SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 1-8180
TECO ENERGY, INC.
(Exact name of registrant as specified in its charter)
FLORIDA 59-2052286
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
702 North Franklin Street, Tampa, Florida 33602
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (813) 228-4111
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
Number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date (October 31, 1998):
Common Stock, $1 Par Value 131,910,308<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of management, the unaudited consolidated
financial statements include all adjustments necessary to
present fairly the results for the three-month and nine-
month periods ended Sept. 30, 1998 and 1997. The current
year financial statements include the results of Griffis,
Inc. and its affiliate, U. S. Propane, Inc., a Florida
p r o pane business acquired in a January 1998 merger
transaction accounted for as a pooling of interests. The
1997 financial statements have not been restated to reflect
this merger due to its relatively small size. Reference
should be made to the explanatory notes affecting the income
and balance sheet accounts contained in TECO Energy, Inc.'s
Annual Report on Form 10-K for the year ended Dec. 31, 1997
and to the notes on pages 7 through 14 of this report.
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FORM 10-Q
CONSOLIDATED BALANCE SHEETS
(in millions)
Sept. 30, Dec. 31,
1998 1997
Assets
Current assets
Cash and cash equivalents $ 21.5 $ 10.6
Receivables, less allowance
for uncollectibles 244.4 222.7
Note receivable 19.5 --
Inventories, at average cost
Fuel 75.7 80.8
Materials and supplies 64.7 63.1
Prepayments 15.6 12.9
441.4 390.1
Property, plant and equipment,
at original cost
Utility plant in service
Electric 3,945.0 3,880.6
Gas 505.0 471.1
Construction work in progress 68.2 57.0
Other property 981.0 950.8
5,499.2 5,359.5
Accumulated depreciation (2,250.6) (2,123.0)
3,248.6 3,236.5
Other assets
Other investments 73.9 82.5
Deferred income taxes 96.0 88.1
Deferred charges and other assets 260.5 163.2
430.4 333.8
$4,120.4 $3,960.4
Liabilities and Capital
Current liabilities
Long-term debt due within one year $ 14.6 $ 12.7
Notes payable 263.1 447.5
Accounts payable 143.8 158.7
Customer deposits 78.2 77.9
Interest accrued 32.8 21.8
Taxes accrued 58.0 14.0
590.5 732.6
Deferred income taxes 488.5 470.9
Investment tax credits 48.0 51.7
Regulatory liability-tax related 34.1 35.1
Other deferred credits 137.9 145.2
Long-term debt, less amount due
within one year 1,303.6 1,080.2
Common equity
Common equity - 400 million shares
authorized, $1 par value - issued and
outstanding 131,784,237 in 1998 and
130,922,039 in 1997 1,581.5 1,512.2
Unearned compensation (63.7) (67.5)
$4,120.4 $3,960.4
The accompanying notes are an integral part of the consolidated financial
statements.
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FORM 10-Q
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
For the three months ended Sept. 30, 1998 1997
Revenues $525.6 $494.7
Expenses
Operation 271.7 247.5
Maintenance 29.3 30.1
Depreciation 58.2 56.5
Taxes, other than income 38.2 35.0
397.4 369.1
Income from operations 128.2 125.6
Other income (expense)
Other income (expense), net .4 (.5)
Income before interest and income taxes 128.6 125.1
Interest expense 25.8 26.4
Income before provision for income taxes 102.8 98.7
Provision for income taxes 32.0 31.2
Net income from continuing operations 70.8 67.5
Net (loss) from discontinued operations, net
of income tax benefit of $3.5 million
for 1997 -- (6.5)
Net gain (loss) on disposal of discontinued
operations, net of income tax benefit of
$.9 million for 1997 -- (1.7)
Net income $ 70.8 $ 59.3
Average common shares outstanding 131.8 130.8
Earnings per average common share outstanding:
Basic and diluted-
From continuing operations $ 0.54 $ .51
Net income $ 0.54 $ .45
Dividend rate per common share outstanding $ 0.31 $0.295
The accompanying notes are an integral part of the consolidated financial
statements.
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FORM 10-Q
CONSOLIDATED STATEMENTS OF INCOME
(in millions)
For the nine months ended Sept. 30, 1998 1997
Revenues $1,484.0 $1,405.8
Expenses
Operation 774.9 718.6
Maintenance 89.3 83.3
Non-recurring charges 25.9 --
Depreciation 172.4 168.4
Taxes, other than income 113.1 108.5
1,175.6 1,078.8
Income from operations 308.4 327.0
Other income (expense)
Other income (expense), net (3.0) 1.8
Preferred dividend requirements of
Tampa Electric -- (.5)
(3.0) 1.3
Income before interest and income taxes 305.4 328.3
Interest expense 77.7 79.9
Income before provision for income taxes 227.7 248.4
Provision for income taxes 68.2 79.6
Net income from continuing operations 159.5 168.8
Net (loss) from discontinued operations, net
of income tax benefit of $3.5 million
for 1997 -- (6.5)
Net gain (loss) on disposal of discontinued
operations, net of income tax expense
of $12.9 million for 1998 and net of
income tax benefit of $.9 million for 1997 22.2 (1.7)
Net income $ 181.7 $ 160.6
Average common shares outstanding 131.7 130.7
Earnings per average common share outstanding:
Basic and diluted-
From continuing operations $ 1.21 $ 1.29
Net income $ 1.38 $ 1.23
Dividend rate per common share outstanding $ 0.915 $ 0.87
The accompanying notes are an integral part of the consolidated financial
statements.
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FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
For the nine months ended Sept. 30, 1998 1997
Cash flows from operating activities
Net income $ 181.7 $ 160.6
Adjustments to reconcile net income
to net cash:
Depreciation 172.4 168.4
Deferred income taxes 7.1 (17.3)
Investment tax credits, net (3.7) (3.8)
Allowance for funds used
during construction (.2) (.1)
Amortization of unearned compensation 5.4 4.5
Gain on disposal of discontinued
operations, pretax (37.5) --
Deferred revenue (31.7) (27.7)
Deferred recovery clause 13.4 2.2
Refund to customers -- (19.4)
Non-recurring charges 25.9 --
Receivables, less allowance
for uncollectibles (21.7) 11.5
Inventories 3.4 (19.3)
Taxes accrued 44.0 33.3
Interest accrued 10.9 10.7
Accounts payable (16.6) (13.6)
Other 14.7 8.7
367.5 298.7
Cash flows from investing activities
Capital expenditures (174.7) (148.1)
Allowance for funds used
during construction .2 .1
Net proceeds from sale of assets 39.2 --
Investment in unconsolidated affiliates (111.5) (3.5)
Other non-current investments 3.7 5.6
(243.1) (145.9)
Cash flows from financing activities
Common stock 3.5 3.8
Proceeds from long-term debt 201.2 29.3
Repayment of long-term debt (13.3) (73.6)
Net borrowings under credit lines 60.0 (49.8)
Net increase (decrease) in short-term debt (244.4) 88.6
Redemption of preferred stock,
including premium -- (20.4)
Dividends (120.5) (108.7)
(113.5) (130.8)
Net increase in cash and cash equivalents 10.9 22.0
Cash and cash equivalents
at beginning of period 10.6 15.9
Cash and cash equivalents at end of period $ 21.5 $ 37.9
The accompanying notes are an integral part of the consolidated financial
statements.
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FORM 10-Q
NOTES TO FINANCIAL STATEMENTS
A. Certain prior year amounts have been reclassified to conform with
the current year presentation.
B. In January 1998, the company acquired an unregulated Florida
propane business, Griffis, Inc. and its affiliate, U. S. Propane,
Inc., in a merger transaction accounted for as a pooling of interests.
The 1997 statements have not been restated to reflect the operations
and financial position of this acquired business due to its relatively
small size.
C. As reported in the company's Annual Report on Form 10-K for the
year ended Dec. 31, 1997, the company in August 1997 announced its
plan to discontinue operations of its conventional oil and gas
subsidiary, TECO Oil & Gas, Inc.
In March 1998, TECO Oil & Gas sold its offshore assets to a
subsidiary of American Resources of Delaware (ARD) for $57.7 million,
consisting of $39.2 million in cash and a subordinated note (the
"Note") in the principal amount of $18.5 million. TECO Energy
recognized an after-tax gain on this transaction of $23.7 million, or
18 cents per share, in the first quarter of 1998. An estimate of
activities at TECO Oil & Gas after the Aug. 31, 1997 measurement date,
including the gain on the sale of its offshore assets, is reported as
a gain on the disposal of discontinued operations for the periods
ended Sept. 30, 1998. TECO Oil & Gas continues to pursue the sale of
its onshore assets.
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FORM 10-Q
A summary of the net assets of TECO Oil & Gas is as follows:
(millions) Sept. 30, Dec. 31,
1998 1997
Note receivable from sale,
including accrued interest $19.5 $ --
Other current assets .3 1.5
Net property, plant and equipment 4.1 19.5
Other assets 3.8 4.1
Total liabilities -- (3.3)
Net assets $27.7 $ 21.8
Total revenues from discontinued operations for the three- and
nine-month periods ended Sept. 30, 1997 were $1.9 million and $10.8
million, respectively. There were no revenues from discontinued
operations for the same periods ended Sept. 30, 1998.
As an inducement to TECO Oil & Gas to accept the Note, ARD
entered into a warrant agreement with TECO Oil & Gas granting TECO Oil
& Gas a common stock purchase warrant (the Warrant ). Because the
Note was not paid in full on or before Oct. 1, 1998, TECO Oil & Gas
has the right under the Warrant to purchase 600,000 shares of ARD
Common Stock at a price per share of $2.67 and to purchase, at a price
per share of $0.0001, shares of ARD Common Stock equal to (i) ten
percent of the shares of ARD Common Stock outstanding on the date of
exercise, (ii) an additional five percent of the shares of ARD Common
Stock outstanding on the date of exercise, if the Note is not paid by
Jan. 1, 1999 and (iii) an additional five percent of the shares of ARD
Common Stock outstanding on the date of exercise, if the Note is not
paid by April 1, 1999. The Warrant expires on July 1, 1999. As of the
date of this filing, TECO Oil & Gas has not exercised any of its
rights under the Warrant.
Because of its default on the Note, ARD is obligated under the
Warrant Agreement to increase the number of members of its board of
directors by two, and TECO Oil & Gas has the right to designate
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FORM 10-Q
individuals to fill such positions. Under the Warrant Agreement, ARD
has also agreed, while the Note remains unpaid, to take all actions
within its control to maintain such individuals as directors of ARD.
As of the date of this filing, TECO Oil & Gas has not exercised its
right to designate two directors of ARD, but reserves its right to do
so.
TECO Energy continues to monitor this situation and expects to
collect the outstanding note in full.
D. TECO Energy and its subsidiaries have made certain commitments in
connection with their continuing capital expenditure program and
estimate that capital expenditures for continuing operations during
1998, excluding TECO Power Services Corporation's investments in
unconsolidated affiliates discussed on page 10, will be as follows:
millions
Tampa Electric Company
Electric division $163
Peoples Gas System 55
TECO Transport Corporation 49
TECO Coal Corporation 9
Peoples Gas Company 5
$281
In July 1998, the electric division of Tampa Electric Company
(Tampa Electric) announced that it had determined that the most cost-
effective method of compliance with the U.S. Environmental Protection
Agency's (EPA) Clean Air Act Amendments Phase II sulfur dioxide (SO )
2
reduction requirements is to install a flue gas desulfurization (FGD)
system at Big Bend Station Units One and Two, comparable to the system
operated for Big Bend Units Three and Four. The project's estimated
cost is $88 million. Conceptual and preliminary site engineering is
underway, and the project is scheduled to be completed by the middle
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FORM 10-Q
of 2000. Carrying charges and other costs associated with the system
are planned to be recovered through the Environmental Cost Recovery
Clause. Tampa Electric's 1998 estimated capital expenditures include
$16.0 million related to this FGD system.
The above estimated capital expenditures do not include TECO
Power Services' 1998 investments made in unconsolidated affiliates.
TECO Power Services announced its participation in certain independent
power business expansion opportunities during the third quarter of
1998; these opportunities are discussed on pages 25 and 26. TECO Power
Services had invested $111 million in unconsolidated affiliates for
the nine-month period ended Sept. 30, 1998 and estimates that its
i n v e stment in unconsolidated affiliates for 1998 will total
approximately $130 million.
E. Tampa Electric recognized revenues that had been deferred in 1995
and 1996 pursuant to regulatory agreements approved by the Florida
Public Service Commission (FPSC). For the three- and nine-month
periods ended Sept. 30, 1998, $11.8 million and $31.7 million,
respectively, of these revenues were recognized. Previously deferred
revenues of $10.6 million and $27.7 million were recognized for the
three- and nine-month periods ended Sept. 30, 1997, respectively.
E f fective Oct. 1, 1997, Tampa Electric's customers began
receiving a $25-million temporary base rate reduction over a 15-month
period pursuant to the same agreements.
F. Earnings Per Share:
In 1997, the Financial Accounting Standards Board (FASB) issued
Financial Accounting Standard (FAS) 128, Earnings per Share, which
requires disclosure of basic and diluted earnings per share and a
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FORM 10-Q
reconciliation (where different) of the numerator and denominator from
basic to diluted earnings per share.
The reconciliation of TECO Energy's basic and diluted earnings
per share is shown below:
Three Months Ended Sept. 30, 1998 1997
(millions, except per share amounts)
Numerator (Basic and Diluted)
Net income from continuing operations $70.8 $67.5
Net income $70.8 $59.3
Denominator
Average number of shares outstanding-basic 131.8 130.8
Plus: incremental shares for assumed
conversions: Stock options at end
of period 3.1 2.7
Less: Treasury shares which could
be purchased (2.7) (2.2)
Average number of shares outstanding-diluted 132.2 131.3
Earnings per share from continuing operations
Basic and diluted $ .54 $ .51
Earnings per share
Basic and diluted $ .54 $ .45
Nine Months Ended Sept. 30, 1998 1997
(millions, except per share amounts)
Numerator (Basic and Diluted)
Net income from continuing operations $159.5 $168.8
Net income $181.7 $160.6
Denominator
Average number of shares outstanding-basic 131.7 130.7
Plus: incremental shares for assumed
conversions: Stock options at end
of period 3.2 2.7
Less: Treasury shares which could
be purchased (2.7) (2.3)
Average number of shares outstanding-diluted 132.2 131.1
Earnings per share from continuing operations
Basic and diluted $1.21 $1.29
Earnings per share
Basic and diluted $1.38 $1.23
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FORM 10-Q
G. In 1997, the FASB issued FAS 130, Reporting Comprehensive Income,
effective for fiscal periods beginning after Dec. 15, 1997. The new
standard requires that comprehensive income, which includes net income
as well as certain changes in assets and liabilities recorded in
common equity, be reported in the financial statements. For the three-
and nine-month periods ended Sept. 30, 1998 and 1997, there were no
components of comprehensive income other than net income.
H. In the first quarter of 1998, the company recognized one-time
charges at TECO Coal, TeCom and Tampa Electric Company totaling $16.5
million, after tax.
The $8.9-million after-tax charge recorded by TECO Coal was to
adjust the asset values of certain mining facilities, primarily at its
Gatliff mine, to reflect their expected value after the Tampa Electric
contract expires in 1999. TECO Coal expects no further asset
adjustments related to the expiration of the Tampa Electric contract.
TeCom recorded a one-time after-tax charge of $1.7 million to
write-off certain development costs related to residential system
features developed early in the product life and no longer in the
current system design.
As discussed in TECO Energy's 1997 Annual Report on Form 10-K,
the FPSC in September 1997 ruled that under the regulatory agreements
effective through 1999 the costs associated with two long-term
wholesale power sales contracts should be assigned to the wholesale
jurisdiction and that for retail rate making purposes the costs
transferred from retail to wholesale should reflect average costs
rather than the lower incremental costs on which the two contracts are
based. As a result of this decision and the related reduction of the
retail rate base upon which Tampa Electric is allowed to earn a
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FORM 10-Q
return, these contracts became uneconomic. One contract was terminated
in 1997. As to the other contract, which expires in 2001, Tampa
Electric has entered into firm power purchase contracts with third
parties to provide replacement power through 1999 and is no longer
s e p a rating the associated generation assets from the retail
jurisdiction. The cost of purchased power under these contracts
e x c eeds the revenues expected through 1999. To reflect this
difference, Tampa Electric recorded a $5.9-million after-tax charge in
the first quarter of 1998.
I. In the second quarter of 1998, Tampa Electric Company filed a
registration statement on Form S-3 for the issuance of up to $200
million of medium-term notes. On July 31, 1998, the company issued $50
million of Remarketed Notes (the Tampa Electric Notes) due 2038. The
Tampa Electric Notes are subject to mandatory tender on July 15, 2001,
at which time they will be remarketed or redeemed. The coupon rate for
the initial term is 5.94%. If the remarketing agent appointed by
Tampa Electric Company in connection with the issue of the Tampa
Electric Notes exercises its right to purchase the Tampa Electric
Notes on July 15, 2001, for the following ten years the Tampa Electric
Notes will bear interest at an annual rate of 5.41% plus a premium
based on Tampa Electric Company s then current credit spread above
United States Treasury Notes with ten years to maturity. Otherwise,
the Tampa Electric Notes may be remarketed for periods selected by
Tampa Electric Company at fixed or floating market rates of interest.
Net proceeds to Tampa Electric Company were 102.1 percent of the
principal amount and included a premium paid to Tampa Electric Company
by the remarketing agent for the right to purchase the Tampa Electric
Notes in 2001. Proceeds from the Tampa Electric Note issuance were
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FORM 10-Q
used to repay short-term debt.
J. In August 1998, TECO Energy filed a registration statement on
Form S-3 for the issuance from time to time of up to $200 million of
medium-term notes. On Sept. 11, 1998, TECO Energy issued $150 million
of Remarketed Notes (the TECO Notes) due 2038. The TECO Notes are
subject to mandatory tender on Sept. 15, 2001, at which time they will
be remarketed or redeemed. The coupon rate for the initial term is
5.54%. If the remarketing agent appointed by TECO Energy in connection
with the issue of the TECO Notes exercises its right to purchase the
TECO Notes on Sept. 15, 2001, for the following ten years the TECO
Notes will bear interest at an annual rate of 5.41% plus a premium
based on TECO Energy's then current credit spread above United States
Treasury Notes with ten years to maturity. Otherwise, the TECO Notes
may be remarketed for interest periods selected by TECO Energy at
fixed or floating market rates of interest. Net proceeds to TECO
Energy were 102.0 percent of the principal amount and included a
premium paid to TECO Energy by the remarketing agent for the right to
purchase the TECO Notes in 2001. Proceeds from the Note issuance were
used to repay short-term debt and for general corporate purposes.
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FORM 10-Q
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report on Form 10-Q contains forward-looking
statements which are subject to the inherent uncertainties in
predicting future results and conditions. Certain factors that could
cause actual results to differ materially from those projected in
these forward-looking statements include the following: general
economic conditions, particularly those in Tampa Electric's service
area affecting energy sales; weather variations affecting energy sales
and operating costs; potential competitive changes in the electric and
gas industries, particularly in the area of retail competition;
regulatory actions affecting Tampa Electric and Peoples Gas System;
commodity price changes affecting the competitive positions of Tampa
Electric and the Peoples Gas companies as well as margins at TECO
Coalbed Methane and TECO Coal; and changes in and compliance with
environmental regulations that may impose additional costs or curtail
some activities. These factors are discussed more fully under
"Investment Considerations" in registrant's Annual Report on Form 10-K
for the year ended December 31, 1997, and reference is made thereto.
Results of Operations
Three months ended Sept. 30, 1998:
Net income for the quarter ended Sept. 30, 1998 was $70.8
million, or $.54 per share, up 19 percent from $59.3 million, or $.45
cents per share, for the three-month period ended Sept. 30, 1997. Net
income for the third quarter of 1997 included a $8.2-million, or $.06
per share, after-tax loss from discontinued operations discussed in
Note C on pages 7 through 9.
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FORM 10-Q
Consolidated operating income from continuing operations was
$128.2 million, up two percent from $125.6 million in the third
quarter of 1997 primarily due to improved results at TECO Coal, which
more than offset lower operating income at Peoples Gas System.
The following table identifies the unconsolidated revenues and
o p e rating income from continuing operations of TECO Energy's
significant operating groups.
Contributions by operating group (unconsolidated)
Revenues Operating income*
(millions) 1998 1997 1998 1997
Tampa Electric Company
Electric division (1) $353.7 $342.3 $ 94.6 $ 94.0
Peoples Gas System 49.6 49.7 3.2 4.6
$403.3 $392.0 $ 97.8 $ 98.6
Diversified companies $182.0 $156.7 $ 31.7 $ 28.5
(1) The electric division recognized revenues previously deferred of
$11.8 million in 1998 and $10.6 million in 1997. See Note E on
page 10.
* Operating income includes items that are reclassified for
consolidated financial statement purposes. The principal items are
the non-conventional fuels tax credit related to coalbed methane
production and interest expense of the limited-recourse debt related
to independent power operations, both of which are included in
operating income for the diversified companies. In the Consolidated
Statements of Income, the tax credit is part of the provision for
income taxes and the interest is part of interest expense. Certain
1997 amounts have been restated to conform to the current year
presentation.
Tampa Electric Company's Operating Results
Tampa Electric Company's third quarter operating income of $97.8
million was down slightly from that of the same period in 1997, as the
growth in retail electric energy sales was offset by restructuring
costs at the Peoples Gas System division.
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FORM 10-Q
Electric division
Operating income for the electric division was up slightly as
higher revenues offset increased expenses.
Operating revenues for the quarter were three percent higher than
in 1997 due to seven percent higher retail energy sales, the result of
warmer weather and retail customer growth of 2.5 percent. These
results were partially offset by the impact of the temporary base rate
reduction discussed in Note E on page 10. During the third quarter of
1998, the electric division recognized $11.8 million of revenues
previously deferred in accordance with FPSC-approved agreements,
compared to $10.6 million of deferred revenues recognized in the third
quarter of 1997.
Non-fuel operating expenses for the third quarter of 1998 were
seven percent higher than in 1997 due to increased operations and
maintenance expenses, increased depreciation expense from higher plant
balances and higher revenue-related taxes.
Peoples Gas System
At Peoples Gas System, operating income was $1.4 million less
than in 1997's third quarter, reflecting $1.2 million of pretax
r e structuring costs primarily associated with the decision to
discontinue the appliance sales and service business. Peoples Gas
System expects to recoup most of these costs by the end of the year
and to realize significant cost savings going forward.
Total revenues for the quarter were essentially flat, with
residential and commercial natural gas sales (therms) six percent
higher than in last year's period due to customer growth and increased
usage offset by lower gas prices.
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FORM 10-Q
Diversified Companies-Operating Results
Unconsolidated third quarter operating income from TECO Energy's
continuing diversified companies was up 11 percent to $31.7 million
from $28.5 million in 1997's third quarter, reflecting higher
operating income from TECO Coal.
At TECO Coal, revenues were 25-percent higher due to improved
demand in both the metallurgical and steam coal markets, although
prices remained soft. TECO Coal also achieved lower unit production
costs.
At TECO Transport, river volumes were up over last year as a
result of increased north-bound freight and the addition of river
equipment earlier in the year. Weather delays due to an active storm
season and a continued weak export market, negatively impacted the
Gulf and terminal operations and more than offset the increases in the
river business.
At TECO Coalbed Methane, operating income was three percent lower
than in 1997's comparable period, as production declines, which are
typical of coal seam gas wells, were largely offset by lower operating
expenses.
Peoples Gas Company, the unregulated propane business, had
operating results near the prior year's quarter, as the higher propane
gas volumes, attributable to the acquisition of the propane business
described in Note B on page 7, were offset by higher operating
expenses.
Operating income at TECO Power Services was $1.0 million lower
than in 1997, due to the write off of costs primarily associated with
development activities for a discontinued project.
At TeCom, because of a high level of product enhancement activity
in 1998, more product development costs were capitalized. In the third
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FORM 10-Q
quarter of 1998, TeCom capitalized a net $1.8 million of pretax
development costs compared with $1.5 million during the same period
last year. Beginning in the third quarter, TeCom began amortizing
certain previously capitalized product development costs related to
its commercial product offering which became generally available to
the market in September.
Nine months ended Sept. 30, 1998:
Net income for the nine-month period ended Sept. 30, 1998 was
$181.7 million, up 13 percent from $160.6 million for the same period
last year. Net income for the first nine months of 1998 included a net
gain of $22.2 million on the sale of TECO Oil & Gas's offshore assets
described in Note C on pages 7 through 9, partially offset by non-
recurring, after-tax charges of $16.8 million. As discussed in Note H
on pages 12 and 13, these one-time, after-tax charges included write-
offs of $8.9 million at TECO Coal; $1.7 million at TeCom Inc. and $5.9
million at Tampa Electric. The 1997 results included a $3.4-million
net after-tax charge for the Peoples Gas companies' merger-related
transactions. Earnings per share for the current-year period were
$1.38 compared to $1.23 in 1997.
Net income from continuing operations for 1998's first nine
months, after the one-time charges discussed above, were $159.5
million or $1.21 per share, compared to $168.8 million or $1.29 per
share in 1997, after last year's merger costs. Net income from
continuing operations, excluding the one-time charges, was $176.3
million or $1.34 per share in 1998, compared with $172.2 million or
$1.32 per share in 1997, before last year's merger costs.
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FORM 10-Q
Consolidated operating income from continuing operations of
$308.4 million was down from $327.0 million for the same period in
1997, as increases at Tampa Electric and the unregulated propane
business were more than offset by the one-time charges discussed
above, and lower operating results at TECO Power Services and TECO
Coalbed Methane.
The following table identifies the unconsolidated revenues and
o p e rating income from continuing operations of TECO Energy's
significant operating groups.
Contributions by operating group (unconsolidated)
Revenues Operating income*
(millions) 1998 1997 1998 1997
Tampa Electric Company
Electric division(1)(2) $ 948.0 $ 915.1 $231.0 $224.4
Peoples Gas System 188.2 183.6 23.3 25.6
$1,136.2 $1,098.7 $254.3 $250.0
Diversified companies(2) $ 504.8 $ 461.9 $ 85.3 $ 83.1
(1) The electric division recognized revenues previously deferred of
$31.7 million in 1998 and $27.7 million in 1997. See Note E on
page 10.
(2) Operating income for 1998 excludes the non-recurring charges
discussed previously in Note H and on pages 12 and 13.
* O perating income includes items that are reclassified for
consolidated financial statement purposes. The principal items are
the non-conventional fuels tax credit related to coalbed methane
production and interest expense of the limited-recourse debt related
to independent power operations, both of which are included in
operating income for the diversified companies. In the Consolidated
Statements of Income, the tax credit is part of the provision for
income taxes and the interest is part of interest expense. Certain
1997 amounts have been restated to conform to the current year
presentation.
Tampa Electric Company's Operating Results
Tampa Electric Company's nine-month operating income of $254.3
million was two percent higher than in 1997, primarily because of
higher energy sales at the electric division due to unusually hot
summer weather which were partially offset by restructuring costs at
Peoples Gas System.
- 20 -<PAGE>
FORM 10-Q
Electric division
Operating revenues for the current year period increased four
percent from 1997. Retail sales volumes were up five percent,
primarily due to warmer summer weather and customer growth of over two
percent.
Non-fuel operating expenses for the nine-month period, excluding
the $5.9-million after-tax charge discussed in Note H on pages 12 and
13, were three percent higher than in 1997 due to increased generating
unit maintenance and increased depreciation expense resulting from
higher plant balances.
During the first nine months of 1998, Tampa Electric recorded
$1.1 million of after-tax charges relating to its 1996 earnings as a
result of an FPSC audit of that year which involved several
adjustments, including the establishment for regulatory purposes of an
equity ratio cap of 58.7 percent for 1996 compared to the actual ratio
for the year of 59.5 percent. Because of the return on equity
thresholds in Tampa Electric s regulatory agreements covering the
years 1995 through 1999, which are described in TECO Energy s Annual
Report on Form 10-K for the year ended Dec. 31, 1997, and the
potential for customer refunds in 1999 and 2000, Tampa Electric
expects continuing audit scrutiny by the FPSC and active involvement
of intervenors in any proceedings involving returns on equity and
potential refunds.
Peoples Gas System
At Peoples Gas System, operating income was lower than in 1997's
nine-month period primarily due to restructuring costs, which are
expected to be largely recouped by the end of the year. Total revenues
were up three percent from 1997 reflecting an eight-percent increase
- 21 -<PAGE>
FORM 10-Q
in residential and commercial natural gas sales (therms) due to
customer growth and increased usage which were partially offset by
lower gas prices. Higher expenses including $3.5 million of pretax
restructuring costs primarily associated with discontinuing the
appliance sales and service business led to a reduction in operating
income.
Diversified Companies-Operating Results
Unconsolidated nine-month operating income from TECO Energy's
continuing diversified businesses, excluding the one-time charges at
TECO Coal and TeCom discussed in Note H on pages 12 and 13, was three
percent higher than in 1997's comparable period. Revenue growth in the
non-regulated propane business, as well as the continued growth in
third-party volumes at TECO Coal, were partially offset by the write
off of development costs primarily associated with a discontinued
project at TECO Power Services, and lower average gas prices and the
normal, gradual production decline at TECO Coalbed Methane.
Peoples Gas Company, the unregulated propane business, had
operating results $2 million above the prior year's period due to
higher propane gas volumes sold to residential and commercial
customers and improved pricing. The volume increase was primarily
attributable to the additional Florida propane business acquired in
January 1998.
Operating results for TECO Coal, excluding the one-time charge
discussed on page 19, were nine percent above the prior-year period's
results, due to improved demand in both the metallurgical and steam
coal markets which more than offset the planned reduction in tons sold
to Tampa Electric. TECO Coal also achieved lower unit production
costs.
- 22 -<PAGE>
FORM 10-Q
Operating income at TECO Power Services was lower than in the
prior year period due to the write off of development costs primarily
related to a discontinued project.
At TECO Transport, operating income was even with last year's
nine-month period as increased river volumes, the result of barge
additions earlier in the year and increased northbound movements, were
offset by the effects of unfavorable weather conditions and a weak
export market.
A t TECO Coalbed Methane, the gradual, normal decline in
production levels and lower average natural gas prices for the
current-year period resulted in lower operating income. Although gas
prices were significantly lower in the current-year's period, price
hedges executed during the second and third quarters mitigated much of
the impact of the lower prices on operating income.
At TeCom, product enhancement activity continued in 1998 and
product development costs were capitalized. For the first nine months
of 1998, TeCom capitalized $5.8 million, net, of pretax development
costs compared with $4.5 million during the same period last year.
Beginning in the third quarter of 1998, TeCom began amortizing certain
previously capitalized product development costs related to its
commercial product offering which became generally available to the
market in September.
In the first quarter of 1998, TeCom recorded an after-tax charge
of $1.7 million to write-off certain development costs related to
residential system features developed early in the product life and no
longer in the current system design.
The effective income tax rate on net income from continuing
operations for the nine-month period ended Sept. 30, 1998 was 30.0
percent compared to 32.0 percent last year. This decrease was
- 23 -<PAGE>
FORM 10-Q
primarily due to the impact in 1997 of non-deductible merger costs
related to the Lykes Energy merger.
In March 1998, TECO Oil & Gas sold its offshore assets to a
subsidiary of American Resources of Delaware for $57.7 million,
consisting of $39.2 million in cash and a subordinated note in the
principal amount of $18.5 million. TECO Energy recognized an after-tax
gain on this transaction of $23.7 million in the first quarter. The
gain on the sale of the offshore assets and an estimate of onshore
activities at TECO Oil & Gas were reported as a net gain on the
disposal of discontinued operations for the period ended Sept. 30,
1998. (See Note C on pages 7 through 9)
Liquidity, Capital Resources and Changes in Financial Condition
Cash proceeds from TECO Oil & Gas sale of its offshore assets in
March 1998 were used to reduce notes payable. The $18.5-million
subordinated note received as part of the sale, along with interest
accrued on this note, was reflected on the balance sheet at Sept. 30,
1998. See Note C on pages 7 through 9.
TECO Transport entered into a capital lease agreement in March
1998 for the charter of additional capacity. This lease covers 110
river barges and three towboats; the corresponding $35-million five-
year lease commitment was recorded as debt on the balance sheet. The
agreement provides for the acquisition of the equipment at the end of
the lease term.
As discussed in Note I on page 13, on July 31, 1998, Tampa
Electric Company issued $50 million of Remarketed Notes (the Tampa
Electric Notes) due 2038. The Tampa Electric Notes are subject to
mandatory tender on July 15, 2001, at which time they will be
remarketed or redeemed. The coupon rate for the initial term is 5.94%.
- 24 -<PAGE>
FORM 10-Q
Proceeds from the Tampa Electric Note issuance were used to repay
short-term debt.
As discussed in Note J on page 14, on Sept. 11, 1998, TECO Energy
issued $150 million of Remarketed Notes (the TECO Notes) due 2038. The
TECO Notes are subject to mandatory tender on Sept. 15, 2001, at which
time they will be remarketed or redeemed. The coupon rate for the
initial term is 5.54%. Proceeds from the TECO Note issuance were used
to repay short-term debt at TECO Finance and for general corporate
purposes.
As discussed in Note D on pages 9 and 10, Tampa Electric
announced that it has determined that the most cost-effective method
of compliance with the U.S. Environmental Protection Agency's (EPA)
Clean Air Act Amendments Phase II sulfur dioxide (SO2) reduction
requirements is to install a flue gas desulfurization (FGD) system at
Big Bend Station Units One and Two. The project's estimated cost is
$90 million. Conceptual and preliminary site engineering is underway
and the project is scheduled to be completed by the middle of 2000.
Carrying charges and other costs associated with the system are
planned to be recovered through the Environmental Cost Recovery
Clause, a matter which is the subject of a proceeding before the FPSC.
The United States Environmental Protection Agency (EPA) has
commenced an investigation under the Clean Air Act of coal-fired
electric power generators to determine compliance with environmental
p e r m itting requirements associated with repairs, maintenance,
modifications and operations changes (collectively "the changes") made
to the facilities over the years. The EPA's focus is on whether new
source performance standards should be applied to the changes and,
accordingly, whether the best available control technology should be
used. Tampa Electric has been visited by EPA personnel and has
- 25 -<PAGE>
FORM 10-Q
received a comprehensive request for information pursuant to Section
114 of EPA's Clean Air Act regulations. Tampa Electric is evaluating
the request from the EPA and will furnish appropriate information.
Tampa Electric believes that it has built, maintained and operated its
facilities in compliance with relevant environmental permitting
requirements. The timing of completion and the outcome of EPA s
investigation are uncertain at this time.
As discussed in Note D on page 10, TECO Power Services (TPS)
announced its participation in certain independent power business
e x p ansion opportunities in the third quarter of 1998. These
opportunities are discussed in the following paragraphs.
In September 1998, a consortium that includes TPS, Iberdrola, an
electric utility in Spain, and Electricidade de Portugal, an electric
utility in Portugal, completed the purchase of an 80-percent ownership
interest in Guatemala's largest electric distribution utility, Empresa
Electrica de Guatemala, S.A.(EEGSA) for $520 million. TPS has a 30-
percent interest in the consortium. The consortium has obtained debt
financing for a portion of the purchase price. TPS has invested equity
of $100 million in the consortium.
In August 1998, TPS and Mosbacher Power Partners, Ltd. (Mosbacher
Power), an independent power company headquartered in Houston, agreed
to jointly develop, own and operate domestic and international
independent power projects. Under this arrangement, TPS will, among
other things, provide capital and technical expertise to Mosbacher.
TPS expects to benefit from an expanded domestic and international
presence and the opportunity for near-term returns, including a
preferred return to TPS before sharing with Mosbacher Power. TPS'
initial investment was approximately $10 million, with the possibility
of additional investments of $20-$25 million in other projects
- 26 -<PAGE>
FORM 10-Q
including generating facilities in Cambodia and in India, both in late
stages of development. Mosbacher's domestic projects involve two
plants already under construction. One plant, a 30-megawatt (MW)
c o g eneration facility in New Jersey, is scheduled to become
operational in the fourth quarter and the other, a 230-MW cogeneration
plant in Texas, is scheduled to begin operations in the first quarter
of 1999. Both facilities have power purchase agreements in place with
initial terms of 15 and 25 years, respectively.
In October 1998, TPS announced that, in connection with the
Mosbacher Power joint venture discussed above, it had acquired an
interest in a repowered independent power project in the Czech
Republic for approximately $17 million. The TPS/Mosbacher Power joint
venture entity, Nations Energy Corp., NRG Energy, El Paso Energy
International and Stredoceske Energeticke Zavody (STE), a Czech
regional distribution company, are owners of the project. The
facility, after planned expansion, will have a net total capacity of
344 MWs and is scheduled to go in service during the fourth quarter of
1999.
Year 2000
Background
There is a global awareness that many computer programs use only
the last two digits to refer to a year and therefore may not correctly
recognize and process date information beyond the year 1999. This is
referred to as the Year 2000 issue.
The Year 2000 issue exists in two primary areas of TECO Energy's
operations: the critical business systems (such as the financial
reporting, procurement, payroll and customer information and billing
systems) and the control systems (such as those used in the operation
- 27 -<PAGE>
FORM 10-Q
o f generation, transmission and distribution and coal mining
facilities).
The Corporation began work on Year 2000 readiness in August 1995.
The project is segmented into the following phases: awareness,
inventory, assessment, renovation, testing and contingency planning.
The project addresses readiness at Tampa Electric, Peoples Gas System
and the diversified companies.
Readiness
The Corporation has completed its assessment of all hardware,
software and embedded systems and is currently engaged in renovation,
testing and contingency planning. Set forth below is a description by
functional areas of the Corporation s readiness.
Critical Business Systems
The Corporation's critical business systems are scheduled to be
renovated and functionally tested by the end of 1998, including
mainframe hardware which was replaced in July 1998. Mainframe
integrated system testing has begun and is scheduled to be completed
in March 1999. Eighty percent of the renovations to the Corporation's
critical business systems have been made, which represents 60 percent
of the work required to achieve Year 2000 readiness for this part of
the project. To assist in assuring compliance, the renovation work and
the integration testing are being handled by separate outside firms.
Control Systems
Tampa Electric s transmission and distribution systems, including
energy management and control, are scheduled to be Year 2000 ready
(renovated, to the extent necessary, and tested) by the end of 1998.
- 28 -<PAGE>
FORM 10-Q
The corporation believes that 95 percent of the embedded systems used
to control equipment for this system are now Year 2000 ready. Sixty-
five percent of the renovations to the transmission and distribution
system have been made, which represents 55 percent of the work
required to achieve Year 2000 readiness for this part of the project.
Tampa Electric retained industry specialty firms to assist with
identifying areas where renovations were needed in the embedded
systems associated with generator unit controls and with making these
renovations. Sixty percent of these renovations have been made, which
represents an estimated 40 percent of the work required to achieve
Year 2000 readiness for this part of the project. A number of
successful unit tests have been conducted for Tampa Electric s
generating units, and all required plant control system renovations
are scheduled to be complete by May 1999.
Critical systems (those required for uninterrupted operations) in
the other parts of the Corporation are scheduled to be renovated by
the end of 1998, with the exception of a portion of the Peoples Gas
System and the Hardee Power Station control systems, which are
scheduled to be completed in the first half of 1999. Sixty percent of
these renovations have been made, which represents an estimated 40
percent of the work required to achieve Year 2000 readiness for this
part of the project.
Coordination with Others
The Corporation has surveyed its largest suppliers (approximately
1,000) with respect to their Year 2000 readiness, including all
providers of technology supplies and services, and plans to complete
its customer survey process in the first quarter of 1999. As part of
its Year 2000 project, the Corporation will be coordinating with its
- 29 -<PAGE>
FORM 10-Q
suppliers and customers based on their responses to these surveys.
At the request of the U.S. Department of Energy (DOE), the North
American Electric Reliability Council (NERC) prepared a Year 2000
coordination plan and preliminary status report in September of 1998,
and has indicated it will provide a full status report by July of
1999. NERC is conducting monthly readiness assessment surveys and
coordinating information sharing and contingency planning activities
among the member firms. The NERC activity addresses all aspects of
the interconnected electric grid. The aggregated results are being
reported to the DOE and other regulatory bodies in the U.S., Canada
and Mexico. The Natural Gas Council, through the American Gas
A s sociation, is coordinating similar processes within the gas
industry, reporting to the Federal Energy Regulatory Commission. Tampa
Electric and Peoples Gas System are active participants in these
industry groups.
Costs
The total cost of Year 2000 remediation is expected to be $8 to
$10 million, which includes contracted resources, purchases and
internal labor. An estimated breakdown of project costs is as follows:
Tampa Electric - $6 million, Peoples Gas System - $2.5 million, and
the diversified companies - $.5 million. Approximately 40 percent of
the projected costs are attributable to testing expenses, and the
remainder consists primarily of renovation or replacement costs.
Through Sept. 30, 1998, approximately $3 million has been spent, which
includes approximately $1 million total spent in 1996 and 1997. The
Corporation expects to spend a total of approximately $6 million in
1998 and $2 million in the early part of 1999 for Year 2000
remediation.
- 30 -<PAGE>
FORM 10-Q
Risks
The Corporation believes the most reasonably likely worst case
scenario would be the occurrence of isolated outages of limited
duration for utility customers, similar to those occurring during the
utilities' storm season.
The Corporation has assessed its risk of this scenario, and
believes that its contingency efforts (namely, the ability to bypass
automated controls) would mitigate the effect of such a scenario.
Contingency Plans
The Corporation s contingency plan is scheduled to be completed
by the middle of 1999. The contingency plan will include a team to be
established later in 1999 to monitor all critical systems through
significant date transitions and to promptly respond to any problems.
Forward- Looking Statements
The costs of the Corporation's Year 2000 efforts and the dates on
which the Corporation believes it will complete such efforts are based
upon management's best estimates, which were derived using numerous
a s s u mptions regarding future events, including the continued
availability of certain resources, third-party remediation plans and
other factors. There can be no assurance that these estimates will
prove to be accurate and actual results could differ materially from
those currently projected. Specific factors that could cause such
differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 issues, the ability to identify,
assess, remediate and test all relevant computer codes and embedded
technology and similar uncertainties.
- 31 -<PAGE>
FORM 10-Q
Segment Reporting
FAS 131, Disclosures about Segments of an Enterprise and Related
Information, effective for fiscal years beginning after Dec. 15, 1997
establishes standards for reporting information about operating
segments in annual financial statements and interim financial reports
issued to shareholders. Generally, certain financial information is
required to be reported on the basis that is used internally for
evaluating performance of and allocation of resources to operating
segments. TECO Energy has not yet determined to what extent the
standard will impact its reporting of operating segment information in
its Annual Report on Form 10-K for the year ended Dec. 31, 1998.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
TECO Energy is exposed to changes in interest rates primarily as
a result of its borrowing activities. A hypothetical increase in
interest rates of 10 percent of TECO Energy's weighted average
interest rate on its variable rate debt would not have a significant
impact on TECO Energy's pretax earnings over the next fiscal year.
During 1995, TECO Energy entered into a three-year interest rate
exchange agreement to moderate its exposure to short-term interest
rate changes. This agreement, which expired in June 1998, did not have
a significant impact on interest expense for the period ended Sept.
30, 1998.
A hypothetical 10-percent decrease in interest rates would not
have a significant impact on the estimated fair value of TECO Energy's
long-term debt at Sept. 30, 1998.
From time to time, TECO Energy enters into futures, swaps and
option contracts to moderate its exposure to interest rate changes.
- 32 -<PAGE>
FORM 10-Q
The benefits of these arrangements are at risk only in the event of
non-performance by the other party to the agreement, which the company
does not anticipate. TECO Energy does not use derivatives or other
financial products for speculative purposes.
Commodity Price Risk
Currently, at Tampa Electric and Peoples Gas System, commodity
price increases due to changes in market conditions for fuel,
purchased power and natural gas are recovered through cost recovery
clauses, with no effect on earnings.
TECO Coalbed Methane is exposed to commodity price risk through
the sale of natural gas. A 10-percent change in the market price of
natural gas would not have a significant impact on TECO Energy's
earnings.
From time to time, TECO Energy and Tampa Electric Company enter
into futures, swaps and options contracts to hedge the selling price
for its physical production at TECO Coalbed Methane, to limit exposure
to gas price increases at both the regulated natural gas utility and
unregulated propane business, and to limit exposure to fuel price
i n creases at TECO Transport. The benefits of these financial
arrangements are at risk only in the event of non-performance by the
other party to the agreement, which the company does not anticipate.
TECO Energy and Tampa Electric Company do not use derivatives or other
financial products for speculative purposes.
TECO Coal is exposed to commodity price risk through coal sales.
A 10-percent change in the market price of coal would not have a
significant impact on TECO Energy's earnings.
- 33 -<PAGE>
FORM 10-Q
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Forms of Severance Agreements between TECO Energy, Inc. and
certain senior executives, as amended and restated as of
July 15, 1998.
10.2 Form of Amendment to Restricted Stock Agreements, dated as
of July 15, 1998, between TECO Energy, Inc. and certain
senior executives under the TECO Energy, Inc. 1996 Equity
Incentive Plan.
10.3 Form of Amendment to Nonstatutory Stock Option, dated as of
July 15, 1998, under the TECO Energy, Inc. 1996 Equity
Incentive Plan.
12 Ratio of earnings to fixed charges
27 Financial data schedule - nine months ended Sept. 30, 1998.
(EDGAR filing only)
(b) Reports on Form 8-K
The registrant filed a Current Report on Form 8-K dated July 20,
1998 reporting under "Item 5. Other Events" Tampa Electric
Company's plan to comply with Phase II sulfur dioxide emission
standards under the Clean Air Act Amendments.
The registrant filed a Current Report on Form 8-K dated Sept. 11,
1998 reporting under "Item 5. Other Events" that the registrant
had entered into a Purchase Agreement with Morgan Stanley & Co.
Incorporated and Citicorp Securities, Inc. for the sale to
underwriters of $150 million principal amount of Remarketed Notes
due 2038 (the Notes). The Notes are a portion of the $200 million
principal amount of debt securities the registrant registered
under the Securities Act of 1933, as amended, on a registration
statement on Form S-3 in the third quarter of 1998.
The registrant filed a Current Report on Form 8-K dated Oct. 21,
1998 reporting under "Item 5. Other Events" the renewal of the
registrant's existing shareholder rights plan.
- 34 -<PAGE>
FORM 10-Q
SIGNATURES
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.
TECO ENERGY, INC.
(Registrant)
Date: Nov. 13, 1998
By: /s/G. L. Gillette
G. L. Gillette
Vice President - Finance and Chief
Financial Officer
(Principal Financial Officer)
- 35 -<PAGE>
FORM 10-Q
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits Page No.
10.1 Forms of Severance Agreements between 37
TECO Energy, Inc. and certain senior executives,
as amended and restated as of July 15, 1998.
10.2 Form of Amendment to Restricted Stock Agreements, 84
dated as of July 15, 1998, between TECO Energy,
Inc. and certain senior executives under the
TECO Energy, Inc. 1996 Equity Incentive Plan.
10.3 Form of Amendment to Nonstatutory Stock Option, 86
dated as of July 15, 1998, under the TECO
Energy, Inc. 1996 Equity Incentive Plan.
12 Ratio of earnings to fixed charges 89
27 Financial data schedule - nine months ended
Sept. 30, 1998. (EDGAR filing only) --
- 36 -<PAGE>
Exhibit 10.1
PRIVILEGED AND CONFIDENTIAL
July 15, 1998
__________________
__________________
__________________
Dear _____________:
TECO Energy, Inc. (the "Company") considers it essential to
the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the
Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the
possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of
key management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the
Company and in consideration of your agreement set forth in
Subsection 2(iii) hereof, the Company agrees that you shall
receive the severance benefits set forth in this letter agreement
(the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company"
(as defined in Section 2(i) hereof) (or is deemed to be
terminated subsequent to a change in control of the Company in
accordance with the second sentence of Section 3 hereof) under
the circumstances described below. This Agreement amends and
restates the letter agreement dated March 20, 1996 between you
and the Company.
1. Term of Agreement. Subject to the provisions of
Section 13 hereof, this Agreement shall commence on the date
hereof and shall continue in effect through June 30, 2000;
provided, however, that commencing on July 1, 1999 and each July
1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31
of such year, the Company shall have given notice that it does
not wish to extend this Agreement (provided that no such notice
may be given during the pendency of or within two years following
a potential change in control of the Company, as defined in
Section 2(ii) hereof); provided, further, if a change in control
of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in
effect for a period of thirty-six (36) months beyond the month in
which such change in control occurred.
37<PAGE>
2. Change in Control; Potential Change in Control. (i)
Except as provided in the second sentence of Section 3 hereof, no
benefits shall be payable hereunder unless there shall have been
a change in control of the Company, as set forth below. For
purposes of this Agreement, a "change in control of the Company"
shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company
is in fact required to comply therewith; provided, that, without
limitation, such a change in control shall be deemed to have
occurred if:
(A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
c o r p o ration owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3
u n der the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities;
(B) during any period of twenty-four (24) consecutive
months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the
stockholders of the Company was approved by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority
thereof; or
(C) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger
or consolidation resulting in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires 30% or
38<PAGE>
more of the combined voting power of the Company's then
outstanding securities; or
(D) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated
t h e sale or disposition by the Company of all or
substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) t h e Company enters into an agreement, the
consummation of which would result in the occurrence of a
change in control of the Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider
taking actions which if consummated would constitute a
change in control of the Company;
(C) any person (as hereinabove defined), other than
t h e Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company (a)
is or becomes the beneficial owner, (b) discloses directly
or indirectly to the Company or publicly a plan or intention
to become the beneficial owner, or (c) makes a filing under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, with respect to securities to become the beneficial
owner, directly or indirectly, of securities representing
9.9% or more of the combined voting power of the outstanding
voting securities of the Company; or
(D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in
control of the Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change
in control of the Company, you will remain in the employ of the
Company until the earliest of (a) a date which is one (1) year
from the occurrence of such potential change in control of the
Company, (b) the termination by you of your employment after you
attain "normal retirement age" under the provisions of the TECO
Energy Group Retirement Plan or any successor thereto (the
"Retirement Plan") or by reason of Disability as defined in
Section 3(i), or (c) the date of the occurrence of a change in
control of the Company.
3. Termination Following Change in Control. If (i) your
employment is terminated following a change in control of the
39<PAGE>
Company and during the term of this Agreement (as determined
under Section 1 hereof), other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by you without Good
Reason, or (ii) you voluntarily terminate your employment for any
reason during the one-month period commencing on the first
anniversary of the change in control of the Company, then, in
either such case, the Company shall pay you the amounts, and
provide you the benefits, described in Section 4(iii) hereof.
For purposes of this Agreement, your employment shall be deemed
to have been terminated following a change in control of the
Company by the Company without Cause or by you with Good Reason,
if (i) your employment is terminated by the Company without Cause
prior to a change in control of the Company (whether or not such
a change in control ever occurs) and such termination was at the
request or direction of a "person" (as hereinabove defined) who
has entered into an agreement with the Company the consummation
of which would constitute a change in control of the Company,
(ii) you terminate your employment for Good Reason prior to a
change in control of the Company (whether or not such a change in
control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of
such person, or (iii) your employment is terminated by the
Company without Cause or by you for Good Reason and such
termination or the circumstance or event which constitutes Good
Reason is otherwise in connection with or in anticipation of a
change in control of the Company (whether or not such a change in
control ever occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days after
written notice of termination is given you shall not have
returned to the full-time performance of your duties, your
employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason, as defined in
Subsections 3(iv) and 3(iii), respectively) after a written
demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your
duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed "willful" unless
done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you
40<PAGE>
shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct
set forth above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under the
circumstances described in the second sentence of Section 3
hereof (treating all references in paragraphs (A) through (H)
below to a "change in control of the Company" as references to a
"potential change in control of the Company"), of any one of the
following acts by the Company, or failures by the Company to act:
(A) the assignment to you of any duties inconsistent
(except in the nature of a promotion) with the position in
the Company that you held immediately prior to the change in
control of the Company or a substantial adverse alteration
in the nature or status of your position or responsibilities
or the conditions of your employment from those in effect
immediately prior to the change in control of the Company;
(B) a reduction by the Company in your annual base
salary as in effect on the date hereof or as the same may be
increased from time to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which
you were principally employed immediately prior to the date
of the change in control of the Company except for required
travel on the Company's business to an extent substantially
consistent with your present business travel obligations;
(D) the failure by the Company to pay to you any
portion of your current compensation or compensation under
any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect
any material compensation or benefit plan in which you
participate immediately prior to the change in control of
the Company unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided
41<PAGE>
and the level of your participation relative to other
participants, than existed at the time of the change in
control;
(F) the failure by the Company to continue to provide
you with benefits substantially similar to those enjoyed by
you under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which
you were participating at the time of the change in control
of the Company, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the change in control of the
Company, or the failure by the Company to provide you with
the number of paid vacation days to which you are entitled
on the basis of your years of service with the Company in
accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) t h e f ailure of the Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in Section
6 hereof; or
(H) any purported termination of your employment which
is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (iv) below (and,
if applicable, the requirements of Subsection (ii) above),
which purported termination shall not be effective for
purposes of this Agreement.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be communicated
by written Notice of Termination to the other party hereto in
accordance with Section 7 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii)
above or for any other reason (other than Disability), the date
42<PAGE>
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (ii) above shall not be less
than thirty (30) days, and in the case of a termination pursuant
to Subsection (iii) above shall not be less than fifteen (15) nor
more than sixty (60) days, respectively, from the date such
Notice of Termination is given); provided that if within fifteen
(15) days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard to
this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written
agreement of the parties or by a binding arbitration award; and
provided further that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency
of any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary)
and continue you as a participant in all compensation, benefit
and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts
paid under this Subsection are in addition to all other amounts
due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability.
Following a change in control of the Company, as defined by
Subsection 2(i), or prior to a change in control of the Company
under the circumstances described in the second sentence of
Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following
benefits:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity due
to physical or mental illness, you shall continue to receive your
base salary at the rate in effect at the commencement of any such
period, together with all compensation payable to you under the
Company's disability plan or program or other similar plan during
such period, until this Agreement is terminated pursuant to
Section 3(i) hereof. Thereafter, or in the event your employment
shall be terminated by reason of your death, your benefits shall
be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms
of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
43<PAGE>
entitled under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant to
Section 3 hereof, then you shall be entitled to the benefits
provided below:
(A) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts
to which you are entitled under any compensation plan of the
Company, at the time such payments are due, except as
otherwise provided below;
(B) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company
shall pay as severance pay to you a lump sum severance
payment (together with the payments provided in paragraphs
(D), (E) and (F) below, the "Severance Payments") equal to
three (3) times the sum of (1) the greater of (a) your
annual rate of base salary in effect on the Date of
Termination or (b) your annual rate of base salary in effect
immediately prior to the change in control of the Company
and (2) the greatest of (a) the average of the last two
annual bonuses (annualized in the case of any bonus paid
with respect to a partial year) paid to you preceding the
Date of Termination, (b) the average of the last two annual
bonuses (annualized in the case of any bonus paid with
respect to a partial year) paid to you preceding such change
in control, (c) the most recent annual bonus (annualized in
the case of any bonus paid with respect to a partial year)
paid to you preceding the Date of Termination, or (d) the
most recent annual bonus (annualized in the case of any
bonus paid with respect to a partial year) paid to you
preceding such change in control;
(C) the Company shall also pay to you, within five (5)
days after any such fees or expenses are incurred, all legal
fees and expenses incurred by you as a result of or in
connection with such termination, including all such fees
and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (other than any
such fees or expenses incurred in connection with any such
claim which is determined by arbitration, in accordance with
Section 11 of this Agreement, to be frivolous) or in
connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code
to any payment or benefit provided hereunder;
(D) for a thirty-six (36) month period after such
termination, the Company shall arrange to provide you with
44<PAGE>
life, disability, accident and health insurance benefits
substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this Subsection
4(iii)(D) shall be reduced to the extent comparable benefits
are actually received by you from a subsequent employer
during the thirty-six (36) month period following your
termination, and any such benefits actually received by you
shall be reported to the Company;
(E) in addition to the retirement benefits to which
you are entitled under the Retirement Plan, any supplemental
retirement or excess benefit plan maintained by the Company
or any of its subsidiaries or any successor plans thereto
(hereinafter collectively referred to as the "Pension
Plans"), the Company shall pay you in cash a lump sum equal
to the excess of (a) the actuarial equivalent of the
retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight
life annuity commencing at age sixty-five (65) or any
earlier date, but in no event earlier than the third
anniversary of the Date of Termination, whichever annuity
the actuarial equivalent of which is greatest) which you
would have accrued under the terms of the Pension Plans
(without regard to the limitations imposed by Section
401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Code"), or any amendment to the Pension Plans made
subsequent to a change in control of the Company and on or
prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
t h ereunder), determined as if you were fully vested
thereunder and had continued to be employed by the Company
( a fter the Date of Termination) for thirty-six (36)
additional months and as if you had accumulated thirty-six
(36) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an
amount equal to the sum of the amounts determined under
clauses (1) and (2) of Section 4(iii)(B) hereof over (b) the
actuarial equivalent of the vested retirement pension
( t a king into account any early retirement subsidies
associated therewith and determined as a straight life
annuity commencing at age sixty-five (65) or any earlier
date, but in no event earlier than the Date of Termination,
whichever annuity the actuarial equivalent of which is
greatest) which you had then accrued pursuant to the
provisions of the Pension Plans. For purposes of this
Subsection, "actuarial equivalent" shall be determined using
the same actuarial assumptions utilized in determining the
amount of alternate forms of benefits under the Retirement
Plan immediately prior to the change in control of the
Company; and
(F) should you move your residence in order to pursue
other business opportunities within one (1) year of the Date
45<PAGE>
of Termination, the Company will pay you, within five (5)
days after any such expenses are incurred, an amount equal
to the expenses incurred by you in connection with such
relocation (including expenses incurred in selling your home
to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in
control of the Company) and which are not reimbursed by
another employer.
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or
before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the
Company to you payable on the fifth day after demand therefor by
the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 or Section 5 hereof
by seeking other employment or otherwise, nor, except as
specifically provided in Sections 4(iii)(D) and (F) above, shall
the amount of any payment or benefit provided for in this Section
4 or Section 5 hereof be reduced by any compensation earned by
you as the result of employment by another employer, by
retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise.
5. Certain Additional Payments by the Company.
(i) Whether or not you become entitled to payments under
this Agreement, if any of the payments or benefits received or to
be received by you in connection with a change in control of the
Company or the termination of your employment (whether pursuant
to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a
change in control of the Company or any person affiliated with
the Company or such person) (such payments or benefits, including
the Severance Payments but excluding the Gross-Up Payment, being
hereinafter referred to as the "Total Payments") will be subject
to the excise tax imposed by section 4999 of the Code or any
interest or penalties are incurred by you with respect to such
excise tax (such excise tax, together with any such interest and
penalties, being hereinafter referred to as the "Excise Tax"),
the Company shall pay to you an additional amount (the "Gross-Up
46<PAGE>
Payment") such that the net amount retained by you, after paying
any Excise Tax on the Total Payments and any federal, state and
local income and employment taxes and Excise Tax on the Gross-Up
Payment, shall be equal to the Total Payments.
(ii) For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax, (A) all of the Total Payments shall be treated as
"parachute payments" (within the meaning of section 280G(b)(2) of
the Code) unless, in the opinion of tax counsel ("Tax Counsel")
acceptable to you and selected by the accounting firm which was,
immediately prior to the change in control of the Company, the
Company's independent auditor (the "Auditor"), such payments or
benefits (in whole or in part) do not constitute parachute
payments, including by reason of section 280G(b)(4)(A) of the
Code, (B) all "excess parachute payments" (within the meaning of
section 280G(b)(1) of the Code) shall be treated as subject to
the Excise Tax unless, in the opinion of Tax Counsel, such excess
parachute payments (in whole or in part) represent reasonable
compensation for services actually rendered (within the meaning
of section 280G(b)(4)(B) of the Code) in excess of the "base
amount" (within the meaning of section 280G(b)(3) of the Code)
allocable to such reasonable compensation, or are otherwise not
subject to the Excise Tax, and (C) the value of any noncash
benefits or any deferred payment or benefit shall be determined
b y t h e Auditor 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, you shall be
deemed to pay federal income tax 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
your residence on the Date of Termination, net of the maximum
reduction in federal income taxes which could be obtained from
deduction of such state and local taxes.
(iii) In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account
hereunder at the time of the termination of your employment, you
shall repay to the Company, at the time that the amount of such
reduction in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus that
portion of the Gross-Up Payment attributable to the Excise Tax
and federal, state and local income and employment taxes imposed
on the Gross-Up Payment being repaid by you to the extent that
such repayment results in a reduction in Excise Tax and/or a
federal, state or local income or employment tax deduction) plus
interest on the amount of such repayment at 120% of the rate
provided in section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of your
employment (including by reason of any payment the existence or
amount of which cannot be determined at the time of the Gross-Up
Payment), the Company shall make an additional Gross-Up Payment
47<PAGE>
in respect of such excess (plus any interest, penalties or
additions payable by you with respect to such excess) at the time
that the amount of such excess is finally determined. You and
the Company shall each reasonably cooperate with the other in
connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax
with respect to the Total Payments.
6. Successors; Binding Agreement. (i) The Company will
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason
following a change in control of the Company, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
e x ecutors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatee or other designee or, if there is no such designee, to
your estate.
7. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the
Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon
receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
48<PAGE>
officer as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of
the State of Florida, without giving effect to the conflicts of
law principles thereof. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of
the Company under Sections 4 and 5 shall survive the expiration
of the term of this Agreement.
9. Validity. The invalidity or unenforceability or any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
11. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration conducted before a panel of three arbitrators in
the State of Florida in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
12. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter
contained herein and during the term of the Agreement supersedes
the provisions of all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
w h e t h er oral or written, by any officer, employee or
representative of any party hereto with respect to the subject
matter hereof.
13. Effective Date; Pooling. This Agreement shall become
effective as of the date set forth above. In the event that the
Company is party to an agreement with respect to a transaction
that is intended to qualify for "pooling of interests" accounting
49<PAGE>
t r eatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting
treatment, and (B) to the extent that the application of clause
(A) of this Section 13 does not preserve the availability of such
accounting treatment, then the Company shall have the unilateral
right to amend this Agreement to the extent necessary to enable
the Company s accountants to issue a "pooling" opinion with
respect to such transaction, and any such amendment shall be
effective as of the date hereof.
50<PAGE>
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
TECO Energy, Inc.
By______________________________
Name: Girard F. Anderson
Title: CEO and Chairman of the
Board
Agreed to this _______ day
of __________________, 1998.
______________________________
51<PAGE>
PRIVILEGED AND CONFIDENTIAL
July 15, 1998
__________________
__________________
__________________
Dear _____________:
TECO Energy, Inc. (the "Company") considers it essential to
the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the
Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the
possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of
key management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the
Company and in consideration of your agreement set forth in
Subsection 2(iii) hereof, the Company agrees that you shall
receive the severance benefits set forth in this letter agreement
(the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company"
(as defined in Section 2(i) hereof) (or is deemed to be
terminated subsequent to a change in control of the Company in
accordance with the second sentence of Section 3 hereof) under
the circumstances described below. This Agreement amends and
restates the letter agreement dated March 20, 1996 between you
and the Company.
14. Term of Agreement. Subject to the provisions of
Section 13 hereof, this Agreement shall commence on the date
hereof and shall continue in effect through June 30, 2000;
provided, however, that commencing on July 1, 1999 and each July
1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31
of such year, the Company shall have given notice that it does
not wish to extend this Agreement (provided that no such notice
may be given during the pendency of or within two years following
a potential change in control of the Company, as defined in
Section 2(ii) hereof); provided, further, if a change in control
of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in
52<PAGE>
effect for a period of twenty-four (24) months beyond the month
in which such change in control occurred.
15. Change in Control; Potential Change in Control. (i)
Except as provided in the second sentence of Section 3 hereof, no
benefits shall be payable hereunder unless there shall have been
a change in control of the Company, as set forth below. For
purposes of this Agreement, a "change in control of the Company"
shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company
is in fact required to comply therewith; provided, that, without
limitation, such a change in control shall be deemed to have
occurred if:
(A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
c o r p o ration owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3
u n der the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities;
(B) during any period of twenty-four (24) consecutive
months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the
stockholders of the Company was approved by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority
thereof; or
(C) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger
or consolidation resulting in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in
53<PAGE>
which no "person" (as hereinabove defined) acquires 30% or
more of the combined voting power of the Company's then
outstanding securities; or
(D) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated
t h e sale or disposition by the Company of all or
substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) t h e Company enters into an agreement, the
consummation of which would result in the occurrence of a
change in control of the Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider
taking actions which if consummated would constitute a
change in control of the Company;
(C) any person (as hereinabove defined), other than
t h e Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company (a)
is or becomes the beneficial owner, (b) discloses directly
or indirectly to the Company or publicly a plan or intention
to become the beneficial owner, or (c) makes a filing under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, with respect to securities to become the beneficial
owner, directly or indirectly, of securities representing
9.9% or more of the combined voting power of the outstanding
voting securities of the Company; or
(D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in
control of the Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change
in control of the Company, you will remain in the employ of the
Company until the earliest of (a) a date which is one (1) year
from the occurrence of such potential change in control of the
Company, (b) the termination by you of your employment after you
attain "normal retirement age" under the provisions of the TECO
Energy Group Retirement Plan or any successor thereto (the
"Retirement Plan") or by reason of Disability as defined in
Section 3(i), or (c) the date of the occurrence of a change in
control of the Company.
16. Termination Following Change in Control. If your
employment is terminated following a change in control of the
Company and during the term of this Agreement (as determined
54<PAGE>
under Section 1 hereof), other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by you without Good
Reason, then the Company shall pay you the amounts, and provide
you the benefits, described in Section 4(iii) hereof. For
purposes of this Agreement, your employment shall be deemed to
have been terminated following a change in control of the Company
by the Company without Cause or by you with Good Reason, if (i)
your employment is terminated by the Company without Cause prior
to a change in control of the Company (whether or not such a
change in control ever occurs) and such termination was at the
request or direction of a "person" (as hereinabove defined) who
has entered into an agreement with the Company the consummation
of which would constitute a change in control of the Company,
(ii) you terminate your employment for Good Reason prior to a
change in control of the Company (whether or not such a change in
control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of
such person, or (iii) your employment is terminated by the
Company without Cause or by you for Good Reason and such
termination or the circumstance or event which constitutes Good
Reason is otherwise in connection with or in anticipation of a
change in control of the Company (whether or not such a change in
control ever occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days after
written notice of termination is given you shall not have
returned to the full-time performance of your duties, your
employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason, as defined in
Subsections 3(iv) and 3(iii), respectively) after a written
demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your
duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed "willful" unless
done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you
shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together
55<PAGE>
with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct
set forth above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under the
circumstances described in the second sentence of Section 3
hereof (treating all references in paragraphs (A) through (H)
below to a "change in control of the Company" as references to a
"potential change in control of the Company"), of any one of the
following acts by the Company, or failures by the Company to act:
(A) the assignment to you of any duties inconsistent
(except in the nature of a promotion) with the position in
the Company that you held immediately prior to the change in
control of the Company or a substantial adverse alteration
in the nature or status of your position or responsibilities
or the conditions of your employment from those in effect
immediately prior to the change in control of the Company;
(B) a reduction by the Company in your annual base
salary as in effect on the date hereof or as the same may be
increased from time to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which
you were principally employed immediately prior to the date
of the change in control of the Company except for required
travel on the Company's business to an extent substantially
consistent with your present business travel obligations;
(D) the failure by the Company to pay to you any
portion of your current compensation or compensation under
any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect
any material compensation or benefit plan in which you
participate immediately prior to the change in control of
the Company unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided
and the level of your participation relative to other
participants, than existed at the time of the change in
control;
(F) the failure by the Company to continue to provide
you with benefits substantially similar to those enjoyed by
you under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which
56<PAGE>
you were participating at the time of the change in control
of the Company, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the change in control of the
Company, or the failure by the Company to provide you with
the number of paid vacation days to which you are entitled
on the basis of your years of service with the Company in
accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) t h e f ailure of the Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in Section
6 hereof; or
(H) any purported termination of your employment which
is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (iv) below (and,
if applicable, the requirements of Subsection (ii) above),
which purported termination shall not be effective for
purposes of this Agreement.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be communicated
by written Notice of Termination to the other party hereto in
accordance with Section 7 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii)
above or for any other reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (ii) above shall not be less
than thirty (30) days, and in the case of a termination pursuant
to Subsection (iii) above shall not be less than fifteen (15) nor
more than sixty (60) days, respectively, from the date such
Notice of Termination is given); provided that if within fifteen
(15) days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard to
this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
57<PAGE>
termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written
agreement of the parties or by a binding arbitration award; and
provided further that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency
of any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary)
and continue you as a participant in all compensation, benefit
and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts
paid under this Subsection are in addition to all other amounts
due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
17. Compensation Upon Termination or During Disability.
Following a change in control of the Company, as defined by
Subsection 2(i), or prior to a change in control of the Company
under the circumstances described in the second sentence of
Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following
benefits:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity due
to physical or mental illness, you shall continue to receive your
base salary at the rate in effect at the commencement of any such
period, together with all compensation payable to you under the
Company's disability plan or program or other similar plan during
such period, until this Agreement is terminated pursuant to
Section 3(i) hereof. Thereafter, or in the event your employment
shall be terminated by reason of your death, your benefits shall
be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms
of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant to
Section 3 hereof, then you shall be entitled to the benefits
provided below:
(A) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts
58<PAGE>
to which you are entitled under any compensation plan of the
Company, at the time such payments are due, except as
otherwise provided below;
(B) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company
shall pay as severance pay to you a lump sum severance
payment (together with the payments provided in paragraphs
(D), (E) and (F) below, the "Severance Payments") equal to
two (2) times the sum of (1) the greater of (a) your annual
rate of base salary in effect on the Date of Termination or
(b) your annual rate of base salary in effect immediately
prior to the change in control of the Company and (2) the
greatest of (a) the average of the last two annual bonuses
(annualized in the case of any bonus paid with respect to a
partial year) paid to you preceding the Date of Termination,
(b) the average of the last two annual bonuses (annualized
in the case of any bonus paid with respect to a partial
year) paid to you preceding such change in control, (c) the
most recent annual bonus (annualized in the case of any
bonus paid with respect to a partial year) paid to you
preceding the Date of Termination, or (d) the most recent
annual bonus (annualized in the case of any bonus paid with
respect to a partial year) paid to you preceding such change
in control;
(C) the Company shall also pay to you, within five (5)
days after any such fees or expenses are incurred, all legal
fees and expenses incurred by you as a result of or in
connection with such termination, including all such fees
and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (other than any
such fees or expenses incurred in connection with any such
claim which is determined by arbitration, in accordance with
Section 11 of this Agreement, to be frivolous) or in
connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code
to any payment or benefit provided hereunder;
(D) for a twenty-four (24) month period after such
termination, the Company shall arrange to provide you with
life, disability, accident and health insurance benefits
substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this Subsection
4(iii)(D) shall be reduced to the extent comparable benefits
are actually received by you from a subsequent employer
during the twenty-four (24) month period following your
termination, and any such benefits actually received by you
shall be reported to the Company;
(E) in addition to the retirement benefits to which
you are entitled under the Retirement Plan, any supplemental
retirement or excess benefit plan maintained by the Company
or any of its subsidiaries or any successor plans thereto
59<PAGE>
(hereinafter collectively referred to as the "Pension
Plans"), the Company shall pay you in cash a lump sum equal
to the excess of (a) the actuarial equivalent of the
retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight
life annuity commencing at age sixty-five (65) or any
earlier date, but in no event earlier than the third
anniversary of the Date of Termination, whichever annuity
the actuarial equivalent of which is greatest) which you
would have accrued under the terms of the Pension Plans
(without regard to the limitations imposed by Section
401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Code"), or any amendment to the Pension Plans made
subsequent to a change in control of the Company and on or
prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
t h ereunder), determined as if you were fully vested
thereunder and had continued to be employed by the Company
(after the Date of Termination) for twenty-four (24)
additional months and as if you had accumulated twenty-four
(24) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an
amount equal to the sum of the amounts determined under
clauses (1) and (2) of Section 4(iii)(B) hereof over (b) the
actuarial equivalent of the vested retirement pension
( t a king into account any early retirement subsidies
associated therewith and determined as a straight life
annuity commencing at age sixty-five (65) or any earlier
date, but in no event earlier than the Date of Termination,
whichever annuity the actuarial equivalent of which is
greatest) which you had then accrued pursuant to the
provisions of the Pension Plans. For purposes of this
Subsection, "actuarial equivalent" shall be determined using
the same actuarial assumptions utilized in determining the
amount of alternate forms of benefits under the Retirement
Plan immediately prior to the change in control of the
Company; and
(F) should you move your residence in order to pursue
other business opportunities within one (1) year of the Date
of Termination, the Company will pay you, within five (5)
days after any such expenses are incurred, an amount equal
to the expenses incurred by you in connection with such
relocation (including expenses incurred in selling your home
to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in
control of the Company) and which are not reimbursed by
another employer.
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or
before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the
60<PAGE>
minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the
Company to you payable on the fifth day after demand therefor by
the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor, except as specifically provided in
Sections 4 (iii)(D) and (F) above, shall the amount of any
payment or benefit provided for in this Section 4 be reduced by
any compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against any
amount claimed to be owed by you to the Company, or otherwise.
18. Limit on Severance Payments. In the event that (i) any
payment or benefit received or to be received by you in
connection with a change in control of the Company or the
termination of your employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with
the Company, any person whose actions result in a change in
control or any person affiliated with the Company or such person)
(collectively with the Severance Payments, "Total Payments")
would not be deductible (in whole or part) as a result of section
280G of the Code by the Company, an affiliate or other person
making such payment or providing such benefit and (ii) the net
amount retained by you, after paying the excise tax imposed by
section 4999 of the Code and any federal, state and local income
and employment taxes on the Total Payments, would not exceed the
net amount that would have been retained by you after the
reduction of the Severance Payments as set forth below and the
payment of any federal, state and local income and employment
taxes on the Total Payments as so reduced, the Severance Payments
shall be reduced until no portion of the Total Payments is not
deductible, or the Severance Payments are reduced to zero. For
purposes of this limitation (a) no portion of the Total Payments
the receipt or enjoyment of which you shall have effectively
waived in writing prior to the date of payment of the Severance
Payments shall be taken into account, (b) no portion of the Total
Payments shall be taken into account which in the opinion of tax
counsel selected by the Company's independent auditors and
acceptable to you does not constitute a "parachute payment"
within the meaning of section 280G(b)(2) of the Code, (c) the
Severance Payments shall be reduced only to the extent necessary
so that the Total Payments (other than those referred to in
clauses (a) or (b)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel
referred to in clause (b); and (d) the value of any non-cash
benefit or any deferred payment or benefit included in the Total
61<PAGE>
Payments 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 income
taxes on the Total Payments, you shall be deemed to pay federal
income tax at the highest marginal rate of federal income
taxation in the calendar year in which the Total Payments are to
be made and local income taxes at the highest marginal rate of
taxation in the state and locality of your residence on the Date
of Termination, net of the maximum reduction in federal income
taxes which could be obtained from deduction of such state and
local taxes.
19. Successors; Binding Agreement. (i) The Company will
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason
following a change in control of the Company, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
e x ecutors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatee or other designee or, if there is no such designee, to
your estate.
20. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the
Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon
receipt.
62<PAGE>
21. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of
the State of Florida, without giving effect to the conflicts of
law principles thereof. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of
the Company under Section 4 shall survive the expiration of the
term of this Agreement.
22. Validity. The invalidity or unenforceability or any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
23. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
24. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration conducted before a panel of three arbitrators in
the State of Florida in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
25. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter
contained herein and during the term of the Agreement supersedes
the provisions of all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
w h e t h er oral or written, by any officer, employee or
representative of any party hereto with respect to the subject
matter hereof.
26. Effective Date; Pooling. This Agreement shall become
effective as of the date set forth above. In the event that the
Company is party to an agreement with respect to a transaction
63<PAGE>
that is intended to qualify for "pooling of interests" accounting
t r eatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting
treatment, and (B) to the extent that the application of clause
(A) of this Section 13 does not preserve the availability of such
accounting treatment, then the Company shall have the unilateral
right to amend this Agreement to the extent necessary to enable
the Company s accountants to issue a "pooling" opinion with
respect to such transaction, and any such amendment shall be
effective as of the date hereof.
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
TECO Energy, Inc.
By_________________________________
Name: Girard F. Anderson
Title: CEO and Chairman of
the Board
Agreed to this _______ day
of __________________, 1998.
______________________________
64<PAGE>
PRIVILEGED AND CONFIDENTIAL
July 15, 1998
__________________
__________________
__________________
Dear _____________:
TECO Energy, Inc. (the "Company") considers it essential to
the best interests of its stockholders to foster the continuous
employment of key management personnel. In this connection, the
Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held corporations, the
possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise
among management, may result in the departure or distraction of
key management personnel to the detriment of the Company and its
stockholders.
The Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and
dedication of members of the Company's management, including
yourself, to their assigned duties without distraction in the
face of potentially disturbing circumstances arising from the
possibility of a change in control of the Company.
In order to induce you to remain in the employ of the
Company and in consideration of your agreement set forth in
Subsection 2(iii) hereof, the Company agrees that you shall
receive the severance benefits set forth in this letter agreement
(the "Agreement") in the event your employment with the Company
is terminated subsequent to a "change in control of the Company"
(as defined in Section 2(i) hereof) (or is deemed to be
terminated subsequent to a change in control of the Company in
accordance with the second sentence of Section 3 hereof) under
the circumstances described below. This Agreement amends and
restates the letter agreement dated July 19, 1994 between you and
the Company.
1. Term of Agreement. Subject to the provisions of
Section 13 hereof, this Agreement shall commence on the date
hereof and shall continue in effect through June 30, 2000;
provided, however, that commencing on July 1, 1999 and each July
1 thereafter, the term of this Agreement shall automatically be
extended for one additional year unless, not later than March 31
of such year, the Company shall have given notice that it does
not wish to extend this Agreement (provided that no such notice
may be given during the pendency of or within two years following
a potential change in control of the Company, as defined in
Section 2(ii) hereof); provided, further, if a change in control
of the Company shall have occurred during the original or
extended term of this Agreement, this Agreement shall continue in
65<PAGE>
effect for a period of twenty-four (24) months beyond the month
in which such change in control occurred.
2. Change in Control; Potential Change in Control. (i)
Except as provided in the second sentence of Section 3 hereof, no
benefits shall be payable hereunder unless there shall have been
a change in control of the Company, as set forth below. For
purposes of this Agreement, a "change in control of the Company"
shall mean a change in control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), whether or not the Company
is in fact required to comply therewith; provided, that, without
limitation, such a change in control shall be deemed to have
occurred if:
(A) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
c o r p o ration owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3
u n der the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities;
(B) during any period of twenty-four (24) consecutive
months (not including any period prior to the date of this
Agreement), individuals who at the beginning of such period
constitute the Board and any new director (other than a
director designated by a person who has entered into an
agreement with the Company to effect a transaction described
in paragraphs (A), (C) or (D) of this Section 2(i)) whose
election by the Board or nomination for election by the
stockholders of the Company was approved by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority
thereof; or
(C) there is consummated a merger or consolidation of
the Company or any direct or indirect subsidiary of the
Company with any other corporation, other than (i) a merger
or consolidation resulting in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at
least 65% of the combined voting securities of the Company
or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation or (ii) a
merger or consolidation effected to implement a
66<PAGE>
recapitalization of the Company (or similar transaction) in
which no "person" (as hereinabove defined) acquires 30% or
more of the combined voting power of the Company's then
outstanding securities; or
(D) the stockholders of the Company approve a plan of
complete liquidation of the Company or there is consummated
t h e sale or disposition by the Company of all or
substantially all of the Company's assets.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if:
(A) t h e Company enters into an agreement, the
consummation of which would result in the occurrence of a
change in control of the Company;
(B) any person (as hereinabove defined), including the
Company, publicly announces an intention to take or consider
taking actions which if consummated would constitute a
change in control of the Company;
(C) any person (as hereinabove defined), other than
t h e Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company (a)
is or becomes the beneficial owner, (b) discloses directly
or indirectly to the Company or publicly a plan or intention
to become the beneficial owner, or (c) makes a filing under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, with respect to securities to become the beneficial
owner, directly or indirectly, of securities representing
9.9% or more of the combined voting power of the outstanding
voting securities of the Company; or
(D) the Board adopts a resolution to the effect that,
for purposes of this Agreement, a potential change in
control of the Company has occurred.
(iii) You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change
in control of the Company, you will remain in the employ of the
Company until the earliest of (a) a date which is one (1) year
from the occurrence of such potential change in control of the
Company, (b) the termination by you of your employment after you
attain "normal retirement age" under the provisions of the TECO
Energy Group Retirement Plan or any successor thereto (the "
Retirement Plan") or by reason of Disability as defined in
Section 3(i), or (c) the date of the occurrence of a change in
control of the Company.
67<PAGE>
3. Termination Following Change in Control. If your
employment is terminated following a change in control of the
Company and during the term of this Agreement (as determined
under Section 1 hereof), other than (A) by the Company for Cause,
(B) by reason of death or Disability, or (C) by you without Good
Reason, then the Company shall pay you the amounts, and provide
you the benefits, described in Section 4(iii) hereof. For
purposes of this Agreement, your employment shall be deemed to
have been terminated following a change in control of the Company
by the Company without Cause or by you with Good Reason, if (i)
your employment is terminated by the Company without Cause prior
to a change in control of the Company (whether or not such a
change in control ever occurs) and such termination was at the
request or direction of a "person" (as hereinabove defined) who
has entered into an agreement with the Company the consummation
of which would constitute a change in control of the Company,
(ii) you terminate your employment for Good Reason prior to a
change in control of the Company (whether or not such a change in
control ever occurs) and the circumstance or event which
constitutes Good Reason occurs at the request or direction of
such person, or (iii) your employment is terminated by the
Company without Cause or by you for Good Reason and such
termination or the circumstance or event which constitutes Good
Reason is otherwise in connection with or in anticipation of a
change in control of the Company (whether or not such a change in
control ever occurs).
(i) Disability. If, as a result of your incapacity
due to physical or mental illness, you shall have been absent
from the full-time performance of your duties with the Company
for six (6) consecutive months, and within thirty (30) days after
written notice of termination is given you shall not have
returned to the full-time performance of your duties, your
employment may be terminated for "Disability".
(ii) Cause. Termination by the Company of your
employment for "Cause" shall mean termination upon (A) the
willful and continued failure by you to substantially perform
your duties with the Company (other than any such failure
resulting from your incapacity due to physical or mental illness
or any such actual or anticipated failure after the issuance of a
Notice of Termination by you for Good Reason, as defined in
Subsections 3(iv) and 3(iii), respectively) after a written
demand for substantial performance is delivered to you by the
Board, which demand specifically identifies the manner in which
the Board believes that you have not substantially performed your
duties, or (B) the willful engaging by you in conduct which is
demonstrably and materially injurious to the Company, monetarily
or otherwise. For purposes of this Subsection, no act, or
failure to act, on your part shall be deemed "willful" unless
done, or omitted to be done, by you not in good faith and without
reasonable belief that your action or omission was in the best
interest of the Company. Notwithstanding the foregoing, you
shall not be deemed to have been terminated for Cause unless and
until there shall have been delivered to you a copy of a
68<PAGE>
resolution duly adopted by the affirmative vote of not less than
three-quarters (3/4) of the entire membership of the Board at a
meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together
with your counsel, to be heard before the Board), finding that in
the good faith opinion of the Board you were guilty of conduct
set forth above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. "Good Reason" for termination by
you of your employment shall mean the occurrence (without your
express written consent) after any change in control of the
Company, or prior to a change in control of the Company under the
circumstances described in the second sentence of Section 3
hereof (treating all references in paragraphs (A) through (H)
below to a "change in control of the Company" as references to a
"potential change in control of the Company"), of any one of the
following acts by the Company, or failures by the Company to act:
(A) the assignment to you of any duties inconsistent
(except in the nature of a promotion) with the position in
the Company that you held immediately prior to the change in
control of the Company or a substantial adverse alteration
in the nature or status of your position or responsibilities
or the conditions of your employment from those in effect
immediately prior to the change in control of the Company;
(B) a reduction by the Company in your annual base
salary as in effect on the date hereof or as the same may be
increased from time to time;
(C) the Company's requiring you to be based more than
twenty-five (25) miles from the Company's offices at which
you were principally employed immediately prior to the date
of the change in control of the Company except for required
travel on the Company's business to an extent substantially
consistent with your present business travel obligations;
(D) the failure by the Company to pay to you any
portion of your current compensation or compensation under
any deferred compensation program of the Company, within
seven (7) days of the date such compensation is due;
(E) the failure by the Company to continue in effect
any material compensation or benefit plan in which you
participate immediately prior to the change in control of
the Company unless an equitable arrangement (embodied in an
ongoing substitute or alternative plan) has been made with
respect to such plan, or the failure by the Company to
continue your participation therein (or in such substitute
or alternative plan) on a basis not materially less
favorable, both in terms of the amount of benefits provided
and the level of your participation relative to other
participants, than existed at the time of the change in
control;
69<PAGE>
(F) the failure by the Company to continue to provide
you with benefits substantially similar to those enjoyed by
you under any of the Company's pension, life insurance,
medical, health and accident, or disability plans in which
you were participating at the time of the change in control
of the Company, the taking of any action by the Company
which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefit
enjoyed by you at the time of the change in control of the
Company, or the failure by the Company to provide you with
the number of paid vacation days to which you are entitled
on the basis of your years of service with the Company in
accordance with the Company's normal vacation policy in
effect at the time of the change in control of the Company;
(G) t h e f ailure of the Company to obtain a
satisfactory agreement from any successor to assume and
agree to perform this Agreement, as contemplated in Section
6 hereof; or
(H) any purported termination of your employment which
is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (iv) below (and,
if applicable, the requirements of Subsection (ii) above),
which purported termination shall not be effective for
purposes of this Agreement.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not
constitute consent to, or a waiver of rights with respect to, any
circumstance constituting Good Reason hereunder.
(iv) Notice of Termination. Any purported termination
of your employment by the Company or by you shall be communicated
by written Notice of Termination to the other party hereto in
accordance with Section 7 hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for
termination of your employment under the provision so indicated.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the full-time performance of
your duties during such thirty (30) day period), and (B) if your
employment is terminated pursuant to Subsection (ii) or (iii)
above or for any other reason (other than Disability), the date
specified in the Notice of Termination (which, in the case of a
termination pursuant to Subsection (ii) above shall not be less
than thirty (30) days, and in the case of a termination pursuant
to Subsection (iii) above shall not be less than fifteen (15) nor
more than sixty (60) days, respectively, from the date such
70<PAGE>
Notice of Termination is given); provided that if within fifteen
(15) days after any Notice of Termination is given, or, if later,
prior to the Date of Termination (as determined without regard to
this proviso), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which
the dispute is finally determined, either by mutual written
agreement of the parties or by a binding arbitration award; and
provided further that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith
and the party giving such notice pursues the resolution of such
dispute with reasonable diligence. Notwithstanding the pendency
of any such dispute, the Company will continue to pay you your
full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary)
and continue you as a participant in all compensation, benefit
and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts
paid under this Subsection are in addition to all other amounts
due under this Agreement and shall not be offset against or
reduce any other amounts due under this Agreement.
4. Compensation Upon Termination or During Disability.
Following a change in control of the Company, as defined by
Subsection 2(i), or prior to a change in control of the Company
under the circumstances described in the second sentence of
Section 3 hereof, upon termination of your employment or during a
period of disability you shall be entitled to the following
benefits:
(i) During any period that you fail to perform your
full-time duties with the Company as a result of incapacity due
to physical or mental illness, you shall continue to receive your
base salary at the rate in effect at the commencement of any such
period, together with all compensation payable to you under the
Company's disability plan or program or other similar plan during
such period, until this Agreement is terminated pursuant to
Section 3(i) hereof. Thereafter, or in the event your employment
shall be terminated by reason of your death, your benefits shall
be determined under the Company's retirement, insurance and other
compensation programs then in effect in accordance with the terms
of such programs.
(ii) If your employment shall be terminated by the
Company for Cause or by you other than for Good Reason, the
Company shall pay you your full base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given, plus all other amounts to which you are
entitled under any compensation plan of the Company at the time
such payments are due, and the Company shall have no further
obligations to you under this Agreement.
(iii) If your employment by the Company terminates in
a manner entitling you to benefits under this Section pursuant to
71<PAGE>
Section 3 hereof, then you shall be entitled to the benefits
provided below:
(A) the Company shall pay you your full base salary
through the Date of Termination at the rate in effect at the
time Notice of Termination is given, plus all other amounts
to which you are entitled under any compensation plan of the
Company, at the time such payments are due, except as
otherwise provided below;
(B) in lieu of any further salary payments to you for
periods subsequent to the Date of Termination, the Company
shall pay as severance pay to you a lump sum severance
payment (together with the payments provided in paragraphs
(D), (E) and (F) below, the "Severance Payments") equal to
two (2) times the sum of (1) the greater of (a) your annual
rate of base salary in effect on the Date of Termination or
(b) your annual rate of base salary in effect immediately
prior to the change in control of the Company and (2) the
greatest of (a) the average of the last two annual bonuses
(annualized in the case of any bonus paid with respect to a
partial year) paid to you preceding the Date of Termination,
(b) the average of the last two annual bonuses (annualized
in the case of any bonus paid with respect to a partial
year) paid to you preceding such change in control, (c) the
most recent annual bonus (annualized in the case of any
bonus paid with respect to a partial year) paid to you
preceding the Date of Termination, or (d) the most recent
annual bonus (annualized in the case of any bonus paid with
respect to a partial year) paid to you preceding such change
in control;
(C) the Company shall also pay to you, within five (5)
days after any such fees or expenses are incurred, all legal
fees and expenses incurred by you as a result of or in
connection with such termination, including all such fees
and expenses, if any, incurred in contesting or disputing
any such termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement (other than any
such fees or expenses incurred in connection with any such
claim which is determined by arbitration, in accordance with
Section 11 of this Agreement, to be frivolous) or in
connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code
to any payment or benefit provided hereunder;
(D) for a twenty-four (24) month period after such
termination, the Company shall arrange to provide you with
life, disability, accident and health insurance benefits
substantially similar to those which you are receiving
immediately prior to the Notice of Termination. Benefits
otherwise receivable by you pursuant to this Subsection
4(iii)(D) shall be reduced to the extent comparable benefits
are actually received by you from a subsequent employer
during the twenty-four (24) month period following your
72<PAGE>
termination, and any such benefits actually received by you
shall be reported to the Company;
(E) in addition to the retirement benefits to which
you are entitled under the Retirement Plan, any supplemental
retirement or excess benefit plan maintained by the Company
or any of its subsidiaries or any successor plans thereto
(hereinafter collectively referred to as the "Pension
Plans"), the Company shall pay you in cash a lump sum equal
to the excess of (a) the actuarial equivalent of the
retirement pension (taking into account any early retirement
subsidies associated therewith and determined as a straight
life annuity commencing at age sixty-five (65) or any
earlier date, but in no event earlier than the third
anniversary of the Date of Termination, whichever annuity
the actuarial equivalent of which is greatest) which you
would have accrued under the terms of the Pension Plans
(without regard to the limitations imposed by Section
401(a)(17) of the Internal Revenue Code of 1986, as amended
(the "Code"), or any amendment to the Pension Plans made
subsequent to a change in control of the Company and on or
prior to the Date of Termination, which amendment adversely
affects in any manner the computation of retirement benefits
t h ereunder), determined as if you were fully vested
thereunder and had continued to be employed by the Company
(after the Date of Termination) for twenty-four (24)
additional months and as if you had accumulated twenty-four
(24) additional months of compensation (for purposes of
determining your pension benefits thereunder), each in an
amount equal to the sum of the amounts determined under
clauses (1) and (2) of Section 4(iii)(B) hereof over (b) the
actuarial equivalent of the vested retirement pension
( t a king into account any early retirement subsidies
associated therewith and determined as a straight life
annuity commencing at age sixty-five (65) or any earlier
date, but in no event earlier than the Date of Termination,
whichever annuity the actuarial equivalent of which is
greatest) which you had then accrued pursuant to the
provisions of the Pension Plans. For purposes of this
Subsection, "actuarial equivalent" shall be determined using
the same actuarial assumptions utilized in determining the
amount of alternate forms of benefits under the Retirement
Plan immediately prior to the change in control of the
Company; and
(F) should you move your residence in order to pursue
other business opportunities within one (1) year of the Date
of Termination, the Company will pay you, within five (5)
days after any such expenses are incurred, an amount equal
to the expenses incurred by you in connection with such
relocation (including expenses incurred in selling your home
to the extent such expenses were customarily reimbursed by
the Company to transferred executives prior to the change in
control of the Company) and which are not reimbursed by
another employer.
73<PAGE>
(iv) Except as otherwise specifically provided in
paragraph (C) and (F) thereof, the payments provided for in
Subsection (iii) shall be made not later than the fifth day
following the Date of Termination; provided, however, that if the
amounts of such payments cannot be finally determined on or
before such day, the Company shall pay to you on such day an
estimate, as determined in good faith by the Company, of the
minimum amount of such payments and shall pay the remainder of
such payments (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code) as soon as the amount thereof
can be determined but in no event later than the thirtieth day
after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined
to have been due, such excess shall constitute a loan by the
Company to you payable on the fifth day after demand therefor by
the Company (together with interest at the rate provided in
section 1274(b)(2)(B) of the Code).
(v) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor, except as specifically provided in
Sections 4 (iii)(D) and (F) above, shall the amount of any
payment or benefit provided for in this Section 4 be reduced by
any compensation earned by you as the result of employment by
another employer, by retirement benefits, by offset against any
amount claimed to be owed by you to the Company, or otherwise.
5. Limit on Severance Payments. In the event that any
payment or benefit received or to be received by you in
connection with a change in control of the Company or the
termination of your employment (whether pursuant to the terms of
this Agreement or any other plan, arrangement or agreement with
the Company, any person whose actions result in a change in
control or any person affiliated with the Company or such person)
(collectively with the Severance Payments, "Total Payments")
would not be deductible (in whole or part) as a result of section
280G of the Code by the Company, an affiliate or other person
making such payment or providing such benefit the Severance
Payments shall be reduced until no portion of the Total Payments
is not deductible, or the Severance Payments are reduced to zero.
For purposes of this limitation (a) no portion of the Total
Payments the receipt or enjoyment of which you shall have
effectively waived in writing prior to the date of payment of the
Severance Payments shall be taken into account, (b) no portion of
the Total Payments shall be taken into account which in the
opinion of tax counsel selected by the Company's independent
auditors and acceptable to you does not constitute a "parachute
payment" within the meaning of section 280G(b)(2) of the Code,
(c) the Severance Payments shall be reduced only to the extent
necessary so that the Total Payments (other than those referred
to in clauses (a) or (b)) in their entirety constitute reasonable
compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code or are otherwise not subject to
disallowance as deductions, in the opinion of the tax counsel
referred to in clause (b); and (d) the value of any non-cash
74<PAGE>
benefit or any deferred payment or benefit included in the Total
Payments shall be determined by the Company's independent
auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code.
6. Successors; Binding Agreement. (i) The Company will
require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume
and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if
no such succession had taken place. Failure of the Company to
obtain such assumption and agreement prior to the effectiveness
of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from the Company in the same
amount and on the same terms as you would be entitled to
hereunder if you terminate your employment for Good Reason
following a change in control of the Company, except that for
purposes of implementing the foregoing, the date on which any
such succession becomes effective shall be deemed the Date of
Termination. As used in this Agreement, "Company" shall mean the
Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform
this Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
e x ecutors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatee or other designee or, if there is no such designee, to
your estate.
7. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be
in writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the respective
addresses set forth on the first page of this Agreement, provided
that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the
Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except
that notices of change of address shall be effective only upon
receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification
or discharge is agreed to in writing and signed by you and such
officer as may be specifically designated by the Board. No
waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party
75<PAGE>
shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made
by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of
the State of Florida, without giving effect to the conflicts of
law principles thereof. All references to sections of the
Exchange Act or the Code shall be deemed also to refer to any
successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding
required under federal, state or local law. The obligations of
the Company under Section 4 shall survive the expiration of the
term of this Agreement.
9. Validity. The invalidity or unenforceability or any
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which
shall remain in full force and effect.
10. Counterparts. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together will constitute one and the
same instrument.
11. Arbitration. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration conducted before a panel of three arbitrators in
the State of Florida in accordance with the rules of the American
Arbitration Association then in effect. Judgment may be entered
on the arbitrator's award in any court having jurisdiction;
provided, however, that you shall be entitled to seek specific
performance of your right to be paid until the Date of
Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
12. Entire Agreement. This Agreement sets forth the entire
agreement of the parties hereto in respect of the subject matter
contained herein and during the term of the Agreement supersedes
the provisions of all prior agreements, promises, covenants,
arrangements, communications, representations or warranties,
w h e t h er oral or written, by any officer, employee or
representative of any party hereto with respect to the subject
matter hereof.
13. Effective Date; Pooling. This Agreement shall become
effective as of the date set forth above. In the event that the
Company is party to an agreement with respect to a transaction
that is intended to qualify for "pooling of interests" accounting
t r eatment, then (A) this Agreement shall, to the extent
practicable, be interpreted so as to permit such accounting
treatment, and (B) to the extent that the application of clause
(A) of this Section 13 does not preserve the availability of such
accounting treatment, then the Company shall have the unilateral
76<PAGE>
right to amend this Agreement to the extent necessary to enable
the Company s accountants to issue a "pooling" opinion with
respect to such transaction, and any such amendment shall be
effective as of the date hereof.
If this letter sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
Sincerely,
TECO Energy, Inc.
By_________________________________
Name: Girard F. Anderson
Title: CEO and Chairman of
the Board
Agreed to this _______ day
of __________________, 1998.
______________________________
77<PAGE>
Exhibit 10.2
TECO ENERGY, INC.
1996 EQUITY INCENTIVE PLAN
1998 Amendment to Restricted Stock Agreement[s]
TECO Energy, Inc. (the "Company") and __________________ (the
"Grantee") hereby enter into this Amendment ("Amendment") to the
Restricted Stock Agreement[s] dated ____________ between the Company
and the Grantee (the "Agreement[s]") under the Company's 1996 Equity
Incentive Plan.
Section 3(e) of the Agreement[s] is hereby amended in its
entirety to read as follows:
(e) upon a Change in Control. For purposes of this
Agreement, a "Change in Control" means a change in control
of the Company of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of
Regulation 14A promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not the
Company is in fact required to comply therewith; provided,
that, without limitation, such a Change in Control shall be
deemed to have occurred if:
(1) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Exchange Act), other than
t h e Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or
a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same
proportions as their ownership of stock of the Company is or
becomes the "beneficial owner" (as defined in Rule 13d-3
u n der the Exchange Act), directly or indirectly, of
securities of the Company representing 30% or more of the
combined voting power of the Company's then outstanding
securities;
(2) d u r ing any period of twenty-four (24)
consecutive months (not including any period prior to the
date of this Agreement), individuals who at the beginning of
such period constitute the Board of Directors of the Company
and any new director (other than a director designated by a
person who has entered into an agreement with the Company to
effect a transaction described in subsections (1), (3) or
(4) of this Section 3(e)) whose election by the Board of
Directors of the Company or nomination for election by the
shareholders of the Company was approved by a vote of at
least two-thirds (2/3) of the directors then still in office
who either were directors at the beginning of such period or
whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority
thereof;
(3) there is consummated a merger or
- 84 -<PAGE>
consolidation of the Company or any direct or indirect
subsidiary of the Company with any other corporation, other
than (i) a merger or consolidation resulting in the voting
securities of the Company outstanding immediately prior
t h ereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of
the surviving entity) at least 65% of the combined voting
securities of the Company or such surviving entity or any
parent thereof outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove defined)
acquires 30% or more of the combined voting power of the
Company's then outstanding securities; or
(4) the stockholders of the Company approve a
plan of complete liquidation of the Company or there is
consummated the sale or disposition by the Company of all or
substantially all of the Company's assets.
This Amendment shall be effective as of July 15, 1998. In the
event that the Company is party to an agreement with respect to a
transaction that is intended to qualify for "pooling of interests"
accounting treatment, then (A) this Amendment shall, to the extent
practicable, be interpreted so as to permit such accounting treatment,
and (B) to the extent that the application of clause (A) above does
not preserve the availability of such accounting treatment, then the
Company shall have the unilateral right to rescind or amend this
Amendment to the extent necessary to enable the Company s accountants
to issue a pooling opinion with respect to such transaction, and any
such rescission or amendment shall be effective as of the date hereof.
TECO ENERGY, INC.
By: ________________________
R. A. Dunn
Vice President-Human Resources
_________________________
Signature of Grantee
- 85 -<PAGE>
Exhibit 10.3
TECO ENERGY, INC.
1996 EQUITY INCENTIVE PLAN
1998 Amendment to Nonstatutory Stock Options
TECO Energy, Inc. (the "Company") hereby amends all outstanding
grants to ______________ of nonstatutory stock options and limited
stock appreciation rights under the Company's 1996 Equity Incentive
Plan (including those granted under its predecessor, the 1990 Equity
Incentive Plan) as set forth below.
The first sentence of the second paragraph of Section 3, entitled
Limited Stock Appreciation Rights, is hereby amended to replace the
phrase "a cash payment" with the phrase "shares of Common Stock with a
value (based on the average of the high and low trading prices on the
New York Stock Exchange on the day prior to exercise)", so that such
Section 3 shall read as follows:
3. Limited Stock Appreciation Rights. The Company grants
to the Optionee a limited stock appreciation right (a
"Limited Right") with respect to each share subject to an
option to purchase hereunder (the "Related Option"). Upon
exercise of a Limited Right, the Related Option will
terminate, and upon exercise of a Related Option, the
corresponding Limited Right will terminate. Limited Rights
will be exercisable to the same extent and upon the same
terms as the Related Options, except that a Limited Right
may be exercised only during a 90-day period beginning on
the first day following a Change in Control, as defined
below, and if the Optionee is a Reporting Person, no Limited
Right may be exercised within six months after the date
hereof.
Upon exercise of a Limited Right, the Optionee will be
entitled to receive shares of Common Stock with a value
(based on the average of the high and low trading prices on
the New York Stock Exchange on the day prior to exercise)
equal to the excess of (i) the highest per share price paid
for shares of Common Stock in the transaction constituting a
Change in Control as described in subsections (a), (c) or
(d) below, or in the case of a Change in Control described
in subsection (b) below which does not occur in connection
with such a transaction, the average trading price of shares
of Common Stock on the New York Stock Exchange, such other
national securities exchange on which such shares are
admitted to trade or the National Association of Securities
Dealers Automated Quotation System, during the thirty-day
period ending on the date immediately preceding the Change
of Control over (ii) the exercise price per share of the
Related Option.
86 <PAGE>
For purposes of this Option, a "Change in Control"
means a change in control of the Company of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not the Company is in fact required to
comply therewith; provided, that, without limitation, such a
Change in Control shall be deemed to have occurred if:
(a) any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than the
Company, any trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the shareholders
of the Company in substantially the same proportions as
their ownership of stock of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) directly or indirectly of securities of the
Company representing 30% or more of the combined voting
power of the Company's then outstanding securities;
(b) during any period of twenty-four (24) consecutive
months (not including any period prior to the date of this
Option), individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new
director (other than a director designated by a person who
has entered into an agreement with the Company to effect a
transaction described in subsections (a), (c) or (d) of this
Section 3) whose election by the Board of Directors of the
Company or nomination for election by the shareholders of
the Company was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who either were
directors at the beginning of such period or whose election
or nomination for election was previously so approved cease
for any reason to constitute a majority thereof;
(c) the shareholders of the Company approve a merger
or consolidation of the Company with any other corporation
other than (i) a merger or consolidation which would result
i n the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the
combined voting securities of the Company or such surviving
e n t ity outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined above)
acquires 30% or more of the combined voting power of the
Company's then outstanding securities; or
(d) the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
87 <PAGE>
sale or disposition by the Company of all or substantially
all of the Company's assets.
This Amendment shall be effective as of July 15, 1998.
TECO ENERGY, INC.
By: ______________________
David E. Schwartz
Secretary
88 <PAGE>
Exhibit 12
TECO Energy, Inc.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the company's ratio of earnings to
fixed charges for the periods indicated.
Nine Months Twelve Months
Ended Ended Year Ended December 31,
Sept. 30, 1998 Sept. 30, 1998 1997 1996 1995 1994 1993
3.83x(1) 3.65x(2) 3.77x(3) 3.72x 3.48x 3.06x(4) 3.23x(5)
For the purposes of calculating these ratios, earnings consist of
income before income taxes and fixed charges. Fixed charges consist of
interest on indebtedness, amortization of debt premium, the interest
component of rentals and preferred stock dividend requirements.
(1) Includes the effect of non-recurring pretax charges totaling $25.9
million associated with write-offs at TECO Coal, TeCom and Tampa
Electric, and $.4 million pretax of merger-related costs. The effect
of these charges was to reduce the ratio of earnings to fixed charges.
Had these charges been excluded from the calculation, the ratio of
earnings to fixed charges would have been 4.15x for the nine-month
period ended Sept. 30, 1998.
(2) Includes the effect of the non-recurring pretax charges discussed in
Note 1 above and $1.9 million, pretax, of additional costs related to
the mergers completed in 1997. The effect of these charges was to
reduce the ratio of earnings to fixed charges. Had these charges been
excluded from the calculation, the ratio of earnings to fixed charges
would have been 3.91x for the 12-month period ended Sept. 30, 1998.
(3) Includes a $2.6-million pretax charge for all transactions associated
with the mergers completed in June 1997. The effect of this charge was
to reduce the ratio of earnings to fixed charges. Had this charge been
excluded from the calculation, the ratio of earnings to fixed charges
would have been 3.79x for the year ended Dec. 31, 1997.
(4) Includes the effect of a $25-million pretax restructuring charge. The
effect of this charge was to reduce the ratio of earnings to fixed
charges. Had this non-recurring charge been excluded from the
calculation, the ratio of earnings to fixed charges would have been
3.30x for the year ended Dec. 31, 1994.
(5) Includes the effect of the non-recurring $10-million pretax charge
associated with a coal pricing settlement at Tampa Electric. The
effect of this charge was to reduce the ratio of earnings to fixed
charges. Had this non-recurring charge been excluded from the
calculation, the ratio of earnings to fixed charges would have been
3.33x for the year ended Dec. 31, 1993.
89<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
F R O M THE TECO ENERGY, INC. CONSOLIDATED BALANCE SHEETS,
CONSOLIDATED STATEMENTS OF INCOME AND CONSOLIDATED STATEMENTS OF
CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000350563
<NAME> TECO Energy, Inc.
<MULTIPLIER> 1000000
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<PERIOD-TYPE> 9-mos
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,770
<OTHER-PROPERTY-AND-INVEST> 479
<TOTAL-CURRENT-ASSETS> 441
<TOTAL-DEFERRED-CHARGES> 356
<OTHER-ASSETS> 74
<TOTAL-ASSETS> 4,120
<COMMON> 132
<CAPITAL-SURPLUS-PAID-IN> 362
<RETAINED-EARNINGS> 1,088
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,582
0
0
<LONG-TERM-DEBT-NET> 1,271
<SHORT-TERM-NOTES> 60
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 203
<LONG-TERM-DEBT-CURRENT-PORT> 13
0
<CAPITAL-LEASE-OBLIGATIONS> 33
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 958
<TOT-CAPITALIZATION-AND-LIAB> 4,120
<GROSS-OPERATING-REVENUE> 1,484
<INCOME-TAX-EXPENSE> 68
<OTHER-OPERATING-EXPENSES> 1,176 <F1>
<TOTAL-OPERATING-EXPENSES> 1,176
<OPERATING-INCOME-LOSS> 308
<OTHER-INCOME-NET> (3)
<INCOME-BEFORE-INTEREST-EXPEN> 305
<TOTAL-INTEREST-EXPENSE> 78
<NET-INCOME> 182 <F2>
0
<EARNINGS-AVAILABLE-FOR-COMM> 182
<COMMON-STOCK-DIVIDENDS> 120
<TOTAL-INTEREST-ON-BONDS> 36
<CASH-FLOW-OPERATIONS> 368
<EPS-PRIMARY> 1.38<F3>
<EPS-DILUTED> 1.38<F3>
<FN>
<F1> Includes $25.9 million, pretax of non-recurring charges.
<F2> Includes $22.2 million, after tax, for gain on disposal of
discontinued operations.
<F3> Includes $.17 per share for gain on disposal of discontinued
operations and a $.13 per share charge for non-recurring
charges.
</FN> <PAGE>
</TABLE>
