forth in this Agreement, and of other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
SECTION 1. TERM OF EMPLOYMENT
The Company hereby agrees to employ the Executive and the Executive hereby
agrees to continue to serve the Company, in accordance with the terms and
conditions set forth herein, for an initial period of one (1) year, commencing
as of the Effective Date of this Agreement, as indicated above; subject,
however, to earlier termination as expressly provided in Section 6 herein.
The initial one (1) year period of employment automatically shall be extended
for one (1) additional year at the end of the initial one (1) year term, and
then again after each successive year thereafter. However, either party may
terminate this Agreement at the end of the initial one (1) year period, or at
the end of any successive year thereafter, by giving the other party written
notice of intent not to renew, delivered at least ninety (90) calendar days
prior to the end of such initial period or successive term.
1
<PAGE>
In the event such notice of intent not to renew is properly delivered by the
Company, this Agreement, along with all corresponding rights, duties, and
covenants, shall automatically expire at the end of the initial period or
successive term then in progress, with the exception of the provisions contained
in Section 8 herein (which shall survive such expiration). However, upon the
effective date of the expiration, the Company shall provide to the Executive a
continuation of his Base Salary (at the rate then in effect, as provided in
Paragraph 4.1 herein) for a period of twelve (12) months, paid in equal monthly
installments in accordance with the normal payroll practices of the Company. The
Company also shall provide to the Executive all benefits to which the Executive
has a vested right to at that time including, but not limited to, the retirement
benefits described in Paragraph 4.4 herein, and the retiree medical insurance
benefits described in Paragraph 4.6 herein.
However, regardless of the above, if at any time during the initial period of
employment, or successive term, a Change in Control of the Company occurs (as
defined in Section 7 herein), then this Agreement shall become immediately
irrevocable for the longer of: (a) one (1) year beyond the month in which the
effective date of such Change in Control occurs; or (b) until all obligations of
the Company hereunder have been fulfilled, and until all benefits provided
hereunder have been paid.
SECTION 2. POSITION AND RESPONSIBILITIES
During the term of this Agreement, the Executive agrees to serve as Vice
President of the Company. In his capacity as Vice President, the Executive
shall maintain the level of duties and responsibilities as in effect as of the
Effective Date, or such higher level of duties and responsibilities as he may be
assigned during the term of this Agreement. The Executive shall have the same
status, privileges, and responsibilities normally inherent in such capacities in
corporations of similar size and character.
SECTION 3. STANDARD OF CARE
During the term of this Agreement, the Executive agrees to devote substantially
his full time, attention, and energies to the Company's business and shall not
be engaged in any other business activity, whether or not such business activity
is pursued for gain, profit, or other pecuniary advantage. However, subject to
Section 8 herein, the Executive may serve as a director of other companies so
long as such service is not injurious to the Company. The Executive covenants,
warrants, and represents that he shall:
(a) Devote his full and best efforts to the fulfillment of his employment
obligations; and
(b) Exercise the highest degree of loyalty and the highest standards of conduct
in the performance of his duties.
2
<PAGE>
This Section 3 shall not be construed as preventing the Executive from investing
assets in such form or manner as will not require his services in the daily
operations of the affairs of the companies in which such investments are made.
SECTION 4. COMPENSATION
As remuneration for all services to be rendered by the Executive during the term
of this Agreement, and as consideration for complying with the covenants herein,
the Company shall pay and provide to the Executive the following:
4.1 BASE SALARY. The Company shall pay the Executive a Base Salary in an
amount which shall be established from time to time by the Board of Directors of
the Company or the Board's designee provided, however, that such Base Salary
shall not be less than $106,000.00 per year. This Base Salary shall be paid to
the Executive in equal monthly installments throughout the year, consistent with
the normal payroll practices of the Company.
The annual Base Salary shall be reviewed at least annually following the
Effective Date of this Agreement, while this Agreement is in force, to ascertain
whether, in the judgment of the Board or the Board's designee, such Base Salary
should be increased, based primarily on the performance of the Executive during
the year and on the then current rate of inflation. If so increased, the Base
Salary as stated above shall, likewise, be increased for all purposes of this
Agreement.
4.2 ANNUAL CASH INCENTIVE COMPENSATION. The Company shall provide the
Executive with the opportunity to earn an annual cash incentive compensation
payment, at a level which is in accordance with the provisions of the
Performance and Equity Incentive Plan or any such successor plan, and which is
commensurate with the opportunity typically offered to executives having the
same or similar duties and responsibilities as the Executive at companies
similar in size and character to the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing and/or amending the Performance and Equity Incentive Plan
so long as such changes are similarly applicable to all executives generally.
4.3 LONG-TERM INCENTIVES. The Company shall provide the Executive the
opportunity to earn a long-term incentive award, at a level which is in
accordance with the provisions of the Performance and Equity Incentive Plan or
any such successor plan, and which is commensurate with the opportunity
typically offered to executives having the same or similar duties and
responsibilities as the Executive at companies similar in size and in character
to the Company.
3
<PAGE>
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the Performance and Equity Incentive
Plan, so long as such changes are similarly applicable to all executives
generally.
4.4 RETIREMENT BENEFITS. The Company shall provide to the Executive
participation in all Company qualified defined benefit and defined contribution
retirement plans, subject to the eligibility and participation requirements of
such plans. In addition, the Company shall provide to the Executive
participation in the Supplemental Retirement Plan and all other nonqualified
retirement programs typically offered to executives having the same or similar
duties and responsibilities at the Company.
Nothing in this paragraph shall be construed as obligating the Company to
refrain from changing, and/or amending the nonqualified retirement programs, so
long as such changes are similarly applicable to all executives generally.
4.5 EMPLOYEE BENEFITS. During the term of this Agreement, and as otherwise
provided within the provisions of each of the respective plans, the Company
shall provide to the Executive all benefits to which other executives and
employees of the Company are entitled to receive, as commensurate with the
Executive's position. Such benefits shall include, but not be limited to, group
term life insurance, whole life insurance, comprehensive health and major
medical insurance, dental insurance, vision insurance, and short-term and long-
term disability.
The Executive shall be entitled to paid vacation in accordance with the standard
written policy of the Company with regard to vacations of employees. The
Executive shall likewise participate in any additional benefit as may be
established during the term of this Agreement, by standard written policy of the
Company.
4.6 PERQUISITES. The Company shall provide to the Executive, at the Company's
cost, all perquisites to which other executives of the Company are entitled to
receive and such other perquisites which are suitable to the character of
Executive's position with the Company and adequate for the performance of his
duties hereunder.
4.7 RIGHT TO CHANGE PLANS. By reason of Paragraphs 4.5, and 4.6 herein, the
Company shall not be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing any benefit plan, program, or perquisite, so long as
such changes are similarly applicable to executive employees generally.
4.8 DEFERRALS. The Company may permit the Executive to defer the Executive's
receipt of the payment of up to one hundred (100%) percent of the cash
component of the Executive's Annual Incentive Compensation. If any such
deferral election is permitted, the Company shall, in its sole discretion,
establish rules and procedures for such payment deferrals.
4
<PAGE>
SECTION 5. EXPENSES
The Company shall pay, or reimburse the Executive, for all ordinary and
necessary expenses, in a reasonable amount, which the Executive incurs in
performing his duties under this Agreement including, but not limited to,
travel, entertainment, professional dues and subscriptions, and all dues, fees,
and expenses associated with membership in various professional, business, and
civic associations and societies of which the Executive's participation is in
the best interest of the Company.
SECTION 6. EMPLOYMENT TERMINATIONS
6.1 TERMINATION DUE TO RETIREMENT. In the event the Executive's employment is
terminated, while this Agreement is in force, by reason of Retirement (as
defined under the then established rules of the Company's tax-qualified
retirement plan), the Executive's benefits shall be determined in accordance
with the Company's retirement, survivor's benefits, insurance, and other
applicable programs of the Company then in effect.
Upon the effective date of such termination, the Company's obligation to pay and
provide to the Executive Base Salary, Annual Cash Incentive Compensation and
Long-Term Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3 herein,
respectively), shall immediately expire. However, the Executive shall receive a
pro rata portion of the total annual incentive compensation (both cash and
long-term), calculated at target, to which he would be entitled during the year
in which he retires, and shall receive all rights and benefits that he is vested
in, pursuant to other plans and programs of the Company including, but not
limited to, the retirement benefits as described in Paragraph 4.4 herein.
6.2 TERMINATION DUE TO DEATH. In the event of the death of the Executive
during the term of this Agreement, or during any period of Disability during
which he is receiving compensation pursuant to Paragraph 6.3 herein, the Company
shall pay to the Executive's surviving spouse, or other beneficiary as so
designated by the Executive during his lifetime, or to the Executive's estate,
as appropriate, all benefits to which the Executive had a vested right to
pursuant to this Agreement.
6.3 TERMINATION DUE TO DISABILITY. In the event that the Executive becomes
Disabled during the term of this Agreement and is, therefore, unable to perform
his duties herein for a period of more than ninety (90) calendar days in the
aggregate, during any period of twelve (12) consecutive months, or in the event
of the Board's reasonable expectation that the Executive's Disability will exist
for more than a period of ninety (90) calendar days, the Company shall have the
right to terminate the Executive's active employment as provided in this
Agreement. However, the Board shall deliver written notice to the Executive of
the Company's intent to terminate for Disability at least thirty (30) calendar
days prior to the effective date of such termination.
5
<PAGE>
A termination for Disability shall become effective upon the end of the thirty
(30) day notice period. Upon such effective date, the Company's obligation to
pay and provide to the Executive Base Salary, Annual Bonus, and Long-Term
Incentives (as provided in Paragraphs 4.1, 4.2, and 4.3, respectively), shall
immediately expire. However, the Executive shall receive a pro rata portion of
the total annual incentive compensation (both cash and long-term), calculated at
target, to which he would be entitled during the year in which disability occurs
and shall receive all rights and benefits that he is vested in, pursuant to
other plans and programs of the Company, including, but not limited to, short-
and long-term disability benefits, and retirement benefits as described in
Paragraph 4.4.
The term "Disability" shall mean, for all purposes of this Agreement, the
incapacity of the Executive, due to injury, illness, disease, or bodily or
mental infirmity, to engage in the performance of substantially all of the usual
duties of employment with the Company as contemplated by Section 2 herein, such
Disability to be determined by the Board of Directors of the Company upon
receipt and in reliance on competent medical advice from one or more
individuals, selected by the Board, who are qualified to give such professional
medical advice.
If the Executive and the Company shall not be in agreement as to whether the
Executive has suffered a Disability for the purposes of this Agreement, the
matter shall be referred to a panel of three medical doctors, one of which shall
be selected by the Executive, one of which shall be selected by the Company, and
one of which shall be selected by the two doctors as so selected, and the
decision of a majority of the panel with respect to the question of whether the
Executive has suffered a Disability shall be binding upon the Executive and the
Company. The expenses of any such referral shall be borne by the party against
whom the decision of the panel is rendered. The Executive may be required by the
Company to submit to medical examination at any time during the period of his
employment hereunder, but not more often than quarter-annually, to determine
whether a Disability exists for the purposes of this Agreement.
It is expressly understood that the Disability of the Executive for a period of
ninety (90) calendar days or less in the aggregate during any period of twelve
(12) consecutive months, in the absence of any reasonable expectation that his
Disability will exist for more than such a period of time, shall not constitute
a failure by him to perform his duties hereunder and shall not be deemed a
breach or default and the Executive shall receive full compensation for any such
period of Disability or for any other temporary illness or incapacity during the
term of this Agreement.
6.4 VOLUNTARY TERMINATION BY THE EXECUTIVE. The Executive may terminate this
Agreement at any time by giving the Board of Directors of the Company written
notice of intent to terminate, delivered at least thirty (30) calendar days
prior to the effective date of such termination (such period not to include
vacation). The termination automatically shall become effective upon the
expiration of the thirty (30) day notice period.
6
<PAGE>
Upon the effective date of such termination, the Company shall pay to the
Executive his full Base Salary, at the rate then in effect as provided in
Paragraph 4.1 herein, through the effective date of termination, plus all other
benefits to which the Executive has a vested right to at that time including,
but not limited to, accrued vacation pay. The Company also shall provide to the
Executive the vested retirement benefits described in Paragraph 4.4 herein. With
the exception of the covenants contained in Sections 8.1, 8.3 and 8.4 herein
(which shall survive such termination), the Company and the Executive thereafter
shall have no further obligations under this Agreement.
6.5 INVOLUNTARY TERMINATION BY THE COMPANY WITHOUT CAUSE. At all times prior
to six (6) full calendar months before the effective date of a Change in Control
(as defined in Section 7.2), or at any time more than two (2) years after the
effective date of a Change in Control (as defined in Section 7.2), the Board may
terminate the Executive's employment, as provided under this Agreement, at any
time, for reasons other than death, Disability, Retirement, or for Cause, by
notifying the Executive in writing of the Company's intent to terminate, at
least thirty (30) calendar days prior to the effective date of such termination.
Upon the effective date of such termination, following the expiration of the
thirty (30) day notice period, the Company shall pay to the Executive in twelve
(12) equal monthly installments an amount equal to the Executive's annual Base
Salary then in effect. Additionally, the Company shall continue to provide the
Executive with health and welfare benefits for the twelve (12) month time
period.
In the event that, during the twelve (12) month period following the effective
date of termination, the Executive becomes employed at the same or greater
annual Base Salary than that which was in effect during the year in which
termination occurred, the Company's obligation to make payments under this
Section will immediately cease upon the date of the Executive's subsequent
employment. In the event that, during the twelve (12) month period following
the effective date of termination, the Executive becomes employed at a lesser
annual Base Salary than that which was in effect during the year in which
termination occurred, then upon the date of the Executive's re-employment, the
Company's obligation to make payments under this section will be limited to a
monthly amount reflecting the difference between the Executive's Base Salary at
the date of re-employment and the Executive's Base Salary during the year in
which termination occurred. The continuation of health and welfare benefits
shall be discontinued prior to the end of the twelve (12) month period in the
event the Executive has available substantially similar benefits from a
subsequent employer.
Further, the Company shall pay the Executive all other benefits to which the
Executive has a vested right at the time, according to the provisions of the
governing plan or program. With the exceptions of the covenants contained in
Section 8 herein (which shall survive such termination) the Company and the
Executive thereafter shall have no further obligations under this Agreement.
7
<PAGE>
If the Executive's employment is terminated for any of the reasons set forth in
Section 7.1 herein, the Executive shall be entitled to receive the benefits
provided in Section 7.1 herein in lieu of the benefits set forth in this Section
6.5.
6.6 TERMINATION FOR CAUSE. Nothing in this Agreement shall be construed to
prevent the Board from terminating the Executive's employment under this
Agreement for "Cause." Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Cause unless and until there shall have been
delivered to the Executive a copy of a resolution duly adopted by the unanimous
vote of the entire membership of the Board at a meeting of such Board duly
called and held for that purpose (after reasonable notice to the Executive and
an opportunity for the Executive, together with the Executive's counsel, to be
heard by the Board) finding that in the good faith opinion of the Board that the
Executive was guilty of conduct set forth in the second paragraph of this
Section 6.6 and specifying the particulars thereof in detail. In the event the
Board determines that Cause exists, the Board shall deliver written notice to
the Executive of the facts and circumstances leading to the Board's
determination. Upon receipt of this written notification, all provisions of this
Agreement shall terminate, except for the confidentiality and noncompete
provisions of Section 8 herein (which shall survive such termination). The
Company shall pay the Executive his full Base Salary and accrued vacation time
through the date notice of a for Cause termination is delivered to the
Executive, plus all other benefits to which the Executive has a vested right to
at that time. The Company and the Executive thereafter shall have no further
obligations under this Agreement other than the Executive's obligations under
Section 8 hereof.
"Cause" shall be determined by the Board in the exercise of good faith and
reasonable judgment; and shall mean the willful misconduct, fraud, conviction of
a felony, consistent gross neglect of duties, or wanton negligence by the
Executive in the performance of his duties hereunder, or the material breach by
the Executive of the terms of this Agreement.
6.7 TERMINATION FOR GOOD REASON. At any time during the six (6) full calendar
month period prior to the effective date of a Change in Control (as defined in
Section 7.2) or the twenty four (24) month period following the effective date
of a Change in Control (as defined in Section 7.2), the Executive may terminate
this Agreement for Good Reason (as defined below) by giving the Board of
Directors of the Company thirty (30) calendar days written notice of intent to
terminate, which notice sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for such termination.
Upon the expiration of the thirty (30) day notice period, the Good Reason
termination shall become effective, and the Company shall pay and provide to the
Executive the benefits set forth in Section 7.1 herein.
Good Reason shall mean, without the Executive's express written consent, the
occurrence of any one or more of the following:
8
<PAGE>
(a) The assignment of the Executive to duties materially inconsistent with the
Executive's authorities, duties, responsibilities, and status as an officer
of the Company, or a reduction or alteration in the nature or status of the
Executive's authorities, duties, or responsibilities from those in effect
during the immediately preceding fiscal year;
(b) The Company's requiring the Executive to be based at a location which is
at least fifty (50) miles further from the Executive's current primary
residence than is such residence from the Company's current headquarters,
except for required travel on the Company's business to an extent
substantially consistent with the Executive's business obligations as of
the Effective Date;
(c) A reduction by the Company in the Executive's Base Salary as in effect on
the Effective Date, as provided in Section 4.1 herein, or as the same
shall be increased from time to time;
(d) A material reduction in the Executive's level of participation in any of
the Company's short- and/or long-term incentive compensation plans, or
employee benefit or retirement plans, policies, practices, or arrangements
in which the Executive participates as of the Effective Date; provided,
however, that reductions in the levels of participation in any such plans
shall not be deemed to be "Good Reason" if the Executive's reduced level
of participation in each such program remains substantially consistent
with the average level of participation of other executives who have
positions commensurate with the Executive's position; or
(e) The failure of the Company to obtain a satisfactory agreement from any
successor to the Company to assume and agree to perform this Agreement, as
contemplated in Section 11.1 herein.
Upon a termination for Good Reason within the six (6) full calendar month period
prior to the effective date of a Change in Control, or within the twenty-four
(24) months following the effective date of a Change in Control, the Executive
shall be entitled to receive the payments and benefits set forth in Section 7.1
herein.
The Executive's right to terminate employment for Good Reason shall not be
affected by the Executive's incapacity due to physical or mental illness. The
Executive's continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason herein.
9
<PAGE>
SECTION 7. CHANGE IN CONTROL
7.1 EMPLOYMENT TERMINATIONS IN CONNECTION WITH A CHANGE IN CONTROL. In the
event of a Qualifying Termination (as defined below) within six (6) full
calendar months prior to the effective date of a Change in Control, or within
twenty-four (24) months following the effective date of a Change in Control,
then in lieu of all other benefits provided to the Executive under the
provisions of this Agreement, the Company shall pay to the Executive in a lump
sum payment and provide him with the following severance benefits (hereinafter
referred to as the "Severance Benefits"):
(a) An amount equal to two (2) times the highest rate of the Executive's
annualized Base Salary rate in effect at any time up to and including the
effective date of termination;
(b) An amount equal to two (2) times the Executive's target incentive award
(both cash and long-term) established for the fiscal year in which the
Executive's effective date of termination occurs;
(c) An amount equal to the Executive's unpaid Base Salary and accrued vacation
pay through the effective date of termination;
(d) An amount equal to the Executive's unpaid targeted annual bonus,
established for the plan year in which the Executive's effective date of
termination occurs, multiplied by a fraction, the numerator of which is
the number of completed days in the thenexisting fiscal year through the
effective date of termination, and the denominator of which is three
hundred sixtyfive (365);
(e) A continuation of the welfare benefits of medical insurance, dental
insurance, and group term life insurance for two (2) full years after the
effective date of termination. These benefits shall be provided to the
Executive at the same premium cost, and at the same coverage level, as in
effect as of the Executive's effective date of termination. However, in
the event the premium cost and/or level of coverage shall change for all
employees of the Company, the cost and/or coverage level, likewise, shall
change for the Executive in a corresponding manner.
The continuation of these welfare benefits shall be discontinued prior to
the end of the two (2) year period in the event the Executive has
available substantially similar benefits from a subsequent employer, as
determined by the Company's Board of Directors or the Board's designee.
10
<PAGE>
(f) A lump-sum cash payment of the actuarial present value equivalent of the
aggregate benefits accrued by the Executive as of the effective date of
termination under the terms of any and all supplemental retirement plans
in which the Executive participates. For purposes of determining "final
average pay" under such programs, the Executive's actual pay history as of
the effective date of termination shall be used.
For purposes of this Section 7, a Qualifying Termination shall mean any
termination of the Executive's employment OTHER THAN: (1) by the Company for
Cause (as provided in Section 6.6 herein); (2) by reason of death, Disability
(as provided in Section 6.2 herein), or Retirement (as such term is then defined
in the Company's tax qualified defined benefit retirement plan; [provided that a
termination which qualifies as a Retirement and which would otherwise qualify as
a termination for Good Reason under Section 6.7 herein will be deemed to be a
Qualifying Termination]).
7.2 DEFINITION OF "CHANGE IN CONTROL." A Change in Control of the Company
shall be deemed to have occurred as of the first day any one or more of the
following conditions shall have been satisfied:
(a) Any individual, corporation (other than the Company, its subsidiaries or
affiliates), partnership, trust, association, pool, syndicate, or any
other entity or any group of persons acting in concert becomes the
beneficial owner, as that concept is defined in Rule 13d-3 promulgated by
the Securities and Exchange Commission under the Securities Exchange Act
of 1934, of securities of Providence Energy Corporation possessing twenty
percent (20%) or more of the voting power for the election of directors of
Providence Energy Corporation;
(b) There shall be consummated any consolidation, merger, or other business
combination involving Providence Energy Corporation or the securities of
Providence Energy Corporation in which holders of voting securities of
Providence Energy Corporation immediately prior to such consummation own,
as a group, immediately after such consummation, voting securities of
Providence Energy Corporation (or, if Providence Energy Corporation does
not survive such transaction, voting securities of the corporation
surviving such transaction) having less than sixty percent (60%) of the
total voting power in an election of directors of Providence Energy
Corporation (or such other surviving corporation);
(c) During any period of two (2) consecutive years, individuals who at the
beginning of such period constitute the directors of Providence Energy
Corporation cease for any reason to constitute at least a majority thereof
unless the election, or the nomination for election by Providence Energy
Corporation's shareholders, of each new director of
11
<PAGE>
Providence Energy Corporation was approved by a vote of at least two-
thirds (2/3) of the directors of Providence Energy Corporation then still
in office who were directors of Providence Energy Corporation at the
beginning of any such period; or
(d) There shall be consummated any sale, lease, exchange, or other transfer
(in one transaction or a series of related transactions) of all, or
substantially all, of the assets of Providence Energy Corporation (on a
consolidated basis) to a party which is not controlled by or under common
control with Providence Energy Corporation.
7.3 EXCISE TAX EQUALIZATION PAYMENT. In the event that the Executive becomes
entitled to Severance Benefits or any other payment or benefit under this Plan,
or under any other agreement with or plan of the Company (in the aggregate, the
"Total Payments"), if any of the Total Payments will be subject to the tax (the
"Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may
hereafter be imposed), the Company shall pay to the Executive in cash an
additional amount (the "Gross-Up Payment") such that the net amount retained by
the Executive after deduction of any Excise Tax upon the Total Payments and any
Federal, state and local income tax and Excise Tax upon the Gross-Up Payment
provided for by this Section 7.3 (including FICA and FUTA), shall be equal to
the Total Payments. Such payment shall be made by the Company to the Executive
as soon as practical following the effective date of termination, but in no
event beyond thirty (30) days from such date.
7.4 TAX COMPUTATION. For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amounts of such Excise Tax:
(a) Any other payments or benefits received or to be received by the Executive
in connection with a Change in Control of the Company or the Executive's
termination of employment (whether pursuant to the terms of this Plan or
any other plan, arrangement, or agreement with the Company, or with any
person (which shall have the meaning set forth in Section 3(a)(9) of the
Securities Exchange Act of 1934, including a "group" as defined in Section
13(d) therein) whose actions result in a Change in Control of the Company
or any person affiliated with the Company or such persons) shall be
treated as "parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the meaning of
Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless
in the opinion of tax counsel as supported by the Company's independent
auditors and acceptable to the Executive, such other payments or benefits
(in whole or in part) do not constitute parachute payments, or unless such
excess parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning of Section
280G(b)(4) of the Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise
Tax;
12
<PAGE>
(b) The amount of the Total Payments which shall be treated as subject to the
Excise Tax shall be equal to the lesser of: (i) the total amount of the
Total Payments; or (ii) the amount of excess parachute payments within the
meaning of Section 280G(b)(1) (after applying clause (a) above); and
(C) The value of any noncash benefits or any deferred payment or benefit shall
be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up Payment, the Executive
shall be deemed to pay federal income taxes at the highest marginal rate of
Federal income taxation in the calendar year in which the Gross-Up Payment is to
be made, and state and local income taxes at the highest marginal rate of
taxation in the state and locality of the Executive's residence on the effective
date of termination, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes.
7.5 SUBSEQUENT RECALCULATION. In the event the Internal Revenue Service
adjusts the computation of the Company under Section 7.4 herein so that the
Executive did not receive the greatest net benefit, the Company shall reimburse
the Executive for the full amount necessary to make the Executive whole, plus a
market rate of interest, as determined by the Committee.
7.6 PAYMENT OF LEGAL FEES. To the extent permitted by law, the Company shall
pay all legal fees, costs of litigation, prejudgment interest, and other
expenses incurred in good faith by the Executive as a result of the Company's
refusal to provide the severance benefits under this Section 7 to which the
Executive becomes entitled under this Agreement, or as a result of the Company's
contesting the validity, enforceability, or interpretation of this Agreement, or
as a result of any conflict (including conflicts related to the calculation of
parachute payments) between the parties pertaining to this Agreement.
SECTION 8. CONFIDENTIALITY AND NONCOMPETITION
8.1 CONFIDENTIALITY. During the term of this Agreement and thereafter in
perpetuity, the Executive will not directly or indirectly divulge or appropriate
to his own use, or to the use of any third party, and "trade secrets" (as
defined in Section 8.3), other secret or confidential information, knowledge or
financial information of the Company, Providence Energy Corporation or any of
the Company's subsidiaries or affiliates (hereinafter, the Company, Providence
Energy Corporation and its subsidiaries and affiliates shall be collectively
referred to as the "Company Group"), except as may be in the public domain other
than by violation of this Agreement.
8.2 NONCOMPETITION. From the date hereof until two (2) years after the
termination of his employment hereunder, the Executive will not (i) directly or
indirectly own any equity or
13
<PAGE>
proprietary interest in (except for ownership of shares in a publicly traded
company not exceeding five percent (5%) of any class of outstanding securities),
or be an employee, agent, director, advisor, or consultant to or for any
corporation (other than the Company Group), business enterprise or any person
engaged anywhere in the State of Rhode Island or the Commonwealth of
Massachusetts, whether on his own behalf or on behalf of any person other than
the Company Group, in the manufacture, procuring, sale, marketing, promotion or
distribution of any product or product lines functioning competitively with any
product or product lines of the Company Group during the term of this Agreement,
and the Executive will not assist in, manage or supervise any of the foregone
activities; (ii) undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business with the Company
Group; (iii) cause, induce or in any way facilitate the employment by any other
persons or organization of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon the termination of
the Executive's employment; or (iv) take or assist directly or indirectly in the
taking, by acting as consultant to a third party or otherwise of any position on
any matter involving the Company and pending before any state or other public
agency, when such position is adverse to the position being promoted before such
agency at the time by the Company.
8.3 TRADE SECRETS. "Trade Secrets" as used herein means all secret
discoveries, invention, formulae, designs, methods, processes, techniques of
production and know-how relating to the Company Group's business. "Confidential
Information" as used herein means the Company Group's internal policies and
procedures, suppliers, customers, financial information and marketing practices,
as well as secret discoveries, inventions, formulae, designs, techniques of
production, know-how and other information relating to the Company Group's
business not rising to the level of a trade secret under applicable law.
8.4 The breach by the Executive of any of the covenants continued in this
Paragraph 8 shall relieve the Company of all further payment obligation under
Paragraph 6 or Paragraph 7.
SECTION 9. INDEMNIFICATION
The Company hereby covenants and agrees to indemnify and hold harmless the
Executive fully, completely, and absolutely against and in respect to any and
all actions, suits, proceedings, claims, demands, judgments, costs, expenses
(including attorney's fees), losses, and damages resulting from the Executive's
good faith performance of his duties and obligations under the terms of this
Agreement.
SECTION 10. OUTPLACEMENT ASSISTANCE
Following a termination of the Executive's employment as described in Sections
6.5, 6.7, or 7.1 herein, the Executive shall be reimbursed by the Company for
the costs of all outplacement services obtained by the Executive within the one
(1) year (for termination pursuant to Section
14
<PAGE>
6.5) and two (2) year (for terminations pursuant to Section 6.7 or 7.1) periods
after the effective date of termination; provided, however, that the total
reimbursement shall be limited to an amount equal to fifteen percent (15%) of
the Executive's Base Salary as of the effective date of termination.
SECTION 11. ASSIGNMENT
11.1 ASSIGNMENT BY COMPANY. This Agreement may and shall be assigned or
transferred to, and shall be binding upon and shall inure to the benefit of, any
successor of the Company, and any such successor shall be deemed substituted for
all purposes of the "Company" under the terms of this Agreement. As used in this
Agreement, the term "successor" shall mean any person, firm, corporation, or
business entity which at any time, whether by merger, purchase, or otherwise,
acquires all or essentially all of the assets of business of the Company.
Notwithstanding such assignment, the Company shall remain, with such successor,
jointly and severally liable for all its obligations hereunder.
Failure of the Company to obtain such agreement prior to the effectiveness of
any such succession shall be a breach of this Agreement and shall immediately
entitle the Executive to compensation from the Company in the same amount and on
the same terms as the Executive would be entitled in the event of an involuntary
termination by the Company, as provided in Paragraph 6.6 herein.
Except as herein provided, this Agreement may not otherwise be assigned by the
Company.
11.2 ASSIGNMENT BY EXECUTIVE. This Agreement shall inure to the benefit of and
be enforceable by the Executive's personal or legal representatives, executors,
and administrators, successors, heirs, distributees, devisees, and legatees. If
the Executive should die while any amounts payable to the Executive hereunder
remain outstanding, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, in the absence of such designee, to the
Executive's estate.
SECTION 12. DISPUTE RESOLUTION AND NOTICE
12.1 ARBITRATION. Any dispute or controversy arising under or in connection
with this Agreement shall be settled by arbitration, conducted before a panel of
three (3) arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of his employment with the Company, in
accordance with the rules of the American Arbitration Association then in
effect.
Judgment may be entered on the award of the arbitrator in any court having
proper jurisdiction. All expenses of such arbitration, including the fees and
expenses of the counsel for the Executive, shall be borne by the Company.
15
<PAGE>
12.2 NOTICE. Any notices, requests, demands, or other communications provided
for by this Agreement shall be sufficient if in writing and if sent by
registered or certified mail to the Executive at the last address he has filed
in writing with the Company or, in the case of the Company, at its principal
offices.
SECTION 13. MISCELLANEOUS
13.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any
masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
13.2 ENTIRE AGREEMENT. This Agreement supersedes any prior agreements or
understandings, oral or written, between the parties hereto or between the
Executive and the Company, with respect to the subject matter hereof and
constitutes the entire Agreement of the parties with respect thereto.
13.3 MODIFICATION. This Agreement shall not be varied, altered, modified,
canceled, changed, or in any way amended except by mutual agreement of the
parties in a written instrument executed by the parties hereto or their legal
representatives.
13.4 SEVERABILITY. In the event that any provision or portion of this
Agreement shall be determined to be invalid or unenforceable for any reason, the
remaining provisions of this Agreement shall be unaffected thereby and shall
remain in full force and effect.
13.5 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original, but all of which together will
constitute one and the same Agreement.
13.6 TAX WITHHOLDING. The Company may withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as may be required
pursuant to any law or governmental regulation or ruling.
13.7 BENEFICIARIES. The Executive may designate one or more persons or
entities as the primary and/or contingent beneficiaries of any amounts to be
received under this Agreement. Such designation must be in the form of a signed
writing acceptable to the Company. The Executive may make or change such
designation at any time.
SECTION 14. GOVERNING LAW
To the extent not preempted by federal law, the provisions of this Agreement
shall be construed and enforced in accordance with the laws of the state of
Rhode Island.
16
<PAGE>
IN WITNESS WHEREOF, the Executive and the Company (pursuant to a resolution
adopted at a duly constituted meeting of its Board of Directors) have executed
this Agreement, as of the day and year first above written.
Executive:
_____________________________________
ATTEST Providence Gas Company
By:______________________ By:__________________________________
Corporate Secretary Chairman, President and CEO
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 211,091
<OTHER-PROPERTY-AND-INVEST> 2,527
<TOTAL-CURRENT-ASSETS> 34,920
<TOTAL-DEFERRED-CHARGES> 30,692
<OTHER-ASSETS> 8,775
<TOTAL-ASSETS> 288,005
<COMMON> 6,025
<CAPITAL-SURPLUS-PAID-IN> 60,227
<RETAINED-EARNINGS> 31,747
<TOTAL-COMMON-STOCKHOLDERS-EQ> 97,999
0
3,200
<LONG-TERM-DEBT-NET> 92,656
<SHORT-TERM-NOTES> 22,150
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,137
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 68,863
<TOT-CAPITALIZATION-AND-LIAB> 288,005
<GROSS-OPERATING-REVENUE> 196,344
<INCOME-TAX-EXPENSE> 6,954
<OTHER-OPERATING-EXPENSES> 170,253
<TOTAL-OPERATING-EXPENSES> 177,207
<OPERATING-INCOME-LOSS> 19,137
<OTHER-INCOME-NET> 984
<INCOME-BEFORE-INTEREST-EXPEN> 20,121
<TOTAL-INTEREST-EXPENSE> 6,306
<NET-INCOME> 13,815
278
<EARNINGS-AVAILABLE-FOR-COMM> 13,537
<COMMON-STOCK-DIVIDENDS> 4,848
<TOTAL-INTEREST-ON-BONDS> 5,043
<CASH-FLOW-OPERATIONS> 23,432
<EPS-BASIC> 2.26
<EPS-DILUTED> 2.25
</TABLE>
